Filed Pursuant to Rule 424(b)(5)
Registration No. 333-40787-01
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 11, 1998)
$500,000,000
VORNADO REALTY L.P.
5.625% NOTES DUE 2007
------------------
We are offering and selling notes that will bear interest at the rate of
5.625% per year and, unless we redeem them earlier, will mature on June 15,
2007. We may redeem some or all of the notes at any time at the redemption
prices described under the caption "Description of the Notes -- Optional
Redemption." We will pay interest on the notes on June 15 and December 15 of
each year, beginning December 15, 2002.
The notes will be unsecured and unsubordinated obligations of Vornado
Realty L.P. and will rank equally with all of Vornado Realty L.P.'s other
unsecured and unsubordinated indebtedness from time to time outstanding.
------------------
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE
S-4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
------------------
<Table>
<Caption>
PER NOTE TOTAL
-------- ------------
Public Offering Price(1) 99.856% $499,280,000
Underwriting Discount 0.600% $ 3,000,000
Proceeds to Vornado Realty L.P. (before expenses) 99.256% $496,280,000
</Table>
- ---------------
(1) Plus accrued interest from June 24, 2002, if settlement occurs after that
date.
The underwriters expect to deliver the notes to purchasers in book-entry
form only through The Depository Trust Company on or about June 24, 2002.
------------------
JOINT BOOK-RUNNING MANAGERS
SALOMON SMITH BARNEY BANC OF AMERICA SECURITIES LLC JPMORGAN
------------------
COMMERZBANK SECURITIES DEUTSCHE BANK SECURITIES
FLEET SECURITIES, INC. UBS WARBURG
BNY CAPITAL MARKETS, INC. PNC CAPITAL MARKETS, INC. WELLS FARGO BROKERAGE
SERVICES, LLC
June 19, 2002
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT, AND THE UNDERWRITERS HAVE NOT, AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. WE ARE NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN OFFER
OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD
NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE AFTER THE DATE OF THE
INFORMATION.
------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<Table>
<Caption>
PAGE
----
Cautionary Statement Regarding Forward-Looking Statements... ii
Summary..................................................... S-1
Risk Factors................................................ S-4
Vornado Realty L.P. ........................................ S-12
Recent Developments......................................... S-13
Capitalization of Vornado Realty L.P. ...................... S-14
Selected Consolidated Financial Data of Vornado Realty
L.P. ..................................................... S-15
Use of Proceeds............................................. S-17
Ratio of Earnings to Fixed Charges.......................... S-17
Management.................................................. S-17
Description of the Notes.................................... S-20
United States Federal Income Tax Considerations............. S-29
Underwriting................................................ S-31
Validity of the Notes....................................... S-32
Experts..................................................... S-32
Where You Can Find More Information......................... S-32
</Table>
PROSPECTUS
<Table>
Available Information....................................... 2
Incorporation of Certain Documents by Reference............. 3
Risk Factors................................................ 5
Vornado and the Operating Partnership....................... 12
Use of Proceeds............................................. 12
Consolidated Ratios of Earnings to Combined Fixed Charges
and Preferred Share Dividend Requirements................. 13
Description of Debt Securities.............................. 14
Description of Shares of Beneficial Interest................ 23
Federal Income Tax Considerations........................... 33
Plan of Distribution........................................ 44
Experts..................................................... 45
Validity of the Securities.................................. 46
</Table>
i
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus, including
documents incorporated by reference therein, contain certain forward-looking
statements with respect to our financial condition, results of operations and
business. These statements may be made directly in these documents or they may
be made part of these documents by reference to other documents filed by us with
the SEC, which is known as "incorporation by reference." You can find many of
these statements by looking for words such as "believes," "expects,"
"anticipates," "estimates," "intends," "plans" or similar expressions in this
prospectus supplement, the accompanying prospectus or the documents incorporated
by reference. Unless the context otherwise requires, references in this
prospectus supplement to "we," "us," "our," "Vornado," "VRLP" or "Vornado Realty
L.P." refer to Vornado Realty L.P. and its subsidiaries and not to Vornado
Realty Trust.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors that may cause actual results to differ materially
from those contemplated by the forward-looking statements include, among others,
those listed under the caption "Risk Factors" in this prospectus supplement and
the accompanying prospectus as well as the following possibilities:
- national, regional and local economic conditions;
- the continuing impact of the September 11, 2001 terrorist attacks on our
tenants and the national, regional and local economies, including, in
particular, the New York City and Washington, D.C. metropolitan areas;
- local conditions such as an oversupply of space or a reduction in demand
for real estate in the area;
- competition from other available space;
- whether tenants consider a property attractive;
- the financial condition of our tenants;
- whether we are able to pass some or all of any increased operating costs
we experience through to our tenants;
- how well we manage our properties;
- increased interest expense;
- decreases in market rental rates;
- the timing and costs associated with property improvements and rentals;
- changes in taxation or zoning laws;
- government regulations;
- Vornado Realty Trust's failure to continue to qualify as a real estate
investment trust;
- availability of financing on acceptable terms or at all;
- potential liability under environmental or other laws or regulations; and
- general competitive factors.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. Our future results, financial condition
and business may differ materially from those expressed in these forward-looking
statements. Many of the factors that will determine these items are beyond our
ability to control or predict. For these statements, we claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. You are cautioned not to place undue
reliance on our forward-looking statements, which speak only as of the date of
this prospectus supplement.
ii
All subsequent written and oral forward-looking statements attributable to
us or any person acting on our behalf are expressly qualified in their entirety
by the cautionary statements contained or referred to in this section. We do not
undertake any obligation to release publicly any revisions to our
forward-looking statements to reflect events or circumstances after the date of
this prospectus supplement to reflect the occurrence of unanticipated events.
Furthermore, many of these factors may be more likely to occur as a result of
the September 11, 2001 terrorist attacks. For more information on the
uncertainty of forward-looking statements, see "Risk Factors" in this prospectus
supplement.
iii
SUMMARY
The information below is only a summary of more detailed information
included elsewhere in or incorporated by reference in this prospectus
supplement. This summary may not contain all the information that is important
to you or that you should consider before buying notes in this offering. The
other information is important, so please read this entire prospectus supplement
and the accompanying prospectus, as well as the information incorporated by
reference, carefully.
VORNADO REALTY L.P.
Vornado Realty L.P. is the operating partnership through which Vornado
Realty Trust, a fully integrated real estate investment trust, conducts its
business and owns substantially all of its interests in properties. Vornado
Realty Trust is the sole general partner of, and owned an approximately 79%
common limited partnership interest in, Vornado Realty L.P. as of June 19, 2002.
Vornado Realty L.P. currently owns directly or indirectly all or portions
of 73 office properties in the New York City metropolitan area (primarily
Manhattan) and in the Washington, D.C. and northern Virginia area; 55 shopping
center properties in six states and Puerto Rico; the Merchandise Mart Properties
portfolio, including the Merchandise Mart in Chicago; a 60% interest in
partnerships that own 89 cold storage warehouse facilities nationwide leased to
AmeriCold Logistics; 33.1% of the outstanding common stock of Alexander's, Inc.;
the Hotel Pennsylvania in New York City; a 21.1% interest in The Newkirk Master
Limited Partnership, which owns office, retail and industrial properties
nationwide and various debt interests in those properties; eight dry
warehouse/industrial properties in New Jersey; and other real estate
investments.
Our principal executive offices are located at 888 Seventh Avenue, New
York, New York 10019, and our telephone number is (212) 894-7000.
CHARLES E. SMITH COMMERCIAL REALTY L.P. MERGER
On January 1, 2002, Vornado Realty L.P. acquired the remaining 66% of
Charles E. Smith Commercial Realty L.P. it did not previously own. The
consideration for the remaining 66% of CESCR was approximately $1,600,000,000,
consisting of 15,612,831 newly issued Vornado Realty L.P. units valued at
$608,000,000 and acquiring the assets subject to $992,000,000 of debt (66% of
CESCR's total debt). CESCR owns and manages 13.0 million square feet of office
properties in Washington, D.C. and northern Virginia and manages an additional
5.8 million square feet of office and other commercial properties in the
Washington, D.C. area.
S-1
THE OFFERING
Issuer........................ Vornado Realty L.P.
Securities Offered............ $500,000,000 principal amount of 5.625% Notes
due 2007.
Stated Maturity Date.......... The notes will mature on June 15, 2007.
Interest...................... The notes will accrue interest at a rate of
5.625% per year from June 24, 2002 until
maturity or earlier redemption, as the case may
be.
Interest Payment Dates........ June 15 and December 15 of each year,
commencing on December 15, 2002.
Optional Redemption........... We may redeem some or all of the notes at any
time at a redemption price equal to the sum of
(a) 100% of the aggregate principal amount of
the notes being redeemed, (b) accrued but
unpaid interest, if any, to the redemption date
and (c) the Make-Whole Amount (as defined in
"Description of the Notes -- Optional
Redemption"), if any.
Sinking Fund.................. None.
Ranking....................... The notes will rank equally among themselves
and with all other unsecured and unsubordinated
indebtedness of Vornado Realty L.P. from time
to time outstanding. At March 31, 2002, on a
pro forma basis after giving effect to this
offering and the application of the net
proceeds from the sale of the notes:
- Vornado Realty L.P. would have had
outstanding no unsecured and unsubordinated
indebtedness on an unconsolidated basis other
than the notes that would rank equally with
the notes; and
- subsidiaries of Vornado Realty L.P. would
have had outstanding approximately
$4,264,199,000 of Total Outstanding Debt as
defined under "Description of the
Notes -- Covenants -- Special Terms Used in
Covenants" below, which would effectively
rank senior to the notes and substantially
all of which is secured.
Vornado Realty L.P. has no secured indebtedness
other than secured indebtedness of its
subsidiaries.
Covenants..................... Under the indenture, we have agreed to certain
restrictions on incurring debt and entering
into certain transactions. See "Description of
the Notes -- Covenants" for more information
about these restrictions.
Trading....................... The notes are a new issue of securities with no
established trading market. We do not intend to
apply for listing of the notes on any
securities exchange. The underwriters have
advised us that they intend to make a market in
the notes, but they are not obligated to do so
and may discontinue market-making at any time
without notice. See "Underwriting" for more
information about possible market-making by the
underwriters.
S-2
Form and Denomination......... The notes will be issued in the form of one or
more fully registered global securities,
without coupons, in denominations of $1,000 in
principal amount and integral multiples of
$1,000. These global securities will be
deposited with the trustee as custodian for,
and registered in the name of, a nominee of
DTC. Except in the limited circumstances
described under "Description of Debt
Securities -- Book-Entry Debt Securities" in
the accompanying prospectus, notes in
certificated form will not be issued or
exchanged for interests in global securities.
Use of Proceeds............... We expect to receive aggregate net proceeds
from the sale of the notes of approximately
$496,000,000. We intend to use the net proceeds
primarily to repay amounts outstanding under
loans secured by properties of some of our
subsidiaries and also for other general
business purposes.
CUSIP......................... 929042 AA 7
RISK FACTORS
You should consider carefully all of the information contained and
incorporated by reference in this prospectus supplement and the accompanying
prospectus, including the information under the caption "Risk Factors," before
making an investment in the notes.
S-3
RISK FACTORS
An investment in the notes involves risks. You should carefully consider,
among other things, the matters described below before deciding to purchase the
notes.
YOU MAY NOT BE ABLE TO SELL YOUR NOTES.
The notes are a new issue of securities with no established trading market.
We do not intend to list the notes on any securities exchange. An active trading
market for the notes may not develop or last, in which case the trading price of
the notes could be adversely affected. If an active trading market does develop,
the notes may trade at prices higher or lower than their initial offering price.
The trading price of the notes will depend on many factors, including:
- prevailing interest rates;
- the market for similar securities;
- general economic conditions; and
- our financial condition, performance and prospects.
The underwriters have advised us that they intend to make a market in the
notes, but they are not obligated to do so and may discontinue market-making at
any time without notice.
REAL ESTATE INVESTMENTS' VALUE AND INCOME FLUCTUATE DUE TO VARIOUS FACTORS.
THE VALUE OF REAL ESTATE FLUCTUATES DEPENDING ON CONDITIONS IN THE GENERAL
ECONOMY AND THE REAL ESTATE BUSINESS. THESE CONDITIONS MAY ALSO LIMIT OUR
REVENUES AND AVAILABLE CASH.
The factors that affect the value of our real estate investments include,
among other things:
- national, regional and local economic conditions;
- the continuing impact of the September 11, 2001 terrorist attacks on our
tenants and the national, regional and local economies, including, in
particular, the New York City and Washington, D.C. metropolitan areas;
- local conditions such as an oversupply of space or a reduction in demand
for real estate in the area;
- competition from other available space;
- whether tenants consider a property attractive;
- the financial condition of our tenants;
- whether we are able to pass some or all of any increased operating costs
we experience through to tenants;
- how well we manage our properties;
- increased interest expense;
- decreases in market rental rates;
- the timing and costs associated with property improvements and rentals;
- changes in taxation or zoning laws;
- government regulations;
- availability of financing on acceptable terms or at all;
- potential liability under environmental or other laws or regulations; and
- general competitive factors.
S-4
The rents we receive and the occupancy levels at our properties may decline
as a result of adverse changes in any of these factors. In addition, the
September 11, 2001 terrorist attacks that occurred in New York City and the
Washington, D.C. area may increase the likelihood, or expedite the occurrence
of, one or more of these important factors. If our rental revenues decline, we
generally would expect to have less cash available to pay interest on and
principal of the notes. In addition, some of our major expenses, including
mortgage payments, real estate taxes and maintenance costs, generally do not
decline when the related rents decline. If rents decline while costs remain the
same, our income and funds available to pay interest on and principal of the
notes would decline.
WE DEPEND ON LEASING SPACE TO TENANTS ON ECONOMICALLY FAVORABLE TERMS AND
COLLECTING RENT FROM OUR TENANTS, WHO MAY NOT BE ABLE TO PAY.
Our financial results depend on leasing space in our properties to tenants
on economically favorable terms. In addition, because substantially all of our
income comes from rentals of real property, our income and funds available to
pay interest on and principal of the notes will decrease if a significant number
of our tenants cannot pay their rent. If a tenant does not pay its rent, we
might not be able to enforce our rights as landlord without delays and might
incur substantial legal costs. For information regarding the bankruptcy of our
tenants, see "-- Bankruptcy of tenants may decrease our revenues and available
cash" below.
BANKRUPTCY OF TENANTS MAY DECREASE OUR REVENUES AND AVAILABLE CASH.
A number of companies, including some of our tenants, have declared
bankruptcy in recent years, and other tenants may declare bankruptcy or become
insolvent in the future. If a major tenant declares bankruptcy or becomes
insolvent, the rental property where it leases space may have lower revenues and
operational difficulties, and, in the case of our shopping centers, we may have
difficulty leasing the remainder of the affected property. Our leases generally
do not contain restrictions designed to ensure the creditworthiness of our
tenants. As a result, the bankruptcy or insolvency of a major tenant could
result in a lower level of funds from operations available to pay interest on
and principal of the notes.
For information relating to the increased risk of bankruptcy of our tenants
as a result of the events of September 11, 2001, see "-- Although the Terrorist
Attacks of September 11, 2001 in New York City and the Washington, D.C. Area Did
Not Physically Damage Our Properties, Those Attacks May Adversely Affect the
Value of Our Properties and Our Ability to Generate Cash Flow -- Some of our
tenants may be more likely to declare bankruptcy as a result of the terrorist
attacks" below.
SOME OF OUR POTENTIAL LOSSES MAY NOT BE COVERED BY INSURANCE.
We carry comprehensive liability and all risk property insurance (fire,
flood, extended coverage and rental loss insurance) with respect to our
properties. However, there are some types of losses, including lease and other
contract claims, as well as claims related to nuclear reactions, certain other
contaminants and pollutants and, most recently, terrorist acts, that generally
are not insured. If an uninsured loss or a loss in excess of insured limits
occurs, we could lose all or a portion of the capital we have invested in a
property, as well as the anticipated future revenue from the property. If this
were to happen, we might remain obligated for any mortgage debt or other
financial obligations related to the property and may be liable to third parties
for damages.
For information relating to the increased risk of losses not being covered
by insurance as a result of the September 11, 2001 terrorist attacks, see
"-- Although the Terrorist Attacks of September 11, 2001 in New York City and
the Washington, D.C. Area Did Not Physically Damage Our Properties, Those
Attacks May Adversely Affect the Value of Our Properties and Our Ability to
Generate Cash Flow -- Insurance premiums have increased significantly, and we
expect that our insurance premiums will continue to increase for those policies
that have not been renewed since September 11, 2001. In addition, with respect
to the all risk policies that we have purchased since September 11, 2001
covering our real estate portfolio, we have generally not been able to obtain
policies that include coverage for terrorist acts" below.
S-5
WE MAY ACQUIRE OR DEVELOP NEW PROPERTIES, AND THIS MAY CREATE RISKS.
We may acquire or develop properties or acquire other real estate companies
when we believe that an acquisition or development is consistent with our
business strategies. We may not, however, succeed in consummating desired
acquisitions or in completing developments on time or within our budget. We also
might not succeed in leasing newly developed or acquired properties at rents
sufficient to cover their costs of acquisition or development and operations.
We have experienced rapid growth in recent years, increasing our total
assets from approximately $565,000,000 at December 31, 1996 to approximately
$8,931,000,000 at March 31, 2002. This growth included the acquisition of
Charles E. Smith Commercial Realty L.P. on January 1, 2002, which increased our
total assets as of that date by $2,201,000,000, of which $1,453,000,000 is
attributable to the acquisition of assets and $748,000,000 is attributable to
Charles E. Smith Commercial Realty L.P. becoming a wholly owned subsidiary of
Vornado Realty L.P. and therefore being consolidated rather than accounted for
under the equity method. We may not be able to manage any growth effectively or
to maintain a similar rate of growth in the future, and our failure to do so may
have a material adverse effect on our financial condition and results of
operations.
In addition, if persons selling properties to us wish to defer the payment
of taxes on the sales proceeds, we are likely to pay them in units of Vornado
Realty L.P. In transactions of this kind, we may also agree not to sell the
acquired properties or reduce the mortgage indebtedness on them for significant
periods of time. If we borrow funds or assume indebtedness to acquire or develop
properties, indebtedness of Vornado Realty L.P., as a percentage of our asset
value or market capitalization, might increase. If this happens, the increased
leverage may impair our ability to take actions that would otherwise be in our
best interests or the best interests of our security holders. If our
indebtedness increases significantly, Vornado Realty L.P. may not be able to
make required principal and interest payments with respect to its indebtedness,
including the notes offered by this prospectus supplement.
For additional information about our leverage, see "-- Our organizational
and financial structure gives rise to operational and financial risks -- We have
indebtedness, and this indebtedness may increase" below.
IT MAY BE DIFFICULT TO BUY AND SELL REAL ESTATE QUICKLY, AND TRANSFER
RESTRICTIONS APPLY TO SOME OF OUR MORTGAGED PROPERTIES.
Equity real estate investments are relatively difficult to buy and sell
quickly. Therefore, our ability to vary our portfolio promptly in response to
changes in economic or other conditions is limited. Some of our properties are
mortgaged to secure payment of indebtedness. If we were unable to meet our
mortgage payments, the lender could foreclose on the properties and we could
incur a loss. In addition, if we wished to dispose of one or more of the
mortgaged properties, we might not be able to obtain release of the lien on the
mortgaged property. If a lender forecloses on a mortgaged property or if a
mortgage lien prevents us from selling a property, our funds available to pay
interest on and principal of the notes could decline. For information relating
to the mortgages on our properties, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" in our Annual Report on Form 10-K for the year ended December 31,
2001 and Quarterly Report on Form 10-Q for the period ended March 31, 2002 and
the notes to our consolidated financial statements in the same reports.
A SIGNIFICANT PORTION OF OUR PROPERTIES ARE IN THE NEW YORK CITY/NEW JERSEY AND
WASHINGTON, D.C. METROPOLITAN AREAS AND WILL BE AFFECTED BY THE ECONOMIC CYCLES
AND RISKS INHERENT TO THOSE REGIONS.
Based on the pro forma combined financial statements for the year ended
December 31, 2001, included in our Current Report on Form 8-K/A dated January 1,
2002 and filed with the SEC on March 18, 2002, had the merger of a wholly owned
subsidiary of Vornado Realty L.P. and Charles E. Smith Commercial Realty L.P.
occurred on January 1, 2001, 68% of our earnings before interest expense, taxes,
depreciation and amortization, extraordinary or non-recurring items, gains or
losses on sales of real estate, the effect of straight-lining of property
rentals for rent escalations and minority interest would have come from
properties located in New Jersey and the New York City and Washington, D.C.
metropolitan
S-6
areas. We refer to earnings before interest expense, taxes, depreciation and
amortization, extraordinary or non-recurring items, gains or losses on sales of
real estate, the effect of straight-lining of property rentals for rent
escalations and minority interest as "EBITDA." Our management considers EBITDA a
supplemental measure for making decisions and assessing the performance of our
segments. EBITDA may not be comparable to similarly titled measures employed by
other companies.
In addition, we may continue to concentrate a significant portion of our
future acquisitions in New Jersey and the New York City and Washington, D.C.
metropolitan areas. Like other real estate markets, the real estate markets in
these areas have experienced economic downturns in the past, and we cannot
predict how the current economic conditions will impact these markets in both
the short and long term. Further declines in the economy or a decline in the
real estate markets in these areas could hurt our financial performance and the
value of our properties. The factors affecting economic conditions in these
regions include:
- business layoffs or downsizing;
- industry slowdowns;
- relocations of businesses;
- changing demographics;
- increased telecommuting and use of alternative work places;
- financial performance and productivity of the publishing, advertising,
financial, technology, retail, insurance and real estate industries;
- infrastructure quality; and
- any oversupply of or reduced demand for real estate.
It is impossible for us to assess the future effects of the current
uncertain trends in the economic and investment climates of the New York
City/New Jersey and Washington, D.C. regions, and more generally of the United
States, on the real estate markets in these areas. If these conditions persist,
they may adversely affect our businesses and future profitability.
For more information regarding the effects on us of the terrorist attacks
of September 11, 2001, see "-- Although the Terrorist Attacks of September 11,
2001 in New York City and the Washington, D.C. Area Did Not Physically Damage
Our Properties, Those Attacks May Adversely Affect the Value of Our Properties
and Our Ability to Generate Cash Flow" below.
ON JANUARY 1, 2002, WE COMPLETED THE ACQUISITION OF THE 66% INTEREST IN CHARLES
E. SMITH COMMERCIAL REALTY L.P. THAT WE DID NOT PREVIOUSLY OWN. THE TERMS OF THE
MERGER RESTRICT OUR ABILITY TO SELL OR OTHERWISE DISPOSE OF, OR TO FINANCE OR
REFINANCE, THE PROPERTIES FORMERLY OWNED BY CHARLES E. SMITH COMMERCIAL REALTY
L.P., WHICH COULD RESULT IN OUR INABILITY TO SELL THESE PROPERTIES AT AN
OPPORTUNE TIME AND INCREASED COSTS TO US.
We have agreed to restrictions on our ability to sell, finance, refinance
and, in some instances, pay down existing financing on the properties currently
held by Charles E. Smith Commercial Realty L.P. for a period of up to 20 years,
under a tax reporting and protection agreement that we entered into at the
closing of the merger. This agreement prohibits us from taking these actions
unless Vornado Realty L.P. also pays the contributing partners based on their
tax liabilities as a result of the sale. These arrangements may significantly
reduce our ability to sell, finance or repay indebtedness secured by the subject
properties or assets.
In addition, we are restricted from selling or otherwise transferring or
disposing of certain properties located in the Crystal City area of Arlington,
Virginia or an interest in our division that manages the majority of our office
properties in the Washington, D.C. metropolitan area, which we refer to as the
"Smith Division," without the consent of Robert H. Smith and Robert P. Kogod,
each of whom was a
S-7
significant unit holder of Charles E. Smith Commercial Realty L.P., for a period
of 12 years with respect to certain properties located in the Crystal City area
of Arlington, Virginia or six years with respect to an interest in the Smith
Division. These restrictions, which run from the closing of the merger and
currently cover approximately 13.0 million square feet of space, could result in
our inability to sell these properties or an interest in the Smith Division at
an opportune time and increased costs to us.
WE MAY INCUR COSTS TO COMPLY WITH ENVIRONMENTAL LAWS.
Our operations and properties are subject to various federal, state and
local laws, ordinances and regulations concerning the protection of the
environment including air and water quality, hazardous substances and health and
safety. Under certain of these environmental laws a current or previous owner or
operator of real estate may be required to investigate and clean up hazardous or
toxic substances released at a property. The owner or operator may also be held
liable to a governmental entity or to third parties for property damage or
personal injuries and for investigation and clean-up costs incurred by those
parties because of the contamination. These laws often impose liability without
regard to whether the owner or operator knew of the release of the substances or
was responsible for the release. The presence of contamination or the failure to
remediate contamination may impair our ability to sell or lease real estate or
to borrow using the real estate as collateral. Other laws and regulations govern
indoor and outdoor air quality including those that can require the abatement or
removal of asbestos-containing materials in the event of demolition, renovations
or remodeling and also govern emissions of and exposure to asbestos fibers in
the air. The maintenance and removal of lead paint and certain electrical
equipment containing polychlorinated biphenyls (PCBs) and underground storage
tanks are also regulated by federal and state laws. We could incur fines for
environmental compliance and be held liable for the costs of remedial action
with respect to the foregoing regulated substances or tanks or related claims
arising out of environmental contamination or exposure at our properties.
REAL ESTATE IS A COMPETITIVE BUSINESS.
Our business segments -- office, retail, Merchandise Mart properties,
temperature controlled logistics, and other -- operate in highly competitive
environments. We have a large concentration of properties in the New York City
metropolitan area and in the Washington, D.C. and Northern Virginia area. We
compete with a large number of real estate property owners and developers.
Principal factors of competition are rent charged, attractiveness of location
and the quality and breadth of services provided. Our success depends upon,
among other factors, the trends of the national and local economies, the
financial condition and operating results of current and prospective tenants and
customers, the availability and cost of capital, construction and renovation
costs, taxes, governmental regulations, legislation and population trends.
ALTHOUGH THE TERRORIST ATTACKS OF SEPTEMBER 11, 2001 IN NEW YORK CITY AND THE
WASHINGTON, D.C. AREA DID NOT PHYSICALLY DAMAGE OUR PROPERTIES, THOSE ATTACKS
MAY ADVERSELY AFFECT THE VALUE OF OUR PROPERTIES AND OUR ABILITY TO GENERATE
CASH FLOW.
REAL ESTATE VALUES AND PROPERTY RENTS MAY DECLINE AS A RESULT OF THE IMPACT OF
THE TERRORIST ATTACKS ON THE GENERAL ECONOMY.
The terrorist attacks have negatively impacted the United States economy.
This impact has been particularly severe in the large metropolitan areas where
our real estate properties are concentrated. We expect this negative impact to
continue. An economic decline may materially reduce the value of our real estate
portfolio and the amount in rents we are able to collect from our tenants.
In addition, these attacks may make the occurrence of one or more of the
factors discussed in this "Risk Factors" section more likely to occur. For
specific information relating to various factors that are affected by the
condition of the general economy, see "-- Real Estate Investments' Value and
Income Fluctuate Due to Various Factors -- The value of real estate fluctuates
depending on conditions in the
S-8
general economy and the real estate business. These conditions may also limit
our revenues and available cash" above.
THERE MAY BE A DECREASE IN DEMAND FOR SPACE IN LARGE METROPOLITAN AREAS THAT ARE
CONSIDERED AT RISK FOR FUTURE TERRORIST ATTACKS, AND THIS DECREASE MAY REDUCE
OUR REVENUES FROM PROPERTY RENTALS.
We have significant investments in large metropolitan areas, including the
New York/New Jersey, Washington, D.C. and Chicago metropolitan areas. In the
aftermath of the terrorist attacks, tenants in these areas may choose to
relocate their business to less populated, lower-profile areas of the United
States that are not as likely to be targets of future terrorist activity. This
in turn would trigger a decrease in the demand for space in these areas, which
could increase vacancies in our properties and force us to lease our properties
on less favorable terms. As a result, the value of our properties and the level
of our revenues could decline materially.
INSURANCE PREMIUMS HAVE INCREASED SIGNIFICANTLY, AND WE EXPECT THAT OUR
INSURANCE PREMIUMS WILL CONTINUE TO INCREASE FOR THOSE POLICIES THAT HAVE NOT
BEEN RENEWED SINCE SEPTEMBER 11, 2001. IN ADDITION, WITH RESPECT TO THE ALL RISK
POLICIES THAT WE HAVE PURCHASED SINCE SEPTEMBER 11, 2001 COVERING OUR REAL
ESTATE PORTFOLIO, WE HAVE GENERALLY NOT BEEN ABLE TO OBTAIN POLICIES THAT
INCLUDE COVERAGE FOR TERRORIST ACTS.
The insurance payouts that have been made, and that are continuing to be
made, as a result of the terrorist attacks have reduced significantly the
insurance industry's reserves, and this reduction may continue as additional
claims are made. Moreover, the demand for higher levels of insurance coverage
has increased, and this rising demand is expected to continue as a result of
these attacks. For these reasons and others related to the general market for
insurance products, insurance premiums have increased significantly with respect
to policies that we have renewed since September 11, 2001, and we expect that
insurance premiums will continue to increase for any policy, upon its renewal,
that we have not renewed since September 11, 2001. These increases have had an
adverse impact on our cash flow, and, if the current condition of the insurance
market persists, we expect this adverse impact to continue with respect to any
policy, upon its renewal, that we have not renewed since September 11, 2001.
Furthermore, we have not been able to purchase policies with coverage limits and
deductibles similar to those that were available before the attacks, and it is
likely that we will not be able to purchase those kinds of policies in the
future.
