<Page>
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: MARCH 31, 2002
------------------------------------------------
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: 001-11954
--------------------------------------------------------
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 April 29, 2002, 106,513,918 of the registrant's common shares of
beneficial interest are outstanding.
Page 1
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INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements: Page Number
-----------
Consolidated Balance Sheets as of
March 31, 2002 and December 31, 2001............. 3
Consolidated Statements of Income for the
Three Months Ended March 31, 2002 and
March 31, 2001................................... 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2002 and
March 31, 2001................................... 5
Notes to Consolidated Financial Statements....... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 19
Item 3. Quantitative and Qualitative Disclosures
About Market Risks............................... 32
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings................................ 32
Item 6. Exhibits and Reports on Form 8-K................. 32
Signatures ................................................. 33
Exhibit Index ................................................. 34
Page 2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VORNADO REALTY TRUST
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
(amounts in thousands, except share and per share amounts) MARCH 31, DECEMBER 31,
----------- ------------
ASSETS 2002 2001
----------- ------------
Real estate, at cost:
Land................................................................................. $ 1,500,874 $ 895,831
Buildings and improvements........................................................... 5,184,332 3,480,249
Development costs and construction in progress....................................... 303,164 258,357
Leasehold improvements and equipment................................................. 250,252 55,774
----------- ------------
Total........................................................................... 7,238,622 4,690,211
Less accumulated depreciation and amortization....................................... (592,897) (506,225)
------------ ------------
Real estate, net................................................................ 6,645,725 4,183,986
Cash and cash equivalents, including U.S. government obligations under
repurchase agreements of $17,901 and $15,235......................................... 171,200 265,584
Escrow deposits and restricted cash..................................................... 249,955 204,463
Marketable securities................................................................... 130,144 126,774
Investments and advances to partially-owned entities, including
Alexander's of $185,884 and $188,522................................................. 896,355 1,270,195
Due from Officers....................................................................... 18,151 18,197
Accounts receivable, net of allowance for doubtful accounts
of $10,124 and $8,831................................................................ 74,130 47,406
Notes and mortgage loans receivable..................................................... 313,965 258,555
Receivable arising from the straight-lining of rents.................................... 148,222 138,154
Other assets............................................................................ 282,760 264,029
----------- ------------
$ 8,930,607 $ 6,777,343
=========== ============
<Caption>
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes and mortgages payable............................................................. $ 3,970,486 $ 2,477,173
Revolving credit facility............................................................... -- --
Accounts payable and accrued expenses................................................... 178,671 179,597
Officers' compensation payable.......................................................... 9,664 6,708
Deferred leasing fee income............................................................. 11,759 11,940
Other liabilities....................................................................... 51,841 51,895
----------- ------------
Total liabilities.................................................................... 4,222,421 2,727,313
----------- ------------
Minority interest of unitholders in the Operating Partnership........................... 2,084,924 1,479,658
------------ ------------
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 and outstanding
2,314,498 and 5,520,435 shares................................................... 115,728 276,024
Series B: liquidation preference $25.00 per share; issued and outstanding
3,400,000 shares................................................................. 81,805 81,805
Series C: liquidation preference $25.00 per share; issued and outstanding
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, 105,918,233 and 99,035,023 shares...... 4,237 3,961
Additional capital................................................................... 2,420,754 2,162,512
Distributions in excess of net income................................................ (120,368) (95,647)
----------- ------------
2,613,304 2,539,803
Deferred compensation shares earned but not yet delivered............................ 38,253 38,253
Deferred compensation shares issued but not yet earned............................... (23,536) --
Accumulated other comprehensive loss................................................. (55) (2,980)
Due from officers for purchase of common shares of beneficial interest............... (4,704) (4,704)
----------- ------------
Total shareholders' equity...................................................... 2,623,262 2,570,372
----------- ------------
$ 8,930,607 $ 6,777,343
=========== ============
</Table>
See notes to consolidated financial statements.
Page 3
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VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands except per share amounts)
<Table>
<Caption>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
2002 2001
--------- ---------
Revenues:
Rentals ............................................................... $ 301,760 $ 204,718
Expense reimbursements ................................................ 37,804 35,092
Other income (including fee income
from related parties of $203 and $370) ............................ 6,760 2,800
--------- ---------
Total revenues .......................................................... 346,324 242,610
--------- ---------
Expenses:
Operating ............................................................. 127,446 99,823
Depreciation and amortization ......................................... 47,588 31,865
General and administrative ............................................ 23,467 14,808
Amortization of officer's deferred compensation expense ............... 6,875 --
Costs of acquisitions not consummated ................................. -- 5,000
--------- ---------
Total expenses .......................................................... 205,376 151,496
--------- ---------
Operating income ........................................................ 140,948 91,114
Income applicable to Alexander's ........................................ 5,568 12,304
Income from partially-owned entities .................................... 13,786 23,990
Interest and other investment income .................................... 9,643 13,473
Interest and debt expense ............................................... (58,018) (49,395)
Net gain (loss) on disposition of wholly-owned and partially-owned assets 1,531 (4,723)
Minority interest:
Perpetual preferred unit distributions ................................ (18,460) (17,326)
Minority limited partnership earnings ................................. (14,477) (9,629)
Partially-owned entities .............................................. (989) (359)
--------- ---------
Income before cumulative effect of change in accounting
principle and extraordinary item ...................................... 79,532 59,449
Cumulative effect of change in accounting principle ..................... (30,129) (4,110)
Extraordinary item ...................................................... -- 1,170
--------- ---------
Net income .............................................................. 49,403 56,509
Preferred share dividends (including accretion of issuance
expenses of $0 and $719) .............................................. (6,131) (9,673)
--------- ---------
NET INCOME applicable to common shares .................................. $ 43,272 $ 46,836
========= =========
NET INCOME PER COMMON SHARE - BASIC ..................................... $ .42 $ .54
========= =========
NET INCOME PER COMMON SHARE - DILUTED ................................... $ .40 $ .52
========= =========
DIVIDENDS PER COMMON SHARE .............................................. $ .66 $ .53
========= =========
</Table>
See notes to consolidated financial statements.
Page 4
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VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<Table>
<Caption>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 2002 2001
--------- ---------
Net income ................................................................. $ 49,403 $ 56,509
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting principle ................... 30,129 4,110
Extraordinary item .................................................... -- (1,170)
Minority interest ..................................................... 33,926 27,314
Net (gain) loss on disposition of wholly-owned and
partially-owned assets .............................................. (1,531) 4,723
Depreciation and amortization ......................................... 47,588 31,865
Amortization of Officer's deferred compensation expense ............... 6,875 --
Straight-lining of rental income ...................................... (10,068) (7,895)
Equity in income of Alexander's ....................................... (5,568) (12,304)
Equity in income of partially-owned entities .......................... (13,786) (23,990)
Changes in operating assets and liabilities ........................... (42,106) 5,215
--------- ---------
Net cash provided by operating activities .................................. 94,862 84,377
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Development costs and construction in progress ............................. (22,622) (40,577)
Investments in partially-owned entities .................................... (5,352) (13,378)
Distributions from partially-owned entities ................................ 44,219 17,163
Investment in notes and mortgage loans receivable .......................... (55,236) (10,069)
Repayment of notes and mortgage loans receivable ........................... 2,500 1,000
Cash restricted for tenant improvements .................................... (8,432) 29,095
Additions to real estate ................................................... (16,672) (27,161)
Purchases of marketable securities ......................................... -- (5,000)
Proceeds from sale of marketable securities ................................ -- 742
Real estate deposits and other ............................................. -- 1,476
--------- ---------
Net cash used in investing activities ...................................... (61,595) (46,709)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares .................................... 56,658 --
Proceeds from borrowings ................................................... -- 74,160
Repayments of borrowings ................................................... (45,090) (56,513)
Distributions to minority partners ......................................... (42,945) (27,290)
Dividends paid on common shares ............................................ (99,084) (45,191)
Dividends paid on preferred shares ......................................... (6,131) (8,972)
Exercise of stock options .................................................. 8,941 1,132
--------- ---------
Net cash used in financing activities ...................................... (127,651) (62,674)
--------- ---------
Net decrease in cash and cash equivalents .................................. (94,384) (25,006)
Cash and cash equivalents at beginning of period ........................... 265,584 136,989
--------- ---------
Cash and cash equivalents at end of period ................................. $ 171,200 $ 111,983
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest (including capitalized interest of $2,505 in 2002
and $3,570 in 2001) ..................................................... $ 56,005 $ 50,385
========= =========
NON-CASH TRANSACTIONS:
Class A units issued in acquisitions ....................................... $ 607,155 $ --
Financing assumed in acquisitions .......................................... 991,980 --
Unrealized gain on securities available for sale ........................... 2,925 677
</Table>
See notes to consolidated financial statements.
Page 5
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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 79% of the common limited partnership
interest in, the Operating Partnership at March 31, 2002. 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 March 31, 2002, the consolidated
statements of income for the three months ended March 31, 2002 and 2001 and the
consolidated statements of cash flows for the three months ended March 31, 2002
and 2001 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, 2001 as filed with
the Securities and Exchange Commission. The results of operations for the three
months ended March 31, 2002 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 entities in which the Company has a 50% or greater interest, provided
that the Company exercises control (where the Company does not exercise control,
such entities are accounted for under the equity method). All significant
intercompany amounts have been eliminated. Equity interests in partially-owned
corporate entities are accounted for under the equity method of accounting when
the Company's ownership interest is more than 20% but less than 50%. When
partially-owned investments are in partnership form, the 20% threshold may be
reduced. For all other investments, the Company uses the cost method. Equity
investments are recorded initially at cost and subsequently adjusted for the
Company's share of the net income or loss and cash contributions and
distributions to or from these entities.
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 consolidated 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
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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. SFAS No. 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 SFAS No. 133, those
changes are recognized through earnings, and accordingly, the Company has
reclassified $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.
142, GOODWILL AND OTHER INTANGIBLE ASSETS (effective January 1, 2002). SFAS
No. 142 specifies that goodwill and some intangible assets will no longer be
amortized but instead be subject to periodic impairment testing. In the first
quarter of 2002, the Company wrote-off goodwill of approximately $30,129,000
of which (i) $15,490,000 represents its share of the goodwill arising from
the Company's investment in Temperature Controlled Logistics and (ii)
$14,639,000 represents goodwill arising from the Company's acquisition of the
Hotel Pennsylvania. The write-off has been reflected as a cumulative effect
of a change in accounting principle. Earnings allocable to the minority
limited partners has been reduced by their pro-rata share of the write-off of
goodwill. Previously reported Net Income Applicable to Common Shares for the
three months ended March 31, 2001 would have been approximately $300,000
higher if such goodwill was not amortized in the prior year's quarter.
