vno3q201510q.htm - Generated by SEC Publisher for SEC Filing  

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended:   

September 30, 2015

 

 

Or

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from:

 

to

 

 

Commission File Number:

001-11954

 

 

VORNADO REALTY TRUST

(Exact name of registrant as specified in its charter)

 

Maryland

 

22-1657560

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

 

 

888 Seventh Avenue, New York, New York

 

10019

(Address of principal executive offices)

 

(Zip Code)

 

 

(212) 894-7000

(Registrant’s telephone number, including area code)

 

N/A

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

x Large Accelerated Filer

 

o Accelerated Filer

o Non-Accelerated Filer (Do not check if smaller reporting company)

 

o Smaller Reporting Company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

As of September 30, 2015, 188,540,876 of the registrant’s common shares of beneficial interest are outstanding.

 

 


 

 

 

 

 

  

 

 

PART I.

 

 

Financial Information:

 

Page Number

 

 

 

 

  

 

 

 

 

Item 1.

 

Financial Statements:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of

 

 

 

 

 

 

September 30, 2015 and December 31, 2014

 

3

 

 

 

 

  

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the

 

 

 

 

 

 

Three and Nine Months Ended September 30, 2015 and 2014

 

4

 

 

 

 

  

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited)  

 

 

 

 

 

 

for the Three and Nine Months Ended September 30, 2015 and 2014

 

5

 

 

 

 

  

 

 

 

 

 

 

Consolidated Statements of Changes in Equity (Unaudited) for the

 

 

 

 

 

 

Nine Months Ended September 30, 2015 and 2014

 

6

 

 

 

 

  

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the

 

 

 

 

 

 

Nine Months Ended September 30, 2015 and 2014

 

8

 

 

 

 

  

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

10

 

 

 

 

  

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm  

 

35

 

 

 

 

  

 

 

 

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition

 

 

 

 

 

 

and Results of Operations

 

36

 

 

 

 

  

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

75

 

 

 

 

  

 

 

 

 

Item 4.

 

Controls and Procedures

 

75

 

 

 

 

  

 

 

 

 

 

 

 

 

 

PART II.

 

 

Other Information:

 

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

76

 

 

 

 

  

 

 

 

 

Item 1A.

 

Risk Factors

 

76

 

 

 

 

  

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

76

 

 

 

 

  

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

76

 

 

 

 

  

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

76

 

 

 

 

  

 

 

 

 

Item 5.

 

Other Information

 

76

 

 

 

 

  

 

 

 

 

Item 6.

 

Exhibits

 

76

 

 

 

 

  

 

 

SIGNATURES

 

  

 

77

 

 

 

 

  

 

 

EXHIBIT INDEX

 

  

 

78

 

 

 

 

  

 

 

2

 


 

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

 

VORNADO REALTY TRUST

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

(Amounts in thousands, except share and per share amounts)

 

September 30, 2015

 

December 31, 2014

ASSETS

 

 

 

 

Real estate, at cost:

 

 

 

 

 

 

 

Land

 

$

 4,045,042 

 

$

 3,861,913 

 

Buildings and improvements

 

 

 12,278,443 

 

 

 11,705,749 

 

Development costs and construction in progress

 

 

 1,389,471 

 

 

 1,128,037 

 

Leasehold improvements and equipment

 

 

 131,760 

 

 

 126,659 

 

 

Total

 

 

 17,844,716 

 

 

 16,822,358 

 

Less accumulated depreciation and amortization

 

 

 (3,364,932)

 

 

 (3,161,633)

Real estate, net

 

 

 14,479,784 

 

 

 13,660,725 

Cash and cash equivalents

 

 

 788,137 

 

 

 1,198,477 

Restricted cash

 

 

 107,965 

 

 

 176,204 

Marketable securities

 

 

 152,927 

 

 

 206,323 

Tenant and other receivables, net of allowance for doubtful accounts of $11,640 and $12,210

 

 

 108,106 

 

 

 109,998 

Investments in partially owned entities

 

 

 1,460,178 

 

 

 1,240,489 

Real estate fund investments

 

 

 555,414 

 

 

 513,973 

Receivable arising from the straight-lining of rents, net of allowance of $2,922 and $3,190

 

 

 885,340 

 

 

 787,271 

Deferred leasing and financing costs, net of accumulated amortization of $292,767 and $281,109

 

 

 572,969 

 

 

 475,158 

Identified intangible assets, net of accumulated amortization of $190,543 and $199,821

 

 

 241,814 

 

 

 225,155 

Assets related to discontinued operations

 

 

 35,142 

 

 

 2,244,481 

Other assets

 

 

 584,150 

 

 

 410,066 

 

 

 

 

$

 19,971,926 

 

$

 21,248,320 

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

 

 

 

 

 

 

Mortgages payable

 

$

 9,159,413 

 

$

 8,263,165 

Senior unsecured notes

 

 

 847,594 

 

 

 1,347,159 

Accounts payable and accrued expenses

 

 

 465,045 

 

 

 447,745 

Deferred revenue

 

 

 377,951 

 

 

 358,613 

Deferred compensation plan

 

 

 117,037 

 

 

 117,284 

Liabilities related to discontinued operations

 

 

 11,520 

 

 

 1,511,362 

Other liabilities

 

 

 434,980 

 

 

 375,830 

 

Total liabilities

 

 

 11,413,540 

 

 

 12,421,158 

Commitments and contingencies

 

 

 

 

 

 

Redeemable noncontrolling interests:

 

 

 

 

 

 

 

Class A units - 12,258,987 and 11,356,550 units outstanding

 

 

 1,108,457 

 

 

 1,336,780 

 

Series D cumulative redeemable preferred units - 177,101 and 1 units outstanding

 

 

 5,428 

 

 

 1,000 

 

 

Total redeemable noncontrolling interests

 

 

 1,113,885 

 

 

 1,337,780 

Vornado shareholders' equity:

 

 

 

 

 

 

 

Preferred shares of beneficial interest: no par value per share; authorized 110,000,000

 

 

 

 

 

 

 

 

shares; issued and outstanding 52,677,629 and 52,678,939 shares

 

 

 1,276,985 

 

 

 1,277,026 

 

Common shares of beneficial interest: $.04 par value per share; authorized

 

 

 

 

 

 

 

 

250,000,000 shares; issued and outstanding 188,540,876 and 187,887,498 shares

 

 

 7,519 

 

 

 7,493 

 

Additional capital

 

 

 7,232,766 

 

 

 6,873,025 

 

Earnings less than distributions

 

 

 (1,878,716)

 

 

 (1,505,385)

 

Accumulated other comprehensive income

 

 

 43,593 

 

 

 93,267 

 

 

Total Vornado shareholders' equity

 

 

 6,682,147 

 

 

 6,745,426 

Noncontrolling interests in consolidated subsidiaries

 

 

 762,354 

 

 

 743,956 

 

Total equity

 

 

 7,444,501 

 

 

 7,489,382 

 

 

 

 

$

 19,971,926 

 

$

 21,248,320 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

3

 


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands, except per share amounts)

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

 

 

2015 

 

2014 

 

2015 

 

2014 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Property rentals

 

$

 526,337 

 

$

 474,978 

 

$

 1,541,454 

 

$

 1,420,608 

 

Tenant expense reimbursements

 

 

 67,098 

 

 

 65,953 

 

 

 196,234 

 

 

 180,364 

 

Fee and other income

 

 

 34,161 

 

 

 37,779 

 

 

 112,998 

 

 

 114,530 

Total revenues

 

 

 627,596 

 

 

 578,710 

 

 

 1,850,686 

 

 

 1,715,502 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

 

 256,561 

 

 

 240,088 

 

 

 753,744 

 

 

 707,047 

 

Depreciation and amortization

 

 

 141,920 

 

 

 114,822 

 

 

 402,999 

 

 

 359,814 

 

General and administrative

 

 

 36,157 

 

 

 40,384 

 

 

 133,838 

 

 

 128,364 

 

Acquisition and transaction related costs

 

 

 1,518 

 

 

 1,277 

 

 

 7,560 

 

 

 3,629 

Total expenses

 

 

 436,156 

 

 

 396,571 

 

 

 1,298,141 

 

 

 1,198,854 

Operating income

 

 

 191,440 

 

 

 182,139 

 

 

 552,545 

 

 

 516,648 

Loss from partially owned entities

 

 

 (325)

 

 

 (26,034)

 

 

 (8,709)

 

 

 (78,676)

Income from real estate fund investments

 

 

 1,665 

 

 

 24,160 

 

 

 52,122 

 

 

 142,418 

Interest and other investment income, net

 

 

 3,160 

 

 

 7,568 

 

 

 19,618 

 

 

 28,814 

Interest and debt expense

 

 

 (95,344)

 

 

 (100,817)

 

 

 (279,110)

 

 

 (301,042)

Net gain on disposition of wholly owned and partially owned assets

 

 

 103,037 

 

 

 2,665 

 

 

 104,897 

 

 

 13,205 

Income before income taxes

 

 

 203,633 

 

 

 89,681 

 

 

 441,363 

 

 

 321,367 

Income tax (expense) benefit

 

 

 (2,856)

 

 

 (2,652)

 

 

 84,245 

 

 

 (6,783)

Income from continuing operations

 

 

 200,777 

 

 

 87,029 

 

 

 525,608 

 

 

 314,584 

Income from discontinued operations

 

 

 34,463 

 

 

 82,168 

 

 

 50,278 

 

 

 118,456 

Net income

 

 

 235,240 

 

 

 169,197 

 

 

 575,886 

 

 

 433,040 

Less net income attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated subsidiaries

 

 

 (3,302)

 

 

 (9,685)

 

 

 (38,370)

 

 

 (85,239)

 

Operating Partnership

 

 

 (12,704)

 

 

 (7,988)

 

 

 (28,189)

 

 

 (16,552)

Net income attributable to Vornado

 

 

 219,234 

 

 

 151,524 

 

 

 509,327 

 

 

 331,249 

Preferred share dividends

 

 

 (20,364)

 

 

 (20,365)

 

 

 (60,213)

 

 

 (61,099)

NET INCOME attributable to common shareholders

 

$

 198,870 

 

$

 131,159 

 

$

 449,114 

 

$

 270,150 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE - BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

 

$

 0.88 

 

$

 0.29 

 

$

 2.13 

 

$

 0.84 

 

Income from discontinued operations, net

 

 

0.17 

 

 

 0.41 

 

 

 0.25 

 

 

 0.60 

 

Net income per common share

 

$

 1.05 

 

$

 0.70 

 

$

 2.38 

 

$

 1.44 

 

Weighted average shares outstanding

 

 

 188,504 

 

 

 187,671 

 

 

 188,291 

 

 

 187,503 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE - DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

 

$

 0.88 

 

$

 0.28 

 

$

 2.12 

 

$

 0.84 

 

Income from discontinued operations, net

 

 

0.17 

 

 

 0.41 

 

 

 0.25 

 

 

 0.59 

 

Net income per common share

 

$

 1.05 

 

$

 0.69 

 

$

 2.37 

 

$

 1.43 

 

Weighted average shares outstanding

 

 

 189,581 

 

 

 188,812 

 

 

 189,789 

 

 

 188,592 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS PER COMMON SHARE

 

$

 0.63 

 

$

 0.73 

 

$

 1.89 

 

$

 2.19 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

4

 


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

 

 

2015 

 

2014 

 

2015 

 

2014 

Net income

 

$

 235,240 

 

$

 169,197 

 

$

 575,886 

 

$

 433,040 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Reduction in unrealized net gain on available-for-sale securities

 

 

 (7,064)

 

 

 (22,764)

 

 

 (53,396)

 

 

 (7,761)

 

Pro rata share of other comprehensive loss of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiaries

 

 

 (114)

 

 

 (6,028)

 

 

 (1,148)

 

 

 (151)

 

(Reduction) increase in value of interest rate swap and other

 

 

 (289)

 

 

 4,782 

 

 

 1,788 

 

 

 5,846 

Comprehensive income

 

 

 227,773 

 

 

 145,187 

 

 

 523,130 

 

 

 430,974 

Less comprehensive income attributable to noncontrolling interests

 

 

 (15,559)

 

 

 (16,304)

 

 

 (63,477)

 

 

 (101,682)

Comprehensive income attributable to Vornado

 

$

 212,214 

 

$

 128,883 

 

$

 459,653 

 

$

 329,292 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

5

 


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

controlling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings

 

Other

 

Interests in

 

 

 

 

 

 

 

Preferred Shares

 

Common Shares

 

Additional

 

Less Than

 

Comprehensive

 

Consolidated

 

Total

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Distributions

 

Income (Loss)

 

Subsidiaries

 

Equity

Balance, December 31, 2014

 

 

 52,679 

 

$

 1,277,026 

 

 

 187,887 

 

$

 7,493 

 

$

 6,873,025 

 

$

 (1,505,385)

 

$

 93,267 

 

$

 743,956 

 

$

 7,489,382 

Net income attributable to Vornado

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 509,327 

 

 

 -   

 

 

 -   

 

 

 509,327 

Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests in 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

consolidated subsidiaries

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 38,370 

 

 

 38,370 

Distribution of Urban Edge

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Properties

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (464,262)

 

 

 -   

 

 

 (341)

 

 

 (464,603)

Dividends on common shares

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (355,945)

 

 

 -   

 

 

 -   

 

 

 (355,945)

Dividends on preferred shares

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (60,213)

 

 

 -   

 

 

 -   

 

 

 (60,213)

Common shares issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upon redemption of Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 units, at redemption value

 

 

 -   

 

 

 -   

 

 

 437 

 

 

 17 

 

 

 46,676 

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 46,693 

 

Under employees' share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

option plan

 

 

 -   

 

 

 -   

 

 

 198 

 

 

 8 

 

 

 14,197 

 

 

 (2,579)

 

 

 -   

 

 

 -   

 

 

 11,626 

 

Under dividend reinvestment plan

 

 

 -   

 

 

 -   

 

 

 11 

 

 

 -   

 

 

 1,068 

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 1,068 

Contributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate fund investments

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 51,725 

 

 

 51,725 

Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate fund investments

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (70,875)

 

 

 (70,875)

 

Other

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (397)

 

 

 (397)

Conversion of Series A preferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

shares to common shares

 

 

 (1)

 

 

 (41)

 

 

 2 

 

 

 -   

 

 

 41 

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

Deferred compensation shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and options

 

 

 -   

 

 

 -   

 

 

 6 

 

 

 1 

 

 

 2,046 

 

 

 (359)

 

 

 -   

 

 

 -   

 

 

 1,688 

Reduction in unrealized net gain on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (53,396)

 

 

 -   

 

 

 (53,396)

Pro rata share of other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

comprehensive loss of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiaries

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (1,148)

 

 

 -   

 

 

 (1,148)

Increase in value of interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

rate swap

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 1,783 

 

 

 -   

 

 

 1,783 

Adjustments to carry redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A units at redemption value

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 295,713 

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 295,713 

Redeemable noncontrolling interests'

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

share of above adjustments

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 3,082 

 

 

 -   

 

 

 3,082 

Other

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 700 

 

 

 5 

 

 

 (84)

 

 

 621 

Balance, September 30, 2015

 

 

 52,678 

 

$

 1,276,985 

 

 

 188,541 

 

$

 7,519 

 

$

 7,232,766 

 

$

 (1,878,716)

 

$

 43,593 

 

$

 762,354 

 

$

 7,444,501 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

6

 


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

controlling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings

 

Other

 

Interests in

 

 

 

 

 

 

 

Preferred Shares

 

Common Shares

 

Additional

 

Less Than

 

Comprehensive

 

Consolidated

 

Total

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Distributions

 

Income (Loss)

 

Subsidiaries

 

Equity

Balance, December 31, 2013

 

 

 52,683 

 

$

 1,277,225 

 

 

 187,285 

 

$

 7,469 

 

$

 7,143,840 

 

$

 (1,734,839)

 

$

 71,537 

 

$

 829,512 

 

$

 7,594,744 

Net income attributable to Vornado

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 331,249 

 

 

 -   

 

 

 -   

 

 

 331,249 

Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests in 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

consolidated subsidiaries

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 85,239 

 

 

 85,239 

Dividends on common shares

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (410,724)

 

 

 -   

 

 

 -   

 

 

 (410,724)

Dividends on preferred shares

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (61,099)

 

 

 -   

 

 

 -   

 

 

 (61,099)

Common shares issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upon redemption of Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 units, at redemption value

 

 

 -   

 

 

 -   

 

 

 227 

 

 

 9 

 

 

 22,659 

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 22,668 

 

Under employees' share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

option plan

 

 

 -   

 

 

 -   

 

 

 199 

 

 

 8 

 

 

 12,342 

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 12,350 

 

Under dividend reinvestment plan

 

 

 -   

 

 

 -   

 

 

 13 

 

 

 -   

 

 

 1,387 

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 1,387 

Contributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate fund investments

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 5,297 

 

 

 5,297 

 

Other

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 5,000 

 

 

 5,000 

Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate fund investments

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (182,964)

 

 

 (182,964)

 

Other

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (643)

 

 

 (643)

Transfer of noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in real estate fund investments

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (33,028)

 

 

 (33,028)

Conversion of Series A preferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

shares to common shares

 

 

 (4)

 

 

 (193)

 

 

 6 

 

 

 -   

 

 

 193 

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

Deferred compensation shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and options

 

 

 -   

 

 

 -   

 

 

 5 

 

 

 1 

 

 

 4,645 

 

 

 (340)

 

 

 -   

 

 

 -   

 

 

 4,306 

Reduction in unrealized net gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

on available-for-sale securities

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (7,761)

 

 

 -   

 

 

 (7,761)

Pro rata share of other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

comprehensive loss of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiaries

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (151)

 

 

 -   

 

 

 (151)

Increase in value of interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

rate swap

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 5,846 

 

 

 -   

 

 

 5,846 

Adjustments to carry redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A units at redemption value

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (144,231)

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 (144,231)

Redeemable noncontrolling interests'

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

share of above adjustments

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

 109 

 

 

 -   

 

 

 109 

Other

 

 

 -   

 

 

 (6)

 

 

 -   

 

 

 -   

 

 

 (297)

 

 

 (2,372)

 

 

 -   

 

 

 -   

 

 

 (2,675)

Balance, September 30, 2014

 

 

 52,679 

 

$

 1,277,026 

 

 

 187,735 

 

$

 7,487 

 

$

 7,040,538 

 

$

 (1,878,125)

 

$

 69,580 

 

$

 708,413 

 

$

 7,224,919 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Nine Months Ended September 30,

 

 

 

 

2015 

 

2014 

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net income

 

$

 575,886 

 

$

 433,040 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization (including amortization of deferred financing costs)

 

 

 420,494 

 

 

 423,959 

 

Straight-lining of rental income

 

 

 (108,529)

 

 

 (56,983)

 

Net gain on disposition of wholly owned and partially owned assets

 

 

 (104,897)

 

 

 (13,205)

 

Return of capital from real estate fund investments

 

 

 91,036 

 

 

 215,676 

 

Reversal of allowance for deferred tax assets

 

 

 (90,030)

 

 

 -   

 

Net gains on sale of real estate and other

 

 

 (65,396)

 

 

 (57,796)

 

Distributions of income from partially owned entities

 

 

 51,650 

 

 

 42,164 

 

Amortization of below-market leases, net

 

 

 (45,918)

 

 

 (32,663)

 

Net realized and unrealized gains on real estate fund investments

 

 

 (38,781)

 

 

 (131,558)

 

Other non-cash adjustments

 

 

 35,190 

 

 

 28,691 

 

Loss from partially owned entities

 

 

 7,961 

 

 

 77,426 

 

Impairment losses

 

 

 256 

 

 

 20,842 

 

Defeasance cost in connection with the refinancing of mortgage notes payable

 

 

 -   

 

 

 5,589 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Real estate fund investments

 

 

 (95,010)

 

 

 (3,392)

 

 

Tenant and other receivables, net

 

 

 1,892 

 

 

 (2,775)

 

 

Prepaid assets

 

 

 (77,899)

 

 

 (85,372)

 

 

Other assets

 

 

 (92,413)

 

 

 (68,833)

 

 

Accounts payable and accrued expenses

 

 

 (5,799)

 

 

 36,949 

 

 

Other liabilities

 

 

 (16,168)

 

 

 (3,190)

Net cash provided by operating activities

 

 

 443,525 

 

 

 828,569 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Acquisitions of real estate and other

 

 

 (388,565)

 

 

 (95,546)

 

Proceeds from sales of real estate and related investments

 

 

 375,850 

 

 

 335,489 

 

Development costs and construction in progress

 

 

 (339,586)

 

 

 (368,571)

 

Additions to real estate

 

 

 (207,845)

 

 

 (171,660)

 

Restricted cash

 

 

 201,895 

 

 

 101,592 

 