We carry comprehensive liability and all risk property insurance (fire,
flood, extended coverage and rental loss insurance) with respect to our
properties. Real property insurance policies put into effect before September
11, 2001 do not expressly exclude coverage from hostile acts, except for acts of
war. Since September 11, 2001, insurance companies have been excluding terrorist
acts from coverage in all risk policies. We have generally been unable to obtain
all risk insurance which includes coverage for terrorist acts for policies we
have renewed since September 11, 2001, and we may not be able to obtain coverage
for terrorist attacks under any policy we purchase in the future. However, we
have obtained separate coverage in limited amounts for terrorist acts when an
all risk insurance policy covering our properties has excluded terrorist acts
from coverage upon the renewal of the policy. Therefore, we are at risk for
financial loss in excess of these limited amounts for terrorist acts as defined
by the policies, which loss could be material.
Our debt instruments other than the notes, consisting of mortgage loans
secured by our properties, which are generally non-recourse to us, and our
revolving credit agreement, contain customary covenants requiring us to maintain
insurance. The lenders under these instruments may 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 our ability to finance or
refinance our properties and to expand our portfolio.
For additional information relating to insurance coverage generally, see
"-- Real Estate Investments' Income and Value Fluctuate Due to Various
Factors -- Some of our potential losses may not be covered by insurance" above.
S-9
OUR INVESTMENT IN HOTEL PENNSYLVANIA IS DEPENDENT ON THE TRAVEL INDUSTRY, AND
THAT INVESTMENT HAS BEEN AND MAY CONTINUE TO BE IMPACTED SEVERELY BY THE
TERRORIST ATTACKS.
Our investment in Hotel Pennsylvania is directly dependent on the travel
industry generally and the willingness of people to visit New York City in
particular. Since September 11, 2001, there has been a substantial decline in
travel and tourism to New York City. Accordingly, there has been a significant
reduction in occupancy at Hotel Pennsylvania. As a result, revenues generated by
this investment have been impacted severely by that decline, and we expect this
impact on revenues to continue.
SOME OF OUR TENANTS MAY BE MORE LIKELY TO DECLARE BANKRUPTCY AS A RESULT OF THE
TERRORIST ATTACKS.
The risk that some of our tenants may declare bankruptcy is higher because
of the September 11, 2001 terrorist attacks and the resulting decline in the
economy. This is particularly true for our tenants that are dependent on the air
or travel industries as a primary source of revenue.
U.S. Airways Group Inc. leases 340,000 square feet from us for its
headquarters in Washington, D.C. U.S. Air has been adversely affected by the
downturn in air travel as a result of the terrorist attacks and economic decline
and is seeking loan guarantees from the federal government and concessions from
its employees and creditors. We cannot predict whether U.S. Air will declare
bankruptcy or whether, if it declares bankruptcy, it will reject all or part of
its headquarters lease.
For more information related to the risks of bankruptcy generally, see
"-- Real Estate Investments' Value and Income Fluctuate Due to Various
Factors -- Bankruptcy of tenants may decrease our revenues and available cash"
above.
ALL OF OUR TEMPERATURE CONTROLLED LOGISTICS WAREHOUSES ARE LEASED TO ONE TENANT,
AND THAT TENANT IS EXPERIENCING OPERATING DIFFICULTIES.
Vornado Realty L.P. indirectly owns a 60% interest in partnerships, which
we refer to as the "Vornado/Crescent Partnerships," that own 89 warehouse
facilities nationwide with an aggregate of approximately 445 million cubic feet
of refrigerated, frozen and dry storage space. The Vornado/Crescent Partnerships
sold all of the non-real estate assets encompassing the operations of the
temperature controlled business to a new partnership named AmeriCold Logistics
owned 60% by Vornado Operating Company, which we refer to as "Vornado
Operating," and 40% by Crescent Operating Inc. AmeriCold Logistics leases the
underlying temperature controlled warehouses used in this business from the
Vornado/ Crescent Partnerships, which continue to own the real estate. During
2001, AmeriCold Logistics generated approximately 8% of our EBITDA on a pro
forma basis as if the acquisition of Charles E. Smith Commercial Realty L.P.
occurred on January 1, 2001. On February 22, 2001, the Vornado/Crescent
Partnerships restructured the AmeriCold Logistics leases to, among other things,
(a) reduce 2001's contractual rent to $146,000,000, (b) reduce 2002's
contractual rent to $150,000,000 plus contingent rent in certain circumstances,
(c) increase the Vornado/Crescent Partnerships' share of annual maintenance
capital expenditures by $4,500,000 to $9,500,000 effective January 1, 2000 and
(d) allow AmeriCold Logistics to defer rent to December 31, 2003 to the extent
cash is not available, as defined in the leases, to pay the rent. Based on our
policy of recognizing rental income when earned and collection is assured or
cash is received, we did not recognize $15,281,000 and $8,606,000 of the rent
that was due in the years ended December 31, 2001 and 2000. On December 31, 2001
the Vornado/Crescent Partnerships released the tenant from its obligation to pay
$39,812,000 of deferred rent, of which our share was $23,887,000. This amount
equals the rent that we did not recognize as income and accordingly had no
profit and loss effect on us.
To the extent that the operations of AmeriCold Logistics may affect its
ability to pay rent, including percentage rent due under the leases, we
indirectly bear the risks associated with AmeriCold Logistics' cold storage
business. The cold storage business is extremely competitive. Factors affecting
AmeriCold Logistics' ability to compete include, among others, (a) warehouse
locations, (b) customer mix and (c) availability, quality and price of
additional services.
S-10
OUR ORGANIZATIONAL AND FINANCIAL STRUCTURE GIVES RISE TO OPERATIONAL AND
FINANCIAL RISKS.
VORNADO REALTY L.P. DEPENDS ON ITS DIRECT AND INDIRECT SUBSIDIARIES' DIVIDENDS
AND DISTRIBUTIONS, AND THESE SUBSIDIARIES' CREDITORS ARE ENTITLED TO PAYMENT OF
AMOUNTS PAYABLE TO THEM BY THE SUBSIDIARIES BEFORE THE SUBSIDIARIES MAY PAY ANY
DIVIDENDS OR DISTRIBUTIONS TO VORNADO REALTY L.P.
Vornado Realty L.P. holds substantially all of its properties and assets
through subsidiaries. Vornado Realty L.P., therefore, depends for substantially
all of its revenue on cash distributions to it by its subsidiaries. The
creditors of each subsidiary are entitled to payment of the subsidiary's
obligations to them, when due and payable, before the subsidiary may make
distributions to Vornado Realty L.P. Thus, Vornado Realty L.P.'s ability to pay
interest on and principal of the notes depends on its subsidiaries' ability to
satisfy their obligations to their creditors and make distributions to Vornado
Realty L.P. In addition, Vornado Realty L.P. may participate in any distribution
of the assets of any of Vornado Realty L.P.'s direct or indirect subsidiaries
upon the liquidation, reorganization or insolvency of the subsidiary, and
consequently holders of the notes may participate in those assets, only after
the claims of the creditors, including trade creditors, and preferred security
holders, if any, of the subsidiary are satisfied. See "-- We have indebtedness,
and this indebtedness may increase" below for more information about
indebtedness of Vornado Realty L.P.
WE HAVE INDEBTEDNESS, AND THIS INDEBTEDNESS MAY INCREASE.
As of March 31, 2002, Vornado Realty L.P. and its wholly owned subsidiaries
had approximately $4,760,199,000 in Total Outstanding Debt as defined under
"Description of the Notes -- Covenants -- Special Terms Used in Covenants"
below, including the debt assumed in connection with the acquisition of Charles
E. Smith Commercial Realty L.P. In the future, we may incur additional debt to
finance acquisitions or property developments. We may review and modify our debt
level from time to time without notice to or any vote of holders of the notes.
See "Description of the Notes -- Covenants -- Limitations on Incurrence of Debt"
for information about terms of the notes that limit our ability to incur
additional debt.
Except as described in this prospectus supplement under the heading
"Description of the Notes -- Covenants -- Limitations on Incurrence of
Indebtedness" or in the accompanying prospectus under the heading "Description
of Debt Securities -- Merger, Consolidation and Sale of Assets," the indenture
does not contain any provisions that would limit our ability to incur
indebtedness or that would afford you protection in the event of:
- a highly leveraged or similar transaction involving us or any of our
affiliates;
- a change of control of us; or
- a reorganization, restructuring, merger or similar transaction involving
us or Vornado Realty Trust that may adversely affect you.
LOSS OF OUR KEY PERSONNEL COULD HARM OUR OPERATIONS.
We are dependent on the efforts of Steven Roth, the Chairman of the Board
and Chief Executive Officer of Vornado Realty Trust, and Michael D. Fascitelli,
the President of Vornado Realty Trust. While we believe that we could find
replacements for these key personnel, the loss of their services could have an
adverse effect on our operations.
S-11
VORNADO REALTY L.P.
Vornado Realty L.P., a Delaware limited partnership, is the operating
partnership through which Vornado Realty Trust, a fully-integrated real estate
investment trust, conducts its business and owns substantially all of its
interests in properties. Vornado Realty Trust is the sole general partner of,
and owns an approximately 79% common limited partnership interest in, Vornado
Realty L.P. as of June 19, 2002.
Vornado Realty L.P. currently owns directly or indirectly:
- Office Properties:
-- all or portions of 73 office properties in the New York City
metropolitan area (primarily Manhattan) and in the Washington, D.C. and
Northern Virginia area aggregating approximately 27.3 million square
feet;
- Retail Properties:
-- 55 shopping center properties in six states and Puerto Rico aggregating
approximately 11.3 million square feet, including 1.4 million square
feet built by tenants on land leased from Vornado;
- Merchandise Mart Properties:
-- the Merchandise Mart Properties portfolio containing approximately 8.6
million square feet, including the 3.4 million square foot Merchandise
Mart in Chicago;
- Temperature Controlled Logistics:
-- a 60% interest in partnerships that own 89 warehouse facilities
nationwide with an aggregate of approximately 445 million cubic feet of
refrigerated space leased to AmeriCold Logistics;
- Other Real Estate Investments:
-- 33.1% of the outstanding common stock of Alexander's, Inc.;
-- the Hotel Pennsylvania in New York City consisting of a hotel portion
containing 1,000,000 square feet with 1,700 rooms and a commercial
portion containing 400,000 square feet of retail and office space;
-- a 21.1% interest in The Newkirk Master Limited Partnership which owns
office, retail and industrial properties and various debt interests in
such properties;
-- eight dry warehouse/industrial properties in New Jersey containing
approximately 2.0 million square feet; and
-- other real estate investments.
On January 1, 2002, we acquired the 66% interest in Charles E. Smith
Commercial Realty L.P. that we did not previously own, resulting in the issuance
of 15,612,831 units of Vornado Realty L.P. valued at $608,000,000. For more
information about this transaction, see our Current Reports on Form 8-K filed
with the SEC on October 19, 2001 and on January 16, 2002.
OBJECTIVES AND STRATEGY
Vornado Realty L.P.'s business objective is to maximize equity value.
Vornado Realty L.P. intends to achieve its business objective by continuing to
pursue its investment philosophy and executing its operating strategies through:
- Maintaining a superior team of operating and investment professionals and
an entrepreneurial spirit;
- Investing in properties in select markets, such as New York City and
Washington, D.C., where Vornado Realty L.P. believes there is high
likelihood of capital appreciation;
S-12
- Acquiring quality properties at a discount to replacement cost and where
there is a significant potential for higher rents;
- Investing in retail properties in select understored locations such as
the New York City metropolitan area;
- Investing in fully integrated operating companies that have a significant
real estate component with qualified, experienced operating management
and strong growth potential which can benefit from Vornado Realty L.P.'s
access to efficient capital;
- Developing/redeveloping Vornado Realty L.P.'s existing properties to
increase returns and maximize value; and
- On occasion, providing specialty financing to real estate companies.
Vornado Realty L.P. expects to finance its growth, acquisitions and
investments using internally generated funds, proceeds from possible asset sales
and by accessing the public and private capital markets.
RECENT DEVELOPMENTS
Vornado Realty L.P.'s net income applicable to Class A Units for the
quarter ended March 31, 2002 was $52,148,000 versus $50,482,000 for the quarter
ended March 31, 2001.
Net income for the three months ended March 31, 2002 includes (a) a charge
of $30,129,000 for the write-off of goodwill arising from Vornado Realty L.P.'s
investment in Temperature Controlled Logistics and the Hotel Pennsylvania
resulting from the cumulative effect of the application of SFAS 142, "Goodwill
and Other Intangible Assets," (b) a charge of $6,875,000 for the amortization of
an officer's employment arrangement and (c) a gain on sale of Chicago
condominiums of $1,531,000. These items aggregate $35,473,000.
Net income for the three months ended March 31, 2001 includes (a) Vornado
Realty L.P.'s $6,298,000 share of Alexander's net gain on sale of real estate
and Vornado Realty L.P.'s $1,170,000 share of Alexander's extraordinary gain on
early extinguishment of debt, (b) a charge of $4,110,000 resulting from the
cumulative effect of the application of SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," (c) a charge of $4,723,000 resulting from
the write-off of an investment in a technology company and (d) a charge of
$5,000,000 for the costs of acquisitions not consummated. These items aggregate
$6,365,000.
On April 30, 2002, Vornado Realty L.P. 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 Vornado Realty L.P. as collateral for loans to Primestone Investment
Partners L.P. The price Vornado Realty L.P. 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 Investment Partners L.P. and its affiliated guarantors remain liable
for the deficiency under the loans. A subsidiary of Cadim inc. owns a 50%
participation interest in the loans to Primestone Investment Partners L.P. held
by Vornado Realty L.P. Under the participation arrangement, the Cadim inc.
affiliate has the right to acquire 50% of the partnership units that Vornado
Realty L.P. acquired at the foreclosure auction or the PGE shares into which
they may be exchanged.
On May 13, 2002 Vornado delivered a letter to PGE and Prime Group Realty,
L.P. exercising Vornado's right under the Consent and Agreement, dated as of
September 26, 2000, by PGE and Prime Group Realty, L.P. in favor of Vornado to
receive a position on the Board of Trustees of PGE for a term ending at the 2003
annual meeting of shareholders of PGE. Vornado has designated Michael
Fascitelli, President of Vornado Realty Trust, as its nominee to fill this
position on the Board of Trustees of PGE.
S-13
CAPITALIZATION OF VORNADO REALTY L.P.
The following table shows our capitalization as of March 31, 2002 on a
historical basis and on an as adjusted basis to give effect to (1) this offering
and (2) the application of the net proceeds of this offering as described under
"Use of Proceeds" below, assuming we use all of the net proceeds to repay debt.
You should read the information included in the table in conjunction with our
consolidated financial statements and the related notes included in our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 filed with
the SEC and incorporated by reference in this prospectus supplement.
<Table>
<Caption>
AS OF MARCH 31, 2002
-------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(UNAUDITED)
(IN THOUSANDS)
Debt:
Senior unsecured notes.................................... $ -- $ 500,000
Mortgage and other indebtedness........................... 3,970,486 3,474,486
Revolving credit facility................................. -- --
---------- ----------
Total Debt............................................. 3,970,486 3,974,486
Partners' capital........................................... 4,686,105 4,686,105
---------- ----------
Total capitalization................................... $8,656,591 $8,660,591
========== ==========
</Table>
S-14
SELECTED CONSOLIDATED FINANCIAL DATA OF VORNADO REALTY L.P.
The following tables contain selected consolidated financial information
for the periods presented. 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 in the selected consolidated financial information for the three months
ended March 31, 2002 and 2001. You should read the information included in the
tables in conjunction with our consolidated financial statements and the related
notes included in our Quarterly Report on Form 10-Q for the quarter ended March
31, 2002 and Annual Report on Form 10-K for the year ended December 31, 2001,
both of which are filed with the SEC and incorporated by reference in this
prospectus supplement. The results of operations for the three months ended
March 31, 2002 are not necessarily indicative of the operating results for the
full year.
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
------------------------
2002 2001
---------- ----------
(UNAUDITED)
(IN THOUSANDS)
OPERATING DATA
Revenues:
Property 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........................................... (989) (359)
---------- ----------
Income before cumulative effect of change in accounting
principle and extraordinary item.......................... 112,469 86,404
Cumulative effect of change in accounting principle......... (30,129) (4,110)
Extraordinary item.......................................... -- 1,170
---------- ----------
Net income.................................................. 82,340 83,464
Preferred unit distributions (including accretion of
issuance expenses of $0 and $719)......................... (6,131) (9,673)
Preferential allocations.................................... (24,061) (23,309)
---------- ----------
Net income applicable to Class A units...................... $ 52,148 $ 50,482
========== ==========
BALANCE SHEET DATA
Total assets................................................ $8,930,607 $6,475,007
Real estate, at cost........................................ 7,238,622 4,541,164
Accumulated depreciation.................................... (592,897) (435,027)
Debt........................................................ 3,970,486 2,744,551
Partners' capital........................................... 4,686,105 3,535,560
</Table>
S-15
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
OPERATING DATA
Revenues:
Property rentals..................... $ 841,999 $ 695,078 $ 591,270 $ 425,496 $ 168,321
Expense reimbursements............... 133,114 120,056 96,842 74,737 36,652
Other income......................... 10,660 10,838 8,251 9,627 4,158
---------- ---------- ---------- ---------- ----------
Total revenues....................... 985,773 825,972 696,363 509,860 209,131
---------- ---------- ---------- ---------- ----------
Expenses:
Operating............................ 398,969 318,360 282,118 207,171 74,745
Depreciation and amortization........ 123,862 99,846 83,585 59,227 22,983
General and administrative........... 72,572 47,911 40,151 28,610 13,580
Amortization of officer's deferred
compensation expense............... -- -- -- -- 22,917
Costs of acquisitions not
consummated........................ 5,223 -- -- -- --
---------- ---------- ---------- ---------- ----------
Total expenses....................... 600,626 466,117 405,854 295,008 134,225
---------- ---------- ---------- ---------- ----------
Operating income..................... 385,147 359,855 290,509 214,852 74,906
Income applicable to Alexander's..... 24,548 17,363 11,772 3,123 7,873
Income from partially-owned
entities........................... 80,612 86,654 78,560 32,025 4,658
Interest and other investment
income............................. 54,385 32,926 18,359 24,074 23,767
Interest and debt expense............ (173,076) (170,273) (141,683) (114,686) (42,888)
Net gain on disposition of
wholly-owned and partially-owned
assets............................. 7,425 10,965 -- 9,649 --
Minority interest.................... (2,520) (1,965) (1,840) (651) --
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of
change in accounting principle and
extraordinary item................. 376,521 335,525 255,677 168,386 68,316
Cumulative effect of change in
accounting principle............... (4,110) -- -- -- --
Extraordinary item................... 1,170 (1,125) -- -- --
---------- ---------- ---------- ---------- ----------
Net income........................... 373,581 334,400 255,677 168,386 68,316
Preferred unit distributions......... (36,505) (38,690) (33,438) (21,690) (15,549)
Preferential allocations............. (94,310) (86,046) (44,812) (13,543) (7,293)
---------- ---------- ---------- ---------- ----------
Net income applicable to Class A
units.............................. $ 242,766 $ 209,664 $ 177,427 $ 133,153 $ 45,474
========== ========== ========== ========== ==========
Income per Class A Unit -- basic..... $ 2.55 $ 2.26 $ 1.97 $ 1.62 $ .83
Income per Class A Unit -- diluted... $ 2.47 $ 2.20 $ 1.94 $ 1.59 $ .79
Cash distributions declared for Class
A Units............................ $ 2.63 $ 1.97 $ 1.80 $ 1.64 $ 1.36
BALANCE SHEET DATA
Total assets......................... $6,777,343 $6,403,210 $5,479,218 $4,425,779 $2,524,089
Real estate, at cost................. 4,690,211 4,354,392 3,921,507 3,315,891 1,564,093
Accumulated depreciation............. 506,225 393,787 308,542 226,816 173,434
Debt................................. 2,477,173 2,688,308 2,048,804 2,051,000 956,654
Partners' capital.................... 4,024,235 3,519,417 3,262,630 2,203,054 1,492,329
</Table>
S-16
USE OF PROCEEDS
The net proceeds from the sale of the notes are estimated to be
approximately $496,000,000, after deducting our expenses which are estimated to
be approximately $280,000.
We intend to use the net proceeds of the offering of the notes primarily to
repay existing secured debt of our subsidiaries and also for other general
business purposes. The secured debt that we currently intend to repay will
mature over the next six months and has a weighted average interest rate of
LIBOR plus 2.00% (3.85% at March 31, 2002). Pending repayment of the secured
debt, we intend to use the net proceeds for working capital purposes.
RATIO OF EARNINGS TO FIXED CHARGES
Vornado Realty L.P.'s ratio of earnings to fixed charges for each of the
last five fiscal years and the three-month period ended March 31, 2002 is as
follows:
<Table>
<Caption>
THREE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ------------------------------------
2002 2001 2000 1999 1998 1997
----------- ---- ---- ---- ---- ----
(UNAUDITED)
Ratio of earnings to fixed
charges........................... 1.56 1.68 1.62 1.73 1.88 1.66
</Table>
For purposes of calculating the ratio of earnings to fixed charges, (a)
earnings represent income from continuing operations before income taxes, plus
fixed charges, and (b) fixed charges represent interest expense on all
indebtedness, including amortization of deferred debt issuance costs, and the
portion of operating lease rental expense that management considers
representative of the interest factor, which is one-third of operating lease
rentals.
MANAGEMENT
Vornado Realty L.P. is managed by Vornado Realty Trust, its general
partner. The following is a list of the names, ages, principal occupations and
positions with Vornado Realty Trust of the trustees and executive officers of
Vornado Realty Trust and the positions held by the officers during the past five
years. All executive officers of Vornado Realty Trust have terms of office which
run until the next succeeding meeting of the Board of Trustees of Vornado Realty
Trust following the annual meeting of shareholders unless they are removed
sooner by the Board.
<Table>
<Caption>
PRINCIPAL OCCUPATION, POSITION AND OFFICE
(CURRENT AND DURING PAST FIVE YEARS WITH
NAME AGE VORNADO REALTY TRUST, UNLESS OTHERWISE STATED)
- ---- --- ----------------------------------------------
Steven Roth.......................... 60 Chairman of the Board and Chief Executive Officer since
May 1989 and Chairman of the Executive Committee of the
Board since April 1988; Managing General Partner of
Interstate Properties, an owner of shopping centers and
an investor in securities and partnerships; Chief
Executive Officer of Alexander's, Inc. since March 1995
and a Director since 1989; Chairman and CEO of Vornado
Operating Company since 1998; and Director of Capital
Trust, Inc.
Michael D. Fascitelli................ 45 President and a Trustee since December 1996; Director
and President of Alexander's, Inc. since December 1996;
Director and President of Vornado Operating Company
since 1998; Partner at Goldman, Sachs & Co. in charge of
its real estate practice from December 1992 to December
1996; and Vice President at Goldman, Sachs & Co. before
December 1992.
</Table>
S-17
<Table>
<Caption>
PRINCIPAL OCCUPATION, POSITION AND OFFICE
(CURRENT AND DURING PAST FIVE YEARS WITH
NAME AGE VORNADO REALTY TRUST, UNLESS OTHERWISE STATED)
- ---- --- ----------------------------------------------
Robert P. Kogod...................... 70 Trustee since January 2002; Co-Chief Executive Officer
and Co-Chairman of the Board of Directors of Charles E.
Smith Commercial Realty L.P. from October 1997 through
December 31, 2001; and Trustee of Archstone-Smith Trust.
David Mandelbaum..................... 66 Trustee; member of the law firm of Mandelbaum &
Mandelbaum, P.C. since 1967; General Partner of
Interstate Properties since 1968; and Director of
Alexander's, Inc.
Stanley Simon........................ 84 Trustee; and owner of Stanley Simon and Associates,
management and financial consultants, since 1958.
Robert H. Smith...................... 73 Trustee since January 2002; Chairman of Charles E. Smith
Commercial Realty, a division of Vornado Realty Trust,
since January 2002 (date acquired by Vornado Realty
Trust); Co-Chief Executive Officer and Co-Chairman of
the Board of Charles E. Smith Commercial Realty L.P.
(the predecessor to Charles E. Smith Commercial Realty)
from October 1997 through December 31, 2001; and Trustee
of Archstone-Smith Trust.
Ronald Targan........................ 75 Trustee; President of Malt Products Corporation of New
Jersey, a producer of malt syrup, since 1962; and a
member of the law firm of Schechner and Targan, P.A.,
since 1964.
Richard R. West...................... 64 Trustee; Dean Emeritus at the Leonard N. Stern School of
Business, New York University; Professor at the Leonard
N. Stern School of Business from September 1984 until
September 1995 and Dean from September 1984 until August
1993; previously Dean of the Amos Tuck School of
Business Administration at Dartmouth College; and a
Director of Vornado Operating Company, Alexander's,
Inc., Bowne & Co., Inc. and various investment companies
managed by Merrill Lynch investment managers.
Russell B. Wight, Jr................. 62 Trustee; General Partner of Interstate Properties since
1968; and a Director of Alexander's, Inc. and Vornado
Operating Company.
Melvyn H. Blum....................... 55 Executive Vice President -- Development since January
2000; Senior Managing Director at Tishman Speyer
Properties in charge of its development activities in
the United States from July 1998 to January 2000; and
Managing Director of Development and Acquisitions at
Tishman Speyer Properties before July 1998.
Michelle Felman...................... 39 Executive Vice President -- Acquisitions since September
2000; Independent Consultant to Vornado Realty Trust
from October 1997 to September 2000; Managing
Director-Global Acquisitions and Business Development of
GE Capital from 1991 to July 1997.
</Table>
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<Table>
<Caption>
PRINCIPAL OCCUPATION, POSITION AND OFFICE
(CURRENT AND DURING PAST FIVE YEARS WITH
NAME AGE VORNADO REALTY TRUST, UNLESS OTHERWISE STATED)
- ---- --- ----------------------------------------------
Joseph Hakim......................... 53 Executive Vice President -- Chief Operating Officer
since September 2000; Chief Executive Officer of the
Merchandise Mart Division since April 1998 (date
acquired by Vornado Realty Trust); President and Chief
Executive Officer of Merchandise Mart Properties, Inc.,
the main operating subsidiary of Joseph P. Kennedy
Enterprises, Inc. (the predecessor to the Merchandise
Mart Division), from 1992 to April 1998.
Joseph Macnow........................ 56 Executive Vice President -- Finance and Administration
since January 1998 and Chief Financial Officer since
March 2001; Executive Vice President -- Finance and
Administration of Vornado Operating Company since 1998;
Vice President -- Chief Financial Officer from 1985 to
January 1998; and Vice President -- Chief Financial
Officer of Alexander's, Inc. since August 1995.
Wendy Silverstein.................... 41 Executive Vice President -- Capital Markets since April
1998; Vice President and Senior Credit Officer of
Citicorp Real Estate and Citibank, N.A. from 1990 to
1998; and Assistant Vice President in the Leveraged
Capital Group at Citibank, N.A. from 1986 to 1990.
David R. Greenbaum................... 50 President of the New York City Office Properties
Division since April 1997 (date of Vornado Realty
Trust's acquisition); and President of Mendik Realty
(the predecessor to the New York City Office Properties
Division) from 1990 until April 1997.
Sandeep Mathrani..................... 39 Executive Vice President -- Retail Real Estate since
March 2002; and Executive Vice President, Forest City
Ratner from 1994 to February 2002.
Christopher Kennedy.................. 38 President of the Merchandise Mart Division since
September 2000; Executive Vice President of the
Merchandise Mart from April 1998 to September 2000; and
Executive Vice President of Merchandise Mart Properties,
Inc. from 1994 to April 1998.
Paul Larner.......................... 46 Chief Operating Officer and Chief Financial Officer of
Charles E. Smith Commercial Realty, a division of
Vornado Realty Trust, since January 2002 (date acquired
by Vornado Realty Trust); and Chief Financial Officer of
Charles E. Smith Commercial Realty L.P. (the predecessor
to Charles E. Smith Commercial Realty) from October 1997
until January 2002.
</Table>
S-19
DESCRIPTION OF THE NOTES
The following description of the particular terms of the notes offered by
this prospectus supplement adds information to, and to the extent inconsistent
therewith, supersedes the description of the general terms and provisions of
debt securities under the heading "Description of Debt Securities" in the
accompanying prospectus. In this description of notes, the words "we", "our",
"ours" and "us" refer only to Vornado Realty L.P. and not to any of its
subsidiaries. The notes will be issued under an indenture between us and The
Bank of New York, as trustee, dated as of June 24, 2002.
BRIEF DESCRIPTION OF THE NOTES
These notes will:
- be our direct, senior unsecured obligations;
- rank equally with each other and with any other unsecured and
unsubordinated indebtedness from time to time outstanding;
- be effectively subordinated to any secured indebtedness and to
indebtedness, including mortgages and other secured indebtedness, and
other liabilities of our subsidiaries from time to time outstanding;
- entitle you to realize value from encumbered or indirectly held
properties only after satisfaction of secured indebtedness and other
liabilities;
- not be subject to any sinking fund provision; and
- be issued in denominations of $1,000 and integral multiples of $1,000.
As of March 31, 2002, our Total Outstanding Debt was approximately
$4,760,199,000. We determined the amount of our Total Outstanding Debt as set
forth in the preceding sentence in conformity with determination of such amount
as described under "-- Covenants" below.
Neither any limited or general partner of Vornado Realty L.P., including
Vornado Realty Trust, nor any principal, shareholder, officer, director, trustee
or employee of any limited or general partner of Vornado Realty L.P. or of any
successor of any limited or general partner of Vornado Realty L.P. has any
obligation for payment of the notes or for any of Vornado Realty L.P.'s
obligations, covenants or agreements contained in the notes or the indenture. By
accepting the notes, you waive and release all liability of this kind. The
waiver and release are part of the consideration for the issuance of the notes.
PRINCIPAL, INTEREST AND MATURITY
We will issue the notes in the initial aggregate principal amount of
$500,000,000. The notes will mature on June 15, 2007. The notes will bear
interest at the annual rate shown on the cover of this prospectus supplement and
will accrue interest from June 24, 2002, or from the most recent date to which
interest has been paid or provided for. Interest will be payable twice a year,
on June 15 and December 15, to the person in whose name a note is registered at
the close of business on the June 1 or December 1 that precedes the date on
which interest will be paid. Interest will be computed on the basis of a 360-day
year consisting of twelve 30-day months. We will have the option to redeem the
notes at any time, as described below.