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
supersedes 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 adoption of these statements did not have a material effect on the
Company's financial statements; however under SFAS No. 144, if the Company were
to dispose of a material operating property, such property's results of
operations will have to be separately disclosed as discontinued operations in
the Company's financial statements.
Page 7
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VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. ACQUISITIONS, DISPOSITIONS AND FINANCINGS
ACQUISITIONS
CHARLES E. SMITH COMMERCIAL REALTY L.P.
On January 1, 2002, the Company completed the combination of Charles E.
Smith Commercial Realty L.P. ("CESCR") with Vornado. Prior to the combination,
Vornado owned a 34% interest in CESCR. The consideration for the remaining 66%
of CESCR was approximately $1,600,000,000, consisting of 15.6 million newly
issued Vornado Operating Partnership units (valued at $607,155,000) and
$991,980,000 of debt (66% of CESCR's total debt).
This acquisition was recorded under the purchase method of accounting. The
related purchase costs were allocated to acquired assets and assumed liabilities
using their relative fair values as of January 1, 2002 based on valuations and
other studies certain of which are not yet complete. Accordingly, the initial
valuations are subject to change as such information is finalized. The Company
believes that any such change will not be significant since the allocations were
principally to real estate.
The unaudited pro forma information set forth below presents the condensed
consolidated statements of income for the Company for the three months ended
March 31, 2001 as if the acquisition of the CESCR described above had occurred
on January 1, 2001.
<Table>
<Caption>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts) For the Three Months Ended March 31,
------------------------------------
Pro Forma
2002 2001
------------ ------------
Revenues........................................... $ 346,324 $ 337,594
============ ============
Income before cumulative effect of change in accounting
principle and extraordinary item................. $ 79,532 $ 62,205
Cumulative effect of change in accounting
principle........................................ (30,129) (4,110)
Extraordinary item................................. -- 1,170
------------ ------------
Net income......................................... 49,403 59,265
Preferred share dividends.......................... (6,131) (9,673)
------------ ------------
Net income per applicable to common shares......... $ 43,272 $ 49,592
============ ============
Net income per common share - basic................ $ .42 $ .57
============ ============
Net income per common share - diluted.............. $ .40 $ .55
============ ============
</Table>
CRYSTAL GATEWAY ONE
On March 7, 2002, the Company acquired for $55,000,000, a mortgage on a
360,000 square foot office building, which is in the Crystal City complex in
Arlington, Virginia, together with an option to purchase the property. The
Company presently owns 24 office buildings in Crystal City containing over 6.9
million square feet which it acquired on January 1, 2002, in connection with the
Company's acquisition of Charles E. Smith Commercial Realty L.P. described
above. The Company exercised its option to acquire the property from a limited
partnership, which is approximately 50% owned by Messrs. Robert H. Smith and
Robert P. Kogod, trustees of the Company, in exchange for approximately
$13,700,000 of Vornado Realty L.P. Operating Partnership units. The acquisition
of the building is expected to close within 90 days and is subject to receipt of
certain consents from third parties and other customary conditions.
Page 8
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VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DISPOSITIONS
KINZIE PARK CONDOMINIUM UNITS
In the first quarter of this year, the Company recognized a $1,531,000
gain from the sale of residential condominiums in Chicago, Illinois, which is
included in the income statement caption "net gain on disposition of
wholly-owned and partially-owned assets."
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.
FINANCINGS
On February 25, 2002, the Company sold 1,398,743 common shares based on
the closing price of $42.96 on the NYSE. The net proceeds to the Company were
approximately $57,042,000.
Page 9
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VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. INVESTMENTS AND ADVANCES TO PARTIALLY-OWNED ENTITIES
The Company's investments and advances to partially-owned entities and
income recognized from such investments are as follows:
INVESTMENTS AND ADVANCES
<Table>
<Caption>
(amounts in thousands) March 31, 2002 December 31, 2001
-------------- -----------------
Temperature Controlled Logistics.......................... $ 464,512 $ 474,862
Charles E. Smith Commercial Realty L.P. ("CESCR")(1)...... -- 347,263
Alexander's............................................... 185,884 188,522
Newkirk Joint Ventures (2)................................ 155,225 191,534
Partially-Owned Office Buildings (3)...................... 36,927 23,346
Starwood Ceruzzi Joint Ventures........................... 25,511 25,791
Park Laurel............................................... 4,445 (4,745)
Management Companies and Other............................ 23,851 23,622
----------- -----------
$ 896,355 $ 1,270,195
=========== ===========
</Table>
-----------
(1) On January 1, 2002, the Company acquired the remaining 66% of
CESCR it did not previously own. Accordingly, CESCR is
consolidated as of January 1, 2002.
(2) The Company's investment in and advances to Newkirk Joint
Ventures is comprised of:
<Table>
<Caption>
March 31, 2002 December 31, 2001
-------------- -----------------
Investments in limited partnerships.. $ 108,798 $ 145,107
Mortgages and loans receivable....... 39,511 39,511
Other ............................... 6,916 6,916
------------- -------------
Total ............................... $ 155,225 $ 191,534
============= =============
</Table>
On January 2, 2002, the Newkirk Joint Ventures' partnership
interests were merged into a master limited partnership (the
"MLP") in which the Company has a 21% interest. In conjunction
with the merger, the MLP completed a $225,000 mortgage financing
collateralized by its properties, subject to the existing first
and certain second mortgages on those properties. The loan bears
interest at LIBOR plus 5.5% with a LIBOR floor of 3% (8.5% at
March 31, 2002) and matures on January 31, 2005, with two
one-year extension options. As a result of the financing on
February 6, 2002, the MLP repaid approximately $28,200 of
existing debt and distributed approximately $37,000 to the
Company.
(3) As at March 31, 2002, includes a 20% interest in a property
which was part of the CESCR acquisition in 2002.
Page 10
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VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
INCOME
<Table>
<Caption>
For The Three Months
(amounts in thousands) Ended March 31,
----------------------
2002 2001
------- --------
Income applicable to Alexander's:
33.1% share of equity in income .......... $ 1,019 $ 7,156(1)
Interest income .......................... 2,531 3,427
Management and leasing fee income ........ 2,018 1,721
------- -------
$ 5,568 $12,304
======= =======
Temperature Controlled Logistics:
60% share of equity in net income (2) .... $ 3,807 $ 4,464
Management fee (40% of 1% per annum of
Total Combined Assets, as defined) .... 1,498 1,484
------- -------
5,305 5,948
------- -------
CESCR-34% share of equity in income ........ --(3) 7,367
------- -------
Newkirk Joint Ventures:
Equity in income of limited partnerships 5,429(4) 6,242
Interest and other income .............. 2,271 1,727
------- -------
7,700 7,969
------- -------
Partially-Owned Office Buildings (5) ....... 550 1,264
Management Companies and Other ............. 231 1,442(6)
------- -------
$13,786 $23,990
======= =======
</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) Equity in net income for the three months ended March 31, 2002,
reflects an increase in depreciation expense of $175 and a decrease in
other non-recurring income of $260 and a decrease in interest income of
$200.
(3) On January 1, 2002, the Company acquired the remaining 66% of CESCR.
Accordingly, CESCR is consolidated as of January 1, 2002.
(4) Equity in income includes a charge of $590 in connection with the
formation of the Master Limited Partnership in January 2002.
(5) 2002 includes a 20% interest in a property which was part of the
acquisition of CESCR, and does not include 570 Lexington Avenue which
was sold in May 2001.
(6) Includes $1,300 for the Company's share of the Starwood Ceruzzi Joint
Venture's gain on the sale of a property.
Page 11
<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, (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) allow AmeriCold
Logistics to defer rent to December 31, 2003 to the extent cash is not
available, as defined in the leases, to pay such rent. 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 $1,808,000 of rent it was due
for the three months ended March 31, 2002, which together with previously
deferred rent is $6,809,000.
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. Under the management and development
agreement, the Company has accrued a receivable of $1,031,000 at March 31,
2002 (of which $690,000 is recognized by the Company as income and the
balance is reflected in the "Investment" account), which under the terms of
the agreement is payable at completion of construction of Alexander's
Lexington Avenue project in 2004. The Company is also owed $1,667,000 under
the leasing agreement which is payable in 2002.
At March 31, 2002, 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. The loan and the line of
credit were extended to April 15, 2003. The interest rates on the loan and line
of credit were reset on March 15, 2002, from 13.74% to 12.48%, using a LIBOR
index (with a 3% floor) plus the same spread to treasuries as previously
existed.
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.
Page 12
<Page>
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. OTHER RELATED PARTY TRANSACTIONS
The Company currently manages and leases the real estate assets of
Interstate Properties pursuant to a management agreement. Management fees earned
by the Company pursuant to the management agreement were $203,000 and $370,000
for the three months ended March 31, 2002 and 2001.
The estate of Bernard Mendik and certain other individuals including Mr.
Greenbaum, own 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
$13,500,000 and $12,900,000 for the three months ended March 31, 2002 and 2001.
Effective January 1, 2002, the Company extended its employment agreement
with Mr. Fascitelli for a five year period through December 31, 2006. Pursuant
to the extended employment agreement, he is entitled to receive a deferred
payment on December 31, 2006 of 626,566 Vornado common shares which are valued
for compensation purposes at $27,500,000 (the value of the shares on March 8,
2002, the date the extended employment agreement was signed). The number of
shares was set by the Company's Compensation Committee in December 2001 to
achieve a value of $25,000,000 and had appreciated $2,500,000 as of March 8,
2002. The shares are being held in an irrevocable trust for the benefit of Mr.
Fascitelli and will vest on December 31, 2002. Mr. Fascitelli will also receive
regular annual cash compensation as determined by the Company's Compensation
Committee and will continue as a member of Vornado's Board. Mr. Fascitelli may
also borrow up to $20,000,000 from the Company during the term of his 2002
employment agreement reduced by $8,600,000, the amount of his outstanding loans
under his 1996 employment agreement. Each loan will bear interest, payable
quarterly, at the applicable Federal Rate on the date the loan is made and will
mature on the fifth anniversary of the loan.
Page 13
<Page>
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. INCOME PER SHARE
The following table sets forth the computation of basic and diluted income
per share:
<Table>
<Caption>
For The Three Months
Ended March 31,
------------------------------
2002 2001
------------ -----------
(amounts in thousands except per share amounts)
Numerator:
Income before cumulative effect of change in
accounting principle and extraordinary item................ $ 79,532 $ 59,449
Cumulative effect of change in accounting
principle.................................................. (30,129) (4,110)
Extraordinary item........................................... -- 1,170
------------ ----------
Net income................................................... 49,403 56,509
Preferred share dividends.................................... (6,131) (9,673)
------------ ----------
Numerator for basic and diluted income per
share - net income applicable to common shares............... $ 43,272 $ 46,836
============ ==========
Denominator:
Denominator for basic income per share - weighted
average shares............................................. 103,053 86,827
Effect of dilutive securities:
Employee stock options..................................... 3,987 2,554
Deferred compensation shares issued but not yet earned..... 177 --
Denominator for diluted income per share -
adjusted weighted average shares and
assumed conversions........................................