Investments in partially owned entities

 

 

 (144,890)

 

 

 (91,697)

 

Distributions of capital from partially owned entities

 

 

 31,822 

 

 

 8,130 

 

Investments in loans receivable

 

 

 (25,845)

 

 

 (11,380)

 

Proceeds from repayments of mortgage and mezzanine loans receivable and other

 

 

 16,781 

 

 

 96,504 

Net cash used in investing activities

 

 

 (480,383)

 

 

 (197,139)

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

 

 

 

 

 

 

 

 

 

8

 


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Nine Months Ended September 30,

 

 

 

 

 

2015 

 

2014 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Proceeds from borrowings

 

$

 2,876,460 

 

$

 1,713,285 

 

Repayments of borrowings

 

 

 (2,539,677)

 

 

 (343,354)

 

Dividends paid on common shares

 

 

 (355,945)

 

 

 (410,724)

 

Cash included in the spin-off of Urban Edge Properties

 

 

 (225,000)

 

 

 -   

 

Distributions to noncontrolling interests

 

 

 (93,738)

 

 

 (208,773)

 

Dividends paid on preferred shares

 

 

 (60,213)

 

 

 (61,102)

 

Contributions from noncontrolling interests

 

 

 51,725 

 

 

 5,297 

 

Debt issuance costs

 

 

 (37,467)

 

 

 (40,424)

 

Proceeds received from exercise of employee share options

 

 

 15,273 

 

 

 13,738 

 

Repurchase of shares related to stock compensation agreements and/or related

 

 

 

 

 

 

 

 

tax withholdings and other

 

 

 (4,900)

 

 

 (637)

 

Purchase of marketable securities in connection with the defeasance of mortgage

 

 

 

 

 

 

 

 

notes payable

 

 

 -   

 

 

 (198,884)

Net cash (used in) provided by financing activities

 

 

 (373,482)

 

 

 468,422 

Net (decrease) increase in cash and cash equivalents

 

 

 (410,340)

 

 

 1,099,852 

Cash and cash equivalents at beginning of period

 

 

 1,198,477 

 

 

 583,290 

Cash and cash equivalents at end of period

 

$

 788,137 

 

$

 1,683,142 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

Cash payments for interest, excluding capitalized interest of $40,924 and $46,517

 

$

 256,254 

 

$

 317,162 

 

Cash payments for income taxes

 

$

 7,640 

 

$

 9,407 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

Non-cash distribution of Urban Edge Properties:

 

 

 

 

 

 

 

 

 

Assets

 

$

 1,722,263 

 

$

 -   

 

 

 

Liabilities

 

 

 (1,482,660)

 

 

 -   

 

 

 

Equity

 

 

 (239,603)

 

 

 -   

 

Adjustments to carry redeemable Class A units at redemption value

 

 

 295,713 

 

 

 (144,231)

 

Transfer of interest in real estate to Pennsylvania Real Estate Investment Trust

 

 

 (145,313)

 

 

 -   

 

Write-off of fully depreciated assets

 

 

 (127,788)

 

 

 (103,184)

 

Accrued capital expenditures included in accounts payable and accrued expenses

 

 

 95,535 

 

 

 103,032 

 

Like-kind exchange of real estate:

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

 80,269 

 

 

 50,159 

 

 

 

Dispositions

 

 

 (213,621)

 

 

 (50,159)

 

Class A units in connection with acquisition

 

 

 80,000 

 

 

 -   

 

Financing assumed in acquisitions

 

 

 62,000 

 

 

 -   

 

Marketable securities transferred in connection with the defeasance of mortgage

 

 

 

 

 

 

 

 

notes payable

 

 

 -   

 

 

 198,884 

 

Defeasance of mortgage notes payable

 

 

 -   

 

 

 (193,406)

 

Elimination of a mortgage and mezzanine loan asset and liability

 

 

 -   

 

 

 59,375 

 

Transfer of interest in real estate fund investments to an unconsolidated joint venture

 

 

 -   

 

 

 (58,564)

 

Transfer of noncontrolling interest in real estate fund investments

 

 

 -   

 

 

 (33,028)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

 

 

 

 

 

 

 

 

 

9

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

1.     Organization

 

Vornado Realty Trust (“Vornado”) is a fully‑integrated real estate investment trust (“REIT”) and conducts its business through, and substantially all of its interests in properties are held by, Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”).  Vornado is the sole general partner of, and owned approximately 93.6% of the common limited partnership interest in, the Operating Partnership at September 30, 2015.  All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.

 

On January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers, three malls, a warehouse park and $225,000,000 of cash to Urban Edge Properties (“UE”) (NYSE: UE). As part of this transaction, we retained 5,717,184 UE operating partnership units (5.4% ownership interest). We are providing transition services to UE for an initial period of up to two years, including information technology, human resources, tax and financial reporting.  UE is providing us with leasing and property management services for (i) certain small retail properties that we plan to sell, and (ii) our affiliate, Alexander’s, Inc. (NYSE: ALX) Rego Park retail assets. Steven Roth, our Chairman and Chief Executive Officer is a member of the Board of Trustees of UE. The spin-off distribution was effected by Vornado distributing one UE common share for every two Vornado common shares.  The historical financial results of UE are reflected in our consolidated financial statements as discontinued operations for all periods presented. 

 

2.    Basis of Presentation and Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements are unaudited and include the accounts of Vornado and its consolidated subsidiaries, including the Operating Partnership.  All intercompany amounts have been eliminated. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.  These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the SEC and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2014, as filed with the SEC.

 

We have made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.  The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the operating results for the full year.  

 

Certain prior year balances have been reclassified in order to conform to the current period presentation.  Beginning in the three months ended March 31, 2015, the Company classifies signage revenue within “property rentals”.  For the three and nine months ended September 30, 2014, $7,698,000 and $25,889,000, respectively, related to signage revenue has been reclassified from “fee and other income” to “property rentals” to conform to the current period presentation.

    

Significant Accounting Policies

 

Condominium Units Held For Sale:  Pursuant to ASC 605-35-25-88, Revenue Recognition: Completed Contract Method, revenue from condominium unit sales is recognized upon closing of the sale, as all conditions for full profit recognition have not been met until that time.  We use the relative sales value method to allocate costs to individual condominium units. 

 

We are constructing a residential condominium tower containing 392,000 salable square feet on our 220 Central Park South development site. 

 

10

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

2.    Basis of Presentation and Significant Accounting Policies - continued

 

Significant Accounting Policies - continued

 

Income Taxes:  We operate in a manner intended to enable us to continue to qualify as a REIT under Sections 856‑860 of the Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. We distribute to our shareholders 100% of our taxable income and therefore, no provision for Federal income taxes is required.

 

We have elected to treat certain consolidated subsidiaries, and may in the future elect to treat newly formed subsidiaries, as taxable REIT subsidiaries pursuant to an amendment to the Internal Revenue Code that became effective January 1, 2001.  Taxable REIT subsidiaries may participate in non-real estate related activities and/or perform non-customary services for tenants and are subject to Federal and State income tax at regular corporate tax rates.

 

At September 30, 2015 and December 31, 2014, our taxable REIT subsidiaries had deferred tax assets related to net operating loss carryforwards of $95,419,000 and $94,100,000, respectively, which are included in “other assets” on our consolidated balance sheets.  Prior to the quarter ended June 30, 2015, there was a full valuation allowance against these deferred tax assets because we had not determined that it is more-likely-than-not that we would use the net operating loss carryforwards to offset future taxable income.  Based upon residential condominium unit sales, among other factors, we have concluded that it is more-likely-than-not that we will generate sufficient taxable income to realize these deferred tax assets.  Accordingly, during the second quarter of 2015, we reversed $90,030,000 of the allowance for deferred tax assets and recognized an income tax benefit in our consolidated statements of income.

 

 

3.    Recently Issued Accounting Literature

 

In April 2014, the Financial Accounting Standards Board (“FASB”) issued an update (“ASU 2014-08”) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity to ASC Topic 205, Presentation of Financial Statements and ASC Topic 360, Property Plant and Equipment. Under ASU 2014-08, only disposals that represent a strategic shift that has (or will have) a major effect on the entity’s results and operations would qualify as discontinued operations. In addition, ASU 2014-08 expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of individually significant components that do not meet the definition of discontinued operations. ASU 2014-08 is effective for interim and annual reporting periods in fiscal years that began after December 15, 2014. Upon adoption of this standard on January 1, 2015, individual properties sold in the ordinary course of business are not expected to qualify as discontinued operations. The financial results of UE and certain other retail assets are reflected in our consolidated financial statements as discontinued operations for all periods presented (see Note 8 – Dispositions for further details).

 

 In May 2014, the FASB issued an update ("ASU 2014-09") establishing ASC Topic 606, Revenue from Contracts with Customers.  ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance.  ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.  ASU 2014-09 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017.  We are currently evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.

 

11

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

3.    Recently Issued Accounting Literature - continued

 

In June 2014, the FASB issued an update (“ASU 2014-12”) to ASC Topic 718, Compensation – Stock Compensation.  ASU 2014-12 requires an entity to treat performance targets that can be met after the requisite service period of a share based award has ended, as a performance condition that affects vesting.  ASU 2014-12 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015.  We are currently evaluating the impact of the adoption of ASU 2014-12 on our consolidated financial statements.

 

In February 2015, the FASB issued an update (“ASU 2015-02”) Amendments to the Consolidation Analysis to ASC Topic 810, Consolidation.  ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities.  Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with VIEs, and (iv) provide a scope exception for certain entities.  ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015.  We are currently evaluating the impact of the adoption of ASU 2015-02 on our consolidated financial statements. 

 

In April 2015, the FASB issued an update (“ASU 2015-03”) Simplifying the Presentation of Debt Issuance Costs to ASC Topic 835, Interest.  ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability to which they relate, consistent with debt discounts, as opposed to being presented as assets.  ASU 2015-03 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015.  The adoption of this update on January 1, 2016 will not have a material impact on our consolidated financial statements.

 

 

4.    Acquisitions

 

On January 20, 2015, we and one of our real estate fund’s limited partners co-invested with the Fund to buy out the Fund’s joint venture partner’s 57% interest in the Crowne Plaza Times Square Hotel (see Note 5 – Real Estate Fund Investments).

 

On March 18, 2015, we acquired the Center Building, a 437,000 square foot office building, located at 33-00 Northern Boulevard in Long Island City, New York, for $142,000,000, including the assumption of an existing $62,000,000, 4.43% mortgage maturing in October 2018. 

 

On June 2, 2015, we completed the acquisition of 150 West 34th Street, a 78,000 square foot retail property leased to Old Navy through May 2019, and 226,000 square feet of additional zoning air rights, for approximately $355,000,000.  At closing we completed a $205,000,000 financing of the property (see Note 10 – Debt).

 

On July 31, 2015, we acquired 260 Eleventh Avenue, a 235,000 square foot office property leased to the City of New York through 2021 with two five-year renewal options, a 10,000 square foot parking lot and additional air rights.  The transaction is structured as a 99-year ground lease with an option to purchase the land for $110,000,000.  The $3,900,000 annual ground rent and the purchase option price escalate annually at the lesser of 1.5% or CPI.  The buildings were purchased for 813,900 newly issued Vornado Operating Partnership units valued at approximately $80,000,000.

 

On September 25, 2015, we acquired 265 West 34th Street, a 1,700 square foot retail property and 15,200 square feet of additional zoning air rights, for approximately $28,500,000.        

12

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

5.     Real Estate Fund Investments

 

We are the general partner and investment manager of Vornado Capital Partners Real Estate Fund (the “Fund”), which has an eight-year term and a three-year investment period that ended in July 2013. During the investment period, the Fund was our exclusive investment vehicle for all investments that fit within its investment parameters, as defined.  The Fund is accounted for under ASC 946, Financial Services – Investment Companies (“ASC 946”) and its investments are reported on its balance sheet at fair value, with changes in value each period recognized in earnings.  We consolidate the accounts of the Fund into our consolidated financial statements, retaining the fair value basis of accounting.

 

On January 20, 2015, we and one of the Fund’s limited partners co-invested with the Fund to buy out the Fund’s joint venture partner’s 57% interest in the Crowne Plaza Times Square Hotel (the “Co-Investment”).  The purchase price for the 57% interest was approximately $95,000,000 (our share $39,000,000) which valued the property at approximately $480,000,000.  The property is encumbered by a $310,000,000 mortgage loan bearing interest at LIBOR plus 2.80% which matures in December 2018 with a one-year extension option.  Our aggregate ownership interest in the property increased to 33% from 11%.  The Co-Investment is also accounted for under ASC 946 and is included as a component of “real estate fund investments” on our consolidated balance sheet. 

 

On March 25, 2015, the Fund completed the sale of 520 Broadway in Santa Monica, CA for $91,650,000. The Fund realized a $23,768,000 net gain over the holding period.

 

At September 30, 2015, we had six real estate fund investments with an aggregate fair value of $555,414,000, or $190,620,000 in excess of cost, and had remaining unfunded commitments of $102,212,000, of which our share was $25,553,000.  Below is a summary of income from the Fund and the Co-Investment for the three and nine months ended September 30, 2015 and 2014.

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Nine Months Ended

 

  

 

September 30,

 

September 30,

 

  

 

2015 

 

2014 

 

2015 

 

2014 

Net investment income

 

$

 5,116 

 

$

 3,829 

 

$

 13,716 

 

$

 10,860 

Net realized (losses) gains on exited investments

 

 

 (907)

 

 

 51,584 

 

 

 24,684 

 

 

 126,653 

Previously recorded unrealized gains on exited investments

 

 

 - 

 

 

 (49,586)

 

 

 (23,279)

 

 

 (50,316)

Net unrealized (losses) gains on held investments

 

 

 (2,544)

 

 

 18,333 

 

 

 37,001 

 

 

 55,221 

Income from real estate fund investments

 

 

 1,665 

 

 

 24,160 

 

 

 52,122 

 

 

 142,418 

Less income attributable to noncontrolling interests

 

 

 (42)

 

 

 (8,588)

 

 

 (29,453)

 

 

 (81,217)

Income from real estate fund investments attributable to Vornado (1)

 

$

 1,623 

 

$

 15,572 

 

$

 22,669 

 

$

 61,201 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excludes property management, leasing and development fees of $678 and $669 for the three months ended September 30, 2015 and 2014, respectively, and $2,015 and $1,925 for the nine months ended September 30, 2015 and 2014, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

 

6.    Marketable Securities

 

Below is a summary of our marketable securities portfolio as of September 30, 2015 and December 31, 2014.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

As of September 30, 2015

 

As of December 31, 2014

 

 

 

 

 

GAAP

 

Unrealized

 

 

 

 

GAAP

 

Unrealized

 

 

Fair Value

 

Cost

 

Gain

 

Fair Value

 

Cost

 

Gain

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lexington Realty Trust

$

 149,599 

 

$

 72,549 

 

$

 77,050 

 

$

 202,789 

 

$

 72,549 

 

$

 130,240 

 

Other

 

 3,328 

 

 

 -   

 

 

 3,328 

 

 

 3,534 

 

 

 -   

 

 

 3,534 

 

 

$

 152,927 

 

$

 72,549 

 

$

 80,378 

 

$

 206,323 

 

$

 72,549 

 

$

 133,774 

13

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

7.    Investments in Partially Owned Entities

 

Toys “R” Us (“Toys”)

 

As of September 30, 2015, we own 32.5% of Toys.  We have not guaranteed any of Toys’ obligations and are not committed to provide any support to Toys.  Pursuant to ASC 323-10-35-20, we discontinued applying the equity method for our Toys’ investment when the carrying amount was reduced to zero in the third quarter of 2014.  We will resume application of the equity method if, during the period the equity method has been suspended, our share of unrecognized net income exceeds our share of unrecognized net losses.

In the first quarter of 2014, we recognized our share of Toys’ fourth quarter net income of $75,196,000 and a corresponding non-cash impairment loss of the same amount.

 

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

 

(Amounts in thousands)

 

 

 

 

 

 

 

Balance as of

 

 

  

 

 

 

 

 

 

 

August 1, 2015

  

November 1, 2014

Balance Sheet:

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

$

 9,732,000 

  

$

 11,267,000 

 

Liabilities

 

 

 

 

 

 

 

 

 9,056,000 

  

 

 10,377,000 

 

Noncontrolling interests

 

 

 

 

 

 

 

 

 85,000 

  

 

 82,000 

 

Toys “R” Us, Inc. equity (1)

 

 

 

 

 

 

 

 

 591,000 

  

 

 808,000 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended

 

For the Nine Months Ended

 

 

  

August 1, 2015

 

 

August 2, 2014

 

August 1, 2015

  

August 2, 2014

Income Statement:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues  

$

 2,293,000 

 

 

$

 2,440,000 

 

$

 9,601,000 

  

$

 10,186,000 

 

Net loss attributable to Toys  

 

 (108,700)

 

 

 

 (133,000)

 

 

 (44,700)

  

 

 (244,000)

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

At September 30, 2015, the carrying amount of our investment in Toys is less than our share of Toys' equity by approximately $191,859. This basis difference results primarily from non-cash impairment losses aggregating $355,953 that we have recognized through September 30, 2015. We have allocated the basis difference primarily to Toys' real estate.

 

 

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

 

As of September 30, 2015, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common equity.  We manage, lease and develop Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable.

As of September 30, 2015, the market value (“fair value” pursuant to ASC 820, Fair Value Measurements and Disclosures (“ASC 820”)) of our investment in Alexander’s, based on Alexander’s September 30, 2015 closing share price of $374.00, was $618,621,000, or $487,226,000 in excess of the carrying amount on our consolidated balance sheet.  As of September 30, 2015, the carrying amount of our investment in Alexander’s exceeds our share of the equity in the net assets of Alexander’s by approximately $40,527,000.  The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets.  Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to real estate (land and buildings).  We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives.  This depreciation is not material to our share of equity in Alexander’s net income.  The basis difference related to the land will be recognized upon disposition of our investment.

 

14

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

7.    Investments in Partially Owned Entities - continued

 

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

 

Below is a summary of Alexander’s latest available financial information:

 

(Amounts in thousands)

 

 

 

 

 

 

Balance as of

 

 

 

 

 

 

 

 

 

September 30, 2015

 

December 31, 2014

Balance Sheet:

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

$

 1,457,000 

 

$

 1,423,000 

 

Liabilities

 

 

 

 

 

 

 

 1,112,000 

 

 

 1,075,000 

 

Stockholders' equity

 

 

 

 

 

 

 

 345,000 

 

 

 348,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 

2015 

 

2014 

 

2015 

 

2014 

Income Statement:

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

$

 52,000 

 

$

 50,000 

 

$

 155,000 

 

$

 149,000 

 

Net income attributable to Alexander’s

 

 18,000 

 

 

 18,000 

 

 

 53,000 

 

 

 50,000 

 

 

Urban Edge Properties (“UE”) (NYSE: UE)

 

As part of our spin-off of substantially all of our retail segment to UE on January 15, 2015 (see Note 1 – Organization), we retained 5,717,184 UE operating partnership units, representing a 5.4% ownership interest in UE.  We account for our investment in UE under the equity method and record our share of UE’s net income or loss on a one-quarter lag basis.  We are providing transition services to UE for an initial period of up to two years, including information technology, human resources, tax and financial reporting.  UE is providing us with leasing and property management services for (i) certain small retail properties that we plan to sell, and (ii) our affiliate, Alexander’s, Rego Park retail assets.  As of September 30, 2015, the fair value of our investment in UE, based on UE’s September 30, 2015 closing share price of $21.59, was $123,434,000, or $98,033,000 in excess of the carrying amount on our consolidated balance sheet.   

 

Pennsylvania Real Estate Investment Trust (“PREIT”) (NYSE: PEI)

 

On March 31, 2015, we transferred the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to PREIT Associates, L.P., which is the operating partnership of PREIT, in exchange for $485,313,000; comprised of $340,000,000 of cash and 6,250,000 PREIT operating partnership units (valued at $145,313,000 or $23.25 per PREIT unit) (See Note 8 – Dispositions).  $19,000,000 of tenant improvements and allowances was credited to PREIT as a closing adjustment.  As a result of this transaction, we own an 8.1% interest in PREIT.  We account for our investment in PREIT under the equity method and record our share of PREIT’s net income or loss on a one-quarter lag basis.  As of September 30, 2015, the fair value of our investment in PREIT, based on PREIT’s September 30, 2015 closing share price of $19.83, was $123,938,000, or $14,327,000 lower than the carrying amount on our consolidated balance sheet.  As of September 30, 2015, the carrying amount of our investment in PREIT exceeds our share of the equity in the net assets of PREIT by approximately $65,681,000.  The majority of this basis difference resulted from the excess of the fair value of the PREIT operating units received over our share of the book value of PREIT’s net assets.  Substantially all of this basis difference was allocated, based on our estimates of the fair values of PREIT’s assets and liabilities, to real estate (land and buildings).  We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives.  This depreciation is not material to our share of equity in PREIT’s net loss.  The basis difference related to the land will be recognized upon disposition of our investment.