In some circumstances, we may elect to discharge our obligations on the
notes through defeasance or covenant defeasance. See "Description of Debt
Securities -- Defeasance" in the accompanying prospectus for more information
about how we may do this.
ISSUANCE OF ADDITIONAL NOTES OF THE SAME SERIES
We may, without the consent of the holders of the notes, issue additional
notes having the same ranking and the same interest rate, maturity and other
terms as the notes offered by this prospectus
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supplement but with different issue prices and accrued interest to the date of
issuance of the additional notes. Any additional notes of this kind will,
together with the notes offered by this prospectus supplement, constitute a
single series of notes under the indenture. We may also offer additional debt
securities of different series from the notes offered by this prospectus
supplement.
OPTIONAL REDEMPTION
We may redeem the notes, in whole or in part, at our option at any time, at
a redemption price equal to the sum of:
(1) 100% of the aggregate principal amount of the notes being
redeemed;
(2) any accrued but unpaid interest on those notes to the redemption
date; and
(3) the Make-Whole Amount, if any, as described below.
We will pay the interest installment due on any interest payment date that
occurs on or before a redemption date to the registered holders of the notes as
of the close of business on the record date immediately preceding that interest
payment date.
If we have given notice as provided in the indenture and made funds
available for the redemption of any notes called for redemption on the
redemption date referred to in that notice, those notes will cease to bear
interest on that redemption date and the holders will not have any further
rights as holders of the notes except the right to receive payment of the
redemption price.
As used in this prospectus supplement:
"Make-Whole Amount" means, in connection with any optional redemption, the
excess, if any, of (a) the aggregate present value as of the date of redemption
of each dollar of principal of the notes being redeemed and the amount of
interest, exclusive of interest accrued to the date of redemption, that would
have been payable in respect of each such dollar if such redemption had not been
made, determined by discounting, on a semi-annual basis, assuming a 360-day year
consisting of twelve 30-day months, such principal and interest at the
applicable Reinvestment Rate, determined on the third New York business day
preceding the date notice of such redemption is given from the respective dates
on which such principal and interest would have been payable if such redemption
had not been made, to the date of redemption, over (b) the aggregate principal
amount of the notes being redeemed.
"Reinvestment Rate" means 0.25% plus the arithmetic mean of the yields
under the heading "Week Ending" published in the most recent Statistical Release
under the caption "Treasury Constant Maturities" for the maturity, rounded to
the nearest month, corresponding to the remaining life to maturity, as of the
payment date of the principal amount of the notes being redeemed. If no maturity
exactly corresponds to such maturity, yields for the two published maturities
most closely corresponding to such maturity shall be calculated pursuant to the
immediately preceding sentence and the Reinvestment Rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding in each of
such relevant periods to the nearest month. For the purposes of calculating the
Reinvestment Rate, the most recent Statistical Release published prior to the
date of determination of the Make-Whole Amount shall be used. If the format or
content of the Statistical Release changes in a manner that precludes
determination of the Treasury yield in the above manner, then the Treasury yield
shall be determined in the manner that most closely approximates the above
manner, as reasonably determined by us.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which reports yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any required determination under the indenture,
then such other reasonably comparable index which shall be designated by us.
We will mail notice of any redemption to the trustee and The Depository
Trust Company, or DTC, not less than 30 days and not more than 60 days before
the redemption date. If we redeem only some of
S-21
the notes, it is the practice of DTC to determine by lot the amount of notes to
be redeemed by each of its participating institutions. Notice by DTC to these
participants and by participants to "street name" holders of indirect interests
in the notes will be made according to arrangements among them and may be
subject to statutory or regulatory requirements. Unless we default in payment of
the redemption price on the redemption date, interest will cease to accrue on
the notes or portions of notes called for redemption on and after the redemption
date.
COVENANTS
This subsection describes promises we make in the notes for the benefit of
the holders of the notes. See "Description of Debt Securities -- Certain
Covenants of the Operating Partnership" in the accompanying prospectus for
information about other promises that we make in the indenture for the benefit
of the holders of the notes. Compliance with the covenants described in this
prospectus supplement and the covenants described in the accompanying prospectus
with respect to the notes generally may not be waived by the board of trustees
of Vornado Realty Trust, as general partner of Vornado Realty L.P., or by the
trustee under our indenture unless the holders of at least a majority in
principal amount of all outstanding notes consent to the waiver. As noted above,
however, the defeasance and covenant defeasance provisions of the indenture
described under "Description of Debt Securities -- Defeasance" in the
accompanying prospectus apply to the notes, including with respect to the
covenants described in this prospectus supplement and the accompanying
prospectus.
In this subsection, we use several specialized terms that are given special
meanings in the notes. We capitalize these terms and define them in "-- Special
Terms Used in Covenants" at the end of this subsection.
LIMITATIONS ON INCURRENCE OF DEBT
LIMITATION ON OUTSTANDING DEBT. Vornado Realty L.P. may not, and may not
permit any Subsidiary to, Incur any Debt, other than Intercompany Debt, if,
immediately after giving effect to the Incurrence of the additional Debt and any
other Debt, other than Intercompany Debt, Incurred since the end of the period
covered by our Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as
the case may be, most recently filed with the SEC prior to the Incurrence of the
additional Debt and the application of the net proceeds of the additional Debt
and such other Debt, Total Outstanding Debt would exceed 60% of Total Assets, in
each case determined as of the end of the period covered by that Annual Report
on Form 10-K or Quarterly Report on Form 10-Q, as the case may be.
LIMITATION ON SECURED DEBT. Vornado Realty L.P. may not, and may not
permit any Subsidiary to, Incur any Secured Debt, other than Secured Debt that
is also Intercompany Debt, if, immediately after giving effect to the Incurrence
of the additional Secured Debt and any other Secured Debt, other than
Intercompany Debt, Incurred since the end of the period covered by our Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most
recently filed with the SEC prior to the Incurrence of the additional Secured
Debt and the application of the net proceeds of the additional Secured Debt and
such other Secured Debt, the aggregate principal amount of all outstanding
Secured Debt is greater than 55% of Total Assets determined as of the end of the
period covered by that Annual Report on Form 10-K or Quarterly Report on Form
10-Q, as the case may be.
RATIO OF ANNUALIZED COMBINED EBITDA TO ANNUALIZED INTEREST
EXPENSE. Vornado Realty L.P. may not, and may not permit any Subsidiary to,
Incur any Debt, other than Intercompany Debt, if, immediately after giving
effect to the Incurrence of the additional Debt, the ratio of Annualized
Combined EBITDA for the most recent quarterly period covered by our Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most
recently filed with the SEC prior to the Incurrence of the additional Debt, to
Annualized Interest Expense for that quarter would be less than 1.50 to 1.00 on
a pro
S-22
forma basis after giving effect to the Incurrence of the additional Debt and to
the application of the net proceeds therefrom, and calculated on the assumption,
without duplication, that:
- the additional Debt and any other Debt Incurred by us or our Subsidiaries
from the first day of that quarter to the date of determination, which
was outstanding at the date of determination, had been Incurred at the
beginning of that period and continued to be outstanding throughout that
period, and the application of the net proceeds of that Debt, including
to refinance other Debt, had occurred at the beginning of that period;
- the repayment or retirement of any other Debt repaid or retired by us or
our Subsidiaries from the first day of that quarter to the date of
determination occurred at the beginning of that period, except that, in
determining the amount of Debt so repaid or retired, the amount of Debt
under any revolving credit facility will be computed based upon the
average daily balance of that Debt during that period; and
- in the case of any acquisition or disposition of any asset or group of
assets or the placement of any assets in service or removal of any assets
from service by us or any of our Subsidiaries from the first day of that
quarter to the date of determination, including, without limitation, by
merger, or stock or asset purchase or sale, the acquisition, disposition,
placement in service or removal from service had occurred as of the first
day of that period, with the appropriate adjustments to Annualized
Interest Expense with respect to the acquisition, disposition, placement
in service or removal from service being included in that pro forma
calculation.
MAINTENANCE OF UNENCUMBERED ASSETS
Vornado Realty L.P. and its Subsidiaries will maintain at all times
Unencumbered Assets of not less than 150% of the aggregate principal amount of
all outstanding Unsecured Debt of Vornado Realty L.P. and its Subsidiaries.
SPECIAL TERMS USED IN COVENANTS
In this subsection entitled "-- Covenants", we use several terms that have
special meanings relevant to the promises we make in the notes for the benefit
of the holders of the notes. We define these terms as follows:
"Annualized Combined EBITDA" means, for any quarter, the product of
Combined EBITDA for such period of time multiplied by four (4), provided that
any non-recurring item that is an expense will be added back to net income in
determining such Combined EBITDA before such multiplication and deducted once
from such product, and further provided that any non-recurring item that is
income will be added to such product once and will not be multiplied by four.
"Annualized Interest Expense" means, for any quarter, the Interest Expense
for that quarter multiplied by four (4).
"Another Person's Share" means, in connection with the defined term
"Contingent Liabilities of Vornado Realty L.P. and Subsidiaries", the
proportionate portion, based on its direct and indirect ownership interest, of a
Person other than Vornado Realty L.P. or any of its Subsidiaries of the
applicable Unconsolidated Joint Venture.
"Combined EBITDA" means, for any period of time, without duplication (1)
net income (loss) of Vornado Realty L.P. and its Consolidated Subsidiaries
before deductions for Interest Expense, taxes, depreciation and amortization and
other non-cash items deducted in arriving at net income (loss), extraordinary
items, non-recurring items as determined in good faith by us and minority
interest, and excluding gains (losses) on dispositions of depreciable real
estate of Vornado Realty L.P. and its Consolidated Subsidiaries; plus (2) net
income before deductions for Interest Expense, taxes, depreciation and
amortization and other non-cash items deducted in arriving at net income (loss),
extraordinary items, non-recurring items as determined in good faith by us, and
minority interest and excluding gains (losses)
S-23
on dispositions of depreciable real estate of Unconsolidated Joint Ventures
multiplied by Vornado Realty L.P.'s and its Consolidated Subsidiaries'
proportionate portion, based on their direct and indirect ownership interest, of
such Unconsolidated Joint Ventures; minus (3) Vornado Realty L.P.'s income
(loss) from Unconsolidated Joint Ventures, in each case (1), (2) and (3) for
such period as reasonably determined by us in accordance with GAAP to the extent
GAAP is applicable. Combined EBITDA will be adjusted, without duplication, to
give pro forma effect: (x) in the case of any assets having been placed in
service or removed from service from the beginning of the period to the date of
determination, to include or exclude, as the case may be, any Combined EBITDA
earned or eliminated as a result of the placement of such assets in service or
removal of such assets from service as if the placement of such assets in
service or removal of such assets from service occurred at the beginning of the
period; and (y) in the case of any acquisition or disposition of any asset or
group of assets from the beginning of the period to the date of determination,
including, without limitation, by merger, or stock or asset purchase or sale, to
include or exclude, as the case may be, any Combined EBITDA earned or eliminated
as a result of the acquisition or disposition of those assets as if the
acquisition or disposition occurred at the beginning of the period.
"Consolidated Financial Statements" means, with respect to any Person,
collectively, the consolidated financial statements and notes to those financial
statements, of that Person and its Consolidated Subsidiaries prepared in
accordance with GAAP. For purposes of this definition, if as of any date or for
any period actual consolidated financial statements of any Person have not been
prepared, then this term will include the books and records of that Person
ordinarily used in the preparation of such financial statements.
"Consolidated Subsidiaries" means, collectively, each Subsidiary of Vornado
Realty L.P. that is consolidated in the Consolidated Financial Statements of
Vornado Realty L.P.
"Contingent Liabilities of Vornado Realty L.P. and Subsidiaries" means, as
of any date, without duplication, those liabilities of Vornado Realty L.P. and
any of its Subsidiaries consisting of indebtedness for borrowed money, as
determined in accordance with GAAP, that are or would be stated and quantified
as contingent liabilities in the notes to the Consolidated Financial Statements
of Vornado Realty L.P. as of that date; provided, however, that Contingent
Liabilities of Vornado Realty L.P. and Subsidiaries shall exclude Another
Person's Share of Duplicated Obligations.
"Debt" means, as of any date, (1) in the case of Vornado Realty L.P., all
indebtedness and liabilities for borrowed money, secured or unsecured, of
Vornado Realty L.P.; (2) in the case of Vornado Realty L.P.'s Consolidated
Subsidiaries, all indebtedness and liabilities for borrowed money, secured or
unsecured, of the Consolidated Subsidiaries, including mortgage and other notes
payable but excluding any indebtedness which is secured by cash, cash
equivalents or marketable securities or defeased; and (3) Contingent Liabilities
of Vornado Realty L.P. and Subsidiaries, in each case as of that date.
"Duplicated Obligations" means, as of any date, collectively, all those
payment guaranties in respect of indebtedness and other liabilities, secured or
unsecured, of Unconsolidated Joint Ventures, including mortgage and other notes
payable for which Vornado Realty L.P. or any of its Subsidiaries, on one hand,
and another Person or Persons, on the other hand, are jointly and severally
liable.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, assume, guarantee or otherwise become liable in respect of the Debt
or other obligation, and "Incurrence" and "Incurred" have the meanings
correlative to the foregoing.
"Intercompany Debt" means, as of any date, Debt to which the only parties
are Vornado Realty Trust, Vornado Realty L.P., or any Subsidiary of either of
them as of that date and which, in the case of an event of default under the
notes, is subordinated in right of payment to the notes.
"Interest Expense" means, for any period of time, the consolidated interest
expense for such period of time, whether paid, accrued or capitalized, without
deduction of consolidated interest income, of Vornado
S-24
Realty L.P. and its Consolidated Subsidiaries, including, without limitation or
duplication, or, to the extent not so included, with the addition of: (1) the
portion of any rental obligation in respect of any capital lease obligation
allocable to interest expense in accordance with GAAP; (2) the amortization of
Debt discounts; and (3) the interest expense and items listed in clauses (1) and
(2) above applicable to each of the Unconsolidated Joint Ventures, to the extent
not included above, multiplied by Vornado Realty L.P.'s respective direct and
indirect ownership interests in the Unconsolidated Joint Ventures, in all cases
as reflected in the applicable Consolidated Financial Statements.
"Lien" means, without duplication, any mortgage, trust deed, deed of trust,
deeds to secure Debt, pledge, security interest, assignment for collateral
purposes, deposit arrangement, or other security agreement, excluding any right
of setoff but including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and any other like agreement granting or
conveying a security interest.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture, limited
liability company, governmental authority or other entity of whatever nature.
For the purposes of this definition, "governmental authority" means any nation
or government, any state or other political subdivision of any state, and any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Secured Debt" means, as of any date, that portion of Total Outstanding
Debt as of that date that is secured by a Lien on real property, securities or
intangible assets of Vornado Realty L.P., the Consolidated Subsidiaries of
Vornado Realty L.P. or the Unconsolidated Joint Ventures.
"Subsidiary" means, with respect to any Person, a corporation, partnership,
joint venture, limited liability company or other entity, fifty percent (50%) or
more of the outstanding voting stock, partnership interests or membership
interests, as the case may be, of which is owned, directly or indirectly, by
that Person or by one or more other Subsidiaries of that Person and over which
that Person or one or more other Subsidiaries of that Person exercise sole
control. For the purposes of this definition, "voting stock" means stock having
voting power for the election of directors or trustees, as the case may be,
whether at all times or only so long as no senior class of stock has voting
power for the election of directors or trustees by reason of any contingency,
and "control" means the power to direct the management and policies of a Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise.
"Total Assets" means, with respect to any Incurrence of Debt or Secured
Debt, as of any date, the sum of (1) Combined EBITDA for the most recent
quarterly period covered by our Annual Report on Form 10-K or Quarterly Report
on Form 10-Q, as the case may be, most recently filed with the SEC prior to such
date, annualized (i.e., multiplied by four (4)), and capitalized at a rate of
9.0%, (2) cash, cash equivalents and marketable securities of Vornado Realty
L.P. and its Consolidated Subsidiaries other than restricted cash, cash
equivalents and marketable securities pledged to secure Debt, determined in
accordance with GAAP, (3) Vornado Realty L.P.'s proportionate portion, based on
its direct and indirect ownership interest, of cash, cash equivalents and
marketable securities of Unconsolidated Joint Ventures as of such date,
determined in accordance with GAAP, (4) without duplication, the cost basis of
properties of Vornado Realty L.P. and its Consolidated Subsidiaries that are
under construction as of the end of the quarterly period used for purposes of
clause (1) above and Vornado Realty L.P.'s proportionate share of the cost basis
of properties of its Unconsolidated Joint Ventures that are under construction
as of the end of the quarterly period used for purposes of clause (1) above, in
each case as determined by Vornado Realty L.P., and (5) without duplication, the
proceeds of the Debt or Secured Debt or the assets to be acquired in exchange
for such proceeds, as the case may be, other than Intercompany Debt, Incurred
from the end of the period covered by our Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, as the case may be, most recently filed with the
SEC prior to the Incurrence of the Debt or Secured Debt, as the case may be, to
the date of determination.
"Total Outstanding Debt" means, as of any date, the sum, without
duplication, of (1) the aggregate principal amount of all outstanding Debt of
Vornado Realty L.P. as of that date; (2) the aggregate
S-25
principal amount of all outstanding Debt of Vornado Realty L.P.'s Consolidated
Subsidiaries, all as of that date; and (3) the sum of the aggregate principal
amount of all Unconsolidated Joint Venture Outstanding Debt of each of the
Unconsolidated Joint Ventures multiplied by Vornado Realty L.P.'s respective
proportionate portion, based on its direct and indirect ownership interest, in
such Unconsolidated Joint Venture as of that date. For the purposes of this
definition, "Unconsolidated Joint Venture Outstanding Debt" means, as of any
date, the aggregate principal amount of all outstanding indebtedness and
liabilities for borrowed money, secured or unsecured, of the applicable
Unconsolidated Joint Venture, including mortgage and other notes payable but
excluding any indebtedness which is secured by cash, cash equivalents or
marketable securities, all as reflected in the Consolidated Financial Statements
of such Unconsolidated Joint Venture as of such date.
"Unconsolidated Joint Ventures" means the unconsolidated joint ventures and
partially owned entities in which Vornado Realty L.P. owns a beneficial interest
and which are accounted for under the equity method in the Consolidated
Financial Statements of Vornado Realty L.P. Unconsolidated Joint Ventures
excludes Prime Group Realty L.P. and any other unconsolidated joint venture
designated from time to time by the Board of Trustees of Vornado Realty Trust as
excluded from Unconsolidated Joint Ventures for purposes of these definitions so
long as neither Vornado Realty L.P. nor any of its Consolidated Subsidiaries is
an obligor on any indebtedness of that unconsolidated joint venture.
"Unencumbered Annualized Combined EBITDA" means, for any quarter,
Unencumbered Combined EBITDA for that quarter multiplied by four (4).
"Unencumbered Assets" means, as of any date, the sum of (1) Unencumbered
Annualized Combined EBITDA for the most recent quarterly period covered by our
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be,
most recently filed with the SEC prior to such date, and capitalized at a rate
of 9.0%, (2) cash, cash equivalents and marketable securities of Vornado Realty
L.P. and its Consolidated Subsidiaries as of such date, other than restricted
cash, cash equivalents and marketable securities pledged to secure Debt,
determined in accordance with GAAP, (3) Vornado Realty L.P.'s proportionate
portion, based on its direct and indirect ownership interest, of cash, cash
equivalents and marketable securities of Unconsolidated Joint Ventures as of
such date, other than restricted cash, cash equivalents and marketable
securities pledged to secure Debt, determined in accordance with GAAP, (4)
without duplication, the cost basis of properties of Vornado Realty L.P. and its
Consolidated Subsidiaries and Vornado Realty L.P.'s proportionate share of the
cost basis of properties of its Unconsolidated Joint Ventures that are under
construction as of the end of the quarterly period used for purposes of clause
(1) above, in each case as determined by Vornado Realty L.P., except in each
case any properties that are pledged to secure Debt, and (5) without
duplication, the proceeds of any Debt, other than Intercompany Debt, Incurred
from the end of the period covered by our Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, as the case may be, most recently filed with the
SEC prior to such date, or the assets to be acquired in exchange for such
proceeds, except in each case any proceeds or assets that are pledged in respect
of Secured Debt.
"Unencumbered Combined EBITDA" means, for any quarter, Combined EBITDA for
the most recent quarterly period covered by our Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, as the case may be, most recently filed with the
SEC prior to the time of determination less any portion thereof attributable to
assets serving as collateral for Secured Debt, as determined in good faith by
Vornado Realty L.P.
"Unsecured Debt" means, as of any date, that portion of Total Outstanding
Debt as of that date that is neither Secured Debt nor Contingent Liabilities of
Vornado Realty L.P. and Subsidiaries.
EVENTS OF DEFAULT
The only events that would cause an event of default applicable to the
notes are described under "Description of Debt Securities -- Events of Default"
in the accompanying prospectus.
S-26
BOOK-ENTRY SYSTEM
We will issue the notes in the form of one or more fully registered global
securities, as described in "Description of Debt Securities -- Book-Entry Debt
Securities" in the accompanying prospectus. We will deposit these global
securities with, or on behalf of, DTC, and register these securities in the name
of DTC's nominee.
DTC has advised us and the underwriters that it is a limited-purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered under the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC holds securities of institutions that have accounts with it or its
participants. Through its maintenance of an electronic book-entry system, DTC
facilitates the clearance and settlement of securities transactions among its
participants and eliminates the need to deliver securities certificates
physically. DTC's participants include securities brokers and dealers, including
the underwriters of this offering, banks, trust companies, clearing corporations
and other organizations, some of whom and/or their representatives own DTC. DTC
is owned by a number of its participants and by the New York Stock Exchange,
Inc., the American Stock Exchange LLC and the National Association of Securities
Dealers, Inc. Access to DTC's book-entry system is also available to others such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly. DTC
agrees with and represents to its participants that it will administer its
book-entry system in accordance with its rules and bylaws and requirements of
law. The rules applicable to DTC and its participants are on file with the SEC.
So long as DTC, or it nominee, is the registered holder and owner of such
global securities, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the notes represented by such global securities for
the purposes of receiving payment on the notes, receiving notices and for all
other purposes under the indenture and the notes. Except as described in the
accompanying prospectus, owners of beneficial interests in the global securities
will not be entitled to receive physical delivery of notes in definitive form
and will not be considered the holders thereof for any purpose under the
indenture. Accordingly, each person owning a beneficial interest in the global
securities must rely on the procedures of DTC and, if such person is not a
participant, on the procedures of the participant through which such person owns
its interest, to exercise any rights of the holder under the indenture.
The indenture provides that DTC may grant proxies and otherwise authorize
participants to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action which a holder is entitled to give or
take under the indenture. We understand that under existing industry practices,
in the event that we request any action of holders or that an owner of a
beneficial interest in such global securities desires to give or take any action
which a holder is entitled to give or take under the indenture, DTC would
authorize the participants holding the relevant beneficial interest to give or
take such action, and such participants would authorize beneficial owners owning
through such participants to five or take such action or would otherwise act
upon the instructions of beneficial owners through them.
We expect that pursuant to procedures established by DTC, upon the issuance
of the global securities, DTC or its nominee will credit, on its book-entry
registration and transfer system, the principal amount of notes represented by
such global securities to the accounts of participants. The ownership interests
of each actual purchaser, commonly known as the beneficial owner, in the global
securities is in turn to be recorded on the direct and indirect participants'
records. Beneficial owners will not receive written confirmation from DTC of
their purchase, but beneficial owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the direct or indirect participant through
which the beneficial owner entered into the transaction. DTC has no knowledge of
the actual beneficial owners of the securities issued in the form of global
securities. DTC's records reflect only the identity of the direct participants
to whose accounts such securities are credited,
S-27
which may or may not be the beneficial owners. The direct and indirect
participants will remain responsible for keeping account of their holdings on
behalf of their customers.
We will make payments of principal of, premium, if any, and interest on the
notes represented by the global securities registered in the name of and held by
DTC or its nominee to DTC or its nominee, as the case may be, as the registered
owner and holder of the global securities.
We expect that DTC or its nominee, upon receipt of any payment of principal
of, premium, if any, or interest on the global securities will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such global
securities as shown on the records of DTC. We also expect that payments by
direct or indirect participants to owners of beneficial interests in the global
securities held through such direct or indirect participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for customer accounts registered in "street name", and will be
the sole responsibility of such participants. Neither we nor the trustee, nor
any of our agents or the trustee, will have any responsibility or liability for
any aspect of DTC's records relating to, or payments made on account of,
beneficial ownership interest in the global securities representing any notes or
for maintaining, supervising or reviewing any of DTC's records relating to such
beneficial ownership interests.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable, but we take no
responsibility for the accuracy thereof.
S-28
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section describes the material United States federal income tax
consequences of the ownership and disposition of the notes we are offering. It
replaces the discussion under "Federal Income Tax Considerations" in the
accompanying prospectus in its entirety. It applies to you only if you are a
United States holder who acquires notes in the offering at the offering price
and you hold your notes as capital assets for tax purposes. You are a United
States holder if you are a beneficial owner of a note and you are:
- a citizen or resident of the United States,
- a domestic corporation,
- an estate whose income is subject to United States federal income tax
regardless of its source, or
- a trust if a United States court can exercise primary supervision over
the trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust.
This section does not apply to you if you are a member of a class of
holders subject to special rules, such as:
- a dealer in securities or currencies,
- a trader in securities that elects to use a mark-to-market method of
accounting for your securities holdings,
- a bank,
- a life insurance company,
- a tax-exempt organization,
- a person that owns notes that are a hedge or that are hedged against
interest rate risks,
- a person that owns notes as part of a straddle or conversion transaction
for tax purposes, or
- a person whose functional currency for tax purposes is not the U.S.
dollar.
If you purchase notes at a price other than the offering price, the
amortizable bond premium or market discount rules may also apply to you. You
should consult your tax advisor regarding this possibility.
This section is based on the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations under the Internal
Revenue Code, published rulings and court decisions, all as currently in effect.
These laws are subject to change, possibly on a retroactive basis.
Please consult your tax advisor concerning the consequences of owning and
disposing of these notes in your particular circumstances under the Internal
Revenue Code and the laws of any other taxing jurisdiction.
PAYMENTS OF INTEREST
You will be taxed on interest on your note as ordinary income at the time
you receive the interest or when it accrues, depending on your method of
accounting for tax purposes.
PURCHASE, SALE AND RETIREMENT OF THE NOTES
Your tax basis in your note generally will be its cost. You will generally
recognize capital gain or loss on the sale or retirement of your note equal to
the difference between the amount you realize on the sale or retirement,
excluding any amounts attributable to accrued but unpaid interest, and your tax
basis in your note. Capital gain of a non-corporate United States holder is
generally taxed at a maximum rate of 20% where your note is held more than one
year.
S-29
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, if you are a non-corporate United States holder, information
reporting requirements will apply to payments of principal and interest on your
note, and the proceeds of the sale of your note before maturity within the
United States, and "backup withholding" will apply to such payments if you fail
to provide an accurate taxpayer identification number or are notified by the
Internal Revenue Service that you have failed to report all interest and
dividends required to be shown on your United States federal income tax returns.
S-30
UNDERWRITING
We are selling the notes to the underwriters named below under an
underwriting agreement dated June 19, 2002. The underwriters and the aggregate
principal amount of notes that each of them has severally agreed to purchase
from us are as follows:
<Table>
<Caption>
AGGREGATE PRINCIPAL
UNDERWRITER AMOUNT OF NOTES
- ----------- -------------------
Salomon Smith Barney Inc. .................................. $145,000,000
Banc of America Securities LLC.............................. 145,000,000
J.P. Morgan Securities Inc. ................................ 145,000,000
Commerzbank Capital Markets Corp. .......................... 15,000,000
Deutsche Bank Securities Inc. .............................. 15,000,000
Fleet Securities, Inc. ..................................... 10,000,000
UBS Warburg LLC............................................. 10,000,000
BNY Capital Markets, Inc. .................................. 5,000,000
PNC Capital Markets, Inc. .................................. 5,000,000
Wells Fargo Brokerage Services, LLC......................... 5,000,000
------------
Total....................................................... $500,000,000
</Table>
The underwriting agreement provides that the obligations of the
underwriters are subject to specified conditions precedent and that, when those
conditions are satisfied, the underwriters will be obligated to purchase all of
the notes.
The underwriters initially propose to offer the notes to the public at the
public offering price set forth on the cover of this prospectus supplement and
to specified dealers at a price that represents a concession not in excess of
0.35% of the aggregate principal amount of the notes. Any underwriter may allow,
and any specified dealer may reallow, a concession not in excess of 0.25% of the
aggregate principal amount of the notes to specified other dealers. After the
initial offering of the notes, the underwriters may, from time to time, vary the
offering price and the selling terms.
The notes constitute a new issue of securities with no established trading
market and will not be listed on any national securities exchange. We have been
advised by the underwriters that they intend to make a market in the notes, but
they are not obligated to do so and may discontinue market making at any time
without notice. We can give no assurance as to the liquidity of or any trading
market for the notes.
We have agreed to indemnify the several underwriters against, or contribute
to payments that the underwriters may be required to make in respect of,
specified liabilities, including liabilities under the Securities Act of 1933.
We estimate that we will spend approximately 280,000 for expenses of the
offering.
The underwriters have agreed to reimburse us for certain expenses incurred
in connection with the offering.
J.P. Morgan Securities Inc. will make the securities available for
distribution on the Internet through a proprietary Web site and/or a third-party
system operated by Market Axess Inc., an Internet-based communications
technology provider. Market Axess Inc. is providing the system as a conduit for
communications between JPMorgan and its customers and is not a party to any
transactions. Market Axess Inc., a registered broker-dealer, will receive
compensation from JPMorgan based on transactions JPMorgan conducts through the
system. JPMorgan will make the securities available to its customers through the
Internet distributions, whether made through a proprietary or third-party
system, on the same terms as distributions made through other channels.