------------ ----------
107,217 89,381
============ ==========
INCOME PER COMMON SHARE - BASIC:
Income before cumulative effect of change in
accounting principle and extraordinary item.............. $ .71 $ .58
Cumulative effect of change in accounting
principle................................................ (.29) (.05)
Extraordinary item......................................... -- .01
------------ ----------
Net income per common share................................ $ .42 $ .54
============ ==========
INCOME PER COMMON SHARE - DILUTED:
Income before cumulative effect of change in
accounting principle and extraordinary item.............. $ .68 $ .56
Cumulative effect of change in accounting
principle............................................... (.28) (.05)
Extraordinary item......................................... -- .01
------------ ----------
Net income per common share................................ $ .40 $ .52
============ ==========
</Table>
Page 14
<Page>
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. COMPREHENSIVE INCOME
The following table sets forth the Company's comprehensive income:
<Table>
<Caption>
(amounts in thousands) For The Three Months
Ended March 31,
-------------------------
2002 2001
----------- --------
Net income applicable to common shares................. $ 43,272 $ 46,836
Adjustment to record cumulative effect of change
in accounting principle............................ -- 4,110
Other comprehensive income............................. 2,925 518
----------- --------
Comprehensive income................................... $ 46,197 $ 51,464
=========== ========
</Table>
9. COMMITMENTS AND CONTINGENCIES
At March 31, 2002, the Company's revolving credit facility had a zero
balance, and the Company utilized $80,510,000 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.
The Company carries comprehensive liability and all risk property
insurance (fire, flood, extended coverage and rental loss insurance) with
respect to its assets. The Company's all risk insurance policies in effect
before September 11, 2001 included coverage for terrorist acts, except for acts
of war. Since September 11, 2001, insurance companies are excluding terrorist
acts from coverage in all risk policies. In 2002, the Company has been unable to
obtain all risk insurance which includes coverage for terrorists acts for
policies it has renewed including the New York City Office portfolio and may not
be able to obtain such coverage for any of its other properties in the future.
In March 2002, however, the Company obtained $200 million of separate coverage
for terrorist acts for its New York City Office portfolio. Therefore, the
Company is at risk for financial loss in excess of $200 million for terrorist
acts (as defined) regarding this portfolio, which loss could be material.
The Company's debt instruments, consisting of mortgage loans secured by
its properties (which are generally non-recourse to the Company) and its
revolving credit agreement, contain customary covenants requiring the Company to
maintain insurance. There can be no assurance that the lenders under these
instruments will not take the position that an exclusion from all risk insurance
coverage for losses due to terrorist acts is a breach of these debt instruments
that allows the lenders to declare an event of default and accelerate repayment
of debt. In addition, if lenders insist on coverage for these risks, it could
adversely affect the Company's ability to finance and/or refinance its
properties and to expand its portfolio.
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)
10. SEGMENT INFORMATION
The Company has four business segments: Office, Retail, Merchandise Mart
Properties and Temperature Controlled Logistics.
<Table>
<Caption>
FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------------------------
2002 2001
----------------------------------------------------------------------- -------------------
TEMPERATURE
MERCHANDISE CONTROLLED
(AMOUNTS IN THOUSANDS) TOTAL OFFICE RETAIL MART LOGISTICS OTHER(2) TOTAL OFFICE
- ---------------------- -------- -------- -------- ------------ ------------ -------- -------- --------
Rentals............................ $301,760 $213,812 $29,070 $47,010 $ -- $11,868 $204,718 $113,860
Expense reimbursements............. 37,804 21,407 12,017 3,343 -- 1,037 35,092 19,041
Other income....................... 6,760 4,983 214 1,417 -- 146 2,800 572
-------- -------- ------- ------- ------- ------- -------- --------
Total revenues..................... 346,324 240,202 41,301 51,770 -- 13,051 242,610 133,473
-------- -------- ------- ------- ------- ------- -------- --------
Operating expenses................. 127,446 82,233 14,681 21,227 -- 9,305 99,823 55,761
Depreciation and amortization...... 47,588 34,130 3,380 6,480 -- 3,598 31,865 18,644
General and administrative......... 23,467 9,110 570 4,811 -- 8,976 14,808 3,370
Amortization of officer's deferred
compensation expense............. 6,875 -- -- -- -- 6,875 -- --
Costs of acquisitions not
consummated...................... -- -- -- -- -- -- 5,000 --
-------- -------- ------- ------- ------- ------- -------- --------
Total expenses..................... 205,376 125,473 18,631 32,518 -- 28,754 151,496 77,775
-------- -------- ------- ------- ------- ------- -------- --------
Operating income................... 140,948 114,729 22,670 19,252 -- (15,703) 91,114 55,698
Income applicable to Alexander's... 5,568 -- -- -- -- 5,568 12,304 --
Income from partially-owned
entities......................... 13,786 550 229 2 5,305(6) 7,700 23,990 8,695
Interest and other investment
income........................... 9,643 1,111 79 135 -- 8,318 13,473 2,298
Interest and debt expense.......... (58,018) (34,762) (13,693) (7,183) -- (2,380) (49,395) (16,607)
Net gain on disposition of wholly-
owned and partially-owned
assets........................... 1,531 -- -- 1,531 -- -- (4,723) --
Minority interest.................. (33,926) (32,705) (3,620) (5,905) 3,972 4,332 (27,314) (13,589)
-------- -------- ------- ------- ------- ------- -------- --------
Income before cumulative effect of
change in accounting principle
and extraordinary item........... 79,532 48,923 5,665 7,832 9,277 7,835 59,449 36,495
Cumulative effect of change in
accounting principle............. (30,129) -- -- -- (15,490) (14,639) (4,110) --
Extraordinary item................. -- -- -- -- -- -- 1,170 --
-------- -------- ------- ------- ------- ------- -------- --------
Net income......................... 49,403 48,923 5,665 7,832 (6,213) (6,804) 56,509 36,495
Cumulative effect of change in
accounting principle............. 30,129 -- -- -- 15,490 14,639 4,110 --
Extraordinary item................. -- -- -- -- -- -- (1,170) --
Minority interest.................. 33,926 32,705 3,620 5,905 (3,972) (4,332) 27,314 13,589
Interest and debt expense(4)....... 74,293 35,266 14,328 7,183 6,559 10,957 73,254 27,447
Depreciation and amortization(4)... 60,575 34,594 3,650 6,480 8,909 6,942 47,918 23,644
Straight-lining of rents(4)........ (9,039) (7,310) (429) (1,049) -- (251) (7,737) (5,955)
Other.............................. (259) (1,300) 700 (123) 464 -- (10,557) (1,590)
-------- -------- ------- ------- ------- ------- -------- --------
EBITDA(1).......................... $239,028 $142,878 $27,534 $26,228 $21,237 $21,151 $189,641 $ 93,630
======== ======== ======= ======= ======= ======= ======== ========
<Caption>
FOR THE THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
2001
-------------------------------------------------
TEMPERATURE
MERCHANDISE CONTROLLED
(AMOUNTS IN THOUSANDS) RETAIL MART LOGISTICS OTHER(2)
- ---------------------- -------- ------------ ------------ --------
Rentals............................ $28,137 $47,005 $ -- $15,716
Expense reimbursements............. 11,295 3,973 -- 783
Other income....................... 1,429 719 -- 80
------- ------- ------- -------
Total revenues..................... 40,861 51,697 -- 16,579
------- ------- ------- -------
Operating expenses................. 14,852 21,132 -- 8,078
Depreciation and amortization...... 4,463 6,442 -- 2,316
General and administrative......... 583 4,595 -- 6,260(4)
Amortization of officer's deferred
compensation expense............. -- -- -- --
Costs of acquisitions not
consummated...................... -- -- -- 5,000
------- ------- ------- -------
Total expenses..................... 19,898 32,169 -- 21,654
------- ------- ------- -------
Operating income................... 20,963 19,528 -- (5,075)
Income applicable to Alexander's... -- -- -- 12,304
Income from partially-owned
entities......................... 1,897 113 5,948 7,337
Interest and other investment
income........................... -- 663 -- 10,512
Interest and debt expense.......... (14,149) (9,669) -- (8,970)
Net gain on disposition of wholly-
owned and partially-owned
assets........................... -- -- -- (4,723)
Minority interest.................. (3,989) (3,644) (3,010) (3,082)
------- ------- ------- -------
Income before cumulative effect of
change in accounting principle
and extraordinary item........... 4,722 6,991 2,938 8,303
Cumulative effect of change in
accounting principle............. -- -- -- (4,110)
Extraordinary item................. -- -- -- 1,170
------- ------- ------- -------
Net income......................... 4,722 6,991 2,938 5,363
Cumulative effect of change in
accounting principle............. -- -- -- 4,110
Extraordinary item................. -- -- -- (1,170)
Minority interest.................. 3,989 3,644 3,010 3,082
Interest and debt expense(4)....... 14,791 9,669 6,713 14,634
Depreciation and amortization(4)... 4,727 6,442 8,408 4,697
Straight-lining of rents(4)........ (161) (1,108) -- (513)
Other.............................. (500) -- 112 (8,579)(5)
------- ------- ------- -------
EBITDA(1).......................... $27,568 $25,638 $21,181 $21,624
======= ======= ======= =======
</Table>
- ------------------------------------------------
See footnotes 1-7 on page 17.
Page 16
<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
Ended March 31,
------------------------
2002 2001
--------- -------
Hotel Pennsylvania (3)......................... $ 753 $ 5,280
Newkirk Joint Ventures:
Equity in income of limited partnerships..... 15,029 13,372
Interest and other income.................... 2,271 1,727
Alexander's.................................... 8,006 6,200
Unallocated general and administrative
expenses................................... (7,720) (7,533)
Amortization of Officer's deferred compensation
expense.................................... (6,875) --
Investment income and other.................... 9,687(7) 12,301
Costs of acquisitions not consummated.......... -- (5,000)
Write-off of investments in technology
companies.................................. -- (4,723)
--------- ---------
Total................................. $ 21,151 $21,624
========= =======
</Table>
(3) Average occupancy and REVPAR for the Hotel Pennsylvania were 49.6% and
$58 for the three months ended March 31, 2002 compared to 57.5% and $80
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) 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.
(6) Net of rent not recognized of $1,808 for the three months ended March
31, 2002.
(7) No income was recognized on the Company's loans to Primestone
Investment Partners, L.P. and Vornado Operating Company for the three
months ended March 31, 2002.