 

512 West 22nd Street

 

On June 24, 2015, we entered into a joint venture, in which we own a 55% interest, to develop a 173,000 square foot Class-A office building, located along the western edge of the High Line at 512 West 22nd Street.  The development cost of this project is approximately $235,000,000.  The development is expected to commence during the fourth quarter of 2015 and be completed in 2017.  We account for our investment in the joint venture under the equity method.

 

15

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

7.    Investments in Partially Owned Entities – continued

Below are schedules summarizing our investments in, and (loss) income from, partially owned entities.

(Amounts in thousands)

 

Percentage

 

 

 

 

 

 

Ownership at

 

Balance as of

 

 

  

 

September 30, 2015

 

September 30, 2015

  

December 31, 2014

Investments:   

 

 

 

  

 

 

 

 

 

 

 

Partially owned office buildings (1)

 

 

 

Various  

 

$

 857,282 

  

$

 760,749 

 

PREIT Associates

 

 

 

8.1% 

 

 

 138,265 

  

 

 -   

 

Alexander’s

 

 

 

32.4% 

 

 

 131,395 

  

 

 131,616 

 

India real estate ventures

 

 

 

4.1%-36.5%  

 

 

 48,114 

  

 

 76,752 

 

UE

 

 

 

5.4% 

 

 

 25,401 

  

 

 -   

 

Toys

 

 

 

32.5% 

 

 

 -   

  

 

 -   

 

Other investments (2)

 

 

 

Various  

 

 

 259,721 

  

 

 271,372 

 

 

  

 

 

 

  

 

$

 1,460,178 

  

$

 1,240,489 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

(1)

Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue, 512 West 22nd Street and others.

(2)

Includes interests in Independence Plaza, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others.

 

(Amounts in thousands) 

Percentage  

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

 

 

  

Ownership at  

 

September 30,

 

September 30,

 

 

 

 

 

  

September 30, 2015  

 

2015 

 

2014 

 

2015 

  

2014 

Our Share of Net (Loss) Income: 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Alexander's: 

 

  

 

 

  

 

 

 

 

 

 

 

 

 

 

 

Equity in net income   

 

32.4% 

 

$

 5,716 

 

$

 5,552 

 

$

 16,757 

  

$

 15,583 

 

 

Management, leasing and development fees 

 

  

 

 

 1,828 

 

 

 1,640 

 

 

 5,801 

  

 

 4,888 

 

 

 

 

 

  

 

  

 

 

 7,544 

 

 

 7,192 

 

 

 22,558 

  

 

 20,471 

 

 

 

 

 

  

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Partially owned office buildings (1)

 

Various  

 

 

 (2,039)

 

 

 18 

 

 

 (14,573)

  

 

 (1,387)

 

 

 

 

 

  

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Toys: 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in net loss 

 

32.5% 

 

 

 -   

 

 

 (20,357)

 

 

 -   

  

 

 (4,691)

 

 

Non-cash impairment loss 

 

  

 

 

 -   

 

 

 -   

 

 

 -   

  

 

 (75,196)

 

 

Management fees 

 

  

 

 

 46 

 

 

 1,939 

 

 

 2,000 

  

 

 5,725 

 

 

 

 

 

  

 

  

 

 

 46 

 

 

 (18,418)

 

 

 2,000 

  

 

 (74,162)

 

 

 

 

 

  

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

India real estate ventures 

 

4.1%-36.5%  

 

 

 (1,704)

 

 

 (262)

 

 

 (18,380)

  (2)

 

 (2,440)

 

 

 

 

 

  

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Other investments (3)

 

Various  

 

 

 (4,172)

 

 

 (14,564)

 

 

 (314)

  

 

 (21,158)

 

 

 

 

 

  

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

  

 

$

 (325)

 

$

 (26,034)

 

$

 (8,709)

  

$

 (78,676)

 

 

 

 

 

  

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

  

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue, 512 West 22nd Street and others.

(2)

Includes $14,806 for our share of non-cash impairment losses.

(3)

Includes interests in UE, PREIT Associates, Independence Plaza, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others.  In the third quarter of 2014, we recognized a $10,263 non-cash charge, comprised of a $5,959 impairment loss and a $4,304 loan loss reserve, on our equity and debt investments in Suffolk Downs.

16

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

8.    Dispositions

 

 

On September 9, 2015, we completed the sale of 1750 Pennsylvania Avenue, NW, a 278,000 square foot office building in Washington, DC for $182,000,000, resulting in a net gain of approximately $102,000,000 which is included in “net gain on disposition of wholly owned and partially owned assets” on our consolidated statement of income.  The tax gain of approximately $137,000,000 was deferred as part of a like-kind exchange.  We are managing the property on behalf of the new owner.

 

Discontinued Operations

 

On January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers, three malls, a warehouse park and $225,000,000 of cash to UE (NYSE: UE) (see Note 1 – Organization).  In addition, we completed the following retail property sales, substantially completing the exit of the retail strips and malls business.

 

On March 13, 2015, we sold our Geary Street, CA lease for $34,189,000, which resulted in a net gain of $21,376,000.

 

On March 31, 2015, we transferred the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to PREIT (see Note 7 – Investments in Partially Owned Entities).  The financial statement gain was $7,823,000, of which $7,192,000 was recognized in the first quarter of 2015 and the remaining $631,000 was deferred based on our ownership interest in PREIT.  On March 31, 2018, we will be entitled to additional consideration of 50% of the increase in the value of Springfield Town Center, if any, over $465,000,000, calculated utilizing a 5.5% capitalization rate.  In the first quarter of 2014, we recorded a non-cash impairment loss of $20,000,000 on Springfield Town Center which is included in “income from discontinued operations” on our consolidated statements of income. 

 

On August 6, 2015, we sold our 50% interest in the Monmouth Mall in Eatontown, NJ to our joint venture partner for $38,000,000, valuing the property at approximately $229,000,000, which resulted in a net gain of $33,153,000.

 

We also sold five residual retail properties, in separate transactions, for an aggregate of $10,731,000, which resulted in net gains of $3,675,000.

 

17

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

8.    Dispositions – continued

 

 

We have reclassified the revenues and expenses of the UE portfolio and other retail properties discussed above to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all of the periods presented in the accompanying consolidated financial statements.  The net gains resulting from the sale of these properties are included in “income from discontinued operations” on our consolidated statements of income.  The tables below set forth the assets and liabilities related to discontinued operations at September 30, 2015 and December 31, 2014 and their combined results of operations and cash flows for the nine months ended September 30, 2015 and 2014.

 

(Amounts in thousands)

 

 

 

 

 

 

Balance as of

 

 

 

 

 

 

 

 

September 30, 2015

 

December 31, 2014

Assets related to discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Real estate, net

 

 

 

 

 

 

$

 27,560 

 

$

 2,028,677 

Other assets

 

 

 

 

 

 

 

 7,582 

 

 

 215,804 

 

 

 

 

 

 

 

$

 35,142 

 

$

 2,244,481 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities related to discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Mortgages payable

 

 

 

 

 

 

$

 - 

 

$

 1,288,535 

Other liabilities (primarily deferred revenue in 2014)

 

 

 

 

 

 

 

 11,520 

 

 

 222,827 

 

 

 

 

 

 

 

$

 11,520 

 

$

 1,511,362 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended

 

For the Nine Months Ended

 

September 30,

 

September 30,

 

 

2015 

 

2014 

 

2015 

 

2014 

Income from discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Total revenues

$

 2,589 

 

$

 93,440 

 

$

 24,868 

 

$

 297,039 

Total expenses

 

 1,279 

 

 

 62,715 

 

 

 16,672 

 

 

 204,619 

 

 

 1,310 

 

 

 30,725 

 

 

 8,196 

 

 

 92,420 

Net gain on sale of our interest in Monmouth Mall

 

 33,153 

 

 

 - 

 

 

 33,153 

 

 

 - 

Net gains on sale of real estate

 

 - 

 

 

 57,796 

 

 

 10,867 

 

 

 57,796 

Transaction related costs (primarily UE spin off)

 

 - 

 

 

 (5,828)

 

 

 (22,972)

 

 

 (9,343)

Net gain on sale of lease position in Geary Street, CA

 

 - 

 

 

 - 

 

 

 21,376 

 

 

 - 

Impairment losses

 

 - 

 

 

 - 

 

 

 (256)

 

 

 (20,842)

Pretax income from discontinued operations

 

 34,463 

 

 

 82,693 

 

 

 50,364 

 

 

 120,031 

Income tax expense

 

 - 

 

 

 (525)

 

 

 (86)

 

 

 (1,575)

Income from discontinued operations

$

 34,463 

 

$

 82,168 

 

$

 50,278 

 

$

 118,456 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows related to discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

$

 (34,490)

 

$

 153,815 

Cash flows from investing activities

 

 

 

 

 

 

 

 348,697 

 

 

 (122,247)

18

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

9.    Identified Intangible Assets and Liabilities

 

The following summarizes our identified intangible assets (primarily acquired in-place and above-market leases) and liabilities (primarily acquired below-market leases) as of September 30, 2015 and December 31, 2014.

 

 

(Amounts in thousands)

 Balance as of

 

 

 

September 30, 2015

 

December 31, 2014

 

 

Identified intangible assets:

 

 

 

 

 

 

 

Gross amount

$

 432,357 

 

$

 424,976 

 

 

Accumulated amortization

 

 (190,543)

 

 

 (199,821)

 

 

Net

$

 241,814 

 

$

 225,155 

 

 

Identified intangible liabilities (included in deferred revenue):

 

 

 

 

 

 

 

Gross amount

$

 666,370 

 

$

 657,976 

 

 

Accumulated amortization

 

 (316,908)

 

 

 (329,775)

 

 

Net

$

 349,462 

 

$

 328,201 

 

 

Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $19,786,000 and $8,099,000 for the three months ended September 30, 2015 and 2014, respectively, and $45,614,000 and $26,333,000 for the nine months ended September 30, 2015 and 2014, respectively.  Estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing January 1, 2016 is as follows:

 

 

(Amounts in thousands)

 

 

 

 

2016 

$

 51,780 

 

 

2017 

 

 44,079 

 

 

2018 

 

 42,733 

 

 

2019 

 

 30,775 

 

 

2020 

 

 23,143 

 

 

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $9,658,000 and $5,866,000 for the three months ended September 30, 2015 and 2014, respectively, and $24,402,000 and $21,697,000 for the nine months ended September 30, 2015 and 2014, respectively.  Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2016 is as follows:

 

 

(Amounts in thousands)

 

 

 

 

2016 

$

 30,165 

 

 

2017 

 

 24,745 

 

 

2018 

 

 20,373 

 

 

2019 

 

 15,685 

 

 

2020 

 

 12,245 

 

 

We are a tenant under ground leases for certain properties.  Amortization of these acquired below-market leases, net of above-market leases resulted in an increase to rent expense of $458,000 for the three months ended September 30, 2015 and 2014 and $1,374,000 for the nine months ended September 30, 2015 and 2014.  Estimated annual amortization of these below-market leases, net of above-market leases for each of the five succeeding years commencing January 1, 2016 is as follows:

 

 

(Amounts in thousands)

 

 

 

 

2016 

$

 1,832 

 

 

2017 

 

 1,832 

 

 

2018 

 

 1,832 

 

 

2019 

 

 1,832 

 

 

2020 

 

 1,832 

 

19

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

10.    Debt

 

On January 1, 2015, we redeemed all of the $500,000,000 principal amount of our outstanding 4.25% senior unsecured notes, which were scheduled to mature on April 1, 2015, at a redemption price of 100% of the principal amount plus accrued interest through December 31, 2014.

 

On April 1, 2015, we completed a $308,000,000 refinancing of RiverHouse Apartments, a three building, 1,670 unit rental complex located in Arlington, VA.  The loan is interest-only at LIBOR plus 1.28% and matures in 2025.  We realized net proceeds of approximately $43,000,000.  The property was previously encumbered by a 5.43%, $195,000,000 mortgage maturing in April 2015 and a $64,000,000 mortgage at LIBOR plus 1.53% maturing in 2018. 

 

On June 2, 2015, we completed a $205,000,000 financing in connection with the acquisition of 150 West 34th Street (see Note 4 – Acquisitions).  The loan bears interest at LIBOR plus 2.25% and matures in 2018 with two one-year extension options. 

 

On July 28, 2015, we completed a $580,000,000 refinancing of 100 West 33rd Street, a 1.1 million square foot property comprised of 851,000 square feet of office space and the 256,000 square foot Manhattan Mall.  The loan is interest only at LIBOR plus 1.65% and matures in July 2020.  We realized net proceeds of approximately $242,000,000.

 

On September 22, 2015, we upsized the loan on our 220 Central Park South development by $350,000,000 to $950,000,000.  The interest rate on the loan is LIBOR plus 2.00% and the final maturity date is 2020.  In connection with the upsizing, the standby commitment for a $500,000,000 mezzanine loan for this development has been terminated by payment of a $15,000,000 contractual termination fee, which was capitalized as a component of “development costs and construction in progress” on our consolidated balance sheet as of September 30, 2015.

 

The following is a summary of our debt:

 

(Amounts in thousands)

Interest Rate at

 

Balance at

 

 

 

 

 

 

 

September 30, 2015

 

September 30, 2015

 

December 31, 2014

 

 

Mortgages Payable:

 

  

 

 

 

 

 

 

 

 

 

Fixed rate

 

4.43% 

 

$

 6,341,271 

 

$

 6,499,396 

 

 

 

Variable rate

 

2.01% 

 

 

 2,818,142 

 

 

 1,763,769 

 

 

 

 

 

 

 

 

3.69% 

 

$

 9,159,413 

 

$

 8,263,165 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

Unsecured Debt:

 

  

 

 

 

 

 

 

 

 

 

Senior unsecured notes

 

3.68% 

 

$

 847,594 

 

$

 1,347,159 

 

 

 

Revolving credit facility debt

 

-

 

 

 -   

 

 

 -   

 

 

 

 

 

 

 

 

3.68% 

 

$

 847,594 

 

$

 1,347,159 

 

20

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

11.    Redeemable Noncontrolling Interests

 

Redeemable noncontrolling interests on our consolidated balance sheets are comprised primarily of Class A Operating Partnership units that are held by third parties and are recorded at the greater of their carrying amount or redemption value at the end of each reporting period.  Changes in the value from period to period are charged to “additional capital” in our consolidated statements of changes in equity.  Below is a table summarizing the activity of redeemable noncontrolling interests.

 

 

(Amounts in thousands)

 

 

 

 

Balance at December 31, 2013

$

 1,003,620 

 

 

Net income

 

 16,552 

 

 

Other comprehensive loss

 

 (109)

 

 

Distributions

 

 (25,166)

 

 

Redemption of Class A units for common shares, at redemption value

 

 (22,668)

 

 

Adjustments to carry redeemable Class A units at redemption value

 

 144,231 

 

 

Other, net

 

 23,592 

 

 

Balance at September 30, 2014

$

 1,140,052 

 

 

 

 

 

 

 

Balance at December 31, 2014

$

 1,337,780 

 

 

Net income

 

 28,189 

 

 

Other comprehensive loss

 

 (3,082)

 

 

Distributions

 

 (22,502)

 

 

Redemption of Class A units for common shares, at redemption value

 

 (46,693)

 

 

Adjustments to carry redeemable Class A units at redemption value

 

 (295,713)

 

 

Issuance of Class A units

 

 80,000 

 

 

Issuance of Series D-17 Preferred Units

 

 4,428 

 

 

Other, net

 

 31,478 

 

 

Balance at September 30, 2015

$

 1,113,885 

 

 

As of September 30, 2015 and December 31, 2014, the aggregate redemption value of redeemable Class A units was $1,108,457,000 and $1,336,780,000, respectively. 

 

Redeemable noncontrolling interests exclude our Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units, as they are accounted for as liabilities in accordance with ASC 480, Distinguishing Liabilities and Equity, because of their possible settlement by issuing a variable number of Vornado common shares.  Accordingly, the fair value of these units is included as a component of “other liabilities” on our consolidated balance sheets and aggregated $53,135,000 as of September 30, 2015 and $55,097,000 as of December 31, 2014.  Changes in the value from period to period, if any, are charged to “interest and debt expense” on our consolidated statements of income. 

21

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

12.    Accumulated Other Comprehensive Income (“AOCI”)

 

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

 

(Amounts in thousands)

 

 

 

Securities

  

Pro rata share of

 

Interest

 

 

  

 

 

 

available-

  

nonconsolidated

 

rate

 

 

  

 

Total

 

for-sale

  

subsidiaries' OCI

 

swap

 

Other

For the Three Months Ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2015

 

$

 50,613 

 

$

 87,442 

  

$

 (10,026)

 

$

 (23,730)

 

$

 (3,073)

 

OCI before reclassifications

 

 

 (7,020)

 

 

 (7,064)

  

 

 (114)

 

 

 (290)

 

 

 448 

 

Amounts reclassified from AOCI

 

 

 -   

 

 

 -   

  

 

 -   

 

 

 -   

 

 

 -   

Net current period OCI

 

 

 (7,020)

 

 

 (7,064)

  

 

 (114)

 

 

 (290)

 

 

 448 

Balance as of September 30, 2015

 

$

 43,593 

 

$

 80,378 

  

$

 (10,140)

 

$

 (24,020)

 

$

 (2,625)

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2014

 

$

 92,221 

 

$

 134,312 

  

$

 (5,624)

 

$

 (30,817)

 

$

 (5,650)

 

OCI before reclassifications

 

 

 (22,641)

 

 

 (22,764)

  

 

 (6,028)

 

 

 4,781 

 

 

 1,370 

 

Amounts reclassified from AOCI

 

 

 -   

 

 

 -   

  

 

 -   

 

 

 -   

 

 

 -   

Net current period OCI

 

 

 (22,641)

 

 

 (22,764)

  

 

 (6,028)

 

 

 4,781 

 

 

 1,370 

Balance as of September 30, 2014

 

$

 69,580 

 

$

 111,548 

  

$

 (11,652)

 

$

 (26,036)

 

$

 (4,280)

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2014

 

$

 93,267 

 

$

 133,774 

  

$

 (8,992)

 

$

 (25,803)

 

$

 (5,712)

 

OCI before reclassifications

 

 

 (49,674)

 

 

 (53,396)

  

 

 (1,148)

 

 

 1,783 

 

 

 3,087 

 

Amounts reclassified from AOCI

 

 

 -   

 

 

 -   

  

 

 -   

 

 

 -   

 

 

 -   

Net current period OCI

 

 

 (49,674)

 

 

 (53,396)

  

 

 (1,148)

 

 

 1,783 

 

 

 3,087 

Balance as of September 30, 2015

 

$

 43,593 

 

$

 80,378 

  

$

 (10,140)

 

$

 (24,020)

 

$

 (2,625)

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2013

 

$

 71,537 

 

$

 119,309 

  

$

 (11,501)

 

$

 (31,882)

 

$

 (4,389)

 

OCI before reclassifications

 

 

 (1,957)

 

 

 (7,761)

  

 

 (151)

 

 

 5,846 

 

 

 109 

 

Amounts reclassified from AOCI

 

 

 -   

 

 

 -   

  

 

 -   

 

 

 -   

 

 

 -   

Net current period OCI

 

 

 (1,957)

 

 

 (7,761)

  

 

 (151)

 

 

 5,846 

 

 

 109 

Balance as of September 30, 2014

 

$

 69,580 

 

$

 111,548 

  

$

 (11,652)

 

$

 (26,036)

 

$

 (4,280)

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

13.    Variable Interest Entities (“VIEs”)

 

At September 30, 2015 and December 31, 2014, we have four unconsolidated VIEs.  We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities does not give us power over decisions that significantly affect these entities’ economic performance.  We account for our investment in these entities under the equity method.  As of September 30, 2015 and December 31, 2014, the net carrying amounts of our investment in these entities were $302,649,000 and $286,783,000, respectively, and our maximum exposure to loss in these entities is limited to our investment.  We did not have any consolidated VIEs as of September 30, 2015 and December 31, 2014.   

 

14.    Fair Value Measurements

 

ASC 820 defines fair value and establishes a framework for measuring fair value.  The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).  ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in our assessment of fair value.  Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities.  Accordingly, our fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon sale or disposition of these assets.   

 

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

 

Financial assets and liabilities that are measured at fair value on our consolidated balance sheets consist of (i) marketable securities, (ii) real estate fund investments, (iii) the assets in our deferred compensation plan (for which there is a corresponding liability on our consolidated balance sheet), (iv) mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units), and (v) an interest rate swap.  The tables below aggregate the fair values of these financial assets and liabilities by their levels in the fair value hierarchy at September 30, 2015 and December 31, 2014, respectively.