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
notes. Specifically, the underwriters may overallot in connection with the
offering of the notes, creating a syndicate short position. In addition, the
underwriters may bid for, and
S-31
purchase, the notes in the open market to cover short positions or to stabilize
the price of the notes. Finally, the underwriters may reclaim selling
concessions allowed for distributing the notes in the offering, if the
underwriters repurchase previously distributed notes in transactions to cover
short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the notes above
independent market levels. The underwriters are not required to engage in any of
these activities at any time.
We and the underwriters make no representation or prediction as to the
direction or magnitude of any effect that the transactions described in the
preceding paragraph may have on the price of any notes. In addition, we and the
underwriters make no representation that the underwriters will engage in those
types of transactions or that those transactions, once commenced, will not be
discontinued without notice.
In the ordinary course of their respective businesses, the underwriters
and/or their affiliates have engaged, and expect in the future to engage, in
investment banking, commercial banking, financial advisory, hedging and/or
general financing transactions with us, for which they have received, and may in
the future receive, customary fees and commissions. An affiliate of each of the
underwriters is a lender under our revolving credit facility. BNY Capital
Markets, Inc., one of the underwriters, is an affiliate of The Bank of New York,
the trustee under the indenture under which the notes are to be issued.
VALIDITY OF THE NOTES
The validity of the notes offered by this prospectus supplement will be
passed upon for Vornado Realty L.P. by Sullivan & Cromwell, New York, New York.
Certain legal matters will be passed upon for the underwriters by Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The consolidated financial statements and the related consolidated
financial statement schedules incorporated in the accompanying prospectus by
reference from Vornado Realty L.P.'s Annual Report on Form 10-K for the year
ended December 31, 2001, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are incorporated in the accompanying
prospectus by reference, and have been so incorporated in reliance upon the
reports of Deloitte & Touche LLP given upon their authority as experts in
accounting and auditing.
The consolidated balance sheet as of December 31, 2001 and the consolidated
statements of income, changes in partners' deficit, and cash flows for the year
ended December 31, 2001 of Charles E. Smith Commercial Realty L.P. and
subsidiaries, which are incorporated in the accompanying prospectus by reference
from Vornado's Current Report on Form 8-K/A filed with the SEC on March 18,
2002, have been audited by Arthur Andersen LLP, independent public accountants,
as indicated in their report with respect to those financial statements, and
have been so incorporated in reliance upon the authority of Arthur Andersen LLP
as experts in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C. and Chicago, Illinois. Please
call the SEC at l-800-SEC-0330 for further information on the public reference
room. Our SEC filings are also available to the public at the SEC's web site at
http://www.sec.gov. The address of the SEC's web site is provided for the
information of prospective investors and not as an active link. You can also
inspect reports, proxy statements and other information about us at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York.
The SEC allows us to "incorporate by reference" into this prospectus
supplement and the accompanying prospectus the information in documents we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated
S-32
by reference is considered to be a part of this prospectus supplement and the
accompanying prospectus, and should be read with the same care. When we update
the information contained in documents that have been incorporated by reference,
by making future filings with the SEC, the information incorporated by reference
in this prospectus supplement and the accompanying prospectus is considered to
be automatically updated and superseded. In other words, in all cases, if you
are considering whether to rely on information contained in this prospectus
supplement and the accompanying prospectus or information incorporated by
reference into this prospectus supplement and the accompanying prospectus, you
should rely on the information contained in the document that was filed later.
We incorporate by reference the following documents listed below and any
additional documents we file with the SEC in the future under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until the offering of
the common shares is completed:
(1) Annual Report on Form 10-K for the year ended December 31, 2001;
(2) Quarterly Report on Form 10-Q for the period ended March 31, 2002;
(3) Current Reports on Form 8-K filed on January 16, 2002 and March 1,
2002; and
(4) Current Reports on Form 8-K/A filed on March 18, 2002.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
210 Route 4 East
Paramus, New Jersey 07652
(201) 587-1000
Attention: Corporate Secretary
S-33
PROSPECTUS
$2,000,000,000
VORNADO REALTY TRUST
PREFERRED SHARES, DEPOSITARY SHARES AND
COMMON SHARES
$1,000,000,000
VORNADO REALTY L.P.
DEBT SECURITIES
----------------------
Vornado Realty Trust ("Vornado") may offer from time to time, together or
separately, in one or more series (i) preferred shares of beneficial interest of
Vornado, no par value ("Preferred Shares"), (ii) depositary shares representing
entitlement to all rights and preferences of a fraction of a Preferred Share of
a specified series and represented by depositary receipts ("Depositary Shares")
and (iii) common shares of beneficial interest of Vornado, par value $0.04 per
share ("Common Shares"), having an aggregate initial offering price not to
exceed U.S. $2,000,000,000. Vornado Realty L.P. (the "Operating Partnership")
may offer from time to time, together or separately, in one or more series debt
securities ("Debt Securities"), which may be either (i) senior debt securities
(the "Senior Debt Securities") or (ii) subordinated debt securities (the
"Subordinated Debt Securities"), having an aggregate initial offering price not
to exceed U.S. $1,000,000,000. The Preferred Shares, Depositary Shares, Common
Shares and Debt Securities offered hereby (collectively, the "Securities") may
be offered separately or together, in separate series, in amounts, at prices and
on terms to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement").
The accompanying Prospectus Supplement will set forth with regard to the
particular Securities in respect of which this Prospectus is being delivered (i)
in the case of Debt Securities, the title, aggregate principal amount,
denominations (which may be in United States dollars, or in any other currency,
currencies or currency unit, including the European Currency Unit), maturity,
rate, if any (which may be fixed or variable), or method of calculation thereof,
time of payment of any interest, any terms for redemption at the option of the
Operating Partnership or the holder, any terms for sinking fund payments, rank,
any exchange rights, any listing on a securities exchange, and the initial
public offering price and any other terms in connection with the offering and
sale of such Debt Securities, (ii) in the case of Preferred Shares, the specific
title, the aggregate amount and the stated value, any dividend (including the
method of calculating the payment of dividend), liquidation, redemption,
conversion, voting or other rights and the initial offering price and (iii) in
the case of Common Shares, the number of Common Shares, the initial offering
price and the terms of the offering thereof. The Prospectus Supplement will also
contain, as applicable, a discussion of the material United States Federal
income tax considerations relating to the Securities in respect of which this
Prospectus is being delivered to the extent not contained herein.
Vornado's Common Shares are listed on the New York Stock Exchange ("NYSE")
under the symbol "VNO". Vornado's $3.25 Series A Convertible Preferred Shares of
Beneficial Interest, liquidation preference $50.00 per share (the "Series A
Preferred Shares"), are listed on the NYSE under the symbol "VNO Pr A". The
Prospectus Supplement will also contain information, where applicable, as to any
listing on a securities exchange of the Securities covered by such Prospectus
Supplement.
----------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE SECURITIES.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
Vornado and the Operating Partnership may sell Securities to or through
underwriters, and also may sell Securities directly to other purchasers or
through agents. The accompanying Prospectus Supplement will set forth the names
of any underwriters or agents involved in the sale of the Securities in respect
of which this Prospectus is being delivered, the amounts of Securities, if any,
to be purchased by underwriters and the compensation, if any, of such
underwriters or agents. See "Plan of Distribution" herein.
The date of this Prospectus is February 11, 1998.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE OPERATING PARTNERSHIP OR ANY
UNDERWRITERS, AGENTS OR DEALERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY AND ITS SUBSIDIARIES OR THE OPERATING PARTNERSHIP SINCE
THE DATE HEREOF OR THE INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
All references to "Vornado" in this prospectus shall be deemed to refer to
Vornado Realty Trust; all references to the "Operating Partnership" in this
prospectus shall be deemed to refer to Vornado Realty L.P.; and all references
to the "Company" in this prospectus shall be deemed to include Vornado and its
consolidated subsidiaries, including the Operating Partnership.
AVAILABLE INFORMATION
Vornado and the Operating Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith Vornado and the Operating Partnership file
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by Vornado and the Operating Partnership with the Commission
can be inspected and copied at the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: 7 World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such information can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates and from a web site maintained by the Commission on
the World Wide Web that contains reports, proxy and information statements and
other information on registrants, such as Vornado and the Operating Partnership,
that must file such material with the Commission electronically. The
Commission's address on the world wide web is "http://www.sec.gov". Vornado's
Common Shares and Series A Preferred Shares are listed on the NYSE and similar
information can be inspected and copied at the NYSE, 20 Broad Street, 17th
Floor, New York, New York 10005.
This Prospectus constitutes a part of a registration statement on Form S-3
(the "Registration Statement") filed by Vornado and the Operating Partnership
with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). As permitted by the rules and regulations of the Commission,
this Prospectus omits certain of the information contained in the Registration
Statement and reference is hereby made to the Registration Statement and related
exhibits for further information with respect to Vornado, the Operating
Partnership and the Securities offered hereby. Statements contained herein
concerning the provisions of any documents filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed. Each such statement is qualified in its entirety by such
reference.
2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company and the Operating Partnership
with the Commission pursuant to the Exchange Act are hereby incorporated by
reference into this Prospectus:
(1) Vornado's Annual Report on Form 10-K (File No. 001-11954) for the
fiscal year ended December 31, 1996, as amended by the Form 10-K/A
Amendment No. 1, Form 10-K/A Amendment No. 2 and Form 10K/A Amendment No. 3
for the fiscal year ended December 31, 1996 filed with the Commission on
July 18, 1997, August 7, 1997 and September 10, 1997, respectively;
(2) Vornado's Quarterly Reports on Form 10-Q (File No. 001-11954) for
the periods ended March 31, 1997, June 30, 1997 and September 30, 1997;
(3) Vornado's Current Report on Form 8-K (File No. 001-11954), dated
March 12, 1997, as amended by Form 8-K/A, dated March 12, 1997 and filed
with the Commission on April 1, 1997, Vornado's Current Reports on Form 8-K
(File No. 001-11954), dated April 3, 1997, April 15, 1997, May 7, 1997 and
June 27, 1997, Vornado's Current Report on Form 8-K (File No. 001-11954),
dated August 21, 1997, as amended by Form 8-K/A, dated August 21, 1997 and
filed with the Commission on September 11, 1997, Vornado's Current Report
on Form 8-K (File No. 001-11954), dated September 22, 1997 and filed with
the Commission on October 8, 1997, Vornado's Current Report on Form 8-K
(File No. 001-11954), dated October 14, 1997 and filed with the Commission
on October 24, 1997, Vornado's Current Report on Form 8-K (File No.
001-11954), dated October 21, 1997 and filed with the Commission on October
24, 1997, Vornado's Current Report on Form 8-K (File No. 001-11954), dated
November 18, 1997 and filed with the Commission on December 2, 1997 and
Vornado's Current Report on Form 8-K (File No. 001-11954), dated December
16, 1997, as amended by Form 8-K/A, dated November 18, 1997 and filed with
the Commission on February 3, 1998, Vornado's Current Report on Form 8-K
(File No. 001-11954), dated January 26, 1998, as amended by Form 8-K/A,
dated January 26, 1998 and filed with the Commission on February 9, 1998
and Vornado's Current Report on Form 8-K (File No. 001-11954), dated
January 29, 1998 and filed with the Commission on January 30, 1998;
(4) the description of Vornado's Series A Preferred Shares contained
in Vornado's Registration Statement on Form 8-A (File No. 001-11954), filed
with the Commission on April 3, 1997;
(5) the Operating Partnership's Registration Statement on Form 10
(File No. 000-22685), filed with the Commission on June 12, 1997, as
amended by the Form 10/A Amendment No. 1, Form 10/A Amendment No. 2 and
Form 10/A Amendment No. 3 filed with the Commission on July 18, 1997,
August 7, 1997 and September 10, 1997, respectively;
(6) the Operating Partnership's Current Report on Form 8-K (File No.
000-22685), dated June 27, 1997, the Operating Partnership's Current Report
on Form 8-K (File No. 000-22685), dated August 21, 1997, as amended by Form
8-K/A, dated August 21, 1997 and filed with the Commission on September 11,
1997, the Operating Partnership's Current Report on Form 8-K (File No.
000-22685), dated September 22, 1997 and filed with the Commission on
October 8, 1997, the Operating Partnership's Current Report on Form 8-K
(File No. 000-22685), dated November 18, 1997 and filed with the Commission
on December 2, 1997 and the Operating Partnership's Current Report on Form
8-K (File No. 000-22685), dated December 16, 1997, as amended by Form
8-K/A, dated November 18, 1997 and filed with the Commission on February 3,
1998, the Operating Partnership's Current Report on Form 8-K (File No.
000-22685), dated January 26, 1998, as amended by Form 8-K/A, dated January
26, 1998 and filed with the Commission on February 9, 1998 and the
Operating Partnership's Current Report on Form 8-K (File No. 000-22685),
dated January 29, 1998 and filed with the Commission on January 30, 1998;
and
(7) the Operating Partnership's Quarterly Report on Form 10-Q (File
No. 000-22685) for the periods ended June 30, 1997 and September 30, 1997.
3
All other documents and reports filed with the Commission by Vornado or the
Operating Partnership pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act from the date of this Prospectus and prior to the termination of
the offering of the Securities shall be deemed to be incorporated by reference
herein and shall be deemed to be a part hereof from the date of the filing of
such reports and documents (provided, however, that the information referred to
in item 402(a)(8) of Regulation S-K of the Commission shall not be deemed
specifically incorporated by reference herein).
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Vornado and the Operating Partnership will provide without charge to each
person to whom a copy of this Prospectus is delivered, on written or oral
request of such person, a copy of any or all documents which are incorporated
herein by reference (not including the exhibits to such documents, unless such
exhibits are specifically incorporated by reference in the document which this
Prospectus incorporates). Requests should be directed to the Secretary of
Vornado, Park 80 West, Plaza II, Saddle Brook, New Jersey 07663, telephone
number (201) 587-1000.
4
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
REAL ESTATE INVESTMENT CONSIDERATIONS
GENERAL
Real property investments are subject to varying degrees of risk. Real
estate values are affected by changes in the general economic climate, local
conditions such as an oversupply of or a reduction in demand for real estate in
the area, the attractiveness of the Company's properties to tenants, the
quality, philosophy and performance of management, competition from comparable
properties, inability to collect rent from tenants, the effects of any
bankruptcies of major tenants, changes in market rental rates, the need to
periodically repair, renovate and rent space and to pay the costs thereof
(including, without limitation, substantial tenant improvement and leasing costs
of re-leasing office space), and increases in operating costs due to inflation
and other factors (including increased real estate taxes), which increases may
not necessarily be passed through fully to tenants. Real estate values are also
affected by such factors as government regulations and changes in zoning or tax
laws, interest rate levels, the availability of financing and potential
liability under environmental and other laws. Changes in any of the foregoing
factors could result in a decline in rents obtained and/or occupancy levels at
the Company's properties. A decline in rental revenues could result in a lower
level of funds available for distribution to Vornado's shareholders.
DEPENDENCE ON TENANTS
The Company's results of operations will depend on its ability to continue
to lease space in its real estate properties on economically favorable terms. In
addition, as substantially all of the Company's income is derived from rentals
of real property, the Company's income and funds available for distribution to
Vornado's shareholders would be adversely affected if a significant number of
the Company's lessees were unable to meet their obligations to the Company. In
the event of default by a lessee, the Company may experience delays in enforcing
its rights as lessor and may incur substantial costs in protecting its
investment. Currently only one of the Company's tenants, Bradlees, Inc.
("Bradlees"), represents more than 3% of the Company's pro forma revenues.
Bradlees accounted for approximately 10.5% of pro forma property rentals for the
year ended December 31, 1996.
BANKRUPTCY OF TENANTS
There have been a number of recent bankruptcies in the retail industry,
including certain tenants of the Company. The bankruptcy or insolvency of a
major tenant may have a material adverse effect on the shopping centers affected
and the income produced by such properties and may make it substantially more
difficult to lease the remainder of the affected shopping center. The Company's
leases generally do not contain restrictions designed to ensure the
creditworthiness of the tenant. As a result, the bankruptcy or insolvency of a
major tenant could result in a lower level of funds from operations available
for distribution to Vornado's shareholders.
In June 1995, Bradlees filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. The Company currently leases 16 locations in shopping centers
to Bradlees. Of these locations, 14 are fully guaranteed by Stop & Shop
Companies, Inc. ("Stop & Shop"), a wholly-owned subsidiary of Royal Ahold NV, a
leading international food retailer, and one is guaranteed as to 70% of the
rent. During 1996, Bradlees rejected three leases and assigned one lease to
Kohl's Department Stores, Inc. These four leases are fully guaranteed by Stop &
Shop. Each of the three locations rejected by Bradlees are currently vacant. The
balance of the space in two of the affected shopping centers is substantially
leased and occupied. The remaining shopping center was previously 100% occupied
by Bradlees and such space remains vacant. The bankruptcy of Bradlees may have a
negative effect on the Company's ability to lease the shopping centers affected.
Montgomery Ward & Co., Inc. (a previous lessee currently operating under Chapter
11 of the U.S. Bankruptcy Code) remains liable on eight of the leases guaranteed
by Stop &
5
Shop, including the rent it was obligated to pay -- approximately 70% of current
rent. The failure of Stop & Shop to perform its obligations with respect to
these leases could result in a decline in the level of the Company's rental
revenues and, as a result, in a lower level of funds from operations being
available for distribution to Vornado's shareholders.
ACQUISITION AND DEVELOPMENT RISKS
The Company may acquire or develop properties or acquire other real estate
companies when it believes that an acquisition or development is consistent with
its business strategies. In addition, the Company anticipates that, in certain
circumstances, it may use Operating Partnership units ("Units") as consideration
for acquisitions from tax-sensitive sellers and, in connection with such
acquisitions, it may agree to certain restrictions on the Company's ability to
sell, or reduce the mortgage indebtedness on, such acquired assets, including
agreeing not to sell properties for significant periods of time. These
transactions also may increase the Operating Partnership's indebtedness as a
percentage of the Company's asset value or market capitalization, which may
impair the ability of the Company to take actions that would otherwise be in the
best interests of Vornado and its shareholders. A significant increase in the
level of the Company's indebtedness could affect the Operating Partnership's
ability to make required principal and interest payments with respect to
indebtedness, including the Debt Securities. See also "-- Leverage."
ILLIQUIDITY OF ASSETS; RESTRICTIONS ON DISPOSITIONS OF MORTGAGED PROPERTIES
Equity real estate investments are relatively illiquid and therefore tend
to limit the ability of the Company to vary its portfolio promptly in response
to changes in economic or other conditions. In addition, certain significant
expenditures associated with each equity investment (such as mortgage payments,
real estate taxes and maintenance costs) are generally not reduced when
circumstances cause a reduction in income from the investment. Should such
events occur, the Company's income and funds available for distribution to
Vornado's shareholders would be adversely affected. A portion of the Company's
properties are mortgaged to secure payment of indebtedness, and if the Company
were unable to meet its mortgage payments, a loss could be sustained as a result
of foreclosure on the properties by the mortgagee. In addition, if it becomes
necessary or desirable for the Company to dispose of one or more of the
mortgaged properties, the Company might not be able to obtain release of the
lien on such mortgaged property. The foreclosure of a mortgage on a property or
inability to sell a property could affect the level of funds available for
distribution to Vornado shareholders. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and the Notes to the Consolidated Financial Statements contained in
the Company's Annual Report on Form 10-K, as amended, for the fiscal year ended
December 31, 1996, incorporated in this Prospectus by reference for information
regarding the terms of the mortgages encumbering the Company's properties.
SUBSTANTIAL INFLUENCE OF CONTROLLING SHAREHOLDER; POSSIBLE CONFLICTS OF
INTEREST; RELATED PARTY TRANSACTIONS
As of November 15, 1997, Interstate Properties, a New Jersey general
partnership ("Interstate"), owns 17.3% of the outstanding Common Shares of the
Company (assuming conversion of all Operating Partnership Units) and Units of
the Operating Partnership. Steven Roth, Chairman of the Board and Chief
Executive Officer of the Company, is the managing general partner of Interstate.
Mr. Roth, David Mandelbaum and Russell B. Wight, Jr. are the three partners of
Interstate. Messrs. Roth, Mandelbaum and Wight and Interstate owned, in the
aggregate, 20.6% of the outstanding Common Shares of the Company and Units of
the Operating Partnership as of November 15, 1997.
As of November 15, 1997, the Company owned 29.3% of the outstanding common
stock of Alexander's Inc. ("Alexander's"), a Delaware corporation. Alexander's
is a real estate investment trust engaged in leasing, managing, developing and
redeveloping properties, focusing primarily on the locations where its
department stores (which ceased operations in 1992) formerly operated.
Alexander's has nine properties which are located in the New York City region.
Interstate owns an additional 27.1% of the outstanding common stock of
Alexander's as of such date. Mr. Roth, the Company's Chief Executive
6
Officer, and Michael D. Fascitelli, the Company's President, are directors of
Alexander's. Messrs. Mandelbaum, Richard R. West and Wight, members of the
Company's Board of Trustees, are also members of the Board of Directors of
Alexander's.
The Company is contemplating the establishment of a new taxable operating
company to be known as Vornado Operating Company ("Vornado Operating") to
conduct certain activities that would not be permitted to be conducted by the
Company as a REIT and has filed a registration statement with the Commission
with respect thereto. If such action takes place, the Operating Partnership
would spin off pro rata to its partners, including Vornado, the shares of
Vornado Operating, and Vornado would distribute pro rata to holders of its
Common Shares the shares it receives. In addition, the Company expects to enter
into an Intercompany Agreement with Vornado Operating pursuant to which, among
other things, (a) the Company will agree under certain circumstances to offer
Vornado Operating an opportunity to become the lessee of certain real property
owned now or in the future by Vornado (under mutually satisfactory lease terms)
and (b) Vornado Operating will agree not to make any real estate investment or
other REIT-qualified investments unless it first offers the Company the
opportunity to make such investment and the Company has rejected that
opportunity. The Company expects that four members of the Company's Board of
Trustees (including Messrs. Roth and Fascitelli) will be members of Vornado
Operating's Board of Directors, and each member of senior management of Vornado
Operating will hold a corresponding position with the Company. Members of the
Company's Board of Trustees and Vornado Operating's Board of Directors and
senior management may have different percentage equity interests in the Company
and Vornado Operating. No assurance can be given concerning the timing of any
such transactions, or whether such transactions will occur.
Because of the foregoing, Mr. Roth and Interstate may have substantial
influence on the Company, Alexander's and Vornado Operating and on the outcome
of any matters submitted to the Company's, Alexander's or Vornado Operating's
stockholders for approval. In addition, certain decisions concerning the
operations or financial structure of the Company may present conflicts of
interest among Messrs. Roth, Mandelbaum and Wight and Interstate and the
Company's other shareholders. In addition, Mr. Roth and Interstate engage in a
wide variety of activities in the real estate business which may result in
conflicts of interest with respect to certain matters affecting the Company,
Alexander's or Vornado Operating, such as determination of which of such
entities or persons, if any, may take advantage of potential business
opportunities, decisions concerning the business focus of such entities
(including decisions concerning the types of properties and geographic locations
in which such entities make investments) demands on the time of Mr. Roth and
certain of the executive officers of the Company and changes of existing
arrangements between Mr. Roth, the Company, Interstate and Vornado Operating,
potential competition between business activities conducted, or sought to be
conducted, by the Company, Interstate, Alexander's and Vornado Operating
(including competition for properties and tenants), possible corporate
transactions (such as acquisitions) and other strategic decisions affecting the
future of such parties.
Bernard Mendik, the Company's co-chairman, owns direct and indirect
managing general partner interests in two properties (Two Park Avenue and 330
Madison Avenue) in which the Company owns a partial interest, direct and
indirect interests in numerous additional office properties and other real
estate assets, and interests in certain property services businesses, including
in businesses which provide cleaning and related services, security services and
facilities management services, which interests may give rise to certain
conflicts of interest concerning the fulfillment of Mr. Mendik's responsibility
as a trustee of the Company.
The Mendik Group (the "Mendik Group", as used herein, Bernard H. Mendik,
David R. Greenbaum and certain entities controlled by them) owns an entity which
provides cleaning and related services and security services to office
properties. The Company has entered into contracts with the Mendik Group to
provide such services to the certain office properties in which the Company owns
a 100% interest. Although the terms and conditions of the contracts pursuant to
which these services will be provided were not negotiated at arms' length, the
Company believes based upon comparable fees charged to other real estate
companies, that the terms and conditions of such contracts are fair to the
Company, although there can be no assurance to this effect.
7
ALEXANDER'S MANAGEMENT AND DEVELOPMENT AGREEMENT
Pursuant to a Management and Development Agreement (the "Management
Agreement") between the Company and Alexander's, the Company has agreed to
manage Alexander's business affairs and manage and develop Alexander's
properties for an annual fee. The Management Agreement was assigned by the
Company to Vornado Management Corp. ("VMC"), a New Jersey corporation. The
Company owns 100% of the outstanding shares of non-voting preferred stock of VMC
(which entitles the Company to 95% of the economic benefits of VMC through
distributions), and Messrs. Roth and West own 100% of the outstanding shares of
common stock of VMC. The Company also acts as a leasing agent for Alexander's
properties on a fee basis under a leasing agreement. In addition, the Company
lent Alexander's $45 million, the subordinated tranche of a $75 million secured
financing, the balance of which was funded by a bank. None of Mr. Roth,
Interstate or Vornado is obligated to present to Alexander's any particular
investment opportunity which comes to his or its attention, even if such
opportunity is of a character which might be suitable for investment by
Alexander's.
LEASING SERVICES PROVIDED TO OTHER PROPERTIES
The Mendik Management Company Inc. (the "Management Corporation") (which is
controlled by Messrs. Mendik, Greenbaum and Fascitelli and not by the Company)
provides management and leasing services to properties in which the Company owns
less than a 100% interest as well as to other office properties (including
several properties in which the Mendik Group has an interest). Certain conflicts
of interest may result from the Management Corporation providing leasing
services both to properties in which the Company has an interest and other
properties in which the Mendik Group has an interest.
DEPENDENCE ON DIVIDENDS AND DISTRIBUTIONS OF SUBSIDIARIES
Vornado is a real estate investment trust formed under Title 8 of the
Corporations and Associations Article of the Annotated Code of Maryland ("Title
8"). Substantially all of Vornado's assets consist of its partnership interests
in the Operating Partnership, of which Vornado is the general partner.
Substantially all of the Operating Partnership's properties and assets are held
through subsidiaries. Any right of Vornado's shareholders to participate in any
distribution of the assets of any of the Company's indirect subsidiaries upon
the liquidation, reorganization or insolvency of such subsidiary (and any
consequent right of the Company's securityholders to participate in those
assets) will be subject to the claims of the creditors (including trade
creditors) and preferred stockholders, if any, of the Operating Partnership and
such subsidiary, except to the extent the Company has a claim against such
subsidiary as a creditor of such subsidiary. In addition, in the event that
claims of the Company as a creditor of a subsidiary are recognized, such claims
would be subordinate to any security interest in the assets of such subsidiary
and any indebtedness of such subsidiary senior to that held by the Company. See
also "-- Potential Anti-takeover Effects of Charter Documents and Applicable
Law" and "-- Leverage".
LEVERAGE
As of November 15, 1997, the Company had aggregate indebtedness outstanding
of approximately $463 million, all of which is secured by Company properties.
The Operating Partnership's ability to make required principal and interest
payments with respect to indebtedness, including any Debt Securities, depends on
the earnings of its subsidiaries and on its ability to receive funds from such
subsidiaries through dividends or other payments since the Debt Securities are
obligations of the Operating Partnership only and its subsidiaries are not
obligated or required to pay any amounts due pursuant to the Debt Securities or
to make funds available therefor in the form of dividends or advances to the
Operating Partnership. Of the approximately $463 million of outstanding
indebtedness, Vornado Finance L.P., a Delaware limited partnership and
subsidiary of the Operating Partnership ("Vornado Finance"), has outstanding an
aggregate of $227,000,000 of 6.36% Collateralized Notes Due December 1, 2000
(the "Collateralized Notes"), secured by a mortgage note, mortgage and various
other instruments, documents and agreements executed in connection therewith by
other subsidiaries of the Operating Partnership owning, in the aggregate, the
interests in 44 of the Company's properties.
8
The indenture relating to the Collateralized Notes of Vornado Finance
provides that all cash flows from the 44 Company properties which are collateral
for the Collateralized Notes will be deposited in a segregated trust account. So
long as no event of default under the indenture has occurred and is continuing,
Vornado Finance may withdraw funds from such trust account to the extent that
the amounts in such account exceed a certain minimum reserve level. Such minimum
reserve level equals the sum of (i) the amount of current or past due operating
expenses of Vornado Finance and its subsidiaries, (ii) indebtedness of Vornado
Finance and its subsidiaries due prior to such withdrawal and (iii) accrued and
unpaid interest on the Collateralized Notes; provided that (a) if the debt
service coverage ratio (as defined in the indenture relating to the
Collateralized Notes) is less than 2.0 and greater than or equal to 1.8, the
amount in (iii) above is increased by an amount equal to six months interest on
the Collateralized Notes and (b) if the debt service coverage ratio is less than
1.8, the amount in (iii) above is increased by an amount equal to 18 months
interest on the Collateralized Notes. As a result of these limitations on cash
flows relating to such properties, which cash flows represented approximately
83% of cash flows from properties of the Operating Partnership and its
consolidated subsidiaries in 1996, the Operating Partnership's ability to pay
interest and principal on its Debt Securities may be adversely affected.
The Indentures do not contain provisions that limit the Operating
Partnership's ability to incur indebtedness. Vornado has historically maintained
a relatively low level of debt to market capitalization of between 15% and 35%.
As of November 15, 1997, the level of debt to market capitalization was 13%. In
the future, in connection with its strategy for growth, this percentage may
increase. This policy may be reviewed and modified from time to time by the
Company without the vote of shareholders.