11. SUBSEQUENT EVENT
On April 30, 2002, the Company acquired 7,944,893 partnership units of
Prime Group Realty, L.P., the operating partnership of Prime Group Realty
Trust (NYSE:PGE), at a foreclosure auction. The partnership units had been
pledged to the Company as collateral for loans to Primestone Investment
Partners L.P. (Primestone). The price the Company paid for the units was
$8.35 per unit, the April 30, 2002 closing price on The New York Stock
Exchange of the PGE shares for which the partnership units are exchangeable
on a one-for-one basis. Primestone and its affiliated guarantors remain
liable for the deficiency under the loans. As previously reported, a
subsidiary of Cadim, Inc. owns a 50% participation interest in the loans to
Primestone held by the Company. Under the participation arrangement, the
Cadim affiliate has the right to acquire 50% of the partnership units that
the Company acquired at the foreclosure auction (or the PGE shares into which
they may be exchanged).
Page 17
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements contained herein constitute forward-looking
statements as such term is defined in Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. Our future results, financial condition
and business may differ materially form those expressed in these forward-looking
statements. You can find may of these statements by looking for words such as
"believes," "expects," "anticipates," "intends," "plans" or similar expressions
in this quarterly report on Form 10-Q. These forward-looking statements are
subject to numerous assumptions, risks and uncertainties. Many of the factors
that will determine these items are beyond our ability to control or predict.
Factors that may cause actual results to differ materially from those
contemplated by the forward-looking statements include, but are not limited to,
those set forth in our Annual Report on Form 10-K under "Forward-Looking
Statements." For these statements, we claim protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
OVERVIEW
Below is a summary of net income and EBITDA(1) by segment for the three
months ended March 31, 2002 and 2001. Operating results for the three months
ended March 31, 2002, reflect the Company's January 1, 2002 acquisition of
the remaining 66% of Charles E. Smith Commercial Realty ("CESCR") it did not
previously own and the resulting consolidation of CESCR's operations. See
Supplemental Information beginning on page 27 for Condensed Proforma
Operating Results for the three months ended March 31, 2001 giving effect to
the CESCR acquisition as if it had occurred on January 1, 2001. Further, the
Supplemental Information contains data regarding (ii) details of the changes
by segment in EBITDA for the three months ended March 31, 2002 compared to
the three months ended December 31, 2001 and (iii) leasing activity.
<Table>
<Caption>
(amounts in thousands) Three Months Ended March 31, 2002
-----------------------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
-------- -------- -------- ---------- ---------- ----------
Rentals....................................... $301,760 $213,812 $ 29,070 $ 47,010 $ -- $ 11,868
Expense reimbursements........................ 37,804 21,407 12,017 3,343 -- 1,037
Other income.................................. 6,760 4,983 214 1,417 -- 146
-------- -------- -------- ---------- ---------- ----------
Total revenues................................ 346,324 240,202 41,301 51,770 -- 13,051
-------- -------- -------- ---------- ---------- ----------
Operating expenses............................ 127,446 82,233 14,681 21,227 -- 9,305
Depreciation and amortization................. 47,588 34,130 3,380 6,480 -- 3,598
General and administrative.................... 23,467 9,110 570 4,811 -- 8,976
Amortization of officer's deferred
compensation expense........................ 6,875 -- -- -- -- 6,875
-------- -------- -------- ---------- ---------- ----------
Total expenses................................ 205,376 125,473 18,631 32,518 -- 28,754
-------- -------- -------- ---------- ---------- ----------
Operating income.............................. 140,948 114,729 22,670 19,252 -- (15,703)
Income applicable to Alexander's.............. 5,568 -- -- -- -- 5,568
Income from partially-owned entities.......... 13,786 550 229 2 5,305(6) 7,700
Interest and other investment income.......... 9,643 1,111 79 135 -- 8,318
Interest and debt expense..................... (58,018) (34,762) (13,693) (7,183) -- (2,380)
Net gain on disposition of wholly-owned and
partially-owned assets....................... 1,531 -- -- 1,531 -- --
Minority interest............................. (33,926) (32,705) (3,620) (5,905) 3,972 4,332
--------- -------- -------- ---------- ---------- ----------
Income before cumulative effect of change in
accounting principle and extraordinary item.. 79,532 48,923 5,665 7,832 9,277 7,835
Cumulative effect of change in accounting
principle.................................... (30,129) -- -- -- (15,490) (14,639)
Extraordinary item............................ -- -- -- -- -- --
--------- -------- -------- ---------- ---------- ----------
Net income.................................... 49,403 48,923 5,665 7,832 (6,213) (6,804)
Cumulative effect of change in accounting
principle.................................... 30,129 -- -- -- 15,490 14,639
Extraordinary item............................ -- -- -- -- -- --
Minority interest............................. 33,926 32,705 3,620 5,905 (3,972) (4,332)
Interest and debt expense(4).................. 74,293 35,266 14,328 7,183 6,559 10,957
Depreciation and amortization(4).............. 60,575 34,594 3,650 6,480 8,909 6,942
Straight-lining of rents(4)................... (9,039) (7,310) (429) (1,049) -- (251)
Other......................................... (259) (1,300) 700 (123) 464 --
--------- -------- -------- ---------- ---------- ----------
EBITDA(1)..................................... $ 239,028 $142,878 $ 27,534 $ 26,228 $ 21,237 $ 21,151
========= ======== ======== ========== ========== ==========
</Table>
Page 18
<Page>
<Table>
<Caption>
(amounts in thousands) Three Months Ended March 31, 2001
--------------------------------------------------------------------------------
Temperature
Merchandise Controlled
Total Office Retail Mart Logistics Other(2)
-------- -------- -------- ---------- ---------- ----------
Rentals......................................... $204,718 $113,860 $ 28,137 $ 47,005 $ -- $ 15,716
Expense reimbursements.......................... 35,092 19,041 11,295 3,973 -- 783
Other income.................................... 2,800 572 1,429 719 -- 80
-------- -------- -------- ---------- ---------- ----------
Total revenues.................................. 242,610 133,473 40,861 51,697 -- 16,579
-------- -------- -------- ---------- ---------- ----------
Operating expenses.............................. 99,823 55,761 14,852 21,132 -- 8,078
Depreciation and amortization................... 31,865 18,644 4,463 6,442 -- 2,316
General and administrative...................... 14,808 3,370 583 4,595 -- 6,260(4)
Costs of acquisitions not consummated........... 5,000 -- -- -- -- 5,000
-------- -------- -------- ---------- ---------- ----------
Total expenses.................................. 151,496 77,775 19,898 32,169 -- 21,654
-------- -------- -------- ---------- ---------- ----------
Operating income................................ 91,114 55,698 20,963 19,528 -- (5,075)
Income applicable to Alexander's................ 12,304 -- -- -- -- 12,304
Income from partially-owned entities............ 23,990 8,695 1,897 113 5,948 7,337
Interest and other investment income............ 13,473 2,298 -- 663 -- 10,512
Interest and debt expense....................... (49,395) (16,607) (14,149) (9,669) -- (8,970)
Net gain on disposition of wholly-owned and
partially-owned assets........................ (4,723) -- -- -- -- (4,723)
Minority interest............................... (27,314) (13,589) (3,989) (3,644) (3,010) (3,082)
--------- -------- -------- ---------- ---------- ----------
Income before cumulative effect of change in
accounting principle and extraordinary item... 59,449 36,495 4,722 6,991 2,938 8,303
Cumulative effect of change in accounting
principle..................................... (4,110) -- -- -- -- (4,110)
Extraordinary item.............................. 1,170 -- -- -- -- 1,170
-------- -------- -------- ---------- ---------- ----------
Net income...................................... 56,509 36,495 4,722 6,991 2,938 5,363
Cumulative effect of change in accounting
principle..................................... 4,110 -- -- -- -- 4,110
Extraordinary item.............................. (1,170) -- -- -- -- (1,170)
Minority interest............................... 27,314 13,589 3,989 3,644 3,010 3,082
Interest and debt expense(4).................... 73,254 27,447 14,791 9,669 6,713 14,634
Depreciation and amortization(4)................ 47,918 23,644 4,727 6,442 8,408 4,697
Straight-lining of rents(4)..................... (7,737) (5,955) (161) (1,108) -- (513)
Other........................................... (10,557) (1,590) (500) -- 112 (8,579)(5)
-------- -------- -------- ---------- ---------- ----------
EBITDA(1)....................................... $189,641 $ 93,630 $ 27,568 $ 25,638 $ 21,181 $ 21,624
======== ======== ======== ========== ========= =========
</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>
(amounts in thousands) For the Three Months
Ended March 31,
-------------------------
2002 2001
--------- -------
Hotel Pennsylvania (3)................................. $ 753 $ 5,280
Newkirk Joint Ventures:
Equity in income of limited partnerships............. 15,029 13,372
Interest and other income............................ 2,271 1,727
Other partially-owned entities (Alexander's and other). 8,006 6,200
Unallocated general and administrative expenses........ (7,720) (7,533)
Amortization of Officer's deferred compensation
expense............................................ (6,875) --
Investment income and other............................ 9,687(7) 12,301
Costs of acquisitions not consummated.................. -- (5,000)
Write-off of investments in technology companies....... -- (4,723)
--------- -----------
Total......................................... $ 21,151 $21,624
========= =======
</Table>
(3) Average occupancy and REVPAR for the Hotel Pennsylvania were 49.6% and
$58 for the three months ended March 31, 2002 compared to 57.5% and $80
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) 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.
(6) Net of rent not recognized of $1,808 for the three months ended March
31, 2002.
(7) No income was recognized on the Company's loans to Primestone
Investment Partners, L.P. and Vornado Operating Company for the three
months ended March 31, 2002.
Page 19
<Page>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001
Below are the details of the changes by segment in EBITDA.
<Table>
<Caption>
Temperature
Merchandise Controlled
(amounts in thousands) Total Office Retail Mart Logistics Other
- ---------------------- ----- ------ ------ ---- --------- -----
Three months ended March 31, 2001.... $ 189,641 $ 93,630 $ 27,568 $ 25,638 $ 21,181 $ 21,624
2002 Operations:
Same store operations(1)........ 9,024 7,099 867 1,100 56(3) (98)
Acquisitions, dispositions and
non-recurring income and
expenses..................... 40,363 42,149 (901) (510) -- (375)
---------- ---------- --------- --------- --------- --------
Three months ended March 31, 2002.... $ 239,028 $ 142,878(2) $ 27,534 $ 26,228 $ 21,237 $ 21,151
========== ============ ========= ========= ========= ========
% increase (decrease) in same
store operations.............. 4.8% 7.6%(2) 3.1% 4.3% 0.3% (0.5%)
</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 were $77,098 and 9.5% for
the New York City office portfolio and $65,780 and 1.3% 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 Vornado/Crescent Partnerships ("Landlord") restructured the
AmeriCold Logistics leases to among other things, (i) reduce 2001's
contractual rent to $146,000,000, (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) allow AmeriCold Logistics to defer rent to
December 31, 2003 to the extent cash is not available, as defined in
the leases, to pay such rent. 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 $1,808,000 of rent it was
due for the three months ended March 31, 2002, which together with
previously deferred rent is $6,809,000.