 

(Amounts in thousands)

As of September 30, 2015

 

 

  

Total

 

Level 1

 

Level 2

 

Level 3

Marketable securities  

$

 152,927 

 

$

 152,927 

 

$

 -   

 

$

 -   

Real estate fund investments (75% of which is attributable to

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests)

 

 555,414 

 

 

 -   

 

 

 -   

 

 

 555,414 

Deferred compensation plan assets (included in other assets)

 

 117,037 

 

 

 48,829 

 

 

 -   

 

 

 68,208 

 

Total assets

$

 825,378 

 

$

 201,756 

 

$

 -   

 

$

 623,622 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

Mandatorily redeemable instruments (included in other liabilities)

$

 53,135 

 

$

 53,135 

 

$

 -   

 

$

 -   

Interest rate swap (included in other liabilities)

 

 24,014 

 

 

 -   

 

 

 24,014 

 

 

 -   

 

Total liabilities

$

 77,149 

 

$

 53,135 

 

$

 24,014 

 

$

 -   

 

 

  

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

As of December 31, 2014

 

 

  

Total

 

Level 1

 

Level 2

 

Level 3

Marketable securities  

$

 206,323 

 

$

 206,323 

 

$

 -   

 

$

 -   

Real estate fund investments (75% of which is attributable to

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests)

 

 513,973 

 

 

 -   

 

 

 -   

 

 

 513,973 

Deferred compensation plan assets (included in other assets)

 

 117,284 

 

 

 53,969 

 

 

 -   

 

 

 63,315 

 

Total assets

$

 837,580 

 

$

 260,292 

 

$

 -   

 

$

 577,288 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

Mandatorily redeemable instruments (included in other liabilities)

$

 55,097 

 

$

 55,097 

 

$

 -   

 

$

 -   

Interest rate swap (included in other liabilities)

 

 25,797 

 

 

 -   

 

 

 25,797 

 

 

 -   

 

Total liabilities

$

 80,894 

 

$

 55,097 

 

$

 25,797 

 

$

 -   

 

23

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

14.  Fair Value Measurements – continued

 

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

 

Real Estate Fund Investments

 

At September 30, 2015, we had six real estate fund investments with an aggregate fair value of $555,414,000, or $190,620,000 in excess of cost.  These investments are classified as Level 3.  We use a discounted cash flow valuation technique to estimate the fair value of each of these investments, which is updated quarterly by personnel responsible for the management of each investment and reviewed by senior management at each reporting period.  The discounted cash flow valuation technique requires us to estimate cash flows for each investment over the anticipated holding period, which currently ranges from 0.8 to 5.3 years.  Cash flows are derived from property rental revenue (base rents plus reimbursements) less operating expenses, real estate taxes and capital and other costs, plus projected sales proceeds in the year of exit.  Property rental revenue is based on leases currently in place and our estimates for future leasing activity, which are based on current market rents for similar space plus a projected growth factor.  Similarly, estimated operating expenses and real estate taxes are based on amounts incurred in the current period plus a projected growth factor for future periods.  Anticipated sales proceeds at the end of an investment’s expected holding period are determined based on the net cash flow of the investment in the year of exit, divided by a terminal capitalization rate, less estimated selling costs. 

 

The fair value of each property is calculated by discounting the future cash flows (including the projected sales proceeds), using an appropriate discount rate and then reduced by the property’s outstanding debt, if any, to determine the fair value of the equity in each investment. Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates.  These rates are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from original underwriting assumptions, industry publications and from the experience of our Acquisitions and Capital Markets departments.  Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these real estate fund investments at September 30, 2015 and December 31, 2014.

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

Range

 

(based on fair value of investments) 

Unobservable Quantitative Input

 

September 30, 2015

 

December 31, 2014

 

September 30, 2015

 

December 31, 2014

 

Discount rates

 

12.0% to 14.5%

 

12.0% to 17.5%

 

13.2%

 

13.7% 

 

Terminal capitalization rates

 

4.8% to 6.5%

 

4.7% to 6.5%

 

5.5%

 

5.3% 

 

The above inputs are subject to change based on changes in economic and market conditions and/or changes in use or timing of exit.  Changes in discount rates and terminal capitalization rates result in increases or decreases in the fair values of these investments.  The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates and the amount and timing of cash flows.  Therefore, a change in the fair value of these investments resulting from a change in the terminal capitalization rate, may be partially offset by a change in the discount rate.  It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values. 

 

The table below summarizes the changes in the fair value of real estate fund investments that are classified as Level 3, for the three and nine months ended September 30, 2015 and 2014.

 

(Amounts in thousands)

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 

 

2015 

 

 

2014 

 

2015 

 

2014 

Beginning balance

 

$

 565,976 

 

$

 549,091 

 

$

 513,973 

 

$

 667,710 

Purchases

 

 

 11 

 

 

 725 

 

 

 95,011 

 

 

 3,392 

Dispositions / distributions

 

 

 (8,029)

 

 

 (74,755)

 

 

 (91,450)

 

 

 (307,268)

Net unrealized (losses) gains

 

 

 (2,544)

 

 

 18,333 

 

 

 37,001 

 

 

 55,221 

Net realized (losses) gains

 

 

 (907)

 

 

 1,998 

 

 

 1,405 

 

 

 76,337 

Other, net

 

 

 907 

 

 

 -   

 

 

 (526)

 

 

 -   

Ending balance

 

$

 555,414 

 

$

 495,392 

 

$

 555,414 

 

$

 495,392 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

14.    Fair Value Measurements – continued

 

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

 

Deferred Compensation Plan Assets

 

Deferred compensation plan assets that are classified as Level 3 consist of investments in limited partnerships and investment funds, which are managed by third parties.  We receive quarterly financial reports from a third-party administrator, which are compiled from the quarterly reports provided to them from each limited partnership and investment fund.  The quarterly reports provide net asset values on a fair value basis which are audited by independent public accounting firms on an annual basis.  The third-party administrator does not adjust these values in determining our share of the net assets and we do not adjust these values when reported in our consolidated financial statements.

 

The table below summarizes the changes in the fair value of deferred compensation plan assets that are classified as Level 3, for the three and nine months ended September 30, 2015 and 2014. 

 

(Amounts in thousands)

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 

 

2015 

 

 

2014 

 

2015 

 

2014 

Beginning balance

 

$

 67,668 

 

$

 64,609 

 

$

 63,315 

 

$

 68,782 

Purchases

 

 

 2,153 

 

 

 1,377 

 

 

 8,384 

 

 

 10,936 

Sales

 

 

 (171)

 

 

 (4,917)

 

 

 (5,264)

 

 

 (21,296)

Realized and unrealized (loss) gain

 

 

 (1,466)

 

 

 927 

 

 

 1,256 

 

 

 2,901 

Other, net

 

 

 24 

 

 

 1,187 

 

 

 517 

 

 

 1,860 

Ending balance

 

$

 68,208 

 

$

 63,183 

 

$

 68,208 

 

$

 63,183 

                           

 

Fair Value Measurements on a Nonrecurring Basis

 

Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist primarily of real estate assets required to be measured for impairment at December 31, 2014.  There are no assets remaining at fair value on a nonrecurring basis at September 30, 2015.  The fair values of real estate assets required to be measured for impairment were determined using widely accepted valuation techniques, including (i) discounted cash flow analysis, which considers, among other things, leasing assumptions, growth rates, discount rates and terminal capitalization rates, (ii) income capitalization approach, which considers prevailing market capitalization rates, and (iii) comparable sales activity.

 

 

(Amounts in thousands)

As of December 31, 2014

 

 

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

Real estate assets

$

 4,848 

 

$

 -   

 

$

 -   

 

$

 4,848 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

14.    Fair Value Measurements – continued

 

Financial Assets and Liabilities not Measured at Fair Value

 

Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents (primarily money market funds, which invest in obligations of the United States government), mortgage and mezzanine loans receivable and our secured and unsecured debt.  Estimates of the fair value of these instruments are determined by the standard practice of modeling the contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk adjusted interest rate, which is provided by a third-party specialist.  For floating rate debt, we use forward rates derived from observable market yield curves to project the expected cash flows we would be required to make under the instrument.  The fair value of cash equivalents and borrowings under our revolving credit facility is classified as Level 1, and the fair value of our mortgage and mezzanine loans receivable as of December 31, 2014 is classified as Level 3.  There are no borrowings under our revolving credit facility as of September 30, 2015 and December 31, 2014 and no mortgage and mezzanine loans outstanding as of September 30, 2015.  The fair value of our secured and unsecured debt are classified as Level 2.  The table below summarizes the carrying amounts and fair value of these financial instruments as of September 30, 2015 and December 31, 2014.

 

(Amounts in thousands)

As of September 30, 2015

 

As of December 31, 2014

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

 

Amount

 

Value

 

Amount

 

Value

Cash equivalents

$

 545,617 

 

$

 546,000 

 

$

 749,418 

 

$

 749,000 

Mortgage and mezzanine loans receivable

 

 

 

 

 

 

 

 

 

 

 

 

(included in other assets)

 

 -   

 

 

 -   

 

 

 16,748 

 

 

 17,000 

 

 

$

 545,617 

 

$

 546,000 

 

$

 766,166 

 

$

 766,000 

Debt:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgages payable

$

 9,159,413 

 

$

 9,272,000 

 

$

 8,263,165 

 

$

 8,224,000 

 

Senior unsecured notes

 

 847,594 

 

 

 884,000 

 

 

 1,347,159 

 

 

 1,385,000 

 

Revolving credit facility debt

 

 -   

 

 

 -   

 

 

 -   

 

 

 -   

 

 

$

 10,007,007 

 

$

 10,156,000 

 

$

 9,610,324 

 

$

 9,609,000 

 

15.    Incentive Compensation

 

Our 2010 Omnibus Share Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted shares, restricted Operating Partnership units and Out-Performance Plan awards to certain of our employees and officers.  We account for all equity-based compensation in accordance with ASC 718, Compensation – Stock Compensation.  Equity-based compensation expense was $6,501,000 and $8,315,000 for the three months ended September 30, 2015 and 2014, respectively and $33,328,000 and $28,389,000 for the nine months ended September 30, 2015 and 2014, respectively.

26

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

16.    Fee and Other Income

 

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

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Nine Months Ended

 

  

 

September 30,

 

September 30,

 

  

 

2015 

  

2014 

 

2015 

  

2014 

BMS cleaning fees

 

$

 18,563 

  

$

 22,467 

 

$

 62,937 

  

$

 63,618 

Management and leasing fees

 

 

 4,045 

  

 

 4,266 

 

 

 12,511 

  

 

 15,859 

Lease termination fees

 

 

 1,517 

  

 

 3,300 

 

 

 8,157 

  

 

 11,422 

Other income

 

 

 10,036 

  

 

 7,746 

 

 

 29,393 

  

 

 23,631 

  

 

$

 34,161 

  

$

 37,779 

 

$

 112,998 

  

$

 114,530 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and leasing fees include management fees from Interstate Properties, a related party, of $132,000 and $132,000 for the three months ended September 30, 2015 and 2014, and $403,000 and $397,000 for the nine months ended September 30, 2015 and 2014, respectively.  The above table excludes fee income from partially owned entities, which is included in “loss from partially owned entities” (see Note 7 – Investments in Partially Owned Entities).

 

17.     Interest and Other Investment Income, Net

 

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

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

  

 

September 30,

 

September 30,

 

 

  

 

2015 

 

2014 

 

2015 

 

2014 

Dividends on marketable securities

 

$

 3,215 

 

$

 3,200 

 

$

 9,620 

 

$

 9,504 

Mark-to-market of investments in our deferred compensation plan (1)

 

 

 (2,577)

 

 

 1,352 

 

 

 (327)

 

 

 8,132 

Interest on loans receivable

 

 

 1,154 

 

 

 1,129 

 

 

 5,113 

 

 

 4,843 

Other, net

 

 

 1,368 

 

 

 1,887 

 

 

 5,212 

 

 

 6,335 

  

 

$

 3,160 

 

$

 7,568 

 

$

 19,618 

 

$

 28,814 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

This (loss) income is entirely offset by the expense resulting from the mark-to-market of the deferred compensation plan liability, which is included in "general and administrative" expense.

 

18.     Interest and Debt Expense

 

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

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

  

 

September 30,

 

September 30,

 

 

  

 

2015 

 

2014 

 

2015 

 

2014 

Interest expense

 

$

 113,485 

 

$

 110,296 

 

$

 305,110 

 

$

 328,544 

Amortization of deferred financing costs

 

 

 7,864 

 

 

 6,856 

 

 

 22,817 

 

 

 19,015 

Capitalized standby loan commitment termination fee

 

 

 

 

 

 

 

 

 

 

 

 

 

(220 Central Park South development project)

 

 

 (15,000)

 

 

 -   

 

 

 (15,000)

 

 

 -   

Capitalized interest and debt expense

 

 

 (11,005)

 

 

 (16,335)

 

 

 (33,817)

 

 

 (46,517)

  

 

$

 95,344 

 

$

 100,817 

 

$

 279,110 

 

$

 301,042 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

27

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

19.    Income Per Share

 

 

The following table provides a reconciliation of both net income and the number of common shares used in the computation of (i) basic income per common share - which includes the weighted average number of common shares outstanding without regard to dilutive potential common shares, and (ii) diluted income per common share - which includes the weighted average common shares and dilutive share equivalents. Dilutive share equivalents may include our Series A convertible preferred shares, employee stock options, restricted share and Out-Performance Plan awards.

 

(Amounts in thousands, except per share amounts) 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

 

  

September 30,

 

September 30,

 

 

 

 

  

2015 

 

2014 

 

2015 

 

2014 

 

Numerator:  

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of income attributable 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 to noncontrolling interests 

$

 186,833 

 

$

 74,066 

 

$

 461,996 

 

$

 219,600 

 

 

Income from discontinued operations, net of income attributable 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to noncontrolling interests 

 

 32,401 

 

 

 77,458 

 

 

 47,331 

 

 

 111,649 

 

 

Net income attributable to Vornado 

 

 219,234 

 

 

 151,524 

 

 

 509,327 

 

 

 331,249 

 

 

Preferred share dividends 

 

 (20,364)

 

 

 (20,365)

 

 

 (60,213)

 

 

 (61,099)

 

 

Net income attributable to common shareholders 

 

 198,870 

 

 

 131,159 

 

 

 449,114 

 

 

 270,150 

 

 

Earnings allocated to unvested participating securities 

 

 (18)

 

 

 (19)

 

 

 (56)

 

 

 (70)

 

 

Numerator for basic income per share 

 

 198,852 

 

 

 131,140 

 

 

 449,058 

 

 

 270,080 

 

 

Impact of assumed conversions: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred share dividends 

 

 23 

 

 

 23 

 

 

 69 

 

 

 49 

 

 

 

Earnings allocated to Out-Performance Plan units 

 

 -   

 

 

 -   

 

 

 628 

 

 

 -   

 

 

Numerator for diluted income per share 

$

 198,875 

 

$

 131,163 

 

$

 449,755 

 

$

 270,129 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

Denominator: 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic income per share – weighted average shares 

 

 188,504 

 

 

 187,671 

 

 

 188,291 

 

 

 187,503 

 

 

Effect of dilutive securities(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock options and restricted share awards  

 

 1,032 

 

 

 1,099 

 

 

 1,187 

 

 

 1,046 

 

 

 

Convertible preferred shares 

 

 45 

 

 

 42 

 

 

 46 

 

 

 43 

 

 

 

Out-Performance Plan units 

 

 -   

 

 

 -   

 

 

 265 

 

 

 -   

 

 

Denominator for diluted income per share – weighted average   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

shares and assumed conversions 

 

 189,581 

 

 

 188,812 

 

 

 189,789 

 

 

 188,592 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – BASIC: 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net 

$

0.88 

 

$

0.29 

 

$

2.13 

 

$

0.84 

 

 

Income from discontinued operations, net 

 

0.17 

 

 

0.41 

 

 

0.25 

 

 

0.60 

 

 

Net income per common share 

$

1.05 

 

$

0.70 

 

$

2.38 

 

$

1.44 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – DILUTED: 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net 

$

0.88 

 

$

0.28 

 

$

2.12 

 

$

0.84 

 

 

Income from discontinued operations, net 

 

0.17 

 

 

0.41 

 

 

0.25 

 

 

0.59 

 

 

Net income per common share 

$

1.05 

 

$

0.69 

 

$

2.37 

 

$

1.43 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The effect of dilutive securities for the three months ended September 30, 2015 and 2014 excludes an aggregate of 11,871 and 11,245 weighted average common share equivalents, respectively, and 11,341 and 11,257 weighted average common share equivalents for the nine months ended September 30, 2015 and 2014, respectively, as their effect was anti-dilutive.

 

28

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

20.    Commitments and Contingencies

 

Insurance 

 

We maintain general liability insurance with limits of $300,000,000 per occurrence and all risk property and rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as floods.  Our California properties have earthquake insurance with coverage of $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $180,000,000 annual aggregate. We maintain coverage for terrorism acts with limits of $4.0 billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2020.

 

Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for NBCR acts.  Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC.  For NBCR acts, PPIC is responsible for a deductible of $2,480,000 and 15% of the balance of a covered loss (16% effective January 1, 2016) and the Federal government is responsible for the remaining 85% of a covered loss (84% effective January 1, 2016).  We are ultimately responsible for any loss incurred by PPIC.

 

We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism.  However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future.

 

Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured notes and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our ability to finance our properties and expand our portfolio.

 

 

Other Commitments and Contingencies

 

We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

 

Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.

 

Our mortgage loans are non-recourse to us.  However, in certain cases we have provided guarantees or master leased tenant space.  These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans.  As of September 30, 2015, the aggregate dollar amount of these guarantees and master leases is approximately $430,000,000.

 

At September 30, 2015, $40,647,000 of letters of credit were outstanding under one of our revolving credit facilities.  Our revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

 

As of September 30, 2015, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $76,000,000. 

29

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

21.    Segment Information

 

As a result of the spin-off of substantially all of our Retail Properties segment (see Note 8 – Dispositions), the remaining retail properties no longer meet the criteria to be a separate reportable segment.  In addition, as a result of our investment in Toys being reduced to zero, we suspended equity method accounting for our investment in Toys (see Note 7 - Investments in Partially Owned Entities) and the Toys segment no longer meets the criteria to be a separate reportable segment.  Accordingly, effective January 1, 2015, the Retail Properties segment and Toys have been reclassified to the Other segment.  We have also reclassified the prior period segment financial results to conform to the current period presentation.  Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three and nine months ended September 30, 2015 and 2014.  