GEOGRAPHIC CONCENTRATION
For the year ended December 31, 1996, 78% of the Company's revenues were
derived from properties located in New York City and New Jersey. In addition,
the Company may concentrate a significant portion of its future acquisitions in
New York City and New Jersey. Like other real estate markets, the real estate
market in New York City and New Jersey experienced economic downturns in the
past, including most recently in the late 1980s and early 1990s. Future declines
in the economy or the real estate markets in New York City and New Jersey could
adversely affect the Company's financial performance. The Operating
Partnership's financial performance and its ability to make distributions to its
partners, including Vornado, are dependent on conditions in the economy and the
real estate markets in New York City and New Jersey, which may be affected by a
number of factors, including the economic climate in New York City and New
Jersey (which may be adversely affected by business layoffs or downsizing,
industry slowdowns, relocations of businesses, changing demographics, increased
telecommuting, infrastructure quality in New York City and New Jersey and other
factors) and conditions in the real estate markets in New York City and New
Jersey (such as oversupply of or reduced demand for real estate). There can be
no assurance as to the continued strength of the economy, or the continued
strength of the real estate markets, in New York City and New Jersey.
POTENTIAL COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up certain hazardous substances released at a property,
and may be held liable to a governmental entity or to third parties for property
damage or personal injuries and for investigation and clean-up costs incurred by
the parties in connection with the contamination. Such laws often impose
liability without regard to whether the owner or operator knew of, or was
responsible for, the release of such hazardous substances. The presence of
contamination or the failure to remediate contamination may adversely affect the
owner's ability to sell or lease real estate or to borrow using the real estate
as collateral. Other Federal, state and local laws, ordinances and regulations
require abatement or removal of certain asbestos-containing materials in the
event of demolition or certain renovations or remodeling and also govern
emissions of and exposure to asbestos fibers in the air. The operation and
subsequent removal of certain underground storage tanks are also regulated by
Federal and state laws. In connection with the ownership, operation and
management of its properties, the Company
9
could be held liable for the costs of remedial action with respect to such
regulated substances or tanks or related claims.
Each of the Company's properties has been subjected to varying degrees of
environmental assessment, which generally did not include soil sampling or
subsurface investigations, at various times. The environmental assessments did
not reveal any environmental condition or liability that the Company believes
will have a material adverse effect on the Company's business, assets or results
of operations. However, there can be no assurance that the identification of new
areas of contamination, change 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.
COMPETITION
The leasing of real estate is highly competitive. The principal means of
competition are rent charged, location, services provided and the nature and
condition of the facility to be leased. The Company directly competes with all
lessors and developers of similar space in the areas in which its properties are
located. Demand for retail space has been impacted by the recent bankruptcy of a
number of retail companies and a general trend toward consolidation in the
retail industry which could adversely affect the ability of the Company to
attract and retain tenants.
The Company's shopping center properties are generally located on major
regional highways in mature, densely populated areas. These shopping center
properties compete with, among others, free standing stores, neighborhood
centers and stores leased on the periphery of regional malls. Further, the
general economic climate (such as household disposable income) and the
conditions of shopping center markets (such as oversupply of or reduced demand
for retail space) in the places where the shopping center properties are located
could adversely affect the Company's financial condition.
The Company's office building properties are concentrated in highly
developed areas of midtown Manhattan. Manhattan is the largest office market in
the United States. The number of competitive office properties in Manhattan
could have a material adverse effect on the Company's ability to lease office
space at its properties, and on the effective rents the Company is able to
charge. These competing properties may be newer or better located. In addition,
the Company may compete with other property owners (including other REITs that
currently invest in markets other than Manhattan) that are willing to acquire
properties in transactions which are more highly leveraged than the Company is
willing to undertake.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of Steven Roth, the Chairman and
Chief Executive Officer of Vornado, and Michael D. Fascitelli, the President of
Vornado. While the Company believes that it could find replacements for these
key personnel, the loss of their services could have an adverse effect on the
operations of the Company.
CONSEQUENCES OF THE FAILURE TO QUALIFY OR REMAIN QUALIFIED AS A REIT
Although Vornado's management believes that Vornado will remain organized
and will continue to operate so as to qualify as a real estate investment trust
("REIT") for Federal income tax purposes, no assurance can be given that it will
remain so qualified. Qualification as a REIT for Federal income tax purposes
involves the application of highly technical and complex provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), for which there are only
limited judicial or administrative interpretations, and the determination of
various factual matters and circumstances not entirely within the control of
Vornado may impact its ability to maintain its qualification as a REIT. In
addition, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to the requirements for qualification as a REIT or the
Federal income tax consequences of such qualification. Vornado, however, is not
aware of any proposal to amend the tax laws that would significantly and
adversely affect its ability to operate in such a manner as to maintain its
qualification as a REIT.
10
If, with respect to any taxable year, Vornado fails to maintain its
qualification as a REIT, it would not be allowed a deduction for distributions
to shareholders in computing its taxable income and would be subject to Federal
income tax (including any applicable alterative minimum tax) on its taxable
income at regular corporate rates. As a result, the amount available for
distribution to shareholders would be reduced for the year or years involved,
and distributions would no longer be required to be made. In addition, unless
entitled to relief under certain statutory provisions, Vornado would also be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification was lost. Notwithstanding that Vornado currently
intends to operate in a manner designed to allow it to qualify as a REIT, future
economic, market, legal, tax or other considerations may cause it to determine
that it is in the best interest of Vornado and its shareholders to revoke the
REIT election.
POTENTIAL ANTI-TAKEOVER EFFECTS OF CHARTER DOCUMENTS AND APPLICABLE LAW
Generally, for Vornado to maintain its qualification as a REIT under the
Code, not more than 50% in value of the outstanding shares of beneficial
interest of Vornado may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) at any time
during the last half of Vornado's taxable year (other than the first taxable
year for which the election to be treated as a REIT has been made). The
Declaration of Trust, subject to certain exceptions, provides that no person may
own more than 6.7% of the outstanding Common Shares or 9.9% of the outstanding
Preferred Shares. These restrictions on transferability and ownership may delay,
defer or prevent a transaction or a change in control of Vornado that might
involve a premium price or otherwise be in the best interest of the
shareholders. See "Description of Shares of Beneficial Interest -- Description
of Preferred Shares -- Restrictions on Ownership" and "Description of Shares of
Beneficial Interest -- Description of Common Shares -- Restrictions on
Ownership".
Vornado's Board of Trustees is divided into three classes of trustees.
Trustees of each class are chosen for three-year staggered terms. Staggered
terms of trustees may reduce the possibility of a tender offer or an attempt to
change control of Vornado, even though a tender offer or change in control might
be in the best interest of the shareholders. Vornado's Declaration of Trust
authorizes the Board of Trustees to cause Vornado to issue additional authorized
but unissued shares of Common Shares or Preferred Shares and to classify or
reclassify, in one or more series, any unissued Preferred Shares and to set the
preferences, rights and other terms of such classified or unclassified shares.
Although the Board of Trustees has no such intention at the present time, it
could establish a series of Preferred Shares that could, depending on the terms
of such series, delay, defer or prevent a transaction or a change in control of
Vornado that might involve a premium price or otherwise be in the best interest
of the shareholders. The Declaration of Trust and Vornado's Bylaws contain other
provisions that may delay, deter or prevent a change in control of Vornado or
other transaction that might involve a premium price or otherwise be in the best
interest of the shareholders.
Under the Maryland General Corporation Law, as amended ("MGCL"), as
applicable to real estate investment trusts, certain "business combinations"
(including certain mergers, consolidations, share exchanges and asset transfers
and certain issuances and reclassifications of equity securities) between a
Maryland real estate investment trust and any person who beneficially owns ten
percent or more of the voting power of the trust's shares or an affiliate of the
trust who, at any time within the two-year period prior to the date in question,
was the beneficial owner of ten percent or more of the voting power of the then
outstanding voting shares of beneficial interest of the trust (an "Interested
Shareholder") or an affiliate of the Interested Shareholder are prohibited for
five years after the most recent date on which the Interested Shareholder
becomes an Interested Shareholder. Thereafter, any such business combination
must be recommended by the board of trustees of such trust and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by holders
of outstanding shares of beneficial interest of the trust and (b) two-thirds of
the votes entitled to be cast by holders of voting shares of the trust other
than shares held by the Interested Shareholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the trust's common shareholders receive a minimum price (as defined
in the MGCL) for their shares and the consideration is received in cash or in
the same form
11
as previously paid by the Interested Shareholder for its common shares. The
provisions of the MGCL do not apply, however, to business combinations that are
approved or exempted by the board of trustees of the trust prior to the time
that the Interested Shareholder becomes an Interested Shareholder. The Board of
Trustees has adopted a resolution exempting any business combination between any
trustee or officer of Vornado (or their affiliates) and Vornado. As a result,
the trustees and officers of Vornado and their affiliates may be able to enter
business combinations with Vornado which may not be in the best interest of
shareholders and, with respect to business combinations with other persons, the
business combination provisions of the MGCL may have the effect of delaying,
deferring or preventing a transaction or a change in the control of Vornado that
might involve a premium price or otherwise be in the best interest of the
shareholders.
VORNADO AND THE OPERATING PARTNERSHIP
Vornado is a fully-integrated real estate investment trust organized under
the laws of the state of Maryland. In April 1997, Vornado transferred
substantially all of its assets to the Operating Partnership, a Delaware limited
partnership. As a result, Vornado now conducts its business through, and
substantially all of its interests in properties are held by, the Operating
Partnership, in which it is the sole general partner and in which it owns an
approximately 90% limited partnership interest as of November 15, 1997. The
Operating Partnership currently owns: (i) 58 shopping center properties in seven
states and Puerto Rico containing 10.5 million square feet, including 1.2
million square feet built by tenants on land leased from the Company; (ii) all
or portions of 10 office building properties in the New York City metropolitan
area (primarily Manhattan) containing 5.0 million square feet; (iii) eight
warehouse/industrial properties in New Jersey containing 2.0 million square
feet; (iv) approximately 29.3% of the outstanding common stock of Alexander's,
Inc., which has nine properties in the New York City metropolitan area; (v) a
40% interest in a hotel containing 800,000 square feet of space with 1,700 rooms
and 400,000 square feet of retail and office space; (vi) mortgages on various
office, restaurant and other retail properties; (vii) a 60% interest in a
partnership that owns Americold Corporation and URS Logistics, Inc., which
collectively own and operate 80 warehouse facilities with an aggregate of
approximately 367 million cubic feet of refrigerated, frozen and dry storage
space; (viii) a 15% limited partnership interest in Charles E. Smith Commercial
Realty, which owns interests in and manages approximately 7.2 million square
feet of office properties in Crystal City, Arlington, Virginia, a suburb of
Washington D.C., and manages an additional 14 million square feet of office and
other commercial properties in the Washington, D.C. area; and (ix) other owned
retail properties.
As of November 15, 1997, the Company's total consolidated outstanding debt
was approximately $463 million all of which is secured by Company properties,
and its total consolidated debt plus its proportionate share of total
unconsolidated debt were approximately $992 million which is secured by Company
properties.
The executive offices of Vornado and the Operating Partnership are located
at Park 80 West, Plaza II, Saddle Brook, N.J. 07663; telephone (201) 587-1000.
USE OF PROCEEDS
Vornado is required by the terms of the partnership agreement of the
Operating Partnership to invest the net proceeds of any sale of Common Shares,
Preferred Shares or Depositary Shares in the Operating Partnership in exchange
for additional Units or preferred Units, as the case may be. As will be more
fully described in the applicable Prospectus Supplement, Vornado and the
Operating Partnership intend to use the net proceeds from the sale of Securities
for general corporate purposes or such other uses as may be set forth in a
Prospectus Supplement. Such other uses may include, among others, the funding of
an acquisition or the repayment of indebtedness.
12
CONSOLIDATED RATIOS OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDEND REQUIREMENTS
For purposes of calculating the following ratios, (i) earnings represent
income from continuing operations before income taxes, plus fixed charges, and
(ii) fixed charges represent interest expense on all indebtedness (including
amortization of deferred debt issuance costs) and the portion of operating lease
rental expense that is representative of the interest factor (deemed to be
one-third of operating lease rentals).
<Table>
<Caption>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------
1997 1996 1995 1994 1993 1992
------------- ---- ---- ---- ---- ----
Ratio of Earnings to Combined Fixed Charges and
Preferred Share Dividend Requirements........ 1.70 4.56 4.06 3.54 1.80 1.07
</Table>
13
DESCRIPTION OF DEBT SECURITIES
The Debt Securities may be issued from time to time in one or more series.
The particular terms of each series of Debt Securities offered by any Prospectus
Supplement or Prospectus Supplements will be described therein. The Senior Debt
Securities are to be issued under an Indenture (the "Senior Indenture") between
the Operating Partnership and The Bank of New York, as trustee (the "Senior
Trustee"), a copy of the form of which Senior Indenture is filed as an exhibit
to the Registration Statement. The Subordinated Debt Securities are to be issued
under a separate Indenture (the "Subordinated Indenture") between the Operating
Partnership and The Bank of New York, as trustee (the "Subordinated Trustee"), a
copy of the form of which Subordinated Indenture is filed as an exhibit to the
Registration Statement. The Senior Indenture and the Subordinated Indenture are
sometimes referred to collectively as the "Indentures" and the Senior Trustee
and Subordinated Trustee are sometimes referred to collectively as the
"Trustees."
The following summaries of the material provisions of the Senior Debt
Securities, the Subordinated Debt Securities, the Senior Indenture and the
Subordinated Indenture are brief summaries thereof, do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indenture applicable to a particular series of
Debt Securities. Wherever particular Sections, Articles or defined terms of the
Indentures are referred to herein or in a Prospectus Supplement, such Sections,
Articles or defined terms are incorporated herein or therein by reference.
GENERAL
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities will be general unsecured obligations of the Operating
Partnership. The Indentures do not limit the aggregate amount of Debt Securities
which may be issued thereunder, and Debt Securities may be issued thereunder
from time to time in separate series up to the aggregate amount from time to
time authorized by the Operating Partnership for each series. Unless otherwise
specified in the Prospectus Supplement, the Senior Debt Securities when issued
will be unsubordinated obligations of the Operating Partnership and will rank
equally and ratably with all other unsecured and unsubordinated indebtedness of
the Operating Partnership. The Subordinated Debt Securities when issued will be
subordinated in right of payment to the prior payment in full of all Senior Debt
(as defined in the Subordinated Indenture) of the Operating Partnership as
described below under "-- Subordination of Subordinated Debt Securities" and in
the Prospectus Supplement applicable to an offering of Subordinated Debt
Securities.
The applicable Prospectus Supplement or Prospectus Supplements will
describe the following terms of the series of Debt Securities in respect of
which this Prospectus is being delivered: (1) the title of such Debt Securities;
(2) any limit on the aggregate principal amount of such Debt Securities; (3) the
person to whom any interest on any Debt Security of the series shall be payable
if other than the person in whose name the Debt Security is registered on the
regular record date; (4) the date or dates on which such Debt Securities will
mature; (5) the rate or rates of interest, if any, or the method of calculation
thereof, which such Debt Securities will bear, the date or dates from which any
such interest will accrue, the interest payment dates on which any such interest
on such Debt Securities will be payable and the regular record date for any
interest payable on any interest payment date; (6) the place or places where the
principal of, premium, if any, and interest on such Debt Securities will be
payable; (7) the period or periods within which, the events upon the occurrence
of which, and the price or prices at which, such Debt Securities may, pursuant
to any optional or mandatory provisions, be redeemed or purchased, in whole or
in part, by the Operating Partnership and any terms and conditions relevant
thereto; (8) the obligations of the Operating Partnership, if any, to redeem or
repurchase such Debt Securities at the option of the Holders; (9) the
denominations in which any such Debt Securities will be issuable, if other than
denominations of $1,000 and any integral multiple thereof; (10) any index or
formula used to determine the amount of payments of principal of and any premium
and interest on such Debt Securities; (11) the currency, currencies or currency
unit or units of payment of principal of and any premium and interest on such
Debt Securities if other than U.S. dollars; (12) if the principal of, or
premium, if any, or interest, if any, on such Debt Securities is to be payable,
at the election of the Operating Partnership or a holder thereof, in
14
one or more currencies or currency units other than that or those in which such
Debt Securities are stated to be payable, the currency, currencies or currency
units in which payment of the principal of and any premium and interest on Debt
Securities of such series as to which such election is made shall be payable,
and the periods within which and the terms and conditions upon which such
election is to be made; (13) if other than the principal amount thereof, the
portion of the principal amount of such Debt Securities of the series which will
be payable upon acceleration of the maturity thereof; (14) if the principal
amount of any Debt Securities which will be payable at the maturity thereof will
not be determinable as of any date prior to such maturity, the amount which will
be deemed to be the outstanding principal amount of such Debt Securities; (15)
the applicability of any provisions described under "-- Defeasance"; (16)
whether any of such Debt Securities are to be issuable in permanent global form
("Global Security") and, if so, the terms and conditions, if any, upon which
interests in such Debt Securities in global form may be exchanged, in whole or
in part, for the individual Debt Securities represented thereby; (17) the
applicability of any provisions described under "-- Events of Default" and any
additional Event of Default applicable thereto; (18) any covenants applicable to
such Debt Securities; (19) the terms and conditions, if any, pursuant to which
the Debt Securities are exchangeable into Common Shares of the Company; and (20)
any other terms of such Debt Securities not inconsistent with the provisions of
the Indentures. (Section 301)
Debt Securities may be issued at a discount from their principal amount.
United States Federal income tax considerations and other special considerations
applicable to any such original issue discount Securities will be described in
the applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is denominated in a
foreign currency or currencies or a foreign currency unit or units or if the
principal of and any premium and interest on any series of Debt Securities is
payable in a foreign currency or currencies or a foreign currency unit or units,
the restrictions, elections, general Federal income tax considerations, specific
terms and other information with respect to such issue of Debt Securities will
be set forth in the applicable Prospectus Supplement.
The Indentures do not contain any provisions that limit the Operating
Partnership's ability to incur indebtedness. Except as may be indicated in the
applicable Prospectus Supplement with respect to a particular series of Debt
Securities, Holders of Debt Securities will not have the benefit of any specific
covenants or provisions in the applicable Indenture or Debt Securities that
would protect them in the event the Operating Partnership engages in or becomes
the subject of a highly leveraged transaction and the limitations on mergers,
consolidations and transfers of substantially all of the Operating Partnership's
properties and assets as an entirety to any person as described below under
"-- Consolidation, Merger and Sale of Assets." Such covenants may not be waived
or modified by the Operating Partnership, although Holders of Debt Securities
could waive or modify such covenants as more fully described below under
"-- Modification and Waiver."
The applicable Prospectus Supplement with respect to any particular series
of Debt Securities that provide for the optional redemption or prepayment of
such Debt Securities upon the occurrence of certain events (i.e., a change of
control) will describe the following: (1) the effects that such provisions may
have in deterring certain mergers, tender offers or other takeover attempts, as
well as that there may be possible adverse effects on the market price of the
Operating Partnership's securities or ability to obtain financing; (2) that the
Operating Partnership will comply with the requirements of applicable securities
laws, including Rules 14e-1 and 13e-4 under the Exchange Act, in connection with
such provisions and any related offers by the Operating Partnership; (3) whether
the occurrence of the specified events may give rise to cross-defaults on other
indebtedness such that payment on the offered Debt Securities may be effectively
subordinated; (4) limitations on the Operating Partnership's financial or legal
ability to repurchase the offered Debt Securities upon the triggering of an
event risk provision requiring such a repurchase or offer to repurchase; (5) the
impact, if any, under the governing instrument of the failure to repurchase,
including whether such failure to make any required repurchases in the event of
a change of control will create an event of default with respect to the offered
Debt Securities or will become an event of default only after the continuation
of such failure for a specified period of time after written notice is given to
the Operating Partnership by the Trustee or to the Operating Partnership and the
Trustee by the
15
holders of a specified percentage in aggregate principal amount of the debt
outstanding; (6) that there can be no assurance that sufficient funds will be
available at the time of the triggering of an event risk provision to make any
required repurchases; (7) if such offered Debt Securities are to be subordinated
to other obligations of the Operating Partnership or its subsidiaries that would
be accelerated upon the triggering of a change in control or similar event, the
material effect thereof on such acceleration provision and such offered Debt
Securities; and (8) to the extent that there is a definition of "change of
control" in a supplemental indenture relating to such offered Debt Securities
that includes the concept of "all or substantially all," the established meaning
of such phrase under New York law.
EXCHANGE OF DEBT SECURITIES
If so indicated in the applicable Prospectus Supplement with respect to a
particular series of Debt Securities, such series will be exchangeable into
Common Shares of Vornado on the terms and conditions set forth therein. Such
terms may include provisions pursuant to which the number of Common Shares of
Vornado to be received by the holders of Debt Securities would be calculated
according to the market price of Common Shares of Vornado as of a time stated in
the Prospectus Supplement. The applicable Prospectus Supplement will indicate
certain restrictions on ownership which may apply in the event of an exchange.
See "Description of Preferred Shares -- Restrictions on Ownership" and
"Description of Common Shares -- Restrictions on Ownership."
FORM, REGISTRATION, TRANSFER AND PAYMENT
Unless otherwise indicated in the applicable Prospectus Supplement, the
Debt Securities will be issued only in fully registered form in denominations of
$1,000 or integral multiples thereof. (Section 302) Unless otherwise indicated
in the applicable Prospectus Supplement, payment of principal, premium, if any,
and interest on the Debt Securities will be payable, and the exchange and
transfer of Debt Securities will be registerable, at the office or agency of the
Operating Partnership maintained for such purposes and at any other office or
agency maintained for such purpose. (Sections 301, 305 and 1002) No service
charge will be made for any registration of transfer or exchange of the Debt
Securities, but the Operating Partnership may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith. (Section 305)
All monies paid by the Operating Partnership to a Paying Agent for the
payment of principal of and any premium or interest on any Debt Security which
remain unclaimed for two years after such principal, premium or interest has
become due and payable may be repaid to the Operating Partnership and thereafter
the Holder of such Debt Security may look only to the Operating Partnership for
payment thereof. (Section 1003)
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, a depositary (the "Global Depositary") or its nominee identified in the
applicable Prospectus Supplement. In such a case, one or more Global Securities
will be issued in a denomination or aggregate denomination equal to the portion
of the aggregate principal amount of Outstanding Debt Securities of the series
to be represented by such Global Security or Securities. Unless and until it is
exchanged in whole or in part for Debt Securities in registered form, a Global
Security may not be registered for transfer except as a whole by the Global
Depositary for such Global Security to a nominee of such Global Depositary or by
a nominee of such Global Depositary to such Global Depositary or another nominee
of such Global Depositary or by such Global Depositary or any nominee to a
successor Global Depositary or a nominee of such successor Global Depositary and
except in the circumstances described in the applicable Prospectus Supplement.
(Sections 204 and 305)
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the applicable Prospectus
16
Supplement. The Operating Partnership expects that the following provisions will
apply to depositary arrangements although no assurance can be given that such
will be the case.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited with
or on behalf of a Global Depositary will be represented by a Global Security
registered in the name of such Global Depositary or its nominee. Upon the
issuance of such Global Security, and the deposit of such Global Security with
or on behalf of the Global Depositary for such Global Security, the Global
Depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of the Debt Securities represented by such Global
Security to the accounts of institutions that have accounts with such Global
Depositary or its nominee ("participants"). The accounts to be credited will be
designated by the underwriters or agents of such Debt Securities or by the
Operating Partnership, if such Debt Securities are offered and sold directly by
the Operating Partnership. Ownership of beneficial interest in such Global
Security will be limited to participants or Persons that may hold interests
through participants. Ownership of beneficial interests by participants in such
Global Security will be shown on, and the transfer of that ownership interest
will be effected only through, records maintained by the Global Depositary or
its nominee for such Global Security. Ownership of beneficial interests in such
Global Security by Persons that hold through participants will be shown on, and
the transfer of such ownership interests within such participant will be
effected only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. The foregoing limitations and
such laws may impair the ability to transfer beneficial interests in such Global
Securities.
So long as the Global Depositary for a Global Security, or its nominee, is
the registered owner of such Global Security, such Global Depositary or such
nominee, as the case may be, will be considered the sole owner or holder of the
Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as set forth below, unless otherwise specified in
the applicable Prospectus Supplement, owners of beneficial interests in such
Global Security will not be entitled to have Debt Securities of the series
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of Debt Securities of such series in
certificated form and will not be considered the holders thereof for any
purposes under the applicable Indenture. (Sections 204 and 305) Accordingly,
each Person owning a beneficial interest in such Global Security must rely on
the procedures of the Global Depositary and, if such Person is not a
participant, on the procedures of the participant through which such Person owns
its interest, to exercise any rights of a holder under the applicable Indenture.
The Operating Partnership understands that under existing industry practices, if
the Operating Partnership requests any action of holders or an owner of a
beneficial interest in such Global Security desires to give any notice or take
any action a holder is entitled to give or take under the applicable Indenture,
the Global Depositary would authorize the participants to give such notice or
take such action, and participants would authorize beneficial owners owning
through such participants to give such notice or take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
If the Global Depositary for Debt Securities of a series is at any time
unwilling, unable or ineligible to continue as Global Depositary and a successor
Global Depositary is not appointed by the Operating Partnership within 90 days
or an Event of Default under the applicable Indenture has occurred and is
continuing, the Operating Partnership will issue Debt Securities of such series
in definitive form in exchange for the Global Security or Securities
representing the Debt Securities of such series. In addition, the Operating
Partnership may at any time and in its sole discretion, subject to any
limitations described in the applicable Prospectus Supplement, determine not to
have any Debt Securities of a series represented by one or more Global
Securities and, in such event, will issue Debt Securities of such series in
definitive form in exchange for the Global Security or Securities representing
such Debt Securities. Further, if the Operating Partnership so specifies with
respect to the Debt Securities of a series, an owner of a beneficial interest in
a Global Security representing Debt Securities of such series may, on terms
acceptable to the Operating Partnership and the Global Depositary for such
Global Security, receive Debt Securities of such series in definitive form in
exchange for such beneficial interests, subject to any limitations described in
the applicable Prospectus Supplement relating to such Debt Securities. In any
such instance, an owner of a
17
beneficial interest in a Global Security will be entitled to physical delivery
in definitive form of Debt Securities of the series represented by such Global
Security equal in principal amount to such beneficial interest and to have such
Debt Securities registered in its name (if the Debt Securities of such series
are issuable as registered securities).
Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.
CERTAIN COVENANTS OF THE OPERATING PARTNERSHIP
If so indicated in the applicable Prospectus Supplement with respect to a
particular series of Debt Securities, the Operating Partnership will be subject
to the covenants described therein. In addition, the Operating Partnership will
be subject to the following covenants.
EXISTENCE
Except as permitted under "-- Consolidation, Merger and Sale of Assets,"
the Operating Partnership will be required to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
and franchises; provided, however, that the Operating Partnership shall not be
required to preserve any right or franchise if it determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
Holders of the Debt Securities. (Section 1005)
MAINTENANCE OF PROPERTIES
The Operating Partnership will be required to cause all properties used or
useful in the conduct of its business or the business of any subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and to cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Operating Partnership may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that the Operating Partnership shall not be
prevented from discontinuing the operation or maintenance of any of its
properties if such discontinuance is, in the judgment of the Operating
Partnership, desirable in the conduct of its business or the business of any
subsidiary and not disadvantageous in any material respect to the Holders.
(Section 1006)
PAYMENT OF TAXES AND OTHER CLAIMS
The Operating Partnership will be required to pay or discharge or cause to
be paid or discharged, before the same shall become delinquent, (i) all taxes,
assessments and governmental charges levied or imposed upon the Operating
Partnership or any subsidiary or upon the income, profits or property of the
Operating Partnership or any subsidiary, and (ii) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Operating Partnership or any subsidiary; provided, however, that
the Operating Partnership shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings. (Section 1007)
INSURANCE
The Operating Partnership will be required to, and to cause each of its
subsidiaries to, keep all of its insurable properties insured against loss or
damage with insurers of recognized responsibility in commercially reasonable
amounts and types. (Section 1008)
PROVISION OF FINANCIAL INFORMATION
Whether or not the Operating Partnership is subject to Section 13 or
Section 15(d) of the Exchange Act and for so long as any Debt Securities are
outstanding, the Operating Partnership will, to the extent
18
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Operating Partnership would have
been required to file with the Commission pursuant to Section 13 or Section
15(d) (the "Financial Statements") if the Operating Partnership were so subject,
such documents to be filed with the Commission on or prior to the respective
dates (the "Required Filing Dates") by which the Operating Partnership would
have been required so to file such documents if the Operating Partnership were
so subject.
The Operating Partnership will also in any event (x) within 15 days of each
Required Filing Date (i) transmit by mail to all Holders of Debt Securities
whose names appear in the security register for such Debt Securities, as their
names and addresses appear in the security register for such Debt Securities,
without cost to such Holders, copies of the annual reports and quarterly reports
which the Operating Partnership would have been required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act if the
Operating Partnership were subject to such Sections and (ii) file with any
Trustee copies of the annual reports, quarterly reports and other documents
which the Operating Partnership would have been required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act if the
Operating Partnership were subject to such Sections and (y) if filing such
documents by the Operating Partnership with the Commission is not permitted
under the Exchange Act, promptly upon written request and payment of the
reasonable cost of duplication and delivery, supply copies of such documents to
any prospective Holder. (Section 1009)
EVENTS OF DEFAULT
The following are Events of Default under the Indentures with respect to
Debt Securities of any series: (a) failure to pay principal of or premium, if
any, on any Debt Security of that series when due; (b) failure to pay any
interest on any Debt Security of that series when due, continued for 30 days;
(c) failure in the deposit of any sinking fund payment in respect of any Debt
Security of that series; (d) failure to perform any other covenant of the
Operating Partnership in the Indentures (other than a covenant included in the
applicable Indenture solely for the benefit of a series of Debt Securities other
than that series), continued for 60 days after written notice to the Operating
Partnership as provided in the applicable Indenture; (e) the acceleration of, or
failure to pay at maturity (including any applicable grace period), any
indebtedness for money borrowed by the Operating Partnership with at least
$50,000,000 in principal amount outstanding, which acceleration or failure to
pay is not rescinded or annulled or such indebtedness paid, in each case within
10 days after the date on which written notice thereof shall have first been
given to the Operating Partnership as provided in the applicable Indenture; (f)
certain events of bankruptcy, insolvency or reorganization; and (g) any other
Event of Default provided with respect to Debt Securities of that series.