The tenant has advised the Landlord that (i) its revenue for the
current quarter ended March 31, 2002 from the warehouses it leases from
the Landlord, is lower than last year by 2.2%, and (ii) its gross
profit before rent at these warehouses for the corresponding period is
higher than last year by $367,000 (a 0.9% increase). The decrease in
revenue is primarily attributable to a reduction customer inventory
turns. The increase in gross profit is primarily attributable to lower
payroll expenses.
Page 20
<Page>
REVENUES
The Company's revenues, which consist of property rentals, tenant expense
reimbursements, hotel revenues, trade shows revenues and other income were
$346,324,000 for the three months ended March 31, 2002, compared to $242,610,000
in the prior year's quarter, an increase of $103,714,000 of which $99,715,000
resulted from the acquisition of the remaining 66% of CESCR and the resulting
consolidation of their operations. Below are the details of the increase
(decrease) by segment:
<Table>
<Caption>
(amounts in thousands)
Date of Merchandise
Acquisition Total Office Retail Mart Other
----------- -------- -------- --------- ------------- ---------
Property rentals:
Acquisitions:
CESCR (effect of acquisition of
66% and consolidation vs.
equity method accounting
for 34%).................. January 2002 $ 93,476 $93,476 $ -- $ -- $ --
715 Lexington Avenue........ July 2001 458 458 -- -- --
Hotel activity................. (3,273) -- -- -- (3,273)(1)
Trade Shows activity........... (143) -- -- (143) --
Leasing activity............... 6,524 6,018 933 148 (575)
-------- ------- --------- ----------- --------
Total increase (decrease) in
property rentals............ 97,04 99,952 933 5 (3,848)
-------- ------- --------- ----------- --------
Tenant expense reimbursements:
Increase (decrease) due to
acquisitions/dispositions... 2,383 2,383 -- -- --
Other.......................... 329 (17) 722 (630) 254
-------- ------- --------- ----------- --------
Total increase (decrease) in tenant
expense reimbursements...... 2,712 2,366 722 (630) 254
-------- ------- --------- ----------- --------
Other Income:
Increase due to
acquisitions/dispositions... 3,856 3,856 -- -- --
Other.......................... 104 555 (1,215) 698 66
-------- ------- --------- ----------- --------
Total increase (decrease) in other
income...................... 3,960 4,411 (1,215) 698 66
Total increase (decrease) in
revenues.................... $103,714 $106,729 $ 440 $ 73 $ (3,528)
======== ======== ========= =========== ========
</Table>
- ------------
(1) Average occupancy and REVPAR for the Hotel Pennsylvania were 49.6% and
$58.00 for the three months ended March 31, 2002 compared to 57.5% and
$80.00 for the prior year's quarter.
See supplemental information beginning on page 27 for further details.
Page 21
<Page>
EXPENSES
The Company's expenses were $205,376,000 for the three months ended March
31, 2002, compared to $151,496,000 in the prior year's quarter, an increase of
$53,880,000 of which $31,628,000 resulted from the acquisition of the remaining
66% of CESCR and the resulting consolidation of their operations. Below are the
details of the increase (decrease) by segment:
<Table>
<Caption>
(amounts in thousands)
Merchandise
Total Office Retail Mart Other
----- ------ ------ ---- -----
Operating:
Acquisitions:
CESCR (effect of
acquisition of 66% and
consolidation vs. equity
method accounting
for 34%)................. $ 26,974 $ 26,974 $ -- $ -- $ --
-------- --------- ------- ----------- ---------
715 Lexington Avenue.......... 258 258 -- -- --
Hotel activity................ (236) -- -- -- (236)
Trade Shows activity.......... (75) -- -- (75) --
Same store operations......... 702 (760) (171) 170 1,463
-------- --------- ------- ----------- ---------
27,623 26,472 (171) 95 1,227
-------- --------- ------- ----------- ---------
Depreciation and
amortization:
Acquisitions.................. 15,580 15,580 -- -- --
Same store operations......... 143 (94) (1,083) 38 1,282
-------- --------- ------- ----------- ---------
15,723 15,486 (1,083) 38 1,282
-------- --------- ------- ----------- ---------
General and administrative:
Depreciation in value of
Vornado shares and other
securities held in officers'
deferred compensation trust
in the three months ended
March 31, 2001................ 2,282 -- -- -- 2,282
Acquisitions.................. 5,366 5,366 -- -- --
Other expenses.................. 1,011 374 (13) 216 434
-------- --------- ------- ----------- ---------
Total increase (decrease) in
general and administrative.... 8,659 5,740 (13) 216 2,716
-------- --------- ------- ----------- ---------
Amortization of officer's
deferred compensation expense... 6,875 -- -- -- 6,875
-------- --------- ------- ----------- ---------
Costs of acquisitions not consummated (5,000) -- -- -- (5,000)
-------- --------- ------- ----------- ---------
$ 53,880 $ 47,698 $(1,267) $ 349 $ 7,100
======== ========= ======= =========== =========
</Table>
- ----------
INCOME APPLICABLE TO ALEXANDER'S
Income applicable to Alexander's (loan interest income, management,
leasing and development fees, equity in income) was $5,568,000 in the three
months ended March 31, 2002, compared to $12,304,000 in the prior year's
quarter, a decrease of $6,736,000. This decrease resulted primarily from the
Company's $6,298,000 share of Alexander's gain on the sale of its Fordham Road
property in the prior year's quarter.
Page 22
<Page>
INCOME FROM PARTIALLY-OWNED ENTITIES
In accordance with accounting principles generally accepted in the United
States, the Company reflects the income it receives from (i) entities it owns
less than 50% of and (ii) entities it owns more than 50% of, but which have a
partner who exercises significant control, on the equity method of accounting
resulting in such income appearing on one line in the Company's consolidated
statements of income. Below is the detail of income from partially-owned
entities by investment as well as the increase (decrease) in income of
partially-owned entities for the three months ended March 31, 2002 as compared
to the prior year:
<Table>
<Caption>
(amounts in thousands) Starwood
Temperature Newkirk Las Ceruzzi Partially-Owned Management
Controlled Joint Catalinas Joint Office Companies/
Total CESCR Logistics Venture Mall Venture Buildings Other
----- ----- --------- ------- ---- ------- --------- -----
MARCH 31, 2002:
Revenues................... $121,024 N/A(1) $ 33,566 $ 74,857 $ 3,392 $ -- $ 9,209 $ --
-------- ---------- -------- -------- --------- ---------- ----------
Expenses:
Operating, general and
administrative......... (12,533) N/A (1,915) (5,180) (909) (550) (3,979) --
Depreciation............. (30,915) N/A (14,816) (13,982) (531) (262) (1,324) --
Interest expense......... (43,467) N/A (10,932) (29,965) (1,043) -- (1,527) --
Other, net............... 1,115 N/A 182 -- -- 462 471 --
-------- ---------- -------- -------- --------- ---------- ----------
Net income/(loss).......... $ 35,224 N/A $ 6,085(2) $ 25,730 $ 909 $ (350) $ 2,850 $ --
======== ========== ======== ======== ========= ========== ==========
Vornado's interest......... N/A 60% 21.1% 50% 80% 19%
Equity in net income....... $ 9,861 N/A $ 3,651 $ 5,429 $ 455 $ (280) $ 550 $ 56
Interest and other income.. 2,427 N/A 156 2,271 -- -- -- --
Fee income................. 1,498 N/A 1,498 -- -- -- -- --
-------- ---------- -------- -------- --------- ---------- ----------
Income from partially-owned
entities................. $ 13,786 N/A $ 5,305 $ 7,700 $ 455 $ (280) $ 550 $ 56
======== === ========== ======== ======== ========= ========== ==========
MARCH 31, 2001:
Revenues................... $214,784 93,937 $ 34,496 $ 70,494 $ 3,091 $ 386 $ 12,380 $ --
-------- ------ ----------- -------- -------- --------- ---------- ----------
Expenses:
Operating, general and
administrative......... (43,655) (31,654) (2,232) (3,370) (704) (237) (5,458) --
Depreciation............. (43,121) (12,124) (14,642) (13,715) (516) (32) (2,092) --
Interest expense......... (75,465) (28,405) (11,416) (32,283) (1,055) -- (2,306) --
Other, net............... 1,443 (76) 639 (519) -- 1,744 565 (910)
-------- ------ ----------- -------- -------- --------- ---------- ----------
Net income/(loss).......... $ 53,986 $ 21,678 $ 6,845 $ 20,607 $ 816 $ 1,861 $ 3,089 $ (910)
======== ======== =========== ======== ======== ========= ========== ==========
Vornado's interest......... 34% 60% 30% 50% 80% 41% 50%
Equity in net income....... $ 20,423 7,367 $ 4,108 $ 6,242 $ 408 $ 1,489 $ 1,264 $ (455)
Interest and other income.. 2,083 -- 356 1,727 -- -- -- --
Fee income................. 1,484 -- 1,484 -- -- -- -- --
-------- ------ ----------- -------- -------- --------- ---------- ----------
Income from partially-owned
entities................. $ 23,990 7,367 $ 5,948 $ 7,969 $ 408 $ 1,489 $ 1,264 $ (455)
======== ====== ========== ======== ======== ========= ========== ==========
(DECREASE) INCREASE IN
INCOME OF PARTIALLY-OWNED
ENTITIES................. $(10,204) (7,367)(1) $ (643) $ (269) $ 47 $ (1,769)(3) $ (714)(4)$ 511
======== ======== =========== ======== ======== ========= ========== ==========
</Table>
- -----------
(1) On January 1, 2002, the Company acquired the remaining 66% of CESCR it
did not previously own. Accordingly, CESCR is consolidated as of
January 1, 2002.
(2) Excludes the write-off of goodwill of $25,817 upon the adoption of SFAS
142 - "Goodwill and Other Intangible Assets." The Company's share of
this write-off of $15,490 is reflected as a cumulative effect of change
in accounting principle on the Company's Consolidated Statements of
Income.
(3) The prior year's quarter includes a $1,300 for the Company's share of a
gain on sale of a property.
(4) The quarter ended March 31, 2002 excludes 570 Lexington Avenue which
was sold in May 2001.
Page 23
<Page>
INTEREST AND OTHER INVESTMENT INCOME
Interest and other investment income (interest income on mortgage loans
receivable, other interest income, dividend income and net gains and losses on
sale of marketable securities) was $9,643,000 for the three months ended March
31, 2002, compared to $13,473,000 in the prior year's quarter, a decrease of
$3,830,000. This decrease resulted primarily from the Company not recognizing
income on its loans to Primestone Investment Partners, L.P. and Vornado
Operating Company for the three months ended March 31, 2002. In the three months
ended March 31, 2001 the Company recognized income of $3,247,000 and $601,000 in
connection with these loans.