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

  

(Amounts in thousands)

For the Three Months Ended September 30, 2015

 

 

  

 

Total

  

New York

  

Washington, DC

  

Other

  

Total revenues

 

$

 627,596 

  

$

 429,433 

  

$

 132,704 

  

$

 65,459 

  

Total expenses

 

 

 436,156 

  

 

 263,805 

  

 

 102,114 

  

 

 70,237 

  

Operating income (loss)

 

 

 191,440 

  

 

 165,628 

  

 

 30,590 

  

 

 (4,778)

  

(Loss) income from partially owned entities

 

 

 (325)

  

 

 4,010 

  

 

 (1,909)

  

 

 (2,426)

  

Income from real estate fund investments

 

 

 1,665 

  

 

 -   

  

 

 -   

  

 

 1,665 

  

Interest and other investment income, net

 

 

 3,160 

  

 

 1,888 

  

 

 34 

  

 

 1,238 

  

Interest and debt expense

 

 

 (95,344)

  

 

 (50,480)

  

 

 (16,580)

  

 

 (28,284)

  

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

 103,037 

  

 

 -   

  

 

 102,404 

  

 

 633 

  

Income (loss) before income taxes

 

 

 203,633 

  

 

 121,046 

  

 

 114,539 

  

 

 (31,952)

  

Income tax expense

 

 

 (2,856)

  

 

 (1,147)

  

 

 (287)

  

 

 (1,422)

  

Income (loss) from continuing operations

 

 

 200,777 

  

 

 119,899 

  

 

 114,252 

  

 

 (33,374)

  

Income from discontinued operations

 

 

 34,463 

  

 

 -   

  

 

 -   

  

 

 34,463 

  

Net income

 

 

 235,240 

  

 

 119,899 

  

 

 114,252 

  

 

 1,089 

  

Less net income attributable to noncontrolling interests

 

 

 (16,006)

  

 

 (2,582)

  

 

 -   

  

 

 (13,424)

  

Net income (loss) attributable to Vornado

 

 

 219,234 

  

 

 117,317 

  

 

 114,252 

  

 

 (12,335)

  

Interest and debt expense(2)

 

 

 118,977 

  

 

 64,653 

  

 

 20,010 

  

 

 34,314 

  

Depreciation and amortization(2)

 

 

 174,209 

  

 

 99,206 

  

 

 48,132 

  

 

 26,871 

  

Income tax expense(2)

 

 

 3,043 

  

 

 1,214 

  

 

 294 

  

 

 1,535 

  

EBITDA(1)

 

$

 515,463 

  

$

 282,390 

 (3)

$

 182,688 

 (4)

$

 50,385 

 (5)

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended September 30, 2014

 

 

  

 

Total

  

New York

  

Washington, DC

  

Other

  

Total revenues

 

$

 578,710 

  

$

 383,828 

  

$

 133,541 

  

$

 61,341 

  

Total expenses

 

 

 396,571 

  

 

 238,153 

  

 

 88,375 

  

 

 70,043 

  

Operating income (loss)

 

 

 182,139 

  

 

 145,675 

  

 

 45,166 

  

 

 (8,702)

  

(Loss) income from partially owned entities

 

 

 (26,034)

  

 

 5,810 

  

 

 (1,411)

  

 

 (30,433)

  

Income from real estate fund investments

 

 

 24,160 

  

 

 -   

  

 

 -   

  

 

 24,160 

  

Interest and other investment income, net

 

 

 7,568 

  

 

1,834 

  

 

15 

  

 

5,719 

  

Interest and debt expense

 

 

 (100,817)

  

 

 (43,061)

  

 

 (18,685)

  

 

 (39,071)

  

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

 2,665 

  

 

 -   

  

 

 -   

  

 

 2,665 

  

Income (loss) before income taxes

 

 

 89,681 

  

 

 110,258 

  

 

 25,085 

  

 

 (45,662)

  

Income tax expense

 

 

 (2,652)

  

 

 (802)

  

 

 (130)

  

 

 (1,720)

  

Income (loss) from continuing operations

 

 

 87,029 

  

 

 109,456 

  

 

 24,955 

  

 

 (47,382)

  

Income from discontinued operations

 

 

 82,168 

  

 

 5,615 

  

 

 -   

  

 

 76,553 

  

Net income

 

 

 169,197 

  

 

 115,071 

  

 

 24,955 

  

 

 29,171 

  

Less net income attributable to noncontrolling interests

 

 

 (17,673)

  

 

 (2,690)

  

 

 -   

  

 

 (14,983)

  

Net income attributable to Vornado

 

 

 151,524 

  

 

 112,381 

  

 

 24,955 

  

 

 14,188 

  

Interest and debt expense(2)

 

 

 160,252 

  

 

 58,010 

  

 

 22,208 

  

 

 80,034 

  

Depreciation and amortization(2)

 

 

 160,270 

  

 

 79,446 

  

 

 36,411 

  

 

 44,413 

  

Income tax expense (2)

 

 

 2,232 

  

 

 746 

  

 

 145 

  

 

 1,341 

  

EBITDA(1)

 

$

 474,278 

  

$

 250,583 

 (3)

$

 83,719 

 (4)

$

 139,976 

 (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on page 32.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

21.    Segment Information – continued

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Nine Months Ended September 30, 2015

 

 

  

 

Total

  

New York

  

Washington, DC

  

Other

  

Total revenues

 

$

 1,850,686 

  

$

 1,243,208 

  

$

 401,528 

  

$

 205,950 

  

Total expenses

 

 

 1,298,141 

  

 

 766,863 

  

 

 293,772 

  

 

 237,506 

  

Operating income (loss)

 

 

 552,545 

  

 

 476,345 

  

 

 107,756 

  

 

 (31,556)

  

(Loss) income from partially owned entities

 

 

 (8,709)

  

 

 1,523 

  

 

 (3,583)

  

 

 (6,649)

  

Income from real estate fund investments

 

 

 52,122 

  

 

 -   

  

 

 -   

  

 

 52,122 

  

Interest and other investment income, net

 

 

 19,618 

  

 

 5,642 

  

 

 60 

  

 

 13,916 

  

Interest and debt expense

 

 

 (279,110)

  

 

 (143,004)

  

 

 (52,223)

  

 

 (83,883)

  

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

 104,897 

  

 

 -   

  

 

 102,404 

  

 

 2,493 

  

Income (loss) before income taxes

 

 

 441,363 

  

 

 340,506 

  

 

 154,414 

  

 

 (53,557)

  

Income tax benefit (expense)

 

 

 84,245 

  

 

 (3,185)

  

 

 (79)

  

 

 87,509 

  

Income from continuing operations

 

 

 525,608 

  

 

 337,321 

  

 

 154,335 

  

 

 33,952 

  

Income from discontinued operations

 

 

 50,278 

  

 

 -   

  

 

 -   

  

 

 50,278 

  

Net income

 

 

 575,886 

  

 

 337,321 

  

 

 154,335 

  

 

 84,230 

  

Less net income attributable to noncontrolling interests

 

 

 (66,559)

  

 

 (6,640)

  

 

 -   

  

 

 (59,919)

  

Net income attributable to Vornado

 

 

 509,327 

  

 

 330,681 

  

 

 154,335 

  

 

 24,311 

  

Interest and debt expense(2)

 

 

 348,725 

  

 

 184,377 

  

 

 62,413 

  

 

 101,935 

  

Depreciation and amortization(2)

 

 

 493,904 

  

 

 288,897 

  

 

 136,687 

  

 

 68,320 

  

Income tax (benefit) expense (2)

 

 

 (85,349)

  

 

 3,368 

  

 

 (1,856)

  

 

 (86,861)

  

EBITDA(1)

 

$

 1,266,607 

  

$

 807,323 

 (3)

$

 351,579 

 (4)

$

 107,705 

 (5)

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

  

(Amounts in thousands)

 

For the Nine Months Ended September 30, 2014

 

 

  

 

Total

  

New York

  

Washington, DC

  

Other

  

Total revenues

 

$

 1,715,502 

  

$

 1,120,686 

  

$

 403,645 

  

$

 191,171 

  

Total expenses

 

 

 1,198,854 

  

 

 702,727 

  

 

 265,299 

  

 

 230,828 

  

Operating income (loss)

 

 

 516,648 

  

 

 417,959 

  

 

 138,346 

  

 

 (39,657)

  

(Loss) income from partially owned entities

 

 

 (78,676)

  

 

 16,372 

  

 

 (4,925)

  

 

 (90,123)

  

Income from real estate fund investments

 

 

 142,418 

  

 

 -   

  

 

 -   

  

 

 142,418 

  

Interest and other investment income, net

 

 

 28,814 

  

 

 4,889 

  

 

 93 

  

 

 23,832 

  

Interest and debt expense

 

 

 (301,042)

  

 

 (134,970)

  

 

 (56,692)

  

 

 (109,380)

  

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

 13,205 

  

 

 -   

  

 

 -   

  

 

 13,205 

  

Income (loss) before income taxes

 

 

 321,367 

  

 

 304,250 

  

 

 76,822 

  

 

 (59,705)

  

Income tax expense

 

 

 (6,783)

  

 

 (2,997)

  

 

 (46)

  

 

 (3,740)

  

Income (loss) from continuing operations

 

 

 314,584 

  

 

 301,253 

  

 

 76,776 

  

 

 (63,445)

  

Income from discontinued operations

 118,456 

  

 

 17,401 

  

 

 -   

  

 

 101,055 

  

Net income

 

 

 433,040 

  

 

 318,654 

  

 

 76,776 

  

 

 37,610 

  

Less net income attributable to noncontrolling interests

 

 

 (101,791)

  

 

 (7,203)

  

 

 -   

  

 

 (94,588)

  

Net income (loss) attributable to Vornado

 

 

 331,249 

  

 

 311,451 

  

 

 76,776 

  

 

 (56,978)

  

Interest and debt expense(2)

 

 

 510,724 

  

 

 180,150 

  

 

 67,469 

  

 

 263,105 

  

Depreciation and amortization(2)

 

 

 530,052 

  

 

 241,040 

  

 

 108,367 

  

 

 180,645 

  

Income tax expense(2)

 

 

 21,489 

  

 

 3,069 

  

 

 88 

  

 

 18,332 

  

EBITDA(1)

 

$

 1,393,514 

  

$

 735,710 

 (3)

$

 252,700 

 (4)

$

 405,104 

 (5)

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on the following page.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

21.    Segment Information – continued

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to preceding tabular information:

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

(1)

EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization."  We consider EBITDA a supplemental non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

Interest and debt expense, depreciation and amortization and income tax expense (benefit) in the reconciliation of net income to EBITDA includes our share of these items from partially owned entities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

The elements of "New York" EBITDA are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

 

 

  

 

September 30,

 

September 30,

 

 

 

 

 

  

 

2015 

 

2014 

 

2015 

 

2014 

 

Office

 

$

 166,663 

 

$

 159,568 

 

$

 496,762 

 

$

 480,280 

 

Retail

 

 

 97,604 

 

 

 71,327 

 

 

 265,060 

 

 

 205,469 

 

Alexander's

 10,502 

 

 

 10,387 

 

 

 31,150 

 

 

 31,088 

 

Hotel Pennsylvania

 

 

 7,621 

 

 

 9,301 

 

 

 14,351 

 

 

 18,873 

 

 

Total New York

 

$

 282,390 

 

$

 250,583 

 

$

 807,323 

 

$

 735,710 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4)

The elements of "Washington, DC" EBITDA are summarized below.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

 

 

  

 

September 30,

 

September 30,

 

 

 

 

 

  

 

2015 

 

2014 

 

2015 

 

2014 

 

Office, excluding the Skyline properties  

 

$

 64,733 

 

$

 65,904 

 

$

 200,631 

 

$

 200,218 

 

Gain on sale of 1750 Pennsylvania Avenue

 

 

 102,404 

 

 

 -   

 

 

 102,404 

 

 

 -   

 

Skyline properties

 

 

 5,998 

 

 

 7,698 

 

 

 19,037 

 

 

 21,270 

 

 

Total Office

 

 

 173,135 

 

 

 73,602 

 

 

 322,072 

 

 

 221,488 

 

Residential

 

 

 9,553 

 

 

 10,117 

 

 

 29,507 

 

 

 31,212 

 

 

Total Washington, DC

 

$

 182,688 

 

$

 83,719 

 

$

 351,579 

 

$

 252,700 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32

 


 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

21.    Segment Information – continued

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

Notes to preceding tabular information - continued:

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5)

The elements of "Other" EBITDA are summarized below.

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

 

 

 

  

September 30,

 

September 30,

 

 

 

 

 

 

  

2015 

 

2014 

 

2015 

 

2014 

 

Our share of real estate fund investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before net realized/unrealized (losses) gains

$

 2,594 

 

$

 2,051 

 

$

 6,879 

 

$

 6,668 

 

 

Net realized/unrealized (losses) gains on investments

 

 (922)

 

 

 5,083 

 

 

 9,542 

 

 

 32,890 

 

 

Carried interest  

 

 (49)

 

 

 8,438 

 

 

 6,248 

 

 

 21,643 

 

Total

 

 1,623 

 

 

 15,572 

 

 

 22,669 

 

 

 61,201 

 

The Mart and trade shows

 

 19,044 

 

 

 19,497 

 

 

 62,229 

 

 

 61,038 

 

555 California Street

 

 13,005 

 

 

 11,994 

 

 

 38,237 

 

 

 35,566 

 

Our share of Toys(a)

 

 46 

 

 

 12,440 

 

 

 2,000 

 

 

 103,026 

 

India real estate ventures

 

 13 

 

 

 2,651 

 

 

 2,229 

 

 

 4,574 

 

Other investments

 

 11,558 

 

 

 4,372 

 

 

 25,787 

 

 

 13,594 

 

  

 

 45,289 

 

 

 66,526 

 

 

 153,151 

 

 

 278,999 

 

Corporate general and administrative expenses(b) (c)

 

 (22,341)

 

 

 (22,948)

 

 

 (82,043)

 

 

 (71,952)

 

Investment income and other, net(b)

 

 5,952 

 

 

 6,659 

 

 

 21,275 

 

 

 22,764 

 

Gains on sale of partially owned entities and other

 33,153 

 

 

 -   

 

 

 37,666 

 

 

 -   

 

UE and residual retail properties discontinued operations(d)

 

 2,516 

 

 

 106,602 

 

 

 26,313 

 

 

 192,532 

 

Acquisition and transaction related costs

 

 (1,518)

 

 

 (1,277)

 

 

 (7,560)

 

 

 (3,629)

 

Net gain on sale of residential condominiums and a land parcel

 633 

 

 

 2,665 

 

 

 2,493 

 

 

 13,205 

 

Impairment loss and loan loss reserve on investment in Suffolk Downs

 

 (595)

 

 

 (10,263)

 

 

 (595)

 

 

 (10,263)

 

Our share of impairment losses on India real estate ventures

 

 -   

 

 

 -   

 

 

 (14,806)

 

 

 -   

 

Net income attributable to noncontrolling interests in

 

 

 

 

 

 

 

 

 

 

 

 

the Operating Partnership

 

 (12,704)

 

 

 (7,988)

 

 

 (28,189)

 

 

 (16,552)

 

 

 

 

 

 

  

$

 50,385 

 

$

 139,976 

 

$

 107,705 

 

$

 405,104 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

As a result of our investment being reduced to zero, we suspended equity method accounting in the third quarter of 2014 (see Note 7 - Investments in Partially Owned Entities).  The nine months ended September 30, 2014 includes an impairment loss of $75,196.

 

(b)

The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred compensation plan of $2,577 and $1,352 for the three months ended September 30, 2015 and 2014, respectively, and $327 and $8,132 for the nine months ended September 30, 2015 and 2014, respectively.

 

(c)

The nine months ended September 30, 2015 includes $7,084 from the acceleration of the recognition of compensation expense related to 2013-2015 Out-Performance Plans due to the modification of the vesting criteria of awards such that they will fully vest at age 65.  The accelerated expense will result in lower general and administrative expense for the remainder of 2015 of $867 and $6,217 thereafter. 

 

(d)

The three months ended September 30, 2014 and the nine months ended September 30, 2015 and 2014, includes $5,828, $22,972 and $9,343, respectively, of transaction costs related to the spin-off of our strip shopping centers and malls (see Note 1 - Organization).

33

 


 
 

VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

22.    Subsequent Events

 

 

20 Broad Street

 

On October 19, 2015, we entered into an agreement to sell our leasehold interest in 20 Broad Street, a 473,000 square foot office building in Manhattan.  We ground lease this property, which is contiguous to the New York Stock Exchange (“NYSE”), from the NYSE, who is also the major tenant in the building.  By agreement, we early terminated the NYSE space lease which was scheduled to expire in June 2016.  The aggregate consideration for the sale of the leasehold and the early termination of the NYSE lease is $200,000,000 or $423 per square foot.  The total income from this transaction is approximately $156,000,000 comprised of $141,000,000 from the gain on sale and $15,000,000 of lease termination income.  The sale, which is subject to customary closing conditions, is expected to be completed in the fourth quarter of 2015.

 

Unsecured Term Loan Facility

 

On October 30, 2015, we entered into an unsecured delayed-draw term loan facility in the maximum amount of $750,000,000.  The facility matures in October 2018 with two one-year extension options.  The interest rate is LIBOR plus 115 basis points with a fee of 20 basis points per annum on the unused portion. At closing, we drew $187,500,000. The facility provides that the maximum amount available is twice the amount outstanding on April 29, 2016, limited to $750,000,000, and all draws must be made by October 2017.

34

 


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Shareholders and Board of Trustees

Vornado Realty Trust

New York, New York

 

We have reviewed the accompanying consolidated balance sheet of Vornado Realty Trust (the “Company”) as of September 30, 2015, and the related consolidated statements of income and comprehensive income for the three month and nine month periods ended September 30, 2015 and 2014 and changes in equity and cash flows for the nine month periods ended September 30, 2015 and 2014.  These interim financial statements are the responsibility of the Company’s management.

 

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

 

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Vornado Realty Trust as of December 31, 2014, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the year then ended (not presented herein); and in our report dated February 17, 2015, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2014 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

/s/ DELOITTE & TOUCHE LLP

 

Parsippany, New Jersey

November 2, 2015

35

 


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

Certain statements contained in this Quarterly Report constitute forward‑looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10‑Q.  We also note the following forward-looking statements: in the case of our development and redevelopment projects, the estimated completion date, estimated project cost and cost to complete; and estimates of future capital expenditures, dividends to common and preferred shareholders and operating partnership distributions.  Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2014.  For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our consolidated financial statements for the three and nine months ended September 30, 2015.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.  The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the operating results for the full year.  Certain prior year balances have been reclassified in order to conform to current year presentation.

36

 


 
 

Overview

 

Business Objective and Operating Strategy

Our business objective is to maximize shareholder value, which we measure by the total return provided to our shareholders. Below is a table comparing our performance to the FTSE NAREIT Office REIT Index (“Office REIT”) and the Morgan Stanley REIT Index (“RMS”) for the following periods ended September 30, 2015.

 

 

 

 

Total Return(1)

 

 

 

 

Vornado

 

Office REIT

 

RMS

 

 

 

Three-month

 (4.1%)

 

 (1.2%)

 

 2.1% 

 

 

 

Nine-month

 (13.6%)

 

 (6.4%)

 

 (4.3%)

 

 

 

One-year

 2.4% 

 

 5.5% 

 

 9.5% 

 

 

 

Three-year

 36.4% 

 

 24.4% 

 

 31.1% 

 

 

 

Five-year

 38.0% 

 

 46.1% 

 

 75.9% 

 

 

 

Ten-year

 70.3% 

 

 56.2% 

 

 93.1% 

 

 

 

 

 

 

 

 

  

 

 

 

(1)

 Past performance is not necessarily indicative of future performance.

 

We intend to achieve our business objective by continuing to pursue our investment philosophy and executing our operating strategies through:

 

·      Maintaining a superior team of operating and investment professionals and an entrepreneurial spirit

·      Investing in properties in select markets, such as New York City and Washington, DC, where we believe there is a high likelihood of capital appreciation

·      Acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents

·      Investing in retail properties in select under-stored locations such as the New York City metropolitan area

·      Developing and redeveloping existing properties to increase returns and maximize value

·      Investing in operating companies that have a significant real estate component

 

We expect to finance our growth, acquisitions and investments using internally generated funds, proceeds from asset sales and by accessing the public and private capital markets.  We may also offer Vornado common or preferred shares or Operating Partnership units in exchange for property and may repurchase or otherwise reacquire these securities in the future.

 

We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition are rents charged, sales prices, attractiveness of location, the quality of the property and the breadth and the quality of services provided. Our success depends upon, among other factors, trends of the global, national, regional and local economies, the financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population and employment trends.  See “Item 1A. Risk Factors” in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2014, for additional information regarding these factors.

 

37

 


 

Overview – continued

 

 

Quarter Ended September 30, 2015 Financial Results Summary

 

Net income attributable to common shareholders for the quarter ended September 30, 2015 was $198,870,000, or $1.05 per diluted share, compared to $131,159,000, or $0.69 per diluted share, for the prior year’s quarter.  Net income for the quarters ended September 30, 2015 and 2014 include $135,557,000 and $57,796,000, respectively, of net gains on sale of real estate. Net income for the quarter ended September 30, 2015 also includes $2,313,000 of real estate impairment losses.  In addition, the quarters ended September 30, 2015 and 2014 include certain other items that affect comparability, which are listed in the table below.  The aggregate of net gains on sale of real estate, real estate impairment losses and the items in the table below, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders for the quarters ended September 30, 2015 and 2014 by $125,003,000, or $0.66 per diluted share, and $51,518,000, or $0.27 per diluted share, respectively.

 

Funds From Operations attributable to common shareholders plus assumed conversions (“FFO”) for the quarter ended September 30, 2015 was $236,039,000, or $1.25 per diluted share, compared to $217,362,000, or $1.15 per diluted share, for the prior year’s quarter.  FFO for the quarters ended September 30, 2015 and 2014 include certain items that affect comparability, which are listed in the table below.  The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO for the quarters ended September 30, 2015 and 2014 by $949,000, or $0.01 per diluted share, and $13,192,000, or $0.07 per diluted share, respectively.

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended September 30,

 

 

 

2015 

 

2014 

Items that affect comparability income (expense):

 

 

 

 

 

 

FFO from discontinued operations and sold properties (including UE spin-off related

 

 

 

 

 

 

 

costs of $5,828 in 2014)

$

 3,671 

 

$

 41,240 

 

Acquisition and transaction related costs

 

 (1,518)

 

 

 (1,277)

 

Impairment loss and loan loss reserve on investment in Suffolk Downs

 

 (595)

 

 

 (10,263)

 

Toys FFO (negative FFO)

 

 46 

 

 

 (18,035)

 

Other, net

 

 (593)

 

 

 2,341 

 

 

 

 

 1,011 

 

 

 14,006 

Noncontrolling interests' share of above adjustments

 

 (62)

 

 

 (814)

Items that affect comparability, net

$

 949 

 

$

 13,192 

 

The percentage increase (decrease) in same store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)  and cash basis same store EBITDA of our operating segments for the quarter ended September 30, 2015 over the quarter ended September 30, 2014 and the trailing quarter ended June 30, 2015 are summarized below.