(Section 501)
If an Event of Default with respect to Outstanding Debt Securities of any
series shall occur and be continuing, either the applicable Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of that series by notice as provided in the Indentures may declare
the principal amount (or, if the Debt Securities of that series are Original
Issue Discount Securities, such portion of the principal amount as may be
specified in the terms of that series) of all Debt Securities of that series to
be due and payable immediately. However, at any time after a declaration of
acceleration with respect to Debt Securities of any series has been made, but
before a judgment or decree based on such acceleration has been obtained, the
Holders of a majority in principal amount of the Outstanding Debt Securities of
that series may, under certain circumstances, rescind and annul such
acceleration. (Section 502) For information as to waiver or defaults, see
"-- Modification and Waiver" below.
The Indentures provide that, subject to the duty of the Trustees thereunder
during an Event of Default to act with the required standard of care, such
Trustees will be under no obligation to exercise any of its rights or powers
under the Indentures at the request or direction of any of the Holders, unless
such Holders shall have offered to such Trustees reasonable security or
indemnity. (Sections 601 and 603) Subject to certain provisions, including those
requiring security or indemnification of the Trustees, the Holders of a majority
in principal amount of the Outstanding Debt Securities of any series will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the
19
Trustees, or exercising any trust or power conferred on such Trustees, with
respect to the Debt Securities of that series. (Section 512)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indentures or for any remedy thereunder,
unless (i) such Holder shall have previously given to the applicable Trustee
written notice of a continuing Event of Default (as defined) with respect to
Debt Securities of that series; (ii) the Holders of not less than 25% in
aggregate principal amount of the Outstanding Debt Securities of the same series
shall have made written request, and offered reasonable indemnity, to the
applicable Trustee to institute proceedings in respect of such Event of Default
in its own name as trustee under the Indenture; (iii) the Trustee shall have
failed to institute such proceedings within 60 days; and (iv) the Trustee shall
not have received from the Holders of a majority in aggregate principal amount
of the outstanding Debt Securities of the same series a direction inconsistent
with such request (Section 507); provided, however, that such limitations do not
apply to a suit instituted by a Holder of a Debt Security for enforcement of
payment of the principal of and any premium and interest on such Debt Security
on or after the respective due dates expressed in such Debt Security. (Section
508)
The Operating Partnership will be required to furnish to the Trustees
annually a statement as to the performance by the Operating Partnership of its
obligations under the Indentures and as to any default in such performance.
(Section 1004)
MODIFICATION AND WAIVER
Without the consent of any Holder of Outstanding Debt Securities, the
Operating Partnership and the applicable Trustee may amend or supplement the
applicable Indenture or the Debt Securities to cure any ambiguity, defect or
inconsistency, or to make any change that does not materially adversely affect
the rights of any Holder of Debt Securities. (Section 901) Other modifications
and amendments of the Indentures may be made by the Operating Partnership and
the applicable Trustee only with the consent of the Holders of not less than a
majority in aggregate principal amount of the Outstanding Debt Securities of
each series affected thereby; provided, however, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Debt
Security affected thereby: (a) change the Stated Maturity of the principal of,
or any installment of principal of, or interest on, any Debt Security; (b)
reduce the principal amount of, the rate of interest on, or the premium, if any,
payable upon the redemption of, any Debt Security; (c) reduce the amount of
principal of an Original Issue Discount Security payable upon acceleration of
the Maturity thereof; (d) change the place or currency of payment of principal
of, or premium, if any, or interest on any Debt Security; (e) impair the right
to institute suit for the enforcement of any payment on or with respect to any
Debt Security on or after the Stated Maturity or Redemption Date thereof; (f)
modify the subordination provisions applicable to any series of Debt Securities
in a manner adverse to the holders thereof; or (g) reduce the percentage in
principal amount of Outstanding Debt Securities of any series, the consent of
the Holders of which is required for modification or amendment of the Indentures
or for waiver of compliance with certain provisions of the applicable Indenture
or for waiver of certain defaults. (Section 902)
Unless otherwise indicated in the applicable Prospectus Supplement, the
Holders of at least a majority in aggregate principal amount of the Outstanding
Debt Securities of any series may on behalf of the Holders of all Debt
Securities of that series waive, insofar as that series is concerned, compliance
by the Operating Partnership with certain covenants of the Indentures. (Section
1008) Unless otherwise indicated in the applicable Prospectus Supplement, the
Holders of not less than a majority in principal amount of the Outstanding Debt
Securities of any series may, on behalf of the Holders of all Debt Securities of
that series, waive any past default under the applicable Indenture with respect
to that series, except a default in the payment of the principal of, or premium,
if any, or interest on, any Debt Security of that series or in respect of a
provision which under such applicable Indenture cannot be modified or amended
without the consent of the Holder of each Outstanding Debt Security of that
series affected. (Section 513)
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CONSOLIDATION, MERGER AND SALE OF ASSETS
Unless otherwise indicated in the applicable Prospectus Supplement, the
Operating Partnership, without the consent of any Holders of outstanding Debt
Securities, may consolidate with or merge into, or transfer or lease its assets
substantially as an entirety to, any Person, and any other Person may
consolidate with or merge into, or transfer or lease its assets substantially as
an entirety to, the Operating Partnership, provided that (a) the Person (if
other than the Operating Partnership) formed by such consolidation or into which
the Operating Partnership is merged or which acquires or leases the assets of
the Operating Partnership substantially as an entirety assumes the Operating
Partnership's obligations on the Debt Securities and under the Indenture
relating thereto and (b) after giving effect to such transaction no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing. (Article Eight) A
Prospectus Supplement may set forth any additional provisions regarding a
consolidation with, merger into, or transfer or lease of its assets
substantially as an entirety to, any Person (or of such Person with, into or to
the Operating Partnership).
DEFEASANCE
If so indicated in the applicable Prospectus Supplement with respect to the
Debt Securities of a series, the Operating Partnership, at its option (i) will
be discharged from any and all obligations in respect of the Debt Securities of
such series (except for certain obligations to register the transfer or exchange
of Debt Securities of such series, to replace destroyed, stolen, lost or
mutilated Debt Securities of such series, and to maintain an office or agency in
respect of the Debt Securities and hold monies for payment in trust) or (ii)
will be released from its obligations to comply with any covenants that may be
specified in the applicable Prospectus Supplement with respect to the Debt
Securities of such series, and the occurrence of an event described in clause
(d) under "-- Events of Default" above with respect to any defeased covenants
shall no longer be an Event of Default, if in either case the Operating
Partnership irrevocably deposits with the applicable Trustee, in trust, money or
U.S. Government Obligations that through the payment of interest thereon and
principal thereof in accordance with their terms will provide money in an amount
sufficient to pay all of the principal of and premium, if any, and any interest
on the Debt Securities of such series on the dates such payments are due (which
may include one or more redemption dates designated by the Operating
Partnership) in accordance with the terms of such Debt Securities. Such a trust
may only be established if, among other things, (a) no Event of Default or event
which with the giving of notice or lapse of time, or both, would become an Event
of Default under the applicable Indenture shall have occurred and be continuing
on the date of such deposit, (b) no Event of Default described under clause (e)
under "-- Events of Default" above or event which with the giving of notice or
lapse of time, or both, would become an Event of Default described under such
clause (e) shall have occurred and be continuing at any time during the period
ending on the 91st day following such date of deposit and (c) the Operating
Partnership shall have delivered an Opinion of Counsel to the effect that the
Holders of the Debt Securities will not recognize gain or loss for United States
Federal income tax purposes as a result of such deposit or defeasance and will
be subject to United States Federal income tax in the same manner as if such
deposit and defeasance had not occurred, which Opinion of Counsel, in the case
of a deposit and defeasance of such Indenture with respect to the Debt
Securities of any series as described under clause (i) above, shall be based on
either (A) a ruling to such effect that the Operating Partnership has received
from, or that has been published by, the Internal Revenue Service or (B) a
change in the applicable Federal income tax law, occurring after the date of the
applicable Indenture, to such effect. In the event the Operating Partnership
omits to comply with its remaining obligations under such Indenture after a
defeasance of such Indenture with respect to the Debt Securities of any series
as described under clause (ii) above and the Debt Securities of such series are
declared due and payable because of the occurrence of any undefeased Event of
Default, the amount of money and U.S. Government Obligations on deposit with the
applicable Trustee may be insufficient to pay amounts due on the Debt Securities
of such series at the time of the acceleration resulting from such Event of
Default. However, the Operating Partnership will remain liable in respect to
such payments. (Article Thirteen)
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SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the Prospectus Supplement, the following
provisions will apply to the Subordinated Debt Securities.
The Subordinated Debt Securities will, to the extent set forth in the
Subordinated Indenture, be subordinate in right of payment to the prior payment
in full of all Senior Debt, including the Senior Debt Securities. Upon any
payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Operating Partnership, the holders of Senior Debt
will first be entitled to receive payment in full of principal of (and premium,
if any) and interest, if any, on such Senior Debt before the holders of the
Subordinated Debt Securities will be entitled to receive or retain any payment
in respect of the principal of (and premium, if any) or interest, if any, on the
Subordinated Debt Securities. (Article Fifteen of the Subordinated Indenture)
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Operating Partnership who are not holders of Senior Debt or
Subordinated Debt Securities may recover less, ratably, than holders of Senior
Debt and may recover more, ratably, than the holders of the Subordinated Debt
Securities.
In the event of the acceleration of the maturity of any Subordinated Debt
Securities, the holders of all Senior Debt outstanding at the time of such
acceleration will first be entitled to receive payment in full of all amounts
due thereon before the Holders of the Subordinated Debt Securities will be
entitled to receive any payment upon the principal of (or premium, if any) or
interest, if any, on the Subordinated Debt Securities.
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Subordinated Debt Securities may be made if there shall
have occurred and be continuing a default in any payment with respect to Senior
Debt, or an event of default with respect to any Senior Debt resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
Unless otherwise indicated in the applicable Prospectus Supplement, "Senior
Debt" means the principal of (and premium, if any) and interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Operating Partnership to the extent such claim
for post-petition interest is allowed in such proceeding) on all indebtedness of
the Operating Partnership (including indebtedness of others guaranteed by the
Operating Partnership), other than the Subordinated Debt Securities whether
outstanding on the date of the Subordinated Indenture or thereafter created,
incurred or assumed, which is: (i) for money borrowed, (ii) evidenced by a note
or similar instrument given in connection with the acquisition of any
businesses, properties or assets of any kind or (iii) obligations of the
Operating Partnership as lessee under leases required to be capitalized on the
balance sheet of the lessee under generally accepted accounting principles or
leases of property or assets made as part of any sale and lease-back transaction
to which the Operating Partnership is a party, including amendments, renewals,
extensions, modifications and refundings of any such indebtedness or obligation,
unless in any case in the instrument creating or evidencing any such
indebtedness or obligation or pursuant to which the same is outstanding it is
provided that such indebtedness or obligation is not superior in right of
payment to the Subordinated Debt Securities.
The Subordinated Indenture does not limit or prohibit the incurrence of
additional Senior Debt, which may include indebtedness that is senior to the
Subordinated Debt Securities, but subordinate to other obligations of the
Operating Partnership. The Senior Debt Securities, when issued, will constitute
Senior Debt.
The Prospectus Supplement will set forth the aggregate amount of
outstanding indebtedness as of the most recent practicable date that by the
terms of such indebtedness and the terms of the offered Subordinated Debt
Securities would rank senior to or pari passu with such Subordinated Debt
Securities
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and any limitation on the issuance of additional senior or pari passu
indebtedness. The Prospectus Supplement may further describe the provisions, if
any, applicable to the subordination of the Subordinated Debt Securities of a
particular series.
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed
in accordance with, the laws of the State of New York. (Section 112)
REGARDING THE TRUSTEES
The Operating Partnership and certain of its subsidiaries in the ordinary
course of business maintain general banking relations with The Bank of New York.
Pursuant to the provisions of the Trust Indenture Act of 1939, upon a default
under either the Senior Indenture or the Subordinated Indenture, The Bank of New
York may be deemed to have a conflicting interest by virtue of its acting as
both the Senior Trustee and the Subordinated Trustee requiring it to resign and
be replaced by a successor trustee in one of such positions.
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following descriptions of the material terms of the shares of
beneficial interest of Vornado do not purport to be complete and are subject to,
and qualified in their entirety by reference to, the more complete descriptions
thereof set forth in the following documents: (i) Vornado's Amended and Restated
Declaration of Trust, as amended, including the articles supplementary for the
Series A Preferred Shares (the "Declaration of Trust"), and (ii) its Bylaws,
copies of which are exhibits to the Registration Statement of which this
Prospectus is a part.
For Vornado to maintain its qualification as a REIT under the Code, not
more than 50% of the value of its outstanding shares of beneficial interest may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities) at any time during the last half of a
taxable year and the shares of beneficial interest must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months (or
during a proportionate part of a shorter taxable year). Accordingly, the
Declaration of Trust contains provisions that restrict the ownership and
transfer of shares of beneficial interest.
The Declaration of Trust authorizes the issuance of up to 240,000,000
shares, consisting of 100,000,000 Common Shares, 20,000,000 preferred shares of
beneficial interest, no par value per share ("Preferred Shares"), and
120,000,000 excess shares of beneficial interest, $.04 par value per share
("Excess Shares"). See "-- Description of Preferred Shares -- Restrictions on
Ownership" and "-- Description of Common Shares -- Restrictions on Ownership"
for a discussion of the possible issuance of Excess Shares.
DESCRIPTION OF PREFERRED SHARES
The following is a description of the material terms and provisions of the
Preferred Shares. The particular terms of any series of Preferred Shares will be
described in the applicable Prospectus Supplement, which will supplement the
information set forth below.
The summary of the material terms of Vornado's Preferred Shares contained
in this Prospectus does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Declaration of Trust, which
includes the articles supplementary relating to each series of the Preferred
Shares (the "Articles Supplementary"), which will be filed as an exhibit to or
incorporated by reference in the Registration Statement of which this Prospectus
is a part at or prior to the time of issuance of such series of the Preferred
Shares.
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As of the date hereof, the Declaration of Trust authorizes the issuance of
20,000,000 Preferred Shares. As of November 15, 1997, 5,750,000 Series A
Preferred Shares were outstanding. The Series A Preferred Shares are listed on
the NYSE under the symbol "VNO Pr A". A description of Vornado's Series A
Preferred Shares is set forth in Vornado's Registration Statement on Form 8-A,
filed with the Commission on April 3, 1997, and incorporated herein by
reference. The Preferred Shares authorized by the Declaration of Trust may be
issued from time to time in one or more series in such amounts and with such
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as may be fixed by the Board of Trustees. Under certain
circumstances, the issuance of Preferred Shares could have the effect of
delaying, deferring or preventing a change of control of Vornado and may
adversely affect the voting and other rights of the holders of Common Shares.
The Declaration of Trust authorizes the Board of Trustees to classify or
reclassify, in one or more series, any unissued Preferred Shares and to
reclassify any unissued shares of any series of Preferred Shares of any series
by setting or changing the number of Preferred Shares constituting such series
and the designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions, qualifications and terms and
conditions of redemption of such Preferred Shares.
The Preferred Shares shall have the dividend, liquidation, redemption and
voting rights described below as such description may be supplemented in a
Prospectus Supplement relating to a particular series of the Preferred Shares.
The applicable Prospectus Supplement will describe the following terms of the
series of Preferred Shares in respect of which this Prospectus is being
delivered: (1) the title of such Preferred Shares and the number of shares
offered; (2) the amount of liquidation preference per share; (3) the initial
public offering price at which such Preferred Shares will be issued; (4) the
dividend rate (or method of calculation), the dates on which dividends shall be
payable and the dates from which dividends shall commence to cumulate, if any;
(5) any redemption or sinking fund provisions; (6) any conversion or exchange
rights; (7) any additional voting, dividend, liquidation, redemption, sinking
fund and other rights, preferences, limitations and restrictions; (8) any
listing of such Preferred Shares on any securities exchange; (9) the relative
ranking and preferences of such Preferred Shares as to dividend rights and
rights upon liquidation, dissolution or winding up of the affairs of Vornado;
(10) any limitations on issuance of any series of Preferred Shares ranking
senior to or on a parity with such series of Preferred Shares as to dividend
rights and rights upon liquidation, dissolution or winding up of the affairs of
Vornado; and (11) any limitations on direct, beneficial or constructive
ownership and restrictions on transfer, in each case as may be appropriate to
preserve the status of Vornado as a REIT. The applicable Prospectus Supplement
will also include a discussion of Federal income tax considerations applicable
to such Preferred Shares.
GENERAL
The Preferred Shares offered hereby will be issued in one or more series.
The Preferred Shares, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The liquidation preference is
not indicative of the price at which the Preferred Shares will actually trade on
or after the date of issuance.
RANK
The Preferred Shares shall, with respect to dividend rights and rights upon
liquidation, dissolution and winding up of Vornado, rank prior to the Common
Shares and Excess Shares (other than certain Excess Shares resulting from the
conversion of Preferred Shares) and to all other classes and series of equity
securities of Vornado now or hereafter authorized, issued or outstanding (the
Common Shares and such other classes and series of equity securities
collectively may be referred to herein as the "Junior Stock"), other than any
classes or series of equity securities of Vornado which by their terms
specifically provide for a ranking on a parity with (the "Parity Stock") or
senior to (the "Senior Stock") the Preferred Shares as to dividend rights and
rights upon liquidation, dissolution or winding up of Vornado. The Preferred
Shares shall be junior to all outstanding debt of Vornado. The Preferred Shares
shall be subject to creation of
24
Senior Stock, Parity Stock and Junior Stock to the extent not expressly
prohibited by the Declaration of Trust.
DIVIDENDS
Holders of Preferred Shares shall be entitled to receive, when, as and if
authorized by the Board of Trustees out of assets of Vornado legally available
for payment, dividends, or distributions in cash, property or other assets of
Vornado or in Securities of Vornado or from any other source as the Board of
Trustees in its discretion shall determine and at such dates and at such rates
per share per annum as described in the applicable Prospectus Supplement. Such
rate may be fixed or variable or both. Each authorized dividend shall be payable
to holders of record as they appear at the close of business on the books of
Vornado on such record dates, not more than 90 calendar days preceding the
payment dates therefor, as are determined by the Board of Trustees (each of such
dates, a "Record Date").
Such dividends may be cumulative or noncumulative, as described in the
applicable Prospectus Supplement. If dividends on a series of Preferred Shares
are noncumulative and if the Board of Trustees fails to authorize a dividend in
respect of a dividend period with respect to such series, then holders of such
Preferred Shares will have no right to receive a dividend in respect of such
dividend period, and Vornado will have no obligation to pay the dividend for
such period, whether or not dividends are authorized payable on any future
dividend payment dates. If dividends of a series of Preferred Shares are
cumulative, the dividends on such shares will accrue from and after the date set
forth in the applicable Prospectus Supplement.
No full dividends shall be authorized or paid or set apart for payment on
Preferred Shares of any series ranking, as to dividends, on a parity with or
junior to the series of Preferred Shares offered by the applicable Prospectus
Supplement for any period unless full dividends for the immediately preceding
dividend period on such Preferred Shares (including any accumulation in respect
of unpaid dividends for prior dividend periods, if dividends on such Preferred
Shares are cumulative) have been or contemporaneously are authorized and paid or
authorized and a sum sufficient for the payment thereof is set apart for such
payment. When dividends are not so paid in full (or a sum sufficient for such
full payment is not so set apart) upon such Preferred Shares and any other
Preferred Shares of Vornado ranking on a parity as to dividends with the
Preferred Shares, dividends upon such Preferred Shares and dividends on such
other Preferred Shares ranking on a parity with the Preferred Shares shall be
authorized pro rata so that the amount of dividends authorized per share on such
Preferred Shares and such other Preferred Shares ranking on a parity with the
Preferred Shares shall in all cases bear to each other the same ratio that
accrued dividends for the then-current dividend period per share on such
Preferred Shares (including any accumulation in respect of unpaid dividends for
prior dividend periods, if dividends on such Preferred Shares are cumulative)
and accrued dividends, including required or permitted accumulations, if any, on
shares of such other Preferred Shares, bear to each other. No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend
payment(s) on Preferred Shares which may be in arrears. Unless full dividends on
the series of Preferred Shares offered by the applicable Prospectus Supplement
have been authorized and paid or set apart for payment for the immediately
preceding dividend period (including any accumulation in respect of unpaid
dividends for prior dividend periods, if dividends on such Preferred Shares are
cumulative), (a) no cash dividend or distribution (other than in shares of
Junior Stock) may be authorized, set aside or paid on the Junior Stock, (b)
Vornado may not, directly or indirectly, repurchase, redeem or otherwise acquire
any shares of its Junior Stock (or pay any monies into a sinking fund for the
redemption of any shares) except by conversion into or exchange for Junior
Stock, and (c) Vornado may not, directly or indirectly, repurchase, redeem or
otherwise acquire any Preferred Shares or Parity Stock (or pay any monies into a
sinking fund for the redemption of any shares of any such stock) otherwise than
pursuant to pro rata offers to purchase or a concurrent redemption of all, or a
pro rata portion, of the outstanding Preferred Shares and shares of Parity Stock
(except by conversion into or exchange for Junior Stock).
Any dividend payment made on a series of Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series.
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REDEMPTION
The terms, if any, on which Preferred Shares of any series may be redeemed
will be set forth in the applicable Prospectus Supplement.
LIQUIDATION
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the affairs of Vornado, the holders of a series of Preferred
Shares will be entitled, subject to the rights of creditors, but before any
distribution or payment to the holders of Common Shares, Excess Shares (other
than certain Excess Shares resulting from the conversion of Preferred Shares) or
any Junior Stock on liquidation, dissolution or winding up of Vornado, to
receive a liquidating distribution in the amount of the liquidation preference
per share as set forth in the applicable Prospectus Supplement plus accrued and
unpaid dividends for the then-current dividend period (including any
accumulation in respect of unpaid dividends for prior dividend periods, if
dividends on such series of Preferred Shares are cumulative). If the amounts
available for distribution with respect to the Preferred Shares and all other
outstanding Parity Stock are not sufficient to satisfy the full liquidation
rights of all the outstanding Preferred Shares and Parity Stock, then the
holders of each series of such stock will share ratably in any such distribution
of assets in proportion to the full respective preferential amount (which in the
case of Preferred Shares may include accumulated dividends) to which they are
entitled. After payment of the full amount of the liquidation distribution, the
holders of Preferred Shares will not be entitled to any further participation in
any distribution of assets by Vornado.
Title 8 does not contain any specific provisions on the power of a Maryland
real estate investment trust, such as the Company, to make distributions,
including dividends, to its shareholders. It is possible that a Maryland court
may look to the Maryland General Corporation Law ("MGCL") for guidance on
matters, such as the making of distributions to shareholders, not covered by
Title 8. The MGCL requires that, after giving effect to a distribution, (1) the
corporation must be able to pay its debts as they become due in the usual course
of business and (2) the corporation's total assets must at least equal the sum
of its total liabilities plus the preferential rights on dissolution of
stockholders whose rights on dissolution are superior to those stockholders
receiving the distribution. However, the MGCL also provides that the charter of
the corporation may provide that senior dissolution preferences shall not be
included with liabilities for purposes of determining amounts available for
distribution. The applicable articles supplementary may include such a
provision.
VOTING
The Preferred Shares of a series will not be entitled to vote, except as
described below or in the applicable Prospectus Supplement. Without the
affirmative vote of a majority of the Preferred Shares then outstanding (voting
separately as a class together with any Parity Stock), Vornado may not (i)
increase or decrease the aggregate number of authorized shares of such class or
any security ranking prior to the Preferred Shares, (ii) increase or decrease
the par value of the shares of holders of such class or (iii) alter or change
the voting or other powers, preferences or special rights of such class so as to
affect them adversely. An amendment which increases the number of authorized
shares of or authorizes the creation or issuance of other classes or series of
Junior Stock or Parity Stock, or substitutes the surviving entity in a merger,
consolidation, reorganization or other business combination for Vornado, shall
not be considered to be such an adverse change.
NO OTHER RIGHTS
The shares of a series of Preferred Shares will not have any preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications, and terms and conditions of
redemption except as set forth above or in the applicable Prospectus Supplement,
the Declaration of Trust and in the applicable Articles Supplementary or as
otherwise required by law.
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TRANSFER AGENT AND REGISTRAR
The transfer agent for each series of Preferred Shares will be described in
the related Prospectus Supplement.
RESTRICTIONS ON OWNERSHIP
As discussed below, for Vornado to maintain its qualification as a REIT
under the Code, not more than 50% in value of its outstanding shares of
beneficial interest may be owned, directly or constructively, by five or fewer
individuals (as defined in the Code to include certain entities) at any time
during the last half of a taxable year, and the shares of beneficial interest
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months (or during a proportionate part of a shorter taxable
year). Therefore, the Declaration of Trust contains, and the Articles
Supplementary for each series of Preferred Shares may contain, provisions
restricting the ownership and transfer of the Preferred Shares.
The Declaration of Trust contains a limitation that restricts shareholders
from owning, under the applicable attribution rules of the Code, more than 9.9%
of the outstanding Preferred Shares of any series (the "Preferred Shares
Beneficial Ownership Limit"). The attribution rules which apply for purposes of
the Common Shares Beneficial Ownership Limit (as defined below) also apply for
purposes of the Preferred Shares Beneficial Ownership Limit. See "-- Description
of Common Shares -- Restrictions on Ownership". Shareholders should be aware
that events other than a purchase or other transfer of Preferred Shares may
result in ownership, under the applicable attribution rules of the Code, of
Preferred Shares in excess of the Preferred Shares Beneficial Ownership Limit.
Shareholders are urged to consult their own tax advisors concerning the
application of the attribution rules of the Code in their particular
circumstances.
Holders of Preferred Shares are also subject to the Constructive Ownership
Limit (as defined below in "-- Description of Common Shares -- Restrictions on
Ownership"), which restricts them from owning, under the applicable attribution
rules of the Code, more than 9.9% of the outstanding Preferred Shares of any
series. The attribution rules which apply for purposes of the Constructive
Ownership Limit differ from those that apply for purposes of the Preferred
Shares Beneficial Ownership Limit. See "-- Description of Common
Shares -- Restrictions on Ownership". Shareholders should be aware that events
other than a purchase or other transfer of Preferred Shares may result in
ownership, under the applicable attribution rules of the Code, of Preferred
Shares in excess of the Constructive Ownership Limit. Shareholders are urged to
consult their own tax advisors concerning the application of the attribution
rules of the Code in their particular circumstances.
The Declaration of Trust provides that a transfer of Preferred Shares that
would otherwise result in ownership, under the applicable attribution rules of
the Code, of Preferred Shares in excess of the Preferred Shares Beneficial
Ownership Limit or the Constructive Ownership Limit, or which would cause the
shares of beneficial interest of Vornado to be beneficially owned by fewer than
100 persons, will be null and void and the purported transferee will acquire no
rights or economic interest in such Preferred Shares. In addition, Preferred
Shares that would otherwise be owned, under the applicable attribution rules of
the Code, in excess of the Preferred Shares Beneficial Ownership Limit or the
Constructive Ownership Limit will be automatically exchanged for Excess Shares
that will be transferred, by operation of law, to Vornado as trustee of a trust
for the exclusive benefit of a beneficiary designated by the purported
transferee or purported holder. While so held in trust, Excess Shares are not
entitled to vote and are not entitled to participate in any dividends or
distributions made by Vornado. Any dividends or distributions received by the
purported transferee or other purported holder of such Excess Shares prior to
the discovery by Vornado of the automatic exchange for Excess Shares shall be
repaid to Vornado upon demand.
If the purported transferee or purported holder elects to designate a
beneficiary of an interest in the trust with respect to such Excess Shares, only
a person whose ownership of the shares will not violate the Preferred Shares
Beneficial Ownership Limit or the Constructive Ownership Limit may be
designated, at which time the Excess Shares will be automatically exchanged for
Preferred Shares of the same class as the Preferred Shares which were originally
exchanged for such Excess Shares. The Declaration of Trust
27
contains provisions designed to ensure that the purported transferee or other
purported holder of the Excess Shares may not receive in return for such a
transfer an amount that reflects any appreciation in the Preferred Shares for
which such Excess Shares were exchanged during the period that such Excess
Shares were outstanding but will bear the burden of any decline in value during
such period. Any amount received by a purported transferee or other purported
holder for designating a beneficiary in excess of the amount permitted to be
received must be turned over to Vornado. The Declaration of Trust provides that
Vornado may purchase any Excess Shares that have been automatically exchanged
for Preferred Shares as a result of a purported transfer or other event. The
price at which Vornado may purchase such Excess Shares shall be equal to the
lesser of (i) in the case of Excess Shares resulting from a purported transfer
for value, the price per share in the purported transfer that resulted in the
automatic exchange for Excess Shares or, in the case of Excess Shares resulting
from some other event, the market price of the Preferred Shares exchanged on the
date of the automatic exchange for Excess Shares and (ii) the market price of
the Preferred Shares exchanged for such Excess Shares on the date that the
Company accepts the deemed offer to sell such Excess Shares. Vornado's purchase
right with respect to Excess Shares shall exist for 90 days, beginning on the
date that the automatic exchange for Excess Shares occurred or, if Vornado did
not receive a notice concerning the purported transfer that resulted in the
automatic exchange for Excess Shares, the date that the Board of Trustees
determines in good faith that an exchange for Excess Shares has occurred.
The Board of Trustees may exempt certain persons from the Preferred Shares
Beneficial Ownership Limit or the Constructive Ownership Limit if evidence
satisfactory to the trustees is presented showing that such exemption will not
jeopardize Vornado's status as a REIT under the Code. As a condition of such
exemption, the Board of Trustees may require a ruling from the Internal Revenue
Service (the "IRS") and/or an opinion of counsel satisfactory to it and/or
representations and undertakings from the applicant with respect to preserving
the REIT status of Vornado.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Trustees determines that it is no longer in the best interests
of Vornado to attempt to qualify, or to continue to qualify, as a REIT.