INTEREST AND DEBT EXPENSE
Interest and debt expense was $58,018,000 for the three months ended March
31, 2002, compared to $49,395,000 in the prior year's quarter, an increase of
$8,623,000. This increase was primarily comprised of (i) $25,029,000 from the
acquisition of the remaining 66% of CESCR and the resulting consolidation of
their operations, partially offset by (ii) a $11,450,000 savings from a 337
basis point reduction in weighted average interest rates of the Company's
variable rate debt and (iii) lower average outstanding debt balances.
NET GAIN (LOSS) ON DISPOSITION OF WHOLLY-OWNED AND PARTIALLY-OWNED ASSETS
Net gain on disposition of wholly-owned and partially-owned assets of
$1,531,000 for the three months ended March 31, 2002, represents a gain from the
sale of residential condominiums in Chicago, Illinois. Net loss on disposition
of assets of $4,723,000 for the three months ended March 31, 2001 relates to the
write-off of the Company's investment in a technology company.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In June 2001, the Financial Accounting Standards Board issued SFAS No.
142, GOODWILL AND OTHER INTANGIBLE ASSETS (effective January 1, 2002). SFAS No.
142 specifies that goodwill and some intangible assets will no longer be
amortized but instead be subject to periodic impairment testing. In the first
quarter of 2002, the Company wrote-off goodwill of approximately $30,129,000 of
which (i) $15,490,000 represents its share of the goodwill arising from the
Company's investment in Temperature Controlled Logistics and (ii) $14,639,000
represents goodwill arising from the Company's acquisition of the Hotel
Pennsylvania. The write-off has been reflected as a cumulative effect of a
change in accounting principle.
The Company recorded the cumulative effect of a change in accounting
principle of $4,110,000 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 reclassified $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.
EXTRAORDINARY ITEM
The Company recorded an extraordinary item of $1,170,000 in the first
quarter of 2001 representing the Company's share of Alexander's extraordinary
gain from early extinguishment of debt.
Page 24
<Page>
LIQUIDITY AND CAPITAL RESOURCES
THREE MONTHS ENDED MARCH 31, 2002
Cash flow provided by operating activities of $94,862,000 was primarily
comprised of (i) income of $49,403,000, (ii) adjustments for non-cash items of
$89,096,000, partially offset by (iii) the net change in operating assets and
liabilities of $42,106,000. The adjustments for non-cash items were primarily
comprised of (i) a cumulative effect of change in accounting principle of
$30,129,000, (ii) amortization of Officer's deferred compensation expense of
$6,875,000, (iii) depreciation and amortization of $47,588,000, (iv) minority
interest of $33,926,000, partially offset by (vi) the effect of straight-lining
of rental income of $10,068,000, and (vii) equity in net income of
partially-owned entities and income applicable to Alexander's of $19,354,000.
Net cash used in investing activities of $61,595,000 was primarily
comprised of (i) recurring capital expenditures of $11,303,000, (ii)
non-recurring capital expenditures of $5,370,000, (iii) development and
redevelopment expenditures of $22,622,000, (iv) investment in notes and
mortgages receivable of $55,236,000, (v) investments in partially-owned entities
of $5,352,000, partially offset by (v) distributions from partially-owned
entities of $44,219,000 and (vi) repayments on notes receivable of $2,500,000.
Net cash used in financing activities of $127,651,000 was primarily
comprised of (i) dividends paid on common shares of $99,084,000, (ii) dividends
paid on preferred shares of $6,131,000, (iii) distributions to minority partners
of $42,945,000, (iv) repayments of borrowings of $45,090,000, partially offset
by (v) proceeds from the issuance of common shares of $56,658,000, and (vi)
proceeds from the exercise of employee share options of $8,941,000.
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 re-lease 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>
(amounts in thousands)
New York Merchandise
Total City Office CESCR Retail Mart Other
----- ----------- ----- ------ ---- -----
Capital Expenditures:
Expenditures to maintain the assets:
Recurring......................... $ 2,128 $ 1,262 $ 159 $ 35 $ 672 $ --
Non-recurring..................... 4,387 2,032 1,925 -- 430 --
------- --------- ------- -------- ----------- ---------
6,515 3,294 2,084 35 1,102 --
------- --------- ------- -------- ----------- ---------
Tenant improvements:
Recurring......................... 9,175 2,017 5,799 773 586 --
Non-recurring..................... 983 983 -- -- -- --
------- --------- ------- -------- ----------- ---------
10,158 3,000 5,799 773 586 --
------- --------- ------- -------- ----------- ---------
Total................................ $16,673 $ 6,294 $ 7,883 $ 808 $ 1,688 $ --
======= ========= ======= ======== =========== =========
Leasing Commissions:
Recurring......................... $ 4,826 $ 2,997 $ 1,066 $ 119 $ 644 $ --
Non-recurring..................... 1,415 1,382 -- 33 -- --
------- --------- ------- -------- ----------- ---------
$ 6,241 $ 4,379 $ 1,066 $ 152 $ 644 $ --
======= ========= ======= ======== =========== =========
Total Capital Expenditures and Leasing
Commissions:
Recurring......................... $16,129 $ 6,276 $ 7,024 $ 927 $ 1,902 $ --
Non-recurring..................... 6,785 4,397 1,925 33 430 --
------- --------- ------- -------- ----------- ---------
$22,914 $ 10,673 $ 8,949 $ 960 $ 2,332 $ --
======= ========= ======= ======== =========== =========
Development and Redevelopment
Expenditures:
Palisades-Fort Lee, NJ........... $ 2,603 $ -- $ -- $ -- $ -- $ 2,603(1)
Other............................ 20,019 16,612 -- 1,761 609 1,037
------- --------- ------- -------- ----------- ---------
$22,622 $ 16,612 $ -- $ 1,761 $ 609 $ 3,640
======= ========= ======= ======== =========== =========
</Table>
- -----------
(1) Does not include $15,421 of Fort Lee development costs funded by a
construction loan.
Page 25
<Page>
THREE MONTHS ENDED MARCH 31, 2001
Cash flows provided by operating activities of $84,377,000 was primarily
comprised of (i) income of $56,509,000 and (ii) adjustments for non-cash items
of $22,653,000 partially offset by (iii) the net change in operating assets and
liabilities of $5,215,000. The adjustments for non-cash items are primarily
comprised of (i) cumulative effect of change in accounting principle of
$4,110,000, (ii) the write-off of an investment in marketable securities of
$4,723,000, (iii) depreciation and amortization of $31,865,000 and (iv) minority
interest of $27,314,000, partially offset by (v) the effect of straight-lining
of rental income of $7,895,000 and (vi) equity in net income of partially-owned
entities and income applicable to Alexander's of $36,294,000.
Net cash used in investing activities of $46,709,000 was primarily
comprised of (i) recurring capital expenditures of $14,352,000 (ii)
non-recurring capital expenditures of $12,809,000 (iii) development and
redevelopment expenditures of $40,577,000, (iv) investment in notes and
mortgages receivable of $10,069,000, (v) investments in partially-owned entities
of $13,378,000, partially offset by, (vi) distributions from partially-owned
entities of $17,163,000 and (vii) a decrease in restricted cash arising
primarily from the repayment of mortgage escrows of $29,095,000.
Net cash used in financing activities of $62,674,000 was primarily
comprised of (i) proceeds from borrowings of $74,160,000, partially offset by,
(ii) repayments of borrowings of $56,513,000, (iii) dividends paid on common
shares of $45,191,000, (iv) dividends paid on preferred shares of $8,972,000,
and (v) distributions to minority partners of $27,290,000.
Below are the details of capital expenditures, leasing commissions and
development and redevelopment expenditures.
<Table>
<Caption>
New York City Merchandise
(amounts in thousands) Total Office Retail Mart Other
----- ------ ------ ---- -----
Capital Expenditures:
Expenditures to maintain the assets:
Recurring............................... $ 4,434 $ 2,922 $ 96 $ 449 $ 967
Non-recurring........................... 12,775 6,694 -- 2,490 3,591
---------- --------- ----------- -------- --------
17,209 9,616 96 2,939 4,558
---------- --------- ----------- -------- --------
Tenant improvements:
Recurring............................... 9,918 8,573 244 1,101 --
Non-recurring........................... 34 34 -- -- --
---------- --------- ----------- -------- --------
9,952 8,607 244 1,101 --
---------- --------- ------------ -------- --------
Total..................................... $ 27,161 $ 18,223 $ 340 $ 4,040 $ 4,558
========== ========= ============ ======== ========
Leasing Commissions:
Recurring................................. $ 5,643 $ 2,769 $ 325 $ 2,414 $ 135
Non-recurring............................. 5,527 1,906 -- 3,621 --
---------- --------- ----------- -------- --------
$ 11,170 $ 4,675 $ 325 $ 6,035 $ 135
========== ========= =========== ======== ========
Development and Redevelopment:
Expenditures:
Park Laurel (80% interest).............. $ 18,286 $ -- $ -- $ -- $ 18,286
Market Square on Main Street............ 9,127 -- -- 9,127 --
Other................................... 13,164 6,165 863 -- 6,136(1)
---------- ---------- ------------ -------- --------
$ 40,577 $ 6,165 $ 863 $ 9,127 $ 24,422
=========== ========== ============ ======== ========
</Table>
- ----------
(1) Does not include $37,592 of Fort Lee development costs funded by a
construction loan.
Page 26
<Page>
SUPPLEMENTAL INFORMATION
Below is a summary of net income, EBITDA and funds from operations for the
three months ended March 31, 2002 and 2001, giving effect to the CESCR
acquisition as if it had occurred on January 1, 2001.
<Table>
<Caption>
Three Months Ended
------------------------
March 31,
March 31, 2001
2002 (Pro Forma)
---------- -----------
(amounts in thousands)
Revenues ............................................ $ 346,324 $ 337,594
========= =========
Net income .......................................... $ 49,403 $ 59,265
Preferred share dividends ........................... (6,131) (9,673)
--------- ---------
Net income applicable to common shares .............. $ 43,272 $ 49,592
========= =========
Net income per common share - diluted ............... $ .40 $ .55
========= =========
EBITDA .............................................. $ 239,028 $ 231,517
========= =========
Funds from operations(1) ............................ $ 109,246 $ 85,563
========= =========
Shares used for determining funds from operations per
share ............................................. 110,423 97,399
========= =========
</Table>
- -----------
(1) Funds from operations in the three months ended March 31, 2002, includes
(i) a $6,875 charge for one quarter's amortization in connection with the
January 1, 2002 extension of the Company's employment agreement with Mr.