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

Washington, DC

 

 

 

Same Store EBITDA:

 

 

 

 

  

 

 

 

 

 

 

 

 

September 30, 2015 vs. September 30, 2014

 

 

 

  

 

 

 

 

 

 

 

 

 

Same store EBITDA

 

1.4 

%

 (1)

 

(4.5

%)

  

 

 

 

 

 

Cash basis same store EBITDA

 

(0.3

%)

 (1)

 

(9.4

%)

  

 

 

 

 

September 30, 2015 vs. June 30, 2015

 

 

 

  

 

 

 

 

 

 

 

 

 

Same store EBITDA

 

(0.9

%)

 (2)

 

(5.4

%)

  

 

 

 

 

 

Cash basis same store EBITDA

 

(3.5

%)

 (2)

 

(7.2

%)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excluding Hotel Pennsylvania, same store EBITDA increased by 2.2% and by 0.5% on a cash basis.

 

 

(2)

Excluding Hotel Pennsylvania, same store EBITDA decreased by 0.4% and by 3.0% on a cash basis.

 

 

38

 


 

Overview – continued

 

 

Nine Months Ended September 30, 2015 Financial Results Summary

 

Net income attributable to common shareholders for the nine months ended September 30, 2015 was $449,114,000, or $2.37 per diluted share, compared to $270,150,000, or $1.43 per diluted share, for the nine months ended September 30, 2014.  Net income for the nine months ended September 30, 2015 and 2014 include $150,937,000 and $57,796,000, respectively, of net gains on sale of real estate, and $17,375,000 and $20,842,000, respectively, of real estate impairment losses.  In addition, the nine months ended September 30, 2015 and 2014 include certain items that affect comparability, which are listed in the table below.  The aggregate of real estate impairment losses, net gains on sale of real estate and the items in the table below, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders for the nine months ended September 30, 2015 and 2014 by $219,207,000, or $1.16 per diluted share, and $36,090,000, or $0.19 per diluted share, respectively.

 

FFO for the nine months ended September 30, 2015 was $779,506,000, or $4.11 per diluted share, compared to $684,247,000, or $3.63 per diluted share, for the nine months ended September 30, 2014.  FFO for the nine months ended September 30, 2015 and 2014 include certain items that affect comparability, which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO for the nine months ended September 30, 2015 and 2014 by $94,683,000, or $0.5 per diluted share, and $63,506,000, or $0.34 per diluted share, respectively.

 

(Amounts in thousands)

For the Nine Months Ended September 30,

 

 

 

2015 

 

2014 

Items that affect comparability income (expense):

 

 

 

 

 

 

Reversal of allowance for deferred tax assets (re: taxable REIT subsidiary's

 

 

 

 

 

 

 

ability to utilize NOLs)

$

 90,030 

 

$

 -   

 

FFO from discontinued operations and sold properties (including UE spin-off related

 

 

 

 

 

 

 

costs of $22,972 and $9,343, respectively)

 

 16,891 

 

 

 134,668 

 

Acquisition and transaction related costs

 

 (7,560)

 

 

 (3,629)

 

Our share of impairment loss on India real estate venture's non-depreciable real estate

 

 (4,502)

 

 

 -   

 

Net gain on sale of residential condominiums and a land parcel in 2014

 

 2,493 

 

 

 13,205 

 

Toys FFO (negative FFO) (including impairment losses of $75,196 in 2014)

 

 2,000 

 

 

 (60,630)

 

Impairment loss and loan loss reserve on investment in Suffolk Downs

 

 (595)

 

 

 (10,263)

 

Other, net

 

 1,928 

 

 

 (5,913)

 

 

 

 100,685 

 

 

 67,438 

Noncontrolling interests' share of above adjustments

 

 (6,002)

 

 

 (3,932)

Items that affect comparability, net

$

 94,683 

 

$

 63,506 

 

The percentage increase (decrease) in same store EBITDA and cash basis same store EBITDA of our operating segments for the nine months ended September 30, 2015 over the nine months ended September 30, 2014 is summarized below.

 

 

 

 

 

 

 

New York

 

 

Washington, DC

 

 

 

Same Store EBITDA:

 

 

 

 

  

 

 

 

 

 

 

 

 

 

September 30, 2015 vs. September 30, 2014

 

 

  

 

 

 

 

 

 

 

 

 

 

Same store EBITDA

2.0 

%

 (1)

 

 

(1.4

%)

  

 

 

 

 

 

Cash basis same store EBITDA

2.4 

%

 (1)

 

 

(6.8

%)

  

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

(1)

Excluding Hotel Pennsylvania, same store EBITDA increased by 2.7% and by 3.1% on a cash basis.

 

 

 

Calculations of same store EBITDA, reconciliations of our net income to EBITDA and FFO and the reasons we consider these non-GAAP financial measures useful are provided in the following pages of Management’s Discussion and Analysis of the Financial Condition and Results of Operations.

 

39

 


 

Overview – continued

 

2015 Acquisitions

 

On January 20, 2015, we and one of our real estate fund’s limited partners co-invested with the Fund to buy out the Fund’s joint venture partner’s 57% interest in the Crowne Plaza Times Square Hotel.  The purchase price for the 57% interest was approximately $95,000,000 (our share $39,000,000) which valued the property at approximately $480,000,000.  The property is encumbered by a $310,000,000 mortgage loan bearing interest at LIBOR plus 2.80% which matures in December 2018 with a one-year extension option.  Our aggregate ownership interest in the property increased to 33% from 11%.

 

On March 18, 2015, we acquired the Center Building, a 437,000 square foot office building, located at 33-00 Northern Boulevard in Long Island City, New York, for $142,000,000, including the assumption of an existing $62,000,000, 4.43% mortgage maturing in October 2018.

 

On June 2, 2015, we completed the acquisition of 150 West 34th Street, a 78,000 square foot retail property leased to Old Navy through May 2019, and 226,000 square feet of additional zoning air rights, for approximately $355,000,000.  At closing we completed a $205,000,000 financing of the property. 

 

On June 24, 2015, we entered into a joint venture, in which we own a 55% interest, to develop a 173,000 square foot Class-A office building, located along the western edge of the High Line at 512 West 22nd Street.  The development cost of this project is approximately $235,000,000.  The development is expected to commence during the fourth quarter of 2015 and be completed in 2017.    

 

On July 31, 2015, we acquired 260 Eleventh Avenue, a 235,000 square foot office property leased to the City of New York through 2021 with two five-year renewal options, a 10,000 square foot parking lot and additional air rights.  The transaction is structured as a 99-year ground lease with an option to purchase the land for $110,000,000.  The $3,900,000 annual ground rent and the purchase option price escalate annually at the lesser of 1.5% or CPI.  The buildings were purchased for 813,900 newly issued Vornado Operating Partnership units valued at approximately $80,000,000.

 

On September 25, 2015, we acquired 265 West 34th Street, a 1,700 square foot retail property and 15,200 square feet of additional zoning air rights, for approximately $28,500,000.        

 

 

2015 Dispositions

 

On January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers, three malls, a warehouse park and $225,000,000 of cash to Urban Edge Properties (“UE”) (NYSE: UE).  As part of this transaction, we retained 5,717,184 UE operating partnership units (5.4% ownership interest).  We are providing transition services to UE for an initial period of up to two years, including information technology, human resources, tax and financial reporting. UE is providing us with leasing and property management services for (i) certain small retail properties that we plan to sell, and (ii) our affiliate, Alexander’s, Inc. (NYSE: ALX) Rego Park retail assets. Steven Roth, our Chairman and Chief Executive Officer is a member of the Board of Trustees of UE.  The spin-off distribution was effected by Vornado distributing one UE common share for every two Vornado common shares.

 

On March 13, 2015, we sold our Geary Street, CA lease for $34,189,000, which resulted in a net gain of $21,376,000.

 

On March 25, 2015, the Fund completed the sale of 520 Broadway in Santa Monica, CA for $91,650,000.  The Fund realized a $23,768,000 net gain over the holding period.

 

On March 31, 2015, we transferred the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to PREIT Associates, L.P., which is the operating partnership of Pennsylvania Real Estate Investment Trust (NYSE: PEI) (collectively, “PREIT”).  The financial statement gain was $7,823,000, of which $7,192,000 was recognized in the first quarter of 2015 and the remaining $631,000 was deferred based on our ownership interest in PREIT.  In the first quarter of 2014, we recorded a non-cash impairment loss of $20,000,000 on Springfield Town Center which is included in “income from discontinued operations” on our consolidated statements of income.

 

On August 6, 2015, we sold our 50% interest in the Monmouth Mall in Eatontown, NJ to our joint venture partner for $38,000,000, valuing the property at approximately $229,000,000, which resulted in a net gain of $33,153,000.

 

On September 9, 2015, we completed the sale of 1750 Pennsylvania Avenue, NW, a 278,000 square foot office building in Washington, DC for $182,000,000, resulting in a net gain of approximately $102,000,000 which is included in “net gain on disposition of wholly owned and partially owned assets” on our consolidated statement of income.  The tax gain of approximately $137,000,000 was deferred as part of a like-kind exchange.  We are managing the property on behalf of the new owner.

 

40

 


 
 

Overview – continued

 

2015 Dispositions – continued

 

On October 19, 2015, we entered into an agreement to sell our leasehold interest in 20 Broad Street, a 473,000 square foot office building in Manhattan.  We ground lease this property, which is contiguous to the New York Stock Exchange (“NYSE”), from the NYSE, who is also the major tenant in the building.  By agreement, we early terminated the NYSE space lease which was scheduled to expire in June 2016.  The aggregate consideration for the sale of the leasehold and the early termination of the NYSE lease is $200,000,000 or $423 per square foot.  The total income from this transaction is approximately $156,000,000 comprised of $141,000,000 from the gain on sale and $15,000,000 of lease termination income.  The sale, which is subject to customary closing conditions, is expected to be completed in the fourth quarter of 2015.

 

We also sold five residual retail properties, in separate transactions, for an aggregate of $10,731,000, which resulted in net gains of $3,675,000.           

 

2015 Financings

 

On January 1, 2015, we redeemed all of the $500,000,000 principal amount of our outstanding 4.25% senior unsecured notes, which were scheduled to mature on April 1, 2015, at a redemption price of 100% of the principal amount plus accrued interest through December 31, 2014.

 

On April 1, 2015, we completed a $308,000,000 refinancing of RiverHouse Apartments, a three building, 1,670 unit rental complex located in Arlington, VA.  The loan is interest-only at LIBOR plus 1.28% and matures in 2025.  We realized net proceeds of approximately $43,000,000.  The property was previously encumbered by a 5.43%, $195,000,000 mortgage maturing in April 2015 and a $64,000,000 mortgage at LIBOR plus 1.53% maturing in 2018. 

 

On June 2, 2015, we completed a $205,000,000 financing in connection with the acquisition of 150 West 34th Street.  The loan bears interest at LIBOR plus 2.25% and matures in 2018 with two one-year extension options. 

 

On July 28, 2015, we completed a $580,000,000 refinancing of 100 West 33rd Street, a 1.1 million square foot property comprised of 851,000 square feet of office space and the 256,000 square foot Manhattan Mall.  The loan is interest only at LIBOR plus 1.65% and matures in July 2020.  We realized net proceeds of approximately $242,000,000.

 

On September 22, 2015, we upsized the loan on our 220 Central Park South development by $350,000,000 to $950,000,000.  The interest rate on the loan is LIBOR plus 2.00% and the final maturity date is 2020.  In connection with the upsizing, the standby commitment for a $500,000,000 mezzanine loan for this development has been terminated by payment of a $15,000,000 contractual termination fee, which was capitalized as a component of “development costs and construction in progress” on our consolidated balance sheet as of September 30, 2015.

 

On October 30, 2015, we entered into an unsecured delayed-draw term loan facility in the maximum amount of $750,000,000.  The facility matures in October 2018 with two one-year extension options.  The interest rate is LIBOR plus 115 basis points with a fee of 20 basis points per annum on the unused portion. At closing, we drew $187,500,000. The facility provides that the maximum amount available is twice the amount outstanding on April 29, 2016, limited to $750,000,000, and all draws must be made by October 2017.

 

Recently Issued Accounting Literature

 

In April 2014, the Financial Accounting Standards Board (“FASB”) issued an update (“ASU 2014-08”) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity to ASC Topic 205, Presentation of Financial Statements and ASC Topic 360, Property Plant and Equipment. Under ASU 2014-08, only disposals that represent a strategic shift that has (or will have) a major effect on the entity’s results and operations would qualify as discontinued operations. In addition, ASU 2014-08 expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of individually significant components that do not meet the definition of discontinued operations. ASU 2014-08 is effective for interim and annual reporting periods in fiscal years that began after December 15, 2014. Upon adoption of this standard on January 1, 2015, individual properties sold in the ordinary course of business are not expected to qualify as discontinued operations. The financial results of UE and certain other retail assets are reflected in our consolidated financial statements as discontinued operations for all periods presented.

 

In May 2014, the FASB issued an update ("ASU 2014-09") establishing ASC Topic 606, Revenue from Contracts with Customers.  ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance.  ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.  ASU 2014-09 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017.  We are currently evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.

 

41

 


 
 

Overview – continued

 

Recently Issued Accounting Literature - continued

 

In June 2014, the FASB issued an update (“ASU 2014-12”) to ASC Topic 718, Compensation – Stock Compensation.  ASU 2014-12 requires an entity to treat performance targets that can be met after the requisite service period of a share based award has ended, as a performance condition that affects vesting.  ASU 2014-12 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015.  We are currently evaluating the impact of the adoption of ASU 2014-12 on our consolidated financial statements.

 

In February 2015, the FASB issued an update (“ASU 2015-02”) Amendments to the Consolidation Analysis to ASC Topic 810, Consolidation.  ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities.  Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with VIEs, and (iv) provide a scope exception for certain entities.  ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015.  We are currently evaluating the impact of the adoption of ASU 2015-02 on our consolidated financial statements. 

 

In April 2015, the FASB issued an update (“ASU 2015-03”) Simplifying the Presentation of Debt Issuance Costs to ASC Topic 835, Interest.  ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability to which they relate, consistent with debt discounts, as opposed to being presented as assets.  ASU 2015-03 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015.  The adoption of this update on January 1, 2016 will not have a material impact on our consolidated financial statements.

 

 

Critical Accounting Policies

 

A summary of our critical accounting policies is included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2014 in Management’s Discussion and Analysis of Financial Condition. Although there have been no significant changes during 2015, the following updates have been made to our policies.

 

Condominium Units Held For Sale:  Pursuant to ASC 605-35-25-88, Revenue Recognition: Completed Contract Method, revenue from condominium unit sales is recognized upon closing of the sale, as all conditions for full profit recognition have not been met until that time.  We use the relative sales value method to allocate costs to individual condominium units. 

 

We are constructing a residential condominium tower containing 392,000 salable square feet on our 220 Central Park South development site. 

 

Income Taxes:  We operate in a manner intended to enable us to continue to qualify as a REIT under Sections 856‑860 of the Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. We distribute to our shareholders 100% of our taxable income and therefore, no provision for Federal income taxes is required.

 

We have elected to treat certain consolidated subsidiaries, and may in the future elect to treat newly formed subsidiaries, as taxable REIT subsidiaries pursuant to an amendment to the Internal Revenue Code that became effective January 1, 2001.  Taxable REIT subsidiaries may participate in non-real estate related activities and/or perform non-customary services for tenants and are subject to Federal and State income tax at regular corporate tax rates.

 

At September 30, 2015 and December 31, 2014, our taxable REIT subsidiaries had deferred tax assets related to net operating loss carryforwards of $95,419,000 and $94,100,000, respectively, which are included in “other assets” on our consolidated balance sheets.  Prior to the quarter ended June 30, 2015, there was a full valuation allowance against these deferred tax assets because we had not determined that it is more-likely-than-not that we would use the net operating loss carryforwards to offset future taxable income.  Based upon residential condominium unit sales, among other factors, we have concluded that it is more-likely-than-not that we will generate sufficient taxable income to realize these deferred tax assets.  Accordingly, during the second quarter of 2015, we reversed $90,030,000 of the allowance for deferred tax assets and recognized an income tax benefit in our consolidated statements of income.

42

 


 
 

Overview - continued

 

Leasing Activity:

 

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

 

(Square feet in thousands)

 

New York

 

Washington, DC

  

 

 

 

 

 

 

 

 

Office

 

Retail

 

Office

  

Quarter Ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

Total square feet leased

 

 

 509 

 

 

 45 

 

 

 414 

  

 

Our share of square feet leased:

 

 

 371 

 

 

 45 

 

 

 405 

  

 

 

Initial rent (1)

 

$

 79.80 

 

$

 707.96 

 

$

 45.46 

  

 

 

Weighted average lease term (years)

 

 

 5.7 

 

 

 15.2 

 

 

 5.9 

  

 

 

Second generation relet space:

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

 

 334 

 

 

 44 

 

 

 331 

  

 

 

 

Cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial rent (1)

 

$

 78.61 

 

$

 722.36 

 

$

 46.32 

  

 

 

 

 

Prior escalated rent

 

$

 63.04 

 

$

 321.63 

 

$

 48.57 

  

 

 

 

 

Percentage increase (decrease)

 

 

 24.7% 

 

 

 124.6% 

 

 

 (4.6%)

  

 

 

 

GAAP basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent (2)

 

$

 77.76 

 

$

 783.69 

 

$

 43.03 

  

 

 

 

 

Prior straight-line rent

 

$

 62.00 

 

$

 274.10 

 

$

 46.56 

  

 

 

 

 

Percentage increase (decrease)

 

 

 25.4% 

 

 

 185.9% 

 

 

 (7.6%)

  

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

  

 

$

 42.07 

 

$

 777.37 

 

$

 36.10 

  

 

 

 

 

Per square foot per annum

  

 

$

 7.38 

 

$

 51.14 

 

$

 6.12 

  

 

 

 

 

     Percentage of initial rent

 

 

 9.2% 

 

 

 7.2% 

 

 

 13.5% 

  

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

Total square feet leased

 

 

 1,666 

 

 

 88 

 

 

 1,579 

  

 

 

Our share of square feet leased:

 

 

 1,282 

 

 

 79 

 

 

 1,492 

  

 

 

 

Initial rent (1)

 

$

 80.09 

 

$

 907.45 

 

$

 39.31 

  

 

 

 

Weighted average lease term (years)

 

 

 8.7 

 

 

 14.1 

 

 

 9.0 

  

 

 

 

Second generation relet space:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

 

 854 

 

 

 71 

 

 

 1,038 

  

 

 

 

 

Cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial rent (1)

 

$

 80.64 

 

$

 895.79 

 

$

 38.91 

 (3)

 

 

 

 

 

Prior escalated rent

 

$

 68.56 

 

$

 336.95 

 

$

 43.63 

 (3)

 

 

 

 

 

Percentage increase (decrease)

 

 

 17.6% 

 

 

 165.9% 

 

 

 (10.8%)

 (3)

 

 

 

 

GAAP basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent (2)

 

$

 78.58 

 

$

 1,051.09 

 

$

 36.45 

 (3)

 

 

 

 

 

Prior straight-line rent

 

$

 64.70 

 

$

 514.67 

 

$

 41.02 

 (3)

 

 

 

 

 

Percentage increase (decrease)

 

 

 21.5% 

 

 

 104.2% 

 

 

 (11.1%)

 (3)

 

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

  

 

$

 69.06 

 

$

 712.66 

 

$

 60.08 

  

 

 

 

 

 

Per square foot per annum

  

 

$

 7.94 

 

$

 50.54 

 

$

 6.68 

  

 

 

 

 

 

     Percentage of initial rent

 

 

 9.9% 

 

 

 5.6% 

 

 

 17.0% 

  

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Represents the cash basis weighted average starting rent per square foot, which is generally indicative of market rents.  Most leases include free rent and periodic step-ups in rent which are not included in the initial cash basis rent per square foot but are included in the GAAP basis straight-line rent per square foot.

(2)

Represents the GAAP basis weighted average rent per square foot that is recognized over the term of the respective leases, and includes the effect of free rent and periodic step-ups in rent.

(3)

Excluding 371 square feet of leasing activity with the U.S. Marshals Service (of which 293 square feet are second generation relet space), the initial rent and prior escalated rent on a cash basis was $41.63 and $43.45 per square foot, respectively (4.2% decrease), and the initial rent and prior escalated rent on a GAAP basis was $39.00 and $41.34 per square foot, respectively (5.7% decrease).