All certificates evidencing Preferred Shares will bear a legend referring
to the restrictions described above.
All persons who own, directly or by virtue of the applicable attribution
rules of the Code, more than 2% of the outstanding Preferred Shares of any
series must give a written notice to Vornado containing the information
specified in the Declaration of Trust by January 31 of each year. In addition,
each shareholder shall upon demand be required to disclose to Vornado such
information as Vornado may request, in good faith, in order to determine
Vornado's status as a REIT or to comply with Treasury Regulations promulgated
under the REIT provisions of the Code.
DEPOSITARY SHARES
Vornado may, at its option, elect to offer receipts for fractional
interests ("Depositary Shares") in Preferred Shares, rather than full Preferred
Shares. In such event, receipts ("Depositary Receipts") for Depositary Shares,
each of which will represent a fraction (to be set forth in the Prospectus
Supplement relating to a particular series of Preferred Shares) of a share of a
particular series of Preferred Shares, will be issued as described below.
The description set forth below of the material provisions of the Deposit
Agreement and of the Depositary Shares and Depositary Receipts (each as defined
below) does not purport to be complete and is subject to and qualified in its
entirety by reference to the forms of Deposit Agreement and Depositary Receipts
relating to each series of the Preferred Shares which have been or will be filed
with the Commission at or prior to the time of the offering of such series of
the Preferred Shares. The particular terms of Depositary Shares representing
fractional interests in any particular series of Preferred Shares will be
described in the applicable Prospectus Supplement, which will supplement the
information set forth herein.
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GENERAL
The shares of any series of Preferred Shares represented by Depositary
Shares will be deposited under a Deposit Agreement (the "Deposit Agreement")
between Vornado and the depositary (the "Depositary"). Subject to the terms of
the Deposit Agreement, each owner of a Depositary Share will be entitled, in
proportion to the applicable fraction of a Preferred Share represented by such
Depositary Share, to all the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends and other distributions,
qualifications and terms and conditions of redemption of the Preferred Shares
represented thereby.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the Preferred Shares to the record holders
of Depositary Shares relating to such Preferred Shares in proportion to the
numbers of such Depositary Shares owned by such holders.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares in
an equitable manner, unless the Depositary determines that it is not feasible to
make such distribution, in which case the Depositary may sell such property and
distribute the net proceeds from such sale to such holders.
WITHDRAWAL OF PREFERRED SHARES
Upon surrender of Depositary Receipts at the corporate trust office of the
Depositary (unless the related Depositary Shares have previously been called for
redemption or converted into Excess Shares or otherwise), the holders thereof
will be entitled to delivery at such office, to or upon such holder's order, of
the number of whole or fractional shares of the class or series of Preferred
Shares and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related class or series of
Preferred Shares on the basis of the proportion of Preferred Shares represented
by each Depositary Share as specified in the applicable Prospectus Supplement,
but holders of such Preferred Shares will not thereafter be entitled to receive
Depositary Shares thereof. If the Depositary Receipts delivered by the holder
evidence a number of Depositary Shares in excess of the number of Depositary
Shares representing the number of shares of Preferred Shares to be withdrawn,
the Depositary will deliver to such holder at the same time a new Depositary
Receipt evidencing such excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
If a series of Preferred Shares represented by Depositary Shares is subject
to redemption, the Depositary Shares will be redeemed from the proceeds received
by the Depositary resulting from the redemption, in whole or in part, of such
series of Preferred Shares held by the Depositary. The redemption price per
Depositary Share will be equal to the applicable fraction of the redemption
price per share payable with respect to such series of the Preferred Shares.
Whenever Vornado redeems Preferred Shares held by the Depositary, the Depositary
will redeem as of the same redemption date the number of Depositary Shares
representing Preferred Shares so redeemed. If fewer than all the Depositary
Shares are to be redeemed, the Depositary Shares to be redeemed will be selected
by lot, pro rata or by any other equitable method as may be determined by the
Depositary.
VOTING THE PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the Preferred
Shares are entitled to vote, the Depositary will mail the information contained
in such notices of meeting to the record holders of the Depositary Shares
relating to such Preferred Shares. Each record holder of such Depositary Shares
on the record date (which will be the same date as the record date for the
Preferred Shares) will be entitled to instruct the Depositary as to the exercise
of the voting rights pertaining to the amount of the Preferred Shares
represented by such holder's Depositary Shares. The Depositary will endeavor,
insofar as
29
practicable, to vote the amount of the Preferred Shares represented by such
Depositary Shares in accordance with such instructions, and Vornado will agree
to take all reasonable action which may be deemed necessary by the Depositary in
order to enable the Depositary to do so. The Depositary will abstain from voting
the Preferred Shares to the extent it does not receive specific instructions
from the holder of Depositary Shares representing such Preferred Shares.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time be amended by agreement
between Vornado and the Depositary. However, any amendment which materially and
adversely alters the rights of the holders of Depositary Shares will not be
effective unless such amendment has been approved by the holders of at least a
majority of the Depositary Shares then outstanding. The Deposit Agreement will
only terminate if (i) all outstanding Depositary Shares have been redeemed or
(ii) there has been a final distribution in respect of the Preferred Shares in
connection with any liquidation, dissolution or winding up of Vornado and such
distribution has been distributed to the holders of the related Depositary
Shares.
CHARGES OF DEPOSITARY
Vornado will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. Vornado will
pay charges of the Depositary in connection with the initial deposit of the
Preferred Shares and issuance of Depositary Receipts, all withdrawals of
Preferred Shares by owners of Depositary Shares and any redemption of the
Preferred Shares. Holders of Depositary Receipts will pay other transfer and
other taxes and governmental charges and such other charges as are expressly
provided in the Deposit Agreement to be for their accounts.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to Vornado notice of
its election to do so, and Vornado may at any time remove the Depositary, any
such resignation or removal to take effect upon the appointment of a successor
Depositary and its acceptance of such appointment. Such successor Depositary
must be appointed within 60 days after delivery of the notice of resignation or
removal and must be a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at least $50,000,000.
RESTRICTIONS ON OWNERSHIP
In order to safeguard Vornado against an inadvertent loss of REIT status,
the Deposit Agreement or the Declaration of Trust will contain provisions
restricting the ownership and transfer of Depositary Shares. Such restrictions
will be described in the applicable Prospectus Supplement.
MISCELLANEOUS
The Depositary will forward all reports and communications from Vornado
which are delivered to the Depositary and which Vornado is required or otherwise
determines to furnish to the holders of the Preferred Shares.
Neither the Depositary nor Vornado will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of Vornado and the
Depositary under the Deposit Agreement will be limited to performance in good
faith of their duties thereunder and they will not be obligated to prosecute or
defend any legal proceeding in respect of any Depositary Shares or Preferred
Shares unless satisfactory indemnity is furnished. They may rely upon written
advice of counsel or accountants, or information provided by persons presenting
Preferred Shares for deposit, holders of Depositary Shares or other persons
believed to be competent and on documents believed to be genuine.
30
DESCRIPTION OF COMMON SHARES
As of November 15, 1997, 69,229,079 Common Shares were issued and
outstanding and no Excess Shares were issued and outstanding. The Common Shares
of Vornado are listed on the NYSE under the symbol "VNO".
The holders of Common Shares are entitled to receive dividends when, if and
as authorized by the Board of Trustees of Vornado out of assets legally
available therefor, provided that if any Preferred Shares are at the time
outstanding, the payment of dividends on Common Shares or other distributions
(including purchases of Common Shares) may be subject to the declaration and
payment of full cumulative dividends, and the absence of arrearages in any
mandatory sinking fund, on outstanding Preferred Shares.
The holders of Common Shares are entitled to one vote for each share on all
matters voted on by shareholders, including elections of trustees. There is no
cumulative voting in the election of trustees, which means that the holders of a
majority of the outstanding Common Shares can elect all of the trustees then
standing for election. The holders of Common Shares do not have any conversion,
redemption or preemptive rights to subscribe to any securities of the Company.
In the event of the dissolution, liquidation or winding up of Vornado, holders
of Common Shares are entitled to share ratably in any assets remaining after the
satisfaction in full of the prior rights of creditors, including holders of the
Company's indebtedness, and the aggregate liquidation preference of any
Preferred Shares then outstanding.
The Common Shares have equal dividend, distribution, liquidation and other
rights, and shall have no preference, appraisal or exchange rights. All
outstanding shares of Common Shares are, and any Common Shares offered by a
Prospectus Supplement, upon issuance, will be, fully paid and non-assessable.
The transfer agent for the Common Shares is First Union National Bank,
Charlotte, North Carolina.
RESTRICTIONS ON OWNERSHIP
The Declaration of Trust contains a number of provisions which restrict the
ownership and transfer of shares and which are designed to safeguard Vornado
against an inadvertent loss of its REIT status. The Declaration of Trust
contains a limitation that restricts, with certain exceptions, shareholders from
owning, under the applicable attribution rules of the Code, more than a
specified percentage of the outstanding Common Shares (the "Common Shares
Beneficial Ownership Limit"). The Common Shares Beneficial Ownership Limit was
initially set at 2.0% of the outstanding Common Shares. The Board of Trustees
subsequently adopted a resolution raising the Common Shares Beneficial Ownership
Limit from 2.0% to 6.7% of the outstanding Common Shares. The shareholders who
owned, under the applicable attribution rules of the Code, more than 6.7% of the
Common Shares immediately after the merger of Vornado, Inc. into Vornado in May
1993 (the "Merger") may continue to do so and may acquire additional Common
Shares through stock option and similar plans or from other shareholders who
owned, under the applicable attribution rules of the Code, more than 6.7% of the
Common Shares immediately after the Merger, subject to the restriction that
Common Shares cannot be transferred if, as a result, more than 50% in value of
the outstanding shares of Vornado would be owned by five or fewer individuals.
While such shareholders are not generally permitted to acquire additional Common
Shares from any other source, such shareholders may acquire additional Common
Shares from any source in the event that additional Common Shares are issued by
Vornado, up to the percentage held by them immediately prior to such issuance.
Shareholders should be aware that events other than a purchase or other
transfer of Common Shares can result in ownership, under the applicable
attribution rules of the Code, of Common Shares in excess of the Common Shares
Beneficial Ownership Limit. For instance, if two shareholders, each of whom
owns, under the applicable attribution rules of the Code, 3.5% of the
outstanding Common Shares, were to marry, then after their marriage both
shareholders would own, under the applicable attribution rules of the Code, 7.0%
of the outstanding Common Shares, which is in excess of the Common Shares
Beneficial Ownership Limit. Similarly, if a shareholder who owns, under the
applicable attribution rules of the Code, 4.9% of the outstanding Common Shares
were to purchase a 50% interest in a corporation which owns
31
4.8% of the outstanding Common Shares, then the shareholder would own, under the
applicable attribution rules of the Code, 7.3% of the outstanding Common Shares.
Shareholders are urged to consult their own tax advisors concerning the
application of the attribution rules of the Code in their particular
circumstances.
Under the Code, rental income received by a REIT from persons in which the
REIT is treated, under the applicable attribution rules of the Code, as owning a
10% or greater interest does not constitute qualifying income for purposes of
the income requirements that REITs must satisfy. For these purposes, a REIT is
treated as owning any stock owned, under the applicable attribution rules of the
Code, by a person that owns 10% or more of the value of the outstanding shares
of the REIT. Therefore, in order to ensure that rental income of the Company
will not be treated as nonqualifying income under the rule described above, and
thus to ensure that there will not be an inadvertent loss of REIT status as a
result of the ownership of shares of a tenant, or a person that holds an
interest in a tenant, the Declaration of Trust also contains an ownership limit
that restricts, with certain exceptions, shareholders from owning, under the
applicable attribution rules of the Code (which are different from those
applicable with respect to the Common Shares Beneficial Ownership Limit), more
than 9.9% of the outstanding shares of any class (the "Constructive Ownership
Limit"). The shareholders who owned, under the applicable attribution rules of
the Code, shares in excess of the Constructive Ownership Limit immediately after
the Merger generally are not subject to the Constructive Ownership Limit.
Subject to an exception for tenants and subtenants from whom the REIT receives,
directly or indirectly, rental income that is not in excess of a specified
threshold, the Declaration of Trust also contains restrictions that are designed
to ensure that the shareholders who owned, under the applicable attribution
rules of the Code, shares in excess of the Constructive Ownership Limit
immediately after the Merger will not, in the aggregate, own an interest in a
tenant or subtenant of the REIT of sufficient magnitude to cause rental income
received, directly or indirectly, by the REIT from such tenant or subtenant to
be treated as nonqualifying income for purposes of the income requirements that
REITs must satisfy.
Shareholders should be aware that events other than a purchase or other
transfer of shares can result in ownership, under the applicable attribution
rules of the Code, of shares in excess of the Constructive Ownership Limit. As
the attribution rules that apply with respect to the Constructive Ownership
Limit differ from those that apply with respect to the Common Shares Beneficial
Ownership Limit, the events other than a purchase or other transfer of shares
which can result in share ownership in excess of the Constructive Ownership
Limit can differ from those which can result in share ownership in excess of the
Common Shares Beneficial Ownership Limit. Shareholders are urged to consult
their own tax advisors concerning the application of the attribution rules of
the Code in their particular circumstances.
The Declaration of Trust provides that a transfer of Common Shares that
would otherwise result in ownership, under the applicable attribution rules of
the Code, of Common Shares in excess of the Common Shares Beneficial Ownership
Limit or the Constructive Ownership Limit, or which would cause the shares of
beneficial interest of the Company to be beneficially owned by fewer than 100
persons, will be null and void and the purported transferee will acquire no
rights or economic interest in such Common Shares. In addition, the Declaration
of Trust provides that Common Shares that would otherwise be owned, under the
applicable attribution rules of the Code, in excess of the Common Shares
Beneficial Ownership Limit or the Constructive Ownership Limit will be
automatically exchanged for Excess Shares that will be transferred, by operation
of law, to Vornado as trustee of a trust for the exclusive benefit of a
beneficiary designated by the purported transferee or purported holder. While so
held in trust, Excess Shares are not entitled to vote and are not entitled to
participate in any dividends or distributions made by Vornado. Any dividends or
distributions received by the purported transferee or other purported holder of
such Excess Shares prior to the discovery by Vornado of the automatic exchange
for Excess Shares shall be repaid to Vornado upon demand.
If the purported transferee or purported holder elects to designate a
beneficiary of an interest in the trust with respect to such Excess Shares, only
a person whose ownership of the shares will not violate the Common Shares
Beneficial Ownership Limit or the Constructive Ownership Limit may be
designated, at which time the Excess Shares will be automatically exchanged for
Common Shares. The Declaration of
32
Trust contains provisions designed to ensure that the purported transferee or
other purported holder of the Excess Shares may not receive in return for such a
transfer an amount that reflects any appreciation in the Common Shares for which
such Excess Shares were exchanged during the period that such Excess Shares were
outstanding but will bear the burden of any decline in value during such period.
Any amount received by a purported transferee or other purported holder for
designating a beneficiary in excess of the amount permitted to be received must
be turned over to Vornado. The Declaration of Trust provides that Vornado, or
its designee, may purchase any Excess Shares that have been automatically
exchanged for Common Shares as a result of a purported transfer or other event.
The price at which Vornado, or its designee, may purchase such Excess Shares
shall be equal to the lesser of (i) in the case of Excess Shares resulting from
a purported transfer for value, the price per share in the purported transfer
that resulted in the automatic exchange for Excess Shares or, in the case of
Excess Shares resulting from some other event, the market price of the Common
Shares exchanged on the date of the automatic exchange for Excess Shares and
(ii) the market price of the Common Shares exchanged for such Excess Shares on
the date that Vornado accepts the deemed offer to sell such Excess Shares.
Vornado's purchase right with respect to Excess Shares shall exist for 90 days,
beginning on the date that the automatic exchange for Excess Shares occurred or,
if Vornado did not receive a notice concerning the purported transfer that
resulted in the automatic exchange for Excess Shares, the date that the Board of
Trustees determines in good faith that an exchange for Excess Shares has
occurred.
The Board of Trustees of Vornado may exempt certain persons from the Common
Shares Beneficial Ownership Limit or the Constructive Ownership Limit, including
the limitations applicable to holders who owned in excess of 6.7% of the Common
Shares immediately after the Merger, if evidence satisfactory to the Board of
Trustees is presented showing that such exemption will not jeopardize Vornado's
status as a REIT under the Code. As a condition of such exemption, the Board of
Trustees may require a ruling from the IRS and/or an opinion of counsel
satisfactory to it and/or representations and undertakings from the applicant
with respect to preserving the REIT status of Vornado.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Trustees determines that it is no longer in the best interests
of Vornado to attempt to qualify, or to continue to qualify, as a REIT.
All persons who own, directly or by virtue of the applicable attribution
rules of the Code, more than 2.0% of the outstanding Common Shares must give a
written notice to Vornado containing the information specified in the
Declaration of Trust by January 31 of each year. In addition, each shareholder
shall upon demand be required to disclose to the Company such information as
Vornado may request, in good faith, in order to determine Vornado's status as a
REIT or to comply with Treasury Regulations promulgated under the REIT
provisions of the Code.
The ownership restrictions described above may have the effect of
precluding acquisition of control of Vornado unless the Board of Trustees
determines that maintenance of REIT status is no longer in the best interests of
Vornado.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the taxation of Vornado and the material Federal
income tax consequences to holders of the Securities is for general information
only, and is not tax advice. The tax treatment of a holder of Securities will
vary depending upon the holder's particular situation, and this discussion
addresses only holders that hold Securities as capital assets and does not
purport to deal with all aspects of taxation that may be relevant to particular
holders in light of their personal investment or tax circumstances, or to
certain types of holders (including dealers in securities or currencies, traders
in securities that elect to mark-to-market, banks, tax-exempt organizations,
life insurance companies, persons that hold Securities that are a hedge or that
are hedged against currency risks or that are part of a straddle or conversion
transaction, or persons whose functional currency is not the U.S. dollar)
subject to special treatment under the Federal income tax laws. This summary is
based on the Code, its legislative history, existing and
33
proposed regulations thereunder, published rulings and court decisions, all as
currently in effect and all subject to change at any time, perhaps with
retroactive effect.
INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE
TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND SALE OF SECURITIES,
INCLUDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SUCH
ACQUISITION, OWNERSHIP AND SALE IN THEIR PARTICULAR CIRCUMSTANCES AND POTENTIAL
CHANGES IN APPLICABLE LAWS.
TAXATION OF THE COMPANY AS A REIT
GENERAL
In the opinion of Sullivan & Cromwell, commencing with its taxable year
ended December 31, 1993, Vornado has been organized and operated in conformity
with the requirements for qualification and taxation as a REIT under the Code,
and Vornado's proposed method of operation will enable it to continue to meet
the requirements for qualification and taxation as a REIT under the Code.
Investors should be aware, however, that opinions of counsel are not binding
upon the Internal Revenue Service or any court. In providing its opinion,
Sullivan & Cromwell is relying upon (i) representations received from Vornado
and (ii) an opinion of Shearman & Sterling as to the qualification of
Alexander's as a REIT. In providing its opinion to the effect that, commencing
with Alexander's taxable year ending December 31, 1995, Alexander's has been
organized and operated in conformity with the requirements for qualification and
taxation as a REIT under the Code, and Alexander's proposed method of operation
will enable it to continue to meet the requirements for qualification and
taxation as a REIT under the Code, Shearman & Sterling is in turn relying upon
representations received from Alexander's. The qualification and taxation of
Vornado and Alexander's as REITs depends upon their ability to meet, through
actual annual operating results, distribution levels, stock ownership
requirements and the various qualification tests imposed under the Code.
Accordingly, while Vornado intends to continue to qualify to be taxed as a REIT,
no assurance can be given that the actual results of Vornado's or Alexander's
operations for any particular year will satisfy such requirements. Neither
Sullivan & Cromwell nor Shearman & Sterling will monitor the compliance of the
Company or Alexander's with the requirements for REIT qualification on an
ongoing basis.
The sections of the Code applicable to REITs are highly technical and
complex. The material aspects thereof are summarized below.
As a REIT, Vornado generally will not be subject to Federal corporate
income taxes on its net income that is currently distributed to shareholders.
This treatment substantially eliminates the "double taxation" (at the corporate
and shareholder levels) that generally results from investment in a regular
corporation. However, Vornado will be subject to federal income tax as follows.
First, Vornado will be taxed at regular corporate rates on any undistributed
real estate investment trust taxable income, including undistributed net capital
gains. Second, under certain circumstances, Vornado may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if Vornado has
(i) net income from the sale or other disposition of "foreclosure property"
which is held primarily for sale to customers in the ordinary course of business
or (ii) other non-qualifying income from foreclosure property, it will be
subject to tax at the highest corporate rate on such income. Fourth, if Vornado
has net income from "prohibited transactions" (which are, in general, certain
sales or other dispositions of property, other than foreclosure property, held
primarily for sale to customers in the ordinary course of business), such income
will be subject to a 100% tax. Fifth, if Vornado should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on an amount equal
to (a) the gross income attributable to the greater of the amount by which
Vornado fails the 75% or 95% test, multiplied by (b) a fraction intended to
reflect Vornado's profitability. Sixth, if Vornado should fail to distribute
during each calendar year at least the sum of (i) 85% of its real estate
investment trust ordinary income for such year, (ii) 95% of its real estate
investment trust capital gain net income for such year,
34
and (iii) any undistributed taxable income from prior periods, Vornado would be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed. Seventh, if during the 10-year period (the
"Recognition Period") beginning on the first day of the first taxable year for
which Vornado qualified as a REIT, Vornado recognizes gain on the disposition of
any asset held by Vornado as of the beginning of the Recognition Period, then,
to the extent of the excess of (a) fair market value of such asset as of the
beginning of the Recognition Period over (b) Vornado's adjusted basis in such
asset as of the beginning of the Recognition Period (the "Built-in Gain"), such
gain will be subject to tax at the highest regular corporate rate pursuant to
Treasury regulations that have not been promulgated; provided, however, that
Vornado shall not be subject to tax on recognized Built-in Gain with respect to
assets held as of the first day of the Recognition Period to the extent that the
aggregate amount of such recognized Built-in Gain exceeds the net aggregate
amount of Vornado's unrealized Built-in Gain as of the first day of the
Recognition Period. Eighth, if Vornado acquires any asset from a C corporation
(i.e., generally a corporation subject to full corporate-level tax) in certain
transactions in which the basis of the asset in the hands of Vornado is
determined by reference to the basis of the asset (or any other property) in the
hands of the C corporation, and Vornado recognizes gain on the disposition of
such asset during the Recognition Period beginning on the date on which such
asset was acquired by Vornado, then, pursuant to the Treasury regulations that
have not yet been issued and to the extent of the Built-in Gain, such gain will
be subject to tax at the highest regular corporate rate.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (1) which is
managed by one or more trustees or directors, (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest, (3) which would otherwise be taxable as a domestic
corporation, but for Sections 856 through 859 of the Code, (4) which is neither
a financial institution nor an insurance company subject to certain provisions
of the Code, (5) the beneficial ownership of which is held by 100 or more
persons, (6) during the last half of each taxable year, not more than 50% in
value of the outstanding stock of which is owned, directly or constructively, by
five or fewer individuals (as defined in the Code to include certain entities)
and (7) which meets certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions (1) to (4) must be
met during the entire taxable year and that condition (5) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months.
Vornado has satisfied conditions (1) through (5) and believes that it has
also satisfied condition (6). In addition, Vornado's Declaration of Trust
provides for restrictions regarding the ownership and transfer of Vornado's
shares of beneficial interest, which restrictions are intended to assist Vornado
in continuing to satisfy the share ownership requirements described in (5) and
(6) above. The ownership and transfer restrictions pertaining to the Preferred
Shares and the Common Shares are described above under the headings "Description
of Shares of Beneficial Interest -- Description of Preferred
Shares -- Restrictions on Ownership" and "Description of Shares of Beneficial
Interest -- Description of Common Shares -- Restrictions on Ownership."
Vornado owns a number of wholly-owned subsidiaries. Code Section 856(i)
provides that a corporation which is a "qualified REIT subsidiary" shall not be
treated as a separate corporation, and all assets, liabilities, and items of
income, deduction, and credit of a "qualified REIT subsidiary" shall be treated
as assets, liabilities and such items (as the case may be) of the REIT. Thus, in
applying the requirements described herein, Vornado's "qualified REIT
subsidiaries" will be ignored, and all assets, liabilities and items of income,
deduction, and credit of such subsidiaries will be treated as assets,
liabilities and such items (as the case may be) of Vornado. Vornado believes
that all of its wholly-owned subsidiaries are "qualified REIT subsidiaries."
In the case of a REIT that is a partner in a partnership, Treasury
regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership will retain the same character in the
hands of the REIT for purposes
35
of Section 856 of the Code, including satisfying the gross income tests and the
asset tests. Thus, Vornado's proportionate share of the assets, liabilities and
items of income of any partnership in which Vornado is a partner, including the
Operating Partnership, will be treated as assets, liabilities and items of
income of Vornado for purposes of applying the requirements described herein.
Thus, actions taken by partnerships in which Vornado owns an interest either
directly or through one or more tiers of partnerships or qualified REIT
subsidiaries, can affect Vornado's ability to satisfy the REIT income and assets
tests and the determination of whether Vornado has net income from "prohibited
transactions".
INCOME TESTS. In order to maintain its qualification as a REIT, Vornado
annually must satisfy three gross income requirements. First, at least 75% of
Vornado's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" -- which term generally includes expenses of Vornado that are
paid or reimbursed by tenants) or from certain types of temporary investments.
Second, at least 95% of Vornado's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from such real
property investments, dividends, interest and gain from the sale or disposition
of stock or securities (or from any combination of the foregoing). Third, for
its taxable years before 1998, short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
on the sale or other disposition of real property held for less than four years
(apart from involuntary conversions and sales of foreclosure property) must
represent less than 30% of Vornado's gross income (including gross income from
prohibited transactions) for each such taxable year.
Rents received by Vornado will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, directly or under the applicable attribution rules,
owns a 10% or greater interest in such tenant (a "Related Party Tenant"). Third,
if rent attributable to personal property leased in connection with a lease of
real property is greater than 15% of the total rent received under the lease,
then the portion of rent attributable to such personal property will not qualify
as "rents from real property". Finally, for rents received to qualify as "rents
from real property," the REIT generally must not operate or manage the property
or furnish or render services to the tenants of such property, other than
through an independent contractor from whom the REIT derives no revenue;
provided, however, that Vornado may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only or are not considered "rendered to the occupant" of the property.
Vornado does not derive significant rents from Related Party Tenants, and
Vornado does not and will not derive rental income attributable to personal
property (other than personal property leased in connection with the lease of
real property, the amount of which is less than 15% of the total rent received
under the lease). Vornado directly performs services for certain of its tenants.
Vornado does not believe that the provision of such services will cause its
gross income attributable to such tenants to fail to be treated as "rents from
real property." For taxable years of Vornado beginning after August 5, 1997, if
Vornado provides services to a tenant that are other than those usually or
customarily provided in connection with the rental of space for occupancy only,
amounts received or accrued by Vornado for any such services will not be treated
as "rents from real property" for purposes of the REIT gross income tests but
will not cause other amounts received with respect to the property to fail to be
treated as "rents from real property" unless the amounts received in respect of
such services, together with amounts received for certain management services,
exceeds 1% of all amounts received or accrued by Vornado during the taxable year
with respect to such property. Under the literal wording of Section 856 of the
Code, if the 1% threshold is exceeded, then all amounts received or accrued by
Vornado with respect to the property will not qualify as "rents from real
property", even if the impermissible services are provided to some, but not all,
of the tenants of the property.
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The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
If Vornado fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if Vornado's failure to meet such tests
was due to reasonable cause and not due to willful neglect, Vornado attaches a
schedule of the sources of its income to its Federal income tax return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances Vornado
would be entitled to the benefit of these relief provisions. As discussed above
under "-- General," even if these relief provisions apply, a tax would be
imposed with respect to the excess income.
ASSET TESTS. Vornado, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of Vornado's total assets must be represented by real
estate assets (including (i) real estate assets held by Vornado's qualified REIT
subsidiaries and Vornado's allocable share of real estate assets held by
partnerships in which Vornado owns an interest, (ii) for a period of one year
from the date of Vornado's receipt of proceeds of an offering of its shares of
beneficial interest or long-term (at least five years) debt, stock or debt
instruments purchased with such proceeds and (iii) stock issued by another
REIT), cash, cash items and government securities. Second, not more than 25% of
Vornado's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities (other than securities issued by another
REIT) owned by Vornado may not exceed 5% of the value of Vornado's total assets
and Vornado may not own more than 10% of any one issuer's outstanding voting
securities.
Since March 2, 1995, Vornado has owned more than 10% of the voting
securities of Alexander's. Since April of 1997, Vornado's ownership of
Alexander's has been through the Operating Partnership rather than direct.
Vornado's ownership interest in Alexander's will not cause Vornado to fail to
satisfy the asset tests for REIT status so long as Alexander's qualified as a
REIT for each of taxable years beginning with its taxable year ending December
31, 1995 and continues to so qualify. In the opinion of Shearman & Sterling,
commencing with Alexander's taxable year ended December 31, 1995, Alexander's
has been organized and operated in conformity with the requirements for
qualification and taxation as a REIT under the Code, and its proposed method of
operation will enable it to continue to meet the requirements for qualification
and taxation as a REIT under the Code. In providing its opinion, Shearman &
Sterling is relying upon representations received from Alexander's.
Since April of 1997 Vornado has also owned, through the Operating
Partnership, more than 10% of the voting securities of Two Penn Plaza REIT, Inc.
("Two Penn REIT"). Vornado's indirect ownership interest in Two Penn REIT will
not cause Vornado to fail to satisfy the asset tests for REIT status so long as
Two Penn REIT qualifies as a REIT for its first taxable year and each taxable
year thereafter. Vornado believes that Two Penn REIT will also qualify.