Fascitelli, its President, which was valued for compensation purposes at
$27,500, and (ii) $1,531 from a gain on sale of residential condominium
units in Chicago, Illinois. Funds from operations in the three months ended
March 31, 2001, includes (i) a charge of $5,000 for the write-off of costs
associated with two acquisitions which were not consummated and (ii) a
charge of $4,723 resulting from a write-off of an equity investment in a
technology company. Funds from operations before these items and after
minority interest was $113,474 in the three months ended March 31, 2002,
compared to $94,095 in the prior year's quarter, a $19,379 increase, or
5.2% on a per share basis.
Below are the details of the changes by segment in EBITDA for the three
months ended March 31, 2002 from the three months ended December 31, 2001.
<Table>
<Caption>
Temperature
Merchandise Controlled
(amounts in thousands) Total Office Retail Mart Logistics Other
- ---------------------- ----- ------ ------ ---- --------- -----
Three months ended
December 31, 2001............... $ 202,020 $ 95,111 $ 29,731 $ 30,265 $ 19,897 27,016
2002 Operations:
Same store operations(1)........ 3,347 2,771 (955)(3) (1,987)(3) 1,340 2,178
Acquisitions, dispositions and
other non-recurring income and
expenses..................... 33,661 44,996 (1,242) (2,050) -- (8,043)
--------- ----------- ---------- --------- ---------- -------
Three months ended
March 31, 2002.................. $ 239,028 $ 142,878(2) $ 27,534 $ 26,228 $ 21,237 $21,151
========= =========== ========== ========= ========== =======
% increase (decrease) in same
store operations.............. 1.7% 2.9%(2) (3.2%)(3) (6.6)% (3) 6.7% 8.1%
</Table>
- ----------
(1) Represents operations which were owned for the same period in each year
and excludes non-recurring income and expenses.
(2) Same store percentage increase was 3.1% for the New York City office
portfolio, and 2.3% for the CESCR portfolio.
(3) Primarily due to the recognition of percentage rent and seasonal mall
store rents in the three months ended December 31, 2001 in the case of
the Retail segment and the timing of trade shows in the case of the
Merchandise Mart segment.
Page 27
<Page>
LEASING ACTIVITY
The following table sets forth certain information for the properties the
Company owns directly or indirectly, including leasing activity for space
previously occupied:
(square feet and cubic feet in thousands)
<Table>
<Caption>
Office Merchandise Mart
-------------------- ---------------------- Temperature
New York Controlled
City CESCR Retail Office Showroom Logistics
-------- -------- ------ --------- ---------- -----------
As of March 31, 2002:
Square feet .................. 14,317 13,008 11,301 2,822 5,490 17,695
Cubic feet ................... -- -- -- -- -- 445,200
Number of properties ......... 22 51 55 9 9 89
Occupancy rate ............... 97% 94% 91% 90% 95% 81%
Leasing Activity:
For the quarter ended
March 31, 2002:
Square feet .......... 121(2) 459 114 56 203 --
Rent per square foot:
Initial rent (1) ... $ 49.24 $ 31.33 $ 11.91 $ 21.09 $ 19.36 --
Prior escalated rent $ 33.00 $ 29.33 $ 8.14 $ 20.66 $ 17.90 --
Percentage increase 49% 7% 46% 2% 8% --
As of December 31, 2001:
Square feet .................. 14,300 4,386 11,301 2,840 5,532 17,695
Cubic feet ................... -- -- -- -- -- 445,200
Number of properties ......... 22 51 55 9 9 89
Occupancy rate ............... 97% 95% 92% 89% 96% 81%
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%
</Table>
- -----------
(1) Most leases include periodic step-ups in rent, which are not reflected
in the initial rent per square foot leased.
(2) In addition to the above, the Company leased 23,000 square feet of
previously vacant space (first generation space - space which has been
vacant for more than nine months) at an average initial rent per square
foot of $57.31.
Page 28
<Page>
FUNDS FROM OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
Funds from operations was $109,246,000 in the three months ended March 31,
2002, compared to $81,907,000 in the prior year's quarter, an increase of
$27,339,000. Funds from operations in the three months ended March 31, 2002,
includes (i) a $6,875,000 charge for one quarter's amortization in connection
with the January 1, 2002 extension of the Company's employment agreement with
Mr. Fascitelli, its President, which was valued for compensation purposes at
$27,500,000, and (ii) a $1,531,000 gain from the sale of residential
condominiums in Chicago, Illinois. Funds from operations in the three months
ended March 31, 2001, includes (i) a $5,000,000 charge for the write-off of
costs associated with two acquisitions which were not consummated and (ii) a
$4,723,000 charge resulting from a write-off of an equity investment in a
technology company. Funds from operations before these items and after minority
interest was $113,474,000 in the three months ended March 31, 2002, compared to
$90,439,000 in the prior year's quarter, a $23,035,000 increase over the prior
year, a 9.7% increase on a per share basis.
<Table>
<Caption>
The following table reconciles funds from operations and net income:
(amounts in thousands) For the Three Months Ended March 31,
------------------------------------
2002 2001
---- ----
Net income applicable to common shares.................................... $ 43,272 $ 46,836
Cumulative effect of a change in accounting principle..................... 30,129 4,110
Extraordinary item........................................................ -- (1,170)
Depreciation and amortization of real property............................ 45,487 31,040
Straight-lining of property rentals for rent escalations.................. (8,677) (7,254)
Leasing fees received in excess of income recognized...................... 318 (124)
Depreciation of securities held in officer's deferred compensation trust.. -- (2,283)
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...................... 12,881 16,053
Net gain on sale of real estate (Alexander's Fordham Road property). -- (6,298)
Other............................................................... (510) (489)
Minority interest in excess of preferential distributions................. (15,535) (3,936)
---------- -----------
107,365 76,485
Series A preferred shares................................................. 1,881 5,422
---------- ----------
Funds from operations--diluted (1)........................................ $ 109,246 $ 81,907
========== ==========
<Caption>
The number of shares that should be used for determining funds from
operations per share is as follows:
(amounts in thousands) For the Three Months Ended
March 31,
--------------------------
2002 2001
---- ----
Weighted average shares used for determining diluted income per share..... 107,217 89,381
Series A preferred shares............................................. 4,303 8,018
---------- ----------
Shares used for determining diluted funds from operations per share (1)... 111,520 97,399
========== ==========
</Table>
Page 29
<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 the effect of straight-lining of property
rentals for rent escalations and leasing fee income.
Below are the cash flows provided by (used in) operating, investing and
financing activities:
<Table>
<Caption>
(amounts in thousands) For the Three Months Ended March 31,
------------------------------------
2002 2001
---- ----
Operating activities................. $ 94,862 $ 84,377
=========== ===========
Investing activities................. $ (61,595) $ (46,709)
============ ============
Financing activities................. $ (127,651) $ (62,674)
============ ============
</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 months ended March 31, 2002 and 2001:
<Table>
<Caption>
For the Three Months Ended March 31,
------------------------------------
2002 2001
---- ----
Funds from operations, as above.............. $ 109,246 $ 81,907
Addback of minority interest reflected as
equity in the Operating Partnership......... 28,562 11,429
---------- ----------
Operating Partnership funds from operations.. $ 137,808 $ 93,336
========== ==========
<Caption>
The number of shares that should be used for determining Operating
Partnership funds from operations per share is as follows:
Shares used for determining diluted funds from
operations per share, as above.............. 111,520 97,399
Convertible units:
Non-Vornado owned Class A units.......... 21,388 5,823
B-1 units................................ 822 822
B-2 units................................ 411 411
C-1 units................................ 855 855
E-1 units................................ 5,680 5,680
---------- ----------
Shares used for determining Operating
Partnership diluted funds from
operations per share........................ 140,676 110,990
========== ==========
</Table>
FINANCINGS
The Company anticipates that cash from continuing operations will be
adequate to fund business operations and the payment of dividends and
distributions on an on-going basis for more than the next twelve months;
however, capital outlays for significant acquisitions would require funding from
borrowings or equity offerings.
Page 30
<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:
(amounts in thousands, except per share amounts)
<Table>
<Caption>
March 31, 2002 December 31, 2001
------------------------------------------ --------------------------
Weighted Effect of 1% Weighted
Average Change In Average
Balance Interest Rate Base Rates Balance Interest Rate
------- ------------- ---------- ------- -------------
Wholly-owned debt:
Variable rate.................. $ 1,359,097 $ 3.40% $ 12,356(1) $1,182,605 3.39%
Fixed rate..................... 2,611,389 7.19% -- 1,294,568 7.53%
------------ ------------ ----------
$ 3,970,486 5.95% 12,356 $2,477,173
============ ------------ ==========
Partially-owned debt:
Variable rate.................. $ 14,775 5.08% 148 $ 85,516 5.63%
Fixed rate..................... 774,938 8.59% -- 1,234,019 8.29%
------------ ------------ ----------
$ 789,713 8.52% 148 $1,319,535
============ ------------ ==========
Minority interest..................... (2,626)
------------
Total decrease in the
Company's annual net income......... $ 9,878
============
Per share-diluted................ $ .09
============
</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 31
<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.
The following should be read in conjunction with Item 3. Legal
Proceedings in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001.
On April 2, 2002, the Company filed a motion with the Court of Appeals
either to vacate the stay pending Primestone's appeal from the affirmance of the
Bankruptcy Court's dismissal of its bankruptcy case or to condition the
continuance of the stay on the posting of a substantial bond by Primestone. On
April 12, 2002, the Court of Appeals issued an order providing that the stay
would be lifted unless Primestone posted a $15,000,000 bond on April 17, 2002.
Primestone did not post the bond.
On April 17, 2002 Primestone filed a motion to expedite oral argument or,
alternatively, reinstate the stay pending appeal without a bond. In a telephone
conference call held by the Court of Appeals with counsel for the Company and
Primestone on April 18, counsel for the Company stated that it intended to
reschedule the foreclosure auction for April 30, 2002. Following the conference
call, the Court of Appeals issued an order scheduling oral argument on
Primestone's appeal for May 2, 2002 and denying Primestone's request to maintain
the stay pending appeal. On April 22, 2002, Primestone filed a motion seeking
clarification and modification of the April 18 order to indicate that the Court
of Appeals did not intend for Vornado to proceed with the foreclosure auction
before the Court heard oral argument on the appeal. On April 26, 2002, the Court
of Appeals denied that motion.