                                                                       

 

43

 


 
 

Overview - continued

 

 

 

 

 

 

 

 

 

 

 

 

 

Square footage (in service) and Occupancy as of September 30, 2015:

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

(Square feet in thousands)

 

  

 

 

Square Feet (in service)

 

 

  

 

 

 

 

 

Number of

 

Total

 

Our

 

 

  

 

 

 

 

 

Properties

 

Portfolio

 

Share

 

Occupancy %

New York:

 

  

 

 

 

 

 

 

 

  

 

Office

  

36 

 

 21,724 

 

 18,051 

 

96.2%

  

 

Retail

  

62 

 

 2,550 

 

 2,370 

 

96.3%

  

 

Alexander's

  

 

 2,178 

 

 706 

 

99.7%

  

 

Hotel Pennsylvania

  

 

 1,400 

 

 1,400 

 

 

  

 

Residential - 1,653 units

 

 1,521 

 

 761 

 

94.7%

  

 

 

 

 

 

 

 

 29,373 

 

 23,288 

 

96.2%

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Washington, DC:

 

  

 

 

 

 

 

 

 

  

 

Office, excluding the Skyline properties  

49 

 

 13,148 

 

 10,782 

 

89.8%

  

 

Skyline properties

  

 

 2,648 

 

 2,648 

 

51.0%

  

 

Total Office

  

57 

 

 15,796 

 

 13,430 

 

82.2%

  

 

Residential - 2,414 units

 

 2,597 

 

 2,455 

 

95.3%

  

 

Other

  

 

 555 

 

 555 

 

100.0%

  

 

 

 

 

 

 

 

 18,948 

 

 16,440 

 

84.7%

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

  

 

 

 

 

 

 

 

 

 

The Mart

 

 3,637 

 

 3,628 

 

98.4%

  

 

555 California Street

 

 1,800 

 

 1,260 

 

93.6%

  

 

Other

 

 751 

 

 751 

 

100.0%

  

 

 

 

 

 

 

 

 6,188 

 

 5,639 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Total square feet at September 30, 2015

  

 

 

 54,509 

 

 45,367 

 

 

  

 

44

 


 
 

Overview - continued

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Square footage (in service) and Occupancy as of December 31, 2014:

  

 

 

 

 

 

 

 

 

 

 

 

 

 

(Square feet in thousands)

  

 

 

 

Square Feet (in service)

 

 

  

 

 

 

 

 

Number of

 

Total

 

Our

 

 

  

 

 

 

 

 

properties

 

Portfolio

 

Share

 

Occupancy %

New York:

  

 

 

 

 

 

 

 

 

 

 

Office

 

32 

 

 20,625 

 

 17,094 

 

97.0%

  

 

Retail

 

58 

 

 2,736 

 

 2,278 

 

96.5%

  

 

Alexander's

 

 

 2,178 

 

 706 

 

99.7%

  

 

Hotel Pennsylvania

 

 

 1,400 

 

 1,400 

 

 

  

 

Residential - 1,654 units

 

 1,524 

 

 763 

 

95.7%

  

 

 

 

 

 

 

 

 28,463 

 

 22,241 

 

96.9%

  

 

 

 

 

 

 

 

 

 

 

 

 

  

Washington, DC:

  

 

 

 

 

 

 

 

 

  

 

Office, excluding the Skyline properties  

50 

 

 13,184 

 

 10,806 

 

87.4%

  

 

Skyline properties

 

 

 2,648 

 

 2,648 

 

53.5%

  

 

Total Office

 

58 

 

 15,832 

 

 13,454 

 

80.7%

  

 

Residential - 2,414 units

 

 2,597 

 

 2,455 

 

97.4%

  

 

Other

 

 

 384 

 

 384 

 

100.0%

  

 

 

 

 

 

 

 

 18,813 

 

 16,293 

 

83.6%

  

 

 

 

 

 

 

 

 

 

 

 

 

  

Other:

  

 

 

 

 

 

 

 

 

  

 

The Mart

 

 

 3,587 

 

 3,578 

 

94.7%

  

 

555 California Street

 

 

 1,801 

 

 1,261 

 

97.6%

  

 

Other

 

 

 672 

 

 672 

 

100.0%

  

 

 

 

 

 

 

 

 6,060 

 

 5,511 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

  

Total square feet at December 31, 2014

 

 

 

 53,336 

 

 44,045 

 

 

  

 

45

 


 
 

Overview - continued

 

 

Washington, DC Segment

 

EBITDA before gains on sale of real estate and discontinued operations for the nine months ended September 30, 2015, was $3,438,000 behind last year's nine months.  We expect EBITDA for the fourth quarter to be flat to the fourth quarter of last year.  Accordingly, we expect 2015 EBITDA before gains on sale of real estate and discontinued operations will be approximately $3,500,000 less than 2014.  Of the 2,395,000 square feet subject to the effects of the Base Realignment and Closure (“BRAC”) statute, 393,000 square feet has been taken out of service for redevelopment and 1,298,000 square feet has been leased or is pending.  The table below summarizes the status of the BRAC space as of September 30, 2015.

 

 

 

Rent Per

 

Square Feet

 

 

 

 

 

Square Foot

 

Total

 

Crystal City

 

Skyline

 

Rosslyn

Resolved:

 

 

  

 

 

 

 

 

 

 

 

 

Relet as of September 30, 2015

 

$

37.62 

 

 1,293,000 

 

 825,000 

 

 384,000 

 

 84,000 

 

Leases pending

 

 

39.63 

 

 5,000 

 

 -   

 

 5,000 

 

 -   

 

Taken out of service for redevelopment

 

 

  

 

 393,000 

 

 393,000 

 

 -   

 

 -   

 

 

 

 

 

 

  

 

 1,691,000 

 

 1,218,000 

 

 389,000 

 

 84,000 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

To Be Resolved:

 

 

  

 

 

 

 

 

 

 

 

 

Vacated as of September 30, 2015

 

 

35.43 

 

 684,000 

 

 198,000 

 

 422,000 

 

 64,000 

 

Expiring in 2015

 

 

41.87 

 

 20,000 

 

 20,000 

 

 -   

 

 -   

 

 

 

 

 

 

  

 

 704,000 

 

 218,000 

 

 422,000 

 

 64,000 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

Total square feet subject to BRAC

 

 

  

 

 2,395,000 

 

 1,436,000 

 

 811,000 

 

 148,000 

46

 


 
 

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2015 and 2014

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended September 30, 2015 and 2014.

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

  

(Amounts in thousands)

For the Three Months Ended September 30, 2015

 

 

  

 

Total

  

New York

  

Washington, DC

  

Other

  

Total revenues

 

$

 627,596 

  

$

 429,433 

  

$

 132,704 

  

$

 65,459 

  

Total expenses

 

 

 436,156 

  

 

 263,805 

  

 

 102,114 

  

 

 70,237 

  

Operating income (loss)

 

 

 191,440 

  

 

 165,628 

  

 

 30,590 

  

 

 (4,778)

  

(Loss) income from partially owned entities

 

 

 (325)

  

 

 4,010 

  

 

 (1,909)

  

 

 (2,426)

  

Income from real estate fund investments

 

 

 1,665 

  

 

 -   

  

 

 -   

  

 

 1,665 

  

Interest and other investment income, net

 

 

 3,160 

  

 

 1,888 

  

 

 34 

  

 

 1,238 

  

Interest and debt expense

 

 

 (95,344)

  

 

 (50,480)

  

 

 (16,580)

  

 

 (28,284)

  

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

 103,037 

  

 

 -   

  

 

 102,404 

  

 

 633 

  

Income (loss) before income taxes

 

 

 203,633 

  

 

 121,046 

  

 

 114,539 

  

 

 (31,952)

  

Income tax expense

 

 

 (2,856)

  

 

 (1,147)

  

 

 (287)

  

 

 (1,422)

  

Income (loss) from continuing operations

 

 

 200,777 

  

 

 119,899 

  

 

 114,252 

  

 

 (33,374)

  

Income from discontinued operations

 

 

 34,463 

  

 

 -   

  

 

 -   

  

 

 34,463 

  

Net income

 

 

 235,240 

  

 

 119,899 

  

 

 114,252 

  

 

 1,089 

  

Less net income attributable to noncontrolling interests

 

 

 (16,006)

  

 

 (2,582)

  

 

 -   

  

 

 (13,424)

  

Net income (loss) attributable to Vornado

 

 

 219,234 

  

 

 117,317 

  

 

 114,252 

  

 

 (12,335)

  

Interest and debt expense(2)

 

 

 118,977 

  

 

 64,653 

  

 

 20,010 

  

 

 34,314 

  

Depreciation and amortization(2)

 

 

 174,209 

  

 

 99,206 

  

 

 48,132 

  

 

 26,871 

  

Income tax expense(2)

 

 

 3,043 

  

 

 1,214 

  

 

 294 

  

 

 1,535 

  

EBITDA(1)

 

$

 515,463 

  

$

 282,390 

 (3)

$

 182,688 

 (4)

$

 50,385 

 (5)

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended September 30, 2014

 

 

  

 

Total

  

New York

  

Washington, DC

  

Other

  

Total revenues

 

$

 578,710 

  

$

 383,828 

  

$

 133,541 

  

$

 61,341 

  

Total expenses

 

 

 396,571 

  

 

 238,153 

  

 

 88,375 

  

 

 70,043 

  

Operating income (loss)

 

 

 182,139 

  

 

 145,675 

  

 

 45,166 

  

 

 (8,702)

  

(Loss) income from partially owned entities

 

 

 (26,034)

  

 

 5,810 

  

 

 (1,411)

  

 

 (30,433)

  

Income from real estate fund investments

 

 

 24,160 

  

 

 -   

  

 

 -   

  

 

 24,160 

  

Interest and other investment income, net

 

 

 7,568 

  

 

1,834 

  

 

15 

  

 

5,719 

  

Interest and debt expense

 

 

 (100,817)

  

 

 (43,061)

  

 

 (18,685)

  

 

 (39,071)

  

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

 2,665 

  

 

 -   

  

 

 -   

  

 

 2,665 

  

Income (loss) before income taxes

 

 

 89,681 

  

 

 110,258 

  

 

 25,085 

  

 

 (45,662)

  

Income tax expense

 

 

 (2,652)

  

 

 (802)

  

 

 (130)

  

 

 (1,720)

  

Income (loss) from continuing operations

 

 

 87,029 

  

 

 109,456 

  

 

 24,955 

  

 

 (47,382)

  

Income from discontinued operations

 

 

 82,168 

  

 

 5,615 

  

 

 -   

  

 

 76,553 

  

Net income

 

 

 169,197 

  

 

 115,071 

  

 

 24,955 

  

 

 29,171 

  

Less net income attributable to noncontrolling interests

 

 

 (17,673)

  

 

 (2,690)

  

 

 -   

  

 

 (14,983)

  

Net income attributable to Vornado

 

 

 151,524 

  

 

 112,381 

  

 

 24,955 

  

 

 14,188 

  

Interest and debt expense(2)

 

 

 160,252 

  

 

 58,010 

  

 

 22,208 

  

 

 80,034 

  

Depreciation and amortization(2)

 

 

 160,270 

  

 

 79,446 

  

 

 36,411 

  

 

 44,413 

  

Income tax expense (2)

 

 

 2,232 

  

 

 746 

  

 

 145 

  

 

 1,341 

  

EBITDA(1)

 

$

 474,278 

  

$

 250,583 

 (3)

$

 83,719 

 (4)

$

 139,976 

 (5)

_____________________________

See notes on the following page.

 

47

 


 
 

Net Income and EBITDA by Segment for the Three Months Ended  September 30, 2015 and 2014 - continued

 

 

 

 

 

 

  

 

 

 

 

 

 

 

Notes to preceding tabular information:

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (1)

EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization."  We consider EBITDA a supplemental non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (2)

Interest and debt expense, depreciation and amortization and income tax expense in the reconciliation of net income to EBITDA includes our share of these items from partially owned entities.

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (3)

The elements of "New York" EBITDA are summarized below.

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended September 30,

 

 

 

 

 

 

 

 

  

2015 

 

2014 

 

 

 

Office

$

 166,663 

 

$

 159,568 

 

 

 

Retail

 

 97,604 

 

 

 71,327 

 

 

 

Alexander's  

 

 10,502 

 

 

 10,387 

 

 

 

Hotel Pennsylvania

 

 7,621 

 

 

 9,301 

 

 

 

 

Total New York

$

 282,390 

 

$

 250,583 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (4)

The elements of "Washington, DC" EBITDA are summarized below.

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended September 30,

 

 

 

 

 

 

 

 

  

2015 

 

2014 

 

 

 

Office, excluding the Skyline properties  

$

 64,733 

 

$

 65,904 

 

 

 

Gain on sale of 1750 Pennsylvania Avenue

 

 102,404 

 

 

 -   

 

 

 

Skyline properties

 

 5,998 

 

 

 7,698 

 

 

 

 

Total Office

 

 173,135 

 

 

 73,602 

 

 

 

Residential

 

 9,553 

 

 

 10,117 

 

 

 

 

Total Washington, DC

$

 182,688 

 

$

 83,719 

 

 

 

48

 


 

Net Income and EBITDA by Segment for the Three Months Ended  September 30, 2015 and 2014 - continued

 

 

 

 

 

 

  

 

 

 

 

 

 

Notes to preceding tabular information - continued:

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (5)

The elements of "Other" EBITDA are summarized below.

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended September 30,

 

 

 

 

 

 

 

  

2015 

 

2014 

 

 

Our share of real estate fund investments:

 

 

 

 

 

 

 

 

Income before net realized/unrealized (losses) gains

$

 2,594 

 

$

 2,051 

 

 

 

Net realized/unrealized (losses) gains on investments

 

 (922)

 

 

 5,083 

 

 

 

Carried interest   

 

 (49)

 

 

 8,438 

 

 

Total

 

 1,623 

 

 

 15,572 

 

 

The Mart and trade shows

 

 19,044 

 

 

 19,497 

 

 

555 California Street

 

 13,005 

 

 

 11,994 

 

 

Our share of Toys

 

 46 

 

 

 12,440 

 

 

India real estate ventures

 

 13 

 

 

 2,651 

 

 

Other investments

 

 11,558 

 

 

 4,372 

 

 

  

 

 45,289 

 

 

 66,526 

 

 

Corporate general and administrative expenses(a)

 

 (22,341)

 

 

 (22,948)

 

 

Investment income and other, net(a)

 

 5,952 

 

 

 6,659 

 

 

Gains on sale of partially owned entities

 

 33,153 

 

 

 -   

 

 

UE and residual retail properties discontinued operations(b)

 

 2,516 

 

 

 106,602 

 

 

Acquisition and transaction related costs

 

 (1,518)

 

 

 (1,277)

 

 

Net gain on sale of residential condominiums

 

 633 

 

 

 2,665 

 

 

Impairment loss and loan loss reserve on investment in Suffolk Downs

 

 (595)

 

 

 (10,263)

 

 

Net income attributable to noncontrolling interests in the Operating Partnership

 

 (12,704)

 

 

 (7,988)

 

 

 

 

 

 

 

  

$

 50,385 

 

$

 139,976 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred compensation plan of $2,577 and $1,352 for the three months ended September 30, 2015 and 2014, respectively.

 

 

(b)

The three months ended September 30, 2014, includes $5,828 of transaction costs related to the spin-off of our strip shopping centers and malls.

 

 

EBITDA by Region

 

Below is a summary of the percentages of EBITDA by geographic region, excluding discontinued operations and other items that affect comparability.

 

 

 

 

 

For the Three Months Ended September 30,

 

 

 

 

 

2015 

 

2014 

 

 

Region:

 

 

 

 

 

 

 

New York City metropolitan area

 

72%

 

68%

 

 

 

Washington, DC / Northern Virginia area

20%

 

23%

 

 

 

Chicago, IL

 

5%

 

6%

 

 

 

San Francisco, CA

 

3%

 

3%

 

 

 

 

100%

 

100%

 

49

 


 

Results of Operations – Three Months Ended September 30, 2015 Compared to September 30, 2014

 

 

Revenues

Our revenues, which consist primarily of property rentals, tenant expense reimbursements, and fee and other income, were $627,596,000 for the three months ended September 30, 2015, compared to $578,710,000 for the prior year’s quarter, an increase of $48,886,000.  Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

 

Total

  

 

New York

  

 

Washington, DC

  

 

Other

  

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property rentals:

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

Acquisitions and other

 

$

 19,320 

  

 

$

 19,775 

  

 

$

 (455)

  

 

$

 -   

  

 

Development and redevelopment

 

 

 16,192 

  

 

 

 15,289 

  

 

 

 62 

  

 

 

 841 

  

 

Hotel Pennsylvania

 

 

 (1,319)

  

 

 

 (1,319)

  

 

 

 -   

  

 

 

 -   

  

 

Trade shows

 

 

 458 

  

 

 

 -   

  

 

 

 -   

  

 

 

 458 

  

 

Same store operations

 

 

 16,708 

  

 

 

 15,455 

  

 

 

 (411)

  

 

 

 1,664 

  

 

 

 

 51,359 

  

 

 

 49,200 

  

 

 

 (804)

  

 

 

 2,963 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant expense reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions and other

 

 

 1,549 

  

 

 

 1,718 

  

 

 

 (169)

  

 

 

 -   

  

 

Development and redevelopment

 

 

 758 

  

 

 

 788 

  

 

 

 (30)

  

 

 

 -   

  

 

Same store operations

 

 

 (1,162)

  

 

 

 (937)

  

 

 

 (5)

  

 

 

 (220)

  

 

 

 

 

 1,145 

  

 

 

 1,569 

  

 

 

 (204)

  

 

 

 (220)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

BMS cleaning fees

 

 

 (3,904)

  

 

 

 (4,000)

  

 

 

 -   

  

 

 

 96 

  

 

Management and leasing fees

 

 

 (221)

  

 

 

 232 

  

 

 

 (508)

  

 

 

 55 

  

 

Lease termination fees

 

 

 (1,782)

  

 

 

 (3,021)

  

 

 

 1,208 

  

 

 

 31 

  

 

Other income (loss)

 

 

 2,289 

  

 

 

 1,625 

  

 

 

 (529)

  

 

 

 1,193 

  

 

 

 

 (3,618)

  

 

 

 (5,164)

  

 

 

 171 

  

 

 

 1,375 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Total increase (decrease) in revenues

 

$

 48,886 

  

 

$

 45,605 

  

 

$

 (837)

  

 

$

 4,118 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50

 


 

Results of Operations – Three Months Ended September 30, 2015 Compared to September 30, 2014 - continued

 

 

Expenses

Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $436,156,000 for the three months ended September 30, 2015, compared to $396,571,000 for the prior year’s quarter, an increase of $39,585,000.  Below are the details of the increase by segment:

 

(Amounts in thousands)

 

Total

  

 

New York

  

 

Washington, DC

  

 

Other

  

Increase due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions and other

 

$

 5,331 

  

 

$

 5,534 

  

 

$

 (203)

  

 

$

 -   

  

 

Development and redevelopment

 

 

 4,643 

  

 

 

 3,741 

  

 

 

 482 

  

 

 

 420 

  

 

Non-reimbursable expenses, including

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

bad debt reserves

 

 

 1,552 

  

 

 

 1,037 

  

 

 

 528 

  

 

 

 (13)

  

 

Hotel Pennsylvania

 

 

 (57)

  

 

 

 (57)

  

 

 

 -   

  

 

 

 -   

  

 

Trade shows

 

 

 (212)

  

 

 

 -   

  

 

 

 -   

  

 

 

 (212)

  

 

BMS expenses

 

 

 (2,966)

  

 

 

 (3,300)

  

 

 

 -   

  

 

 

 334 

  

 

Same store operations

 

 

 8,182 

  

 

 

 5,093 

  

 

 

 1,751 

  

 

 

 1,338 

  

 

 

 

 

 16,473 

  

 

 

 12,048 

  

 

 

 2,558 

  

 

 

 1,867 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions and other

 

 

 10,527 

  

 

 

 10,652 

  

 

 

 (125)

  

 

 

 -   

  

 

Development and redevelopment

 

 

 13,083 

  

 

 

 1,513 

  

 

 

 10,697 

  

 

 

 873 

  

 

Same store operations

 

 

 3,488 

  

 

 

 1,120 

  

 

 

 780 

  

 

 

 1,588 

  

 

 

 

 

 

 27,098 

  

 

 

 13,285 

  

 

 

 11,352 

  

 

 

 2,461 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark-to-market of deferred  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation plan liability (1)

 

 

 (3,929)

  

 

 

 -   

  

 

 

 -   

  

 

 

 (3,929)

  

 

Same store operations

 

 

 (298)

  

 

 

 319 

  

 

 

 (171)

  

 

 

 (446)

  

 

 

 

 

 (4,227)

  

 

 

 319 

  

 

 

 (171)

  

 

 

 (4,375)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition and transaction related costs

 

 

 241 

  

 

 

 -   

  

 

 

 -   

  

 

 

 241 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

Total increase in expenses

 

$

 39,585 

  

 

$

 25,652 

  

 

$

 13,739 

  

 

$

 194 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

This decrease in expense is entirely offset by a corresponding decrease in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment income, net” on our consolidated statements of income.