In order to ensure compliance with the 95% gross income test described
above, Vornado transferred certain contract rights and obligations to VMC, a New
Jersey corporation, in return for all of VMC's nonvoting preferred stock (the
"Nonvoting Stock"). Since April of 1997, the Nonvoting Stock has been held by
the Operating Partnership. The Nonvoting Stock entitles the holder thereof to
95% of the dividends paid by VMC. Vornado does not believe that its indirect
ownership of the Nonvoting Stock will adversely affect its ability to satisfy
the asset tests described above.
Vornado also owns, through the Operating Partnership, nonvoting shares in a
number of corporations. Vornado does not believe that the characteristics or
value of such shares will cause Vornado to fail to satisfy the REIT asset tests
described above.
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ANNUAL DISTRIBUTION REQUIREMENTS. Vornado, in order to qualify as a REIT,
is required to distribute dividends (other than capital gain dividends) to its
shareholders in an amount at least equal to (A) the sum of (i) 95% of Vornado's
"real estate investment trust taxable income" (computed without regard to the
dividends paid deduction and Vornado's net capital gain) and (ii) 95% of the net
income (after tax), if any, from foreclosure property minus (B) the sum of
certain items of non-cash income. In addition, if Vornado disposes of any asset
during its Recognition Period, Vornado will be required, pursuant to Treasury
regulations which have not yet been promulgated, to distribute at least 95% of
the Built-in Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before Vornado timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that Vornado does not distribute all of
its net capital gain or distributes at least 95%, but less than 100%, of its
"real estate investment trust taxable income," as adjusted, it will be subject
to tax thereon at regular ordinary and capital gain corporate tax rates.
Furthermore, if Vornado should fail to distribute during each calendar year at
least the sum of (i) 85% of its ordinary income for such year, (ii) 95% of its
capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, Vornado would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Vornado intends to satisfy the annual distribution requirements.
It is possible that Vornado, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of Vornado. In the event that such
timing differences occur, in order to meet the 95% distribution requirement,
Vornado may find it necessary to arrange for short-term, or possibly long-term,
borrowings or to pay dividends in the form of taxable stock dividends.
Under certain circumstances, Vornado may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in Vornado's deduction for
dividends paid for the earlier year. Thus, Vornado may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, Vornado will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
Failure to Qualify
If Vornado fails to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, Vornado will be subject to tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates. Distributions to shareholders in any year in which Vornado
fails to qualify will not be deductible by Vornado nor will they be required to
be made. In such event, to the extent of current and accumulated earnings and
profits, all distributions to shareholders will be taxable as ordinary income
and, subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, Vornado will also be disqualified from taxation
as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all circumstances
Vornado would be entitled to such statutory relief.
TAXATION OF HOLDERS OF DEBT SECURITIES
As used herein, the term "U.S. Holder" means a holder of a Debt Security
who (for United States Federal income tax purposes) is (i) a citizen or resident
of the United States, (ii) a domestic corporation, (iii) an estate, the income
of which is subject to United States federal income tax without regard to its
source or (iv) a Trust if a court within the United States is able to exercise
primary supervision over the administration of the Trust and one or more United
States persons have the authority to control all substantial decisions of the
Trust and "U.S. Alien Holder" means a holder of a Debt Security who (for United
States Federal income tax purposes) is (i) a nonresident alien individual or
(ii) a foreign corporation, partnership or estate or trust, in either case not
subject to United States Federal income tax on a net income basis in respect of
income or gain from the Debt Security.
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U.S. HOLDERS
PAYMENTS OF INTEREST. Interest on a Debt Security will be taxable to a
U.S. Holder as ordinary income at the time it is received or accrued, depending
on the U.S. Holder's method of accounting for tax purposes.
PURCHASE, SALE AND RETIREMENT OF THE DEBT SECURITIES. A U.S. Holder's tax
basis in a Debt Security will generally be its U.S. dollar cost.
A U.S. Holder will generally recognize gain or loss on the sale or
retirement of a Debt Security equal to the difference between the amount
realized on the sale or retirement and the U.S. Holder's tax basis in the Debt
Security. Except to the extent attributable to accrued but unpaid interest, gain
or loss recognized on the sale or retirement of a Debt Security will be capital
gain or loss, will be long-term capital gain or loss if the Debt Security was
held for more than one year and may be eligible for a reduced rate of tax if the
Debt Security was held for more than 18 months and in certain other
circumstances.
U.S. ALIEN HOLDERS
This discussion assumes that the Debt Security is not subject to the rules
of Section 871(h)(4)(A) of the Code (relating to interest payments that are
determined by reference to the income, profits, changes in the value of property
or other attributes of the debtor or a related party).
Under present United States Federal income and estate tax law, and subject
to the discussion of backup withholding below:
(i) payments of principal, premium (if any) and interest by the
Operating Partnership or any of its paying agents to any holder of a Debt
Security that is a U.S. Alien Holder will not be subject to United States
Federal withholding tax if, in the case of interest (a) the beneficial
owner of the Debt Security does not actually or constructively own 10% or
more of the capital or profits interest in the Operating Partnership, (b)
the beneficial owner of the Debt Security is not a controlled foreign
corporation that is related to the Operating Partnership through stock
ownership, and (c) either (A) the beneficial owner of the Debt Security
certifies to the Operating Partnership or its agent, under penalties of
perjury, that it is not a U.S. person and provides its name and address or
(B) a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business (a "financial institution") and holds the Debt Security certifies
to the Operating Partnership or its agent under penalties of perjury that
such statement has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof;
(ii) a U.S. Alien Holder of a Debt Security will not be subject to
United States Federal withholding tax on any gain realized on the sale or
exchange of a Debt Security; and
(iii) a Debt Security held by an individual who at death is not a
citizen or resident of the United States will not be includible in the
individual's gross estate for purposes of the United States Federal estate
tax as a result of the individual's death if (a) the individual did not
actually or constructively own 10% or more of the capital or profits
interest in the Operating Partnerships and (b) the income on the Debt
Security would not have been effectively connected with a United States
trade or business of the individual at the time of the individual's death.
The Internal Revenue Service has adopted regulations (the "Withholding
Regulations") that provide alternative methods for satisfying the certification
requirement described in clause (i)(c) above. The Withholding Regulations also
require, in the case of Debt Securities held by a foreign partnership, that (x)
the certification described in clause (i)(c) above be provided by the partners
rather than the partnership and (y) the partnership provide certain information,
including a United States taxpayer identification number. A look-through rule
applies in the case of tiered partnerships. The Withholding Regulations are
effective for payments made after December 31, 1998.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. HOLDERS. In general, information reporting requirements will apply to
payments of principal, any premium and interest on a Debt Security and the
proceeds of the sale of a Debt Security before maturity within the United States
to non-corporate U.S. Holders, and "backup withholding" at a rate of 31% will
apply to such payments if the U.S. Holder fails to provide an accurate taxpayer
identification number or is notified by the Internal Revenue Service that it has
failed to report all interest and dividends required to be shown on its federal
income tax returns.
U.S. ALIEN HOLDERS. Information reporting and backup withholding will not
apply to payments of principal, premium (if any) and interest made by the
Operating Partnership or a paying agent to a U.S. Alien Holder on a Debt
Security if the certification described in clause (i)(c) under "U.S. Alien
Holders" above is received, provided that the payor does not have actual
knowledge that the holder is a U.S. person. See the discussion of Withholding
Regulations under "U.S. Alien Holders" above. The Operating Partnership or a
paying agent, however, may report (on Internal Revenue Form 1042-S) payments of
interest on the Debt Securities.
Payments of the proceeds from the sale by a U.S. Alien Holder of a Debt
Security made to or through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the broker is a U.S.
person, a controlled foreign corporation for United States Federal income tax
purposes or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting may apply to such payments. Payments of the
proceeds from the sale of a Debt Security to or through the United States office
of a broker is subject to information reporting and backup withholding unless
the holder or beneficial owner certifies as to its non-United States status or
otherwise establishes an exemption from information reporting and backup
withholding.
The applicable Prospectus Supplement will contain a discussion of any
special United States Federal income tax rules with respect to Debt Securities
that are issued at a discount or premium or as a unit with other Securities,
have a maturity of one year or less, provide for conversion rights, contingent
payments, early redemption or payments that are denominated in or determined by
reference to a currency other than the U.S. dollar or otherwise subject to
special United States Federal income tax rules.
TAXATION OF HOLDERS OF COMMON SHARES OR PREFERRED SHARES
U.S. SHAREHOLDERS
As used herein, the term "U.S. Shareholder" means a holder of Common Shares
or Preferred Shares ("Shares") who (for United States Federal income tax
purposes) is (i) a citizen or resident of the United States, (ii) a corporation
organized under the laws of the United States or any State, or (iii) an estate
the income of which is subject to United States Federal income taxation
regardless of its source or (iv) a trust if a United States court is able to
exercise primary supervision over administration of the trust and one or more
United States persons have authority to control all substantial decisions of the
trust.
As long as Vornado qualifies as a REIT, distributions made by Vornado out
of its current or accumulated earnings and profits (and not designated as
capital gain dividends) will constitute dividends taxable to its taxable U.S.
Shareholders as ordinary income. Such distributions will not be eligible for the
dividends-received deduction in the case of U.S. Shareholders that are
corporations. Distributions made by Vornado that are properly designated by
Vornado as capital gain dividends will be taxable to U.S. Shareholders as gain
from the sale of a capital asset held for more than one year (to the extent that
they do not exceed Vornado's actual net capital gain for the taxable year)
without regard to the period for which a U.S. Shareholder has held his shares.
Thus, subject to certain limitations, capital gains dividends received by an
individual U.S. Shareholder may be eligible for 20%, 25%, or 28% capital gains
rates of taxation. U.S. Shareholders that are corporations may, however, be
required to treat up to 20% of certain capital gain dividends as ordinary
income.
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To the extent that Vornado makes distributions (not designated as capital
gain dividends) in excess of its current and accumulated earnings and profits,
such distributions will be treated first as a tax-free return of capital to each
U.S. Shareholder, reducing the adjusted basis which such U.S. Shareholder has in
his Shares for tax purposes by the amount of such distribution (but not below
zero), with distributions in excess of a U.S. Shareholder's adjusted basis in
his shares taxable as capital gains (provided that the Shares have been held as
a capital asset). For purposes of determining the portion of distributions on
separate classes of Shares that will be treated as dividends for Federal income
tax purposes, current and accumulated earnings and profits will be allocated to
distributions resulting from priority rights of Preferred Shares before being
allocated to other distributions. Dividends authorized by Vornado in October,
November, or December of any year and payable to a shareholder of record on a
specified date in any such month shall be treated as both paid by Vornado and
received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by Vornado on or before January 31 of the following
calendar year. Shareholders may not include in their own income tax returns any
net operating losses or capital losses of Vornado.
For taxable years of the Company beginning after August 5, 1997, U.S.
Shareholders holding Shares at the close of Vornado's taxable year will be
required to include, in computing their long-term capital gains for the taxable
year in which the last day of Vornado's taxable year falls, such amount as
Vornado may designate in a written notice mailed to its shareholders. Vornado
may not designate amounts in excess of Vornado's undistributed net capital gain
for the taxable year. Each U.S. Shareholder required to include such a
designated amount in determining such shareholder's long-term capital gains will
be deemed to have paid, in the taxable year of the inclusion, the tax paid by
Vornado in respect of such undistributed net capital gains. U.S. Shareholders
subject to these rules will be allowed a credit or a refund, as the case may be,
for the tax deemed to have paid by such shareholders. U.S. Shareholders will
increase their basis in their Shares by the difference between the amount of
such includible gains and the tax deemed paid by the shareholder in respect of
such gains.
Distributions made by Vornado and gain arising from the sale or exchange by
a U.S. Shareholder of Shares will not be treated as passive activity income,
and, as a result, U.S. Shareholders generally will not be able to apply any
"passive losses" against such income or gain.
Upon any sale or other disposition of Shares, a U.S. Shareholder will
recognize gain or loss for Federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition, and (ii) the holder's
adjusted basis in the Shares for tax purposes. Such gain or loss will be capital
gain or loss if the Shares have been held by the U.S. Shareholder as a capital
asset, will be long-term gain or loss if such Shares have been held for more
than one year Long-term capital gain of an individual U.S. Shareholder is
generally subject to a maximum tax rate of 28% in respect of property held for
more than one year and a maximum tax rate of 20% in respect of property held in
excess of 18 months. In general, any loss recognized by a U.S. Shareholder upon
the sale or other disposition of shares of Vornado that have been held for six
months or less (after applying certain holding period rules) will be treated as
a long-term capital loss, to the extent of distributions received by such U.S.
Shareholder from Vornado which were required to be treated as long-term capital
gains.
BACKUP WITHHOLDING. Vornado will report to its U.S. Shareholders and the
IRS the amount of dividends paid during each calendar year, and the amount of
tax withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends paid
unless such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A U.S. Shareholder that does not provide Vornado with his
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, Vornado may be required to
withhold a portion of capital gain distributions to any shareholders who fail to
certify their non-foreign status to Vornado.
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TAXATION OF TAX-EXEMPT SHAREHOLDERS. The IRS has ruled that amounts
distributed as dividends by a REIT generally do not constitute unrelated
business taxable income ("UBTI") when received by a tax-exempt entity. Based on
that ruling, provided that a tax-exempt shareholder (except certain tax-exempt
shareholders described below) has not held its Shares as "debt financed
property" within the meaning of the Code and such Shares are not otherwise used
in a trade or business, the dividend income from Shares will not be UBTI to a
tax-exempt shareholder. Similarly, income from the sale of Shares will not
constitute UBTI unless such tax-exempt shareholder has held such Shares as "debt
financed property" within the meaning of the Code or has used the Shares in a
trade or business.
For tax-exempt shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from Federal income taxation under Sections
501(c)(7), (c)(9), (c)(17), and (c)(20) of the Code, respectively, income from
an investment in Vornado's Shares will constitute UBTI unless the organization
is able to properly deduct amounts set aside or placed in reserve for certain
purposes so as to offset the income generated by its Shares. Such prospective
investors should consult their own tax advisors concerning these "set aside" and
reserve requirements.
Notwithstanding the foregoing, however, a portion of the dividends paid by
a "pension-held REIT" will be treated as UBTI to any trust which (i) is
described in Section 401(a) of the Code, (ii) is tax exempt under Section 501(a)
of the Code, and (iii) holds more than 10% (by value) of the equity interests in
the REIT. Tax-exempt pension, profit-sharing and stock bonus funds that are
described in Section 401(a) of the Code are referred to below as "qualified
trusts".
A REIT is a "pension-held REIT" if (i) it would not have qualified as a
REIT but for the fact that Section 856(h)(3) of the Code provides that stock
owned by qualified trusts shall be treated, for purposes of the "not closely
held" requirement, as owned by the beneficiaries of the trust (rather than by
the trust itself) and (ii) either (A) at least one qualified trust holds more
than 25% (by value) of the interests in the REIT or (B) one or more qualified
trusts, each of which owns more than 10% (by value) of the interests in the
REIT, hold in the aggregate more than 50% (by value) of the interests in the
REIT. The percentage of any REIT dividend treated as UBTI is equal to the ratio
of (i) the gross income (less direct expenses related thereto) of the REIT from
unrelated trades or businesses (determined as though the REIT were a qualified
trust) to (ii) the total gross income (less direct expenses related thereto) of
the REIT. A de minimis exception applies where this percentage is less than 5%
for any year. Vornado does not expect to be classified as a "pension-held REIT".
Tax-exempt entities will be subject to the rules described above, under the
heading "-- U.S. Shareholders" concerning the inclusion of Vornado's designated
undistributed net capital gains in the income of its shareholders. Thus, such
entities will be allowed a credit or refund of the tax deemed paid by such
entities in respect of such includible gains.
NON-U.S. SHAREHOLDERS
The rules governing U.S. Federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a limited summary of such rules.
Prospective Non-U.S. Shareholders should consult with their own tax advisors to
determine the impact of U.S. Federal, state and local income tax laws with
regard to an investment in Shares, including any reporting requirements.
ORDINARY DIVIDENDS. Distributions, other than distributions that are
treated as attributable to gain from sales or exchanges by Vornado of U.S. real
property interests (discussed below) and other than distributions designated by
Vornado as capital gain dividends, will be treated as ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
Vornado. Such distributions to Non-U.S. Shareholders will ordinarily be subject
to a withholding tax equal to 30% of the gross amount of the distribution,
unless an applicable tax treaty reduces that tax. However, if income from the
investment in the Shares is treated as effectively connected with the Non-U.S.
Shareholder's conduct
42
of a U.S. trade or business, the Non-U.S. Shareholder generally will be subject
to tax at graduated rates in the same manner as U.S. shareholders are taxed with
respect to such dividends (and may also be subject to the 30% branch profits tax
if the shareholder is a foreign corporation). Vornado expects to withhold U.S.
tax at the rate of 30% on the gross amount of any dividends, other than
dividends treated as attributable to gain from sales or exchanges of U.S. real
property interests and capital gain dividends, paid to a Non-U.S. Shareholder,
unless (i) a lower treaty rate applies and the required form evidencing
eligibility for that reduced rate is filed with Vornado or the appropriate
withholding agent or (ii) the Non-U.S. Shareholder files an IRS Form 4224 (or a
successor form) with Vornado or the appropriate withholding agent claiming that
the distributions are "effectively connected" income.
Distributions to a Non-U.S. Shareholder that are designated by Vornado at
the time of distribution as capital gain dividends which are not attributable to
or treated as attributable to the disposition by Vornado of a U.S. real property
interest generally will not be subject to U.S. Federal income taxation, except
as described below.
RETURN OF CAPITAL. Distributions in excess of current and accumulated
earnings and profits of Vornado, which are not treated as attributable to the
gain from disposition by Vornado of a U.S. real property interest, will not be
taxable to a Non-U.S. Shareholder to the extent that they do not exceed the
adjusted basis of the Non-U.S. Shareholder's Shares, but rather will reduce the
adjusted basis of such Shares. To the extent that such distributions exceed the
adjusted basis of a Non-U.S. Shareholder's Shares, they will give rise to tax
liability if the Non-U.S. Shareholder otherwise would be subject to tax on any
gain from the sale or disposition of its Shares, as described below. If it
cannot be determined at the time a distribution is made whether such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
dividends. However, the Non-U.S. Shareholder may seek a refund of such amounts
from the IRS if it is subsequently determined that such distribution was, in
fact, in excess of current accumulated earnings and profits of Vornado.
CAPITAL GAIN DIVIDENDS. For any year in which Vornado qualifies as a REIT,
distributions that are attributable to gain from sales or exchanges by Vornado
of U.S. real property interests will be taxed to a Non-U.S. Shareholder under
the provisions of the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Shareholder as if such gain were effectively connected with a U.S. business.
Thus, Non-U.S. Shareholders will be taxed on such distributions at the normal
capital gain rates applicable to U.S. Shareholders (subject to any applicable
alternative minimum tax and special alternative minimum tax in the case of
nonresident alien individuals). Vornado is required by applicable Treasury
Regulations under FIRPTA to withhold 35% of any distribution that could be
designated by Vornado as a capital gain dividend. However, if Vornado designates
as a capital gain dividend a distribution made prior to the day Vornado actually
effects such designation, then (although such distribution may be taxable to a
Non-U.S. Shareholder) such distribution is not subject to withholding under
FIRPTA; rather, Vornado must effect the 35% FIRPTA withholding from
distributions made on and after the date of such designation, until the
distributions so withheld equal the amount of the prior distribution designated
as a capital gain dividend. The amount withheld is creditable against the
Non-U.S. Shareholder's U.S. tax liability.
SALES OF SHARES. Gain recognized by a Non-U.S. Shareholder upon a sale or
exchange of Common Shares generally will not be taxed under FIRPTA if Vornado is
a "domestically controlled REIT," defined generally as a REIT in respect of
which at all times during a specified testing period less than 50% in value of
the stock is and was held directly or indirectly by foreign persons. It is
currently anticipated that Vornado will continue to be a "domestically
controlled REIT," and, therefore, that the sale of Shares will not be subject to
taxation under FIRPTA. However, gain not subject to FIRPTA will be taxable to a
Non-U.S. Shareholder if (i) investment in the Shares is treated as "effectively
connected" with the Non-U.S. Shareholder's U.S. trade or business, in which case
the Non-U.S. Shareholder will be subject to the same treatment as U.S.
Shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, or
maintains an office or a fixed place of business in the
43
United States to which the gain is attributable, in which case the nonresident
alien individual will be subject to a 30% tax on the individual's capital gains.
A similar rule will apply to capital gain dividends not subject to FIRPTA.
If Vornado were not a domestically-controlled REIT, a Non-U.S.
Shareholder's sale of Shares would be subject to tax under FIRPTA only if the
selling Non-U.S. Shareholder owned more than 5% of the class of Shares sold at
any time during a specified period (generally the shorter of the period that the
Non-U.S. Shareholder owned the Shares sold or the five-year period ending on the
date of disposition). If the gain on the sale of Shares were to be subject to
tax under FIRPTA, the Non-U.S. Shareholder would be subject to the same
treatment as U.S. Shareholders with respect to such gain (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals) and the purchaser of such Shares would be
required to withhold 10% of the gross purchase price.
TREATY BENEFITS. Pursuant to current Treasury Regulations, dividends paid
to an address in a country outside the United States are generally presumed to
be paid to a resident of such country for purposes of determining the
applicability of withholding discussed above and the applicability of a tax
treaty rate. Shareholders that are partnerships or entities that are similarly
fiscally transparent for Federal income tax purposes, and persons holding Shares
through such entities, may be subject to restrictions on their ability to claim
benefits under U.S. tax treaties and should consult a tax advisor.
Under the Withholding Regulations, however, a Non-U.S. Shareholder who
wishes to claim the benefit of an applicable treaty rate would be required to
satisfy applicable certification requirements. In addition, under the
Withholding Regulations, in the case of Shares held by a foreign partnership,
(x) the certification requirement would generally be applied to the partners in
the partnership and (y) the partnership would be required to provide certain
information, including a United States taxpayer identification number. The
Withholding Regulations provide look-through rules in the case of tiered
partnerships. The Withholding Regulations are effective for payments made after
December 31, 1998.
OTHER TAX CONSEQUENCES
Vornado and its shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of Vornado and
its shareholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective shareholders are urged to consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in Vornado.
PLAN OF DISTRIBUTION
Vornado and the Operating Partnership may sell the Securities to one or
more underwriters for public offering and sale by them or may sell the
Securities to investors directly or through agents. Vornado's Common Shares
being registered hereby may be issued in connection with the exchange of the
Debt Securities of the Operating Partnership. Any such underwriter or agent
involved in the offer and sale of the Securities will be named in the related
Prospectus Supplement. Such underwriters may include Goldman, Sachs & Co., or a
group of underwriters represented by firms including Goldman, Sachs & Co.
Goldman, Sachs & Co. may also act as agents. Vornado and the Operating
Partnership have reserved the right to sell the Securities directly to investors
on their own behalf in those jurisdictions where it is authorized to do so.
Underwriters may offer and sell the Securities at a fixed price or prices
that may be changed or at negotiated prices. Vornado and the Operating
Partnership also may, from time to time, authorize dealers, acting as Vornado's
or the Operating Partnership's agents, to offer and sell the Securities upon
such terms and conditions as set forth in the related Prospectus Supplement. In
connection with the sale of the Securities, underwriters may receive
compensation from Vornado or the Operating Partnership in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the
44
Securities for whom they may act as agent. Underwriters may sell the Securities
to or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
(which may be changed from time to time) from the purchasers for whom they may
act as agents.
Any underwriting compensation paid by Vornado or the Operating Partnership
to underwriters or agents in connection with the offering of the Securities, and
any discounts, concessions or commissions allowed by underwriters to
participating dealers, will be set forth in the related Prospectus Supplement.
Dealers and agents participating in the distribution of the Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements entered into with Vornado
or the Operating Partnership, to indemnification against and contribution
towards certain civil liabilities, including any liabilities under the
Securities Act.
Any Securities issued hereunder (other than Common Shares and Series A
Preferred Shares) will be new issues of securities with no established trading
market. Any underwriters or agents to or through whom such Securities are sold
by Vornado or the Operating Partnership for public offering and sale may make a
market in such Securities, but such underwriters or agents will not be obligated
to do so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for any such
Securities.
Certain of the underwriters, dealers or agents and their associates may
engage in transactions with, and perform services for, Vornado, the Operating
Partnership and certain of their affiliates in the ordinary course of business.
EXPERTS
The consolidated financial statements and the related consolidated
financial statement schedules incorporated in this Prospectus by reference from
Vornado's Annual Report on Form 10-K for the year ended December 31, 1996, as
amended, the Balance Sheet of Vornado Realty L.P. as at April 14, 1997
incorporated by reference in this Prospectus from Vornado Realty L.P.'s
Registration Statement on Form 10 filed with the Commission on June 12, 1997, as
amended, the combined statement of revenues and certain expenses of Ninety Park
Avenue incorporated by reference in this Prospectus from Vornado Realty Trust's
Current Report on Form 8K/A, dated August 21, 1997 and filed with the Commission
on September 11, 1997 and from Vornado Realty L.P.'s Current Report on Form
8K/A, dated August 21, 1997 and filed with the Commission on September 11, 1997,
the consolidated financial statements of URS Logistics, Inc. for the year ended
December 31, 1996, the statement and revenues and certain expenses of the
Montehiedra Town Center for the year ended December 31, 1996, and the statement
of revenues and certain expenses of the Riese Properties for the year ended
April 30, 1997, all incorporated by reference in this Prospectus from Vornado
Realty Trust's Current Report on Form 8-K, dated September 22, 1997 and filed
with the Commission on October 8, 1997 and from Vornado Realty L.P.'s Current
Report on Form 8-K, dated September 22, 1997 and filed with the Commission on
October 8, 1997, and the statement of revenues and certain expenses of One Penn
Plaza for the year ended December 31, 1996, the statement of revenues and
certain expenses of 150 East 58th Street for the year ended December 31, 1996,
and the statement of revenues and certain expenses of 640 Fifth Avenue for the
year ended December 31, 1996, all incorporated by reference in this Prospectus
from Vornado Realty Trust's Current Report on Form 8-K/A, dated November 18,
1997 and filed with the Commission on February 3, 1998 and from Vornado Realty
L.P.'s Current Report on Form 8-K/A, dated November 18, 1997 and filed with the
Commission on February 3, 1998, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports which are incorporated herein
by reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
The financial statements of 866 U.N. Plaza Associates LLC; the combined
financial statements of M Eleven Associates, M393 Associates and Eleven Penn
Plaza Company; the financial statements of Two
45
Penn Plaza Associates L.P.; the financial statements of 1740 Broadway
Associates, L.P.; and the financial statements of B&B Park Avenue L.P., all
incorporated herein by reference from Vornado's Current Report on Form 8-K,
dated March 12, 1997, as amended by Vornado's Current Report on Form 8-K/A,
dated March 12, 1997, and the combined financial statements of the Mendik
Predecessors incorporated by reference herein from the Vornado Realty L.P.
Registration Statement on Form 10 filed with the Commission on June 12, 1997, as
amended, have been audited by Friedman Alpren & Green LLP, independent auditors,
as stated in their reports which are incorporated herein by reference, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of Two Park Company, a New York general
partnership, as of December 31, 1996 and 1995, and for each of the years in the
three year period ended December 31, 1996, incorporated herein by reference from
Vornado's Current Report on Form 8-K, dated March 12, 1997, as amended by
Vornado's Current Report on Form 8-K/A, dated March 12, 1997 and filed with the
Commission on April 1, 1997 and the consolidated balance sheets of Americold
Corporation as of the last day of February 1996 and 1997, and the related
consolidated statements of operations, common stockholders' deficit and cash
flows for each of the years in the three-year period ended the last day of
February 1997, incorporated by reference in this Prospectus from Vornado Realty
Trust's Current Report on Form 8-K, dated September 22, 1997 and filed with the
Commission on October 8, 1997, and from Vornado Realty L.P.'s Current Report on
Form 8-K, dated September 22, 1997 and filed with the Commission on October 8,
1997, have been audited by KPMG Peat Marwick LLP, independent auditors, as
stated in their reports which are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The statement of Revenue and Certain Expenses of Green Acres Mall and the
Plaza at Green Acres for the year ended December 31, 1996 incorporated by
reference in this Prospectus and elsewhere in the Registration Statement from
Vornado Realty Trust's Current Report on Form 8-K/A, dated August 21, 1997 and
filed with the Commission on September 11, 1997 and from Vornado Realty L.P.'s
Current Report on Form 8-K/A, dated August 21, 1997 and filed with the
Commission on September 11, 1997, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The combined statement of revenue and certain operating expenses of The
Merchandise Mart Group of Properties for the year ended December 31, 1996
incorporated by reference in this Prospectus and elsewhere in the Registration
Statement from Vornado Realty Trust's Current Report on Form 8-K/A, dated
January 26, 1998 and filed with the Commission on February 9, 1998 and from
Vornado Realty L.P.'s Current Report on Form 8-K/A, dated January 26, 1998 and
filed with the Commission on February 9, 1998, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the auhtority of said
firm as experts in giving said reports.
VALIDITY OF THE SECURITIES
The validity of any Debt Securities issued hereunder will be passed upon
for the Operating Partnership and the validity of any Depositary Shares issued
hereunder will be passed upon for Vornado by Sullivan & Cromwell, New York, New
York, counsel to Vornado and the Operating Partnership, and the validity of any
Preferred Shares or Common Shares issued hereunder will be passed upon for
Vornado by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland, counsel to
Vornado. The validity of any Securities issued hereunder will be passed upon for
any underwriters by the counsel named in the applicable Prospectus Supplement.
46
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$500,000,000
VORNADO REALTY L.P.
5.625% NOTES DUE 2007
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PROSPECTUS SUPPLEMENT
JUNE 19, 2002
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JOINT BOOK-RUNNING MANAGERS
SALOMON SMITH BARNEY
BANC OF AMERICA SECURITIES LLC
JPMORGAN
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COMMERZBANK SECURITIES
DEUTSCHE BANK SECURITIES
FLEET SECURITIES, INC.
UBS WARBURG
BNY CAPITAL MARKETS, INC.
PNC CAPITAL MARKETS, INC.
WELLS FARGO BROKERAGE SERVICES, LLC
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