On April 30, 2002, the Company acquired 7,944,893 partnership units of
Prime Group Realty, L.P., the operating partnership of Prime Group Realty
Trust (NYSE:PGE), at a foreclosure auction held in New York City. The
partnership units had been pledged to the Company as collateral for loans to
Primestone Investment Partners L.P. (Primestone). The price the Company paid
for the units was $8.35 per unit, the April 30, 2002 closing price on The New
York Stock Exchange of the PGE shares for which the partnership units are
exchangeable on a one-for-one basis. Primestone and its affiliated guarantors
remain liable for the deficiency under the loans. As previously reported, a
subsidiary of Cadim, Inc. owns a 50% participation interest in the loans to
Primestone held by the Company. Under the participation arrangement, the
Cadim affiliate has the right to acquire 50% of the partnership units that
the Company acquired at the foreclosure auction (or the PGE shares into which
they may be exchanged).
If the Court of Appeals decides to reverse the dismissal of
Primestone's bankruptcy petition, that decision will not affect the rights to
the Units acquired by the Company.
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 March 31, 2002, the Company filed the
following reports on Form 8-K and Form 8-K/A:
<Table>
<Caption>
Period Covered:
(Date of Earliest
Event Reported) Items Reported Dated Filed
- --------------- -------------- -----------
January 1, 2002 Consummation of merger with Charles E. Smith Commercial January 16, 2002
Realty L.P.
January 1, 2002 Financial Statements and Pro Forma Financial Information March 18, 2002
in connection with the consummation of the merger with
Charles E. Smith Commercial Realty L.P.
February 28, 2002 Announcement of underwriting agreement with Salomon Smith March 1, 2002
Barney Inc., placement agency agreement with Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner, and Smith
Incorporated, and purchase agreement with Cohen & Steers
Quality Income Realty Fund, Inc., each relating to the
issuance of common shares.
</Table>
Page 32
<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: May 1, 2002 By: /s/ Joseph Macnow
-----------------------------------------
Joseph Macnow, Executive Vice President -
Finance and Administration and
Chief Financial Officer
Page 33
<Page>
EXHIBIT INDEX
EXHIBIT
NO.
- -------
2.1 -- Agreement and Plan of Merger, dated as of October 18,
2001, by and among Vornado, Vornado Merger Sub L.P.,
Charles E. Smith Commercial Realty L.P., Charles E. Smith
Commercial Realty L.L.C., Robert H. Smith, individually,
Robert P. Kogod, individually, and Charles E. Smith
Management, Inc. - Incorporated by reference to Exhibit
2.1 of Vornado's Current Report on Form 8-K (File No.
001-11954), filed on January 16,
2002..................................................... *
3.1 -- Amended and Restated Declaration of Trust of Vornado, as
filed with the State Department of Assessments and
Taxation of Maryland on April 16, 1993 - Incorporated by
reference to Exhibit 3(a) of Vornado's Registration
Statement on Form S-4 (File No. 33-60286), filed on April
15, 1993................................................. *
3.2 -- Articles of Amendment of Declaration of Trust of Vornado,
as filed with the State Department of Assessments and
Taxation of Maryland on May 23, 1996 - Incorporated by
reference to Exhibit 3.2 of Vornado's Annual Report on
Form 10-K for the year ended December 31, 2001 (File No.
001-11954), filed on March 11, 2002...................... *
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 3, 1997 - Incorporated by
reference to Exhibit 3.3 of Vornado's Annual Report on
Form 10-K for the year ended December 31, 2001 (File No.
1-11954), filed on March 11, 2002........................ *
3.4 -- 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.................................................. *
3.5 -- 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.................................. *
3.6 -- 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.................................................. *
3.7 -- 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.................................................. *
3.8 -- Articles of Amendment of Declaration of Trust of Vornado,
as filed with the State Department of Assessments and
Taxation of Maryland on September 14, 2000 - Incorporated
by reference to Exhibit 4.6 of Vornado's Registration
Statement on Form S-8 (File No. 333-68462), filed on
August 27, 2001......................................... *
3.9 -- 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.................................................. *
- ----------
* Incorporated by reference
Page 34
<Page>
EXHIBIT
NO.
- -------
3.10 -- Articles Supplementary Classifying Vornado's $3.25 Series
A Convertible Preferred Shares of Beneficial Interest, as
filed with the State Department of Assessments and
Taxation of Maryland on December 15, 1997 - Incorporated
by reference to Exhibit 3.10 to Vornado's Annual Report
on Form 10-K for the year ended December 31, 2001 (File
No. 001-11954), filed on March 31, 2002................. *
3.11 -- 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.... *
3.12 -- Articles Supplementary Classifying Additional Series D-1
8.5% Preferred Shares of Beneficial Interest, liquidation
preference $25.00 per share, no par value - 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..................................................... *
3.13 -- 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............ *
3.14 -- Articles Supplementary Classifying Vornado's Series C
8.5% Cumulative Redeemable Preferred Shares of Beneficial
Interest, liquidation preference $25.00 per share, no par
value - 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........................ *
3.15 -- Articles Supplementary Classifying Vornado Realty Trust's
Series D-2 8.375% Cumulative Redeemable 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 - Incorporated 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..................................................... *
3.16 -- Articles Supplementary Classifying Vornado's Series D-3
8.25% Cumulative Redeemable 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................ *
3.17 -- Articles Supplementary Classifying Vornado's Series D-4
8.25% Cumulative Redeemable 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................ *
3.18 -- Articles Supplementary Classifying Vornado's Series D-5
8.25% Cumulative Redeemable 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.............. *
3.19 -- Articles Supplementary Classifying Vornado`s Series D-6
8.25% Cumulative Redeemable 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........................... *
- ----------
* Incorporated by reference
Page 35
<Page>
3.20 -- Articles Supplementary Classifying Vornado's Series D-7
8.25% Cumulative Redeemable 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........................ *
3.21 -- Articles Supplementary Classifying Vornado's Series D-8
8.25% Cumulative Redeemable Preferred Shares -
Incorporated by reference to Exhibit 3.1 of Vornado's
Current Report on Form 8-K, dated December 8, 2000 (File
No. 001-11954), filed on December 28, 2000............... *
3.22 -- Articles Supplementary Classifying Vornado's Series D-9
8.75% 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 (File No. 001-11954), filed on October 12,
2001..................................................... *
3.23 -- 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 year
ended December 31, 1999 (File No. 001-11954), filed on
March 9, 2000............................................ *
3.24 -- Second Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, dated as of
October 20, 1997 (the "Partnership Agreement") -
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......................... *
3.25 -- Amendment to the Partnership Agreement, dated as of
December 16, 1997-Incorporated by reference to Exhibit
3.5 of Vornado's Annual Report on Form 10-K for the year
ended December 31, 1997 (File No. 001-11954) filed on
March 31, 1998........................................... *
3.26 -- Second Amendment to the Partnership Agreement, 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.................. *
3.27 -- Third Amendment to the Partnership Agreement, dated as of
November 12, 1998 - Incorporated by reference to Exhibit
3.2 of Vornado's * Incorporated Current Report on Form
8-K, dated November 12, 1998 (File No. 001-11954), filed
on November 30, 1998..................................... *
3.28 -- Fourth Amendment to the Partnership Agreement, 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......................................... *
3.29 -- Exhibit A to the Partnership Agreement, dated as of
December 22, 1998 - 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.................................................. *
3.30 -- Fifth Amendment to the Partnership Agreement, 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....... *
3.31 -- Exhibit A to the Partnership Agreement, 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............ *
3.32 -- Sixth Amendment to the Partnership Agreement, 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......... *
- ----------
* Incorporated by reference
Page 36
<Page>
3.33 -- Seventh Amendment to the Partnership Agreement, 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..................................................... *
3.34 -- Eighth Amendment to the Partnership Agreement, dated as
of May 27, 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..................................................... *
3.35 -- Ninth Amendment to the Partnership Agreement, dated as of
September 3, 1999 - Incorporated by reference to Exhibit
3.3 of Vornado's Current Report on Form 8-K (File No.
001-11954), filed on October 25, 1999.................... *
3.36 -- Tenth Amendment to the Partnership Agreement, dated as of
September 3, 1999 - Incorporated by reference to Exhibit
3.4 of Vornado's Current Report on Form 8-K, dated
September 3, 1999 (File No. 001-11954), filed on October
25, 1999................................................. *
3.37 -- Eleventh Amendment to the Partnership Agreement, 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........................................ *
3.38 -- Twelfth Amendment to the Partnership Agreement, dated as
of May 1, 2000 - Incorporated by reference to Exhibit 3.2
of Vornado's Incorporated Current Report on Form 8-K,
dated May 1, 2000 (File No. 001-11954), filed on May 19,
2000..................................................... *
3.39 -- Thirteenth Amendment to the Partnership Agreement, 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..................................................... *
3.40 -- Fourteenth Amendment to the Partnership Agreement, 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........................................ *
3.41 -- Fifteenth Amendment to the Partnership Agreement, dated
as of December 15, 2000 - Incorporated by reference to
Exhibit 4.35 of Vornado Realty Trust's Registration
Statement on Form S-8 (File No. 333-68462), filed on
August 27, 2001.......................................... *
3.42 -- Sixteenth Amendment to the Partnership Agreement, dated
as of July 25, 2001 - Incorporated by reference to
Exhibit 3.3 of Vornado Realty Trust's Current Report on
Form 8-K (File No. 001-11954), filed on October 12,
2001..................................................... *
3.43 -- Seventeenth Amendment to the Partnership Agreement, dated
as of September 21, 2001 - Incorporated by reference to
Exhibit 3.4 of Vornado Realty Trust's Current Report on
Form 8-K (File No. 001-11954), filed on October 12,
2001..................................................... *
3.44 -- Eighteenth Amendment to the Partnership Agreement, dated
as of January 1, 2002 - Incorporated by reference to
Exhibit 3.1 of Vornado's Current Report on Form 8-K (File
No. 1-11954), filed on March 18, 2002.................... *
- ----------
* Incorporated by reference
Page 37
<Page>
10.1** -- Registration Rights Agreement, dated January 1, 2002,
between Vornado and the Unit holders named therein -
Incorporated by reference to Exhibit 10.1 of Vornado's
Current Report on Form 8-K dated January 1, 2002 (File
No. 1-11954), filed on March 18, 2002.................... *
10.2** -- Registration Rights Agreement, dated January 1, 2002,
between Vornado and the Unit holders named therein -
Incorporated by reference to Exhibit 10.2 of Vornado's
Current Report on Form 8-K dated January 1, 2002 (File
No. 1-11954), filed on March 18, 2002.................... *
10.6** -- Tax Reporting and Protection Agreement, dated December
31, 2001, by and among Vornado, Vornado Realty L.P.,
Charles E. Smith Commercial Realty L.P. and Charles E.
Smith Commercial Realty L.L.C. - Incorporated by
reference to Exhibit 10.3 of Vornado's Current Report on
Form 8-K (File No. 1-11954), filed on March 18, 2002..... *
10.7** -- Employment agreement between Vornado Realty Trust and
Michael D. Fascitelli, dated March 8, 2002
- --------
* Incorporated by reference
** Management contract or compensatory plan
Page 38