 

 

 

51

 


 
 

Results of Operations – Three Months Ended September 30, 2015 Compared to September 30, 2014 - continued

 

 

 Loss from Partially Owned Entities

Summarized below are the components of loss from partially owned entities for the three months ended September 30, 2015 and 2014.

 

 

(Amounts in thousands)

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ownership at

 

For the Three Months Ended September 30,

 

 

 

 

 

 

  

 

September 30, 2015

 

2015 

  

 

2014 

 

 

Our Share of  Net (Loss) Income:

 

 

 

 

 

 

 

 

 

 

 

Alexander's

 

32.4%

 

$

 7,544 

  

 

$

 7,192 

 

 

Partially owned office buildings (1)

 

Various

 

 

 (2,039)

  

 

 

 18 

 

 

India real estate ventures

 

4.1%-36.5%

 

 

 (1,704)

  

 

 

 (262)

 

 

Toys (2)

 

32.5%

 

 

 46 

  

 

 

 (18,418)

 

 

Other investments (3)

 

Various

 

 

 (4,172)

  

 

 

 (14,564)

 

 

 

 

 

 

  

 

 

 

$

 (325)

  

 

$

 (26,034)

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue, 512 West 22nd Street and others.

 

 

(2)

For the three months ended September 30, 2015, we recognized net income of $46 from our investment in Toys, representing management fees earned and received, compared to a net loss of $18,418 for the three months ended September 30, 2014, comprised of $20,357 for our share of Toys' net loss, partially offset by $1,939 of management fees earned and received.

 

 

(3)

Includes interests in UE, PREIT Associates, Independence Plaza, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others.  In the third quarter of 2014, we recognized a $10,263 non-cash charge, comprised of a $5,959 impairment loss and a $4,304 loan loss reserve, on our equity and debt investments in Suffolk Downs.

 

 

 

Income from Real Estate Fund Investments

Below are the components of the income from our real estate fund investments for the three months ended September 30, 2015 and 2014.

 

 

(Amounts in thousands)

  

 

For the Three Months Ended September 30,

 

 

 

 

  

 

2015 

 

2014 

 

 

Net investment income

 

$

 5,116 

 

$

 3,829 

 

 

Net realized (losses) gains on exited investments

 

 

 (907)

 

 

 51,584 

 

 

Previously recorded unrealized gains on exited investments

 

 

 - 

 

 

 (49,586)

 

 

Net unrealized (losses) gains on held investments

 

 

 (2,544)

 

 

 18,333 

 

 

Income from real estate fund investments

 

 

 1,665 

 

 

 24,160 

 

 

Less income attributable to noncontrolling interests

 

 

 (42)

 

 

 (8,588)

 

 

Income from real estate fund investments attributable to Vornado (1)

 

$

 1,623 

 

$

 15,572 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excludes property management, leasing and development fees of $678 and $669 for the three months ended September 30, 2015 and 2014, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

 

 

52

 


 

Results of Operations – Three Months Ended September 30, 2015 Compared to September 30, 2014 - continued

 

 

Interest and Other Investment Income, net

 

Interest and other investment income, net was $3,160,000 for the three months ended September 30, 2015, compared to $7,568,000 in the prior year’s quarter, a decrease of $4,408,000. This decrease resulted primarily from a decrease in the value of investments in our deferred compensation plan (offset by a corresponding decrease in the liability for plan assets in general and administrative expenses).

 

Interest and Debt Expense

 

Interest and debt expense was $95,344,000 for the three months ended September 30, 2015, compared to $100,817,000 in the prior year’s quarter, a decrease of $5,473,000.  This decrease was primarily due to (i) $8,761,000 of interest savings from the redemption of the $445,000,000 principal amount of the outstanding 7.875% senior unsecured notes during the fourth quarter of 2014, (ii) $5,354,000 of interest savings from the redemption of the $500,000,000 principal amount of the outstanding 4.25% senior unsecured notes on January 1, 2015, partially offset by (iii) $5,330,000 of lower capitalized interest and (iv) $1,983,000 of higher interest expense from the current year’s financings of 150 West 34th Street and the Center Building.

 

Net Gain on Disposition of Wholly Owned and Partially Owned Assets

For the three months ended September 30, 2015, we recognized a $103,037,000 net gain on disposition of wholly owned and partially owned assets, primarily from the sale of 1750 Pennsylvania Avenue, compared to $2,665,000 in the prior year’s quarter, primarily from the sale of  residential condominiums. 

 

Income Tax Expense

 

Income tax expense related to our taxable REIT subsidiaries was $2,856,000 for the three months ended September 30, 2015, compared to an expense of $2,652,000 in the prior year’s quarter.  The increase in expense of $204,000 was primarily attributable to higher income from our taxable REIT subsidiaries. 

 

Income from Discontinued Operations

 

We have reclassified the revenues and expenses of the UE portfolio and other retail properties that were sold or are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all the periods presented in the accompanying financial statements.  The table below sets forth the combined results of assets related to discontinued operations for the three months ended September 30, 2015 and 2014.

 

 

 

  

 

 

  

 

 

  

 

 

(Amounts in thousands)

 

For the Three Months Ended September 30,

 

 

 

 

  

 

2015 

 

2014 

 

 

Total revenues

 

$

 2,589  

 

$

 93,440  

 

 

Total expenses

 

 

 1,279  

 

 

 62,715  

 

 

 

 

 

 1,310  

 

 

 30,725  

 

 

Net gain on sale of our interest in Monmouth Mall

  

 

 

 33,153  

 

 

 -    

 

 

Net gains on sale of real estate

  

 

 

 -    

 

 

 57,796  

 

 

Transaction related costs (primarily UE spin off)

  

 

 

 -    

 

 

 (5,828) 

 

 

Pretax income from discontinued operations

  

 

 

 34,463  

 

 

 82,693  

 

 

Income tax expense

  

 

 

 -    

 

 

 (525) 

 

 

Income from discontinued operations

 

$

 34,463  

 

$

 82,168  

 

 

53

 


 

Results of Operations – Three Months Ended September 30, 2015 Compared to September 30, 2014 - continued

 

 

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

 

Net income attributable to noncontrolling interests in consolidated subsidiaries was $3,302,000 for the three months ended September 30, 2015, compared to $9,685,000 for the prior year’s quarter, a decrease of $6,383,000.  This decrease resulted primarily from lower net income allocated to the noncontrolling interests, including noncontrolling interests of our real estate fund investments.

 

Net Income Attributable to Noncontrolling Interests in the Operating Partnership

 

Net income attributable to noncontrolling interests in the Operating Partnership was $12,704,000 for the three months ended September 30, 2015, compared to $7,988,000 for the prior year’s quarter, an increase of $4,716,000.  This increase resulted primarily from higher net income subject to allocation to unitholders.

 

Preferred Share Dividends

Preferred share dividends were $20,364,000 for the three months ended September 30, 2015, compared to $20,365,000 for the prior year’s quarter, a decrease of $1,000. 

 

54

 


 

Results of Operations – Three Months Ended September 30, 2015 Compared to September 30, 2014 - continued

 

 

Same Store EBITDA

Same store EBITDA represents EBITDA from property level operations which are owned by us in both the current and prior year reporting periods.  Same store EBITDA excludes segment-level overhead expenses, which are expenses that we do not consider to be property-level expenses, as well as other non-operating items.  We also present same store EBITDA on a cash basis which excludes income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash adjustments. We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers.  Same store EBITDA should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies. 

 

Below are reconciliations of EBITDA to same store EBITDA for each of our segments for the three months ended September 30, 2015, compared to the three months ended September 30, 2014.

 

 

 

 

 

  

 

  

 

 

(Amounts in thousands)

  

 

New York

  

Washington, DC

  

EBITDA for the three months ended September 30, 2015

 

$

 282,390 

  

$

 182,688 

  

 

Add-back:

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

 8,305 

  

 

 6,282 

  

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

 (15,826)

  

 

 -   

  

 

 

Dispositions, including net gains on sale

 

 

 121 

  

 

 (104,006)

  

 

 

Properties taken out-of-service for redevelopment

 

 

 (19,588)

  

 

 (20)

  

 

 

Other non-operating income

 

 

 (8,045)

  

 

 (1,414)

  

Same store EBITDA for the three months ended September 30, 2015

 

$

 247,357 

  

$

 83,530 

  

 

 

 

 

 

 

 

 

 

 

 

  

EBITDA for the three months ended September 30, 2014

 

$

 250,583 

  

$

 83,719 

  

 

Add-back:

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

 7,986 

  

 

 6,454 

  

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

 50 

  

 

 -   

  

 

 

Dispositions, including net gains on sale

 

 

 (5,800)

  

 

 (1,926)

  

 

 

Properties taken out-of-service for redevelopment

 

 

 (5,944)

  

 

 (401)

  

 

 

Other non-operating income

 

 

 (3,010)

  

 

 (421)

  

Same store EBITDA for the three months ended September 30, 2014

 

$

 243,865 

  

$

 87,425 

  

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in same store EBITDA -

 

 

 

 

 

 

 

 

Three months ended September 30, 2015 vs. September 30, 2014

 

$

 3,492 

 (1)

$

 (3,895)

 (2)

 

 

 

 

  

 

 

 

  

 

 

 

% increase (decrease) in same store EBITDA

 

 

 1.4% 

  

 

 (4.5%)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on following page

  

 

55

 


 

Results of Operations – Three Months Ended September 30, 2015 Compared to September 30, 2014 - continued

 

 

Notes to preceding tabular information:

 

 

(1)              New York:

 

The $3,492,000 increase in New York same store EBITDA resulted primarily from increases in Office and Retail EBITDA of $3,287,000 and $1,799,000, respectively, partially offset by a decrease in Hotel Pennsylvania EBITDA of $1,681,000.  The Office and Retail EBITDA increases resulted primarily from higher rents, including signage, partially offset by lower BMS EBITDA and higher operating expenses, net of reimbursements.

 

 

(2)              Washington, DC:

 

The $3,895,000 decrease in Washington, DC same store EBITDA resulted primarily from higher net operating expenses of $2,284,000, lower fee and other income of $530,000, and lower management and leasing fees of $508,000.

 

 

Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA

 

 

(Amounts in thousands)

 

New York

  

Washington, DC

Same store EBITDA for the three months ended September 30, 2015

 

$

 247,357 

  

$

 83,530 

Less: Adjustments for straight line rents, amortization of acquired

 

 

 

 

 

  

 

below-market leases, net, and other non-cash adjustments

 

 

 (36,095)

  

 

 (6,913)

Cash basis same store EBITDA for the three months ended

 

 

 

 

 

  

 

September 30, 2015

 

$

 211,262 

  

$

 76,617 

 

 

 

 

 

 

 

 

 

  

Same store EBITDA for the three months ended September 30, 2014

 

$

 243,865 

  

$

 87,425 

Less: Adjustments for straight line rents, amortization of acquired

 

 

 

 

 

  

 

below-market leases, net, and other non-cash adjustments

 

 

 (31,993)

  

 

 (2,840)

Cash basis same store EBITDA for the three months ended

 

 

 

 

 

  

 

September 30, 2014

 

$

 211,872 

  

$

 84,585 

 

 

 

 

 

 

 

 

 

  

Decrease in Cash basis same store EBITDA -  

 

 

 

 

 

  

 

Three months ended September 30, 2015 vs. September 30, 2014

 

$

 (610)

  

$

 (7,968)

 

 

 

  

 

 

 

  

 

  

% decrease in Cash basis same store EBITDA

 

 

 (0.3%)

  

 

 (9.4%)

 

 

 

 

 

 

 

  

 

 

56

 


 
 

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2015 and 2014

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the nine months ended September 30, 2015 and 2014.

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Nine Months Ended September 30, 2015

 

 

  

 

Total

  

New York

  

Washington, DC

  

Other

  

Total revenues

 

$

 1,850,686 

  

$

 1,243,208 

  

$

 401,528 

  

$

 205,950 

  

Total expenses

 

 

 1,298,141 

  

 

 766,863 

  

 

 293,772 

  

 

 237,506 

  

Operating income (loss)

 

 

 552,545 

  

 

 476,345 

  

 

 107,756 

  

 

 (31,556)

  

(Loss) income from partially owned entities

 

 

 (8,709)

  

 

 1,523 

  

 

 (3,583)

  

 

 (6,649)

  

Income from real estate fund investments

 

 

 52,122 

  

 

 -   

  

 

 -   

  

 

 52,122 

  

Interest and other investment income, net

 

 

 19,618 

  

 

 5,642 

  

 

 60 

  

 

 13,916 

  

Interest and debt expense

 

 

 (279,110)

  

 

 (143,004)

  

 

 (52,223)

  

 

 (83,883)

  

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

 104,897 

  

 

 -   

  

 

 102,404 

  

 

 2,493 

  

Income (loss) before income taxes

 

 

 441,363 

  

 

 340,506 

  

 

 154,414 

  

 

 (53,557)

  

Income tax benefit (expense)

 

 

 84,245 

  

 

 (3,185)

  

 

 (79)

  

 

 87,509 

  

Income from continuing operations

 

 

 525,608 

  

 

 337,321 

  

 

 154,335 

  

 

 33,952 

  

Income from discontinued operations

 

 

 50,278 

  

 

 -   

  

 

 -   

  

 

 50,278 

  

Net income

 

 

 575,886 

  

 

 337,321 

  

 

 154,335 

  

 

 84,230 

  

Less net income attributable to noncontrolling interests

 

 

 (66,559)

  

 

 (6,640)

  

 

 -   

  

 

 (59,919)

  

Net income attributable to Vornado

 

 

 509,327 

  

 

 330,681 

  

 

 154,335 

  

 

 24,311 

  

Interest and debt expense(2)

 

 

 348,725 

  

 

 184,377 

  

 

 62,413 

  

 

 101,935 

  

Depreciation and amortization(2)

 

 

 493,904 

  

 

 288,897 

  

 

 136,687 

  

 

 68,320 

  

Income tax (benefit) expense (2)

 

 

 (85,349)

  

 

 3,368 

  

 

 (1,856)

  

 

 (86,861)

  

EBITDA(1)

 

$

 1,266,607 

  

$

 807,323 

 (3)

$

 351,579 

 (4)

$

 107,705 

 (5)

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Nine Months Ended September 30, 2014

 

 

  

 

Total

  

New York

  

Washington, DC

  

Other

  

Total revenues

 

$

 1,715,502 

  

$

 1,120,686 

  

$

 403,645 

  

$

 191,171 

  

Total expenses

 

 

 1,198,854 

  

 

 702,727 

  

 

 265,299 

  

 

 230,828 

  

Operating income (loss)

 

 

 516,648 

  

 

 417,959 

  

 

 138,346 

  

 

 (39,657)

  

(Loss) income from partially owned entities

 

 

 (78,676)

  

 

 16,372 

  

 

 (4,925)

  

 

 (90,123)

  

Income from real estate fund investments

 

 

 142,418 

  

 

 -   

  

 

 -   

  

 

 142,418 

  

Interest and other investment income, net

 

 

 28,814 

  

 

 4,889 

  

 

 93 

  

 

 23,832 

  

Interest and debt expense

 

 

 (301,042)

  

 

 (134,970)

  

 

 (56,692)

  

 

 (109,380)

  

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

 13,205 

  

 

 -   

  

 

 -   

  

 

 13,205 

  

Income (loss) before income taxes

 

 

 321,367 

  

 

 304,250 

  

 

 76,822 

  

 

 (59,705)

  

Income tax expense

 

 

 (6,783)

  

 

 (2,997)

  

 

 (46)

  

 

 (3,740)

  

Income (loss) from continuing operations

 

 

 314,584 

  

 

 301,253 

  

 

 76,776 

  

 

 (63,445)

  

Income from discontinued operations

 118,456 

  

 

 17,401 

  

 

 -   

  

 

 101,055 

  

Net income

 

 

 433,040 

  

 

 318,654 

  

 

 76,776 

  

 

 37,610 

  

Less net income attributable to noncontrolling interests

 

 

 (101,791)

  

 

 (7,203)

  

 

 -   

  

 

 (94,588)

  

Net income (loss) attributable to Vornado

 

 

 331,249 

  

 

 311,451 

  

 

 76,776 

  

 

 (56,978)

  

Interest and debt expense(2)

 

 

 510,724 

  

 

 180,150 

  

 

 67,469 

  

 

 263,105 

  

Depreciation and amortization(2)

 

 

 530,052 

  

 

 241,040 

  

 

 108,367 

  

 

 180,645 

  

Income tax expense(2)

 

 

 21,489 

  

 

 3,069 

  

 

 88 

  

 

 18,332 

  

EBITDA(1)

 

$

 1,393,514 

  

$

 735,710 

 (3)

$

 252,700 

 (4)

$

 405,104 

 (5)

_____________________________

See notes on the following page.

 

57

 


 
 

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2015 and 2014 - continued

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

Notes to preceding tabular information:

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (1)

EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization."  We consider EBITDA a supplemental non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (2)

Interest and debt expense, depreciation and amortization and income tax (benefit) expense in the reconciliation of net income to EBITDA includes our share of these items from partially owned entities.

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (3)

The elements of "New York" EBITDA are summarized below.

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Nine Months Ended September 30,

 

 

 

 

 

 

 

 

  

2015 

 

2014 

 

 

 

Office

$

 496,762 

 

$

 480,280 

 

 

 

Retail

 

 265,060 

 

 

 205,469 

 

 

 

Alexander's

 

 31,150 

 

 

 31,088 

 

 

 

Hotel Pennsylvania

 

 14,351 

 

 

 18,873 

 

 

 

 

Total New York

$

 807,323 

 

$

 735,710 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (4)

The elements of "Washington, DC" EBITDA are summarized below.

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Nine Months Ended September 30,

 

 

 

 

 

 

 

 

  

2015 

 

2014 

 

 

 

Office, excluding the Skyline properties  

$

 200,631 

 

$

 200,218 

 

 

 

Gain on sale of 1750 Pennsylvania Avenue  

 

 102,404 

 

 

 -   

 

 

 

Skyline properties

 

 19,037 

 

 

 21,270 

 

 

 

 

Total Office

 

 322,072 

 

 

 221,488 

 

 

 

Residential

 

 29,507 

 

 

 31,212 

 

 

 

 

Total Washington, DC

$

 351,579 

 

$

 252,700 

 

 

 

58

 


 
 

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2015 and 2014 - continued

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to preceding tabular information - continued:

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (5)

The elements of "Other" EBITDA are summarized below.

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

(Amounts in thousands)

For the Nine Months Ended  September 30,

 

 

 

 

 

 

 

  

2015 

 

2014 

 

 

Our share of real estate fund investments:

 

 

 

 

 

 

 

 

Income before net realized/unrealized gains

$

 6,879 

 

$

 6,668 

 

 

 

Net realized/unrealized gains on investments

 

 9,542 

 

 

 32,890 

 

 

 

Carried interest   

 

 6,248 

 

 

 21,643 

 

 

Total  

 

 22,669 

 

 

 61,201 

 

 

The Mart and trade shows

 

 62,229 

 

 

 61,038 

 

 

555 California Street

 

 38,237 

 

 

 35,566 

 

 

India real estate ventures

 

 2,229 

 

 

 4,574 

 

 

Our share of Toys(a)

 

 2,000 

 

 

 103,026 

 

 

Other investments

 

 25,787 

 

 

 13,594 

 

 

  

 

 153,151 

 

 

 278,999 

 

 

Corporate general and administrative expenses(b) (c)

 

 (82,043)

 

 

 (71,952)

 

 

Investment income and other, net(b)

 

 21,275 

 

 

 22,764 

 

 

Gains on sale of partially owned entities and other

 

 37,666 

 

 

 -   

 

 

UE and residual retail properties discontinued operations(d)

 

 26,313 

 

 

 192,532 

 

 

Our share of impairment loss on India real estate ventures

 

 (14,806)

 

 

 -   

 

 

Acquisition and transaction related costs

 

 (7,560)

 

 

 (3,629)

 

 

Net gain on sale of residential condominiums and a land parcel  

 

 2,493 

 

 

 13,205 

 

 

Impairment loss and loan loss reserve on investment in Suffolk Downs

 

 (595)

 

 

 (10,263)

 

 

Net income attributable to noncontrolling interests in the Operating Partnership

 

 (28,189)

 

 

 (16,552)

 

 

 

 

 

 

 

  

$

 107,705 

 

$

 405,104 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

As a result of our investment being reduced to zero, we suspended equity method accounting in the third quarter of 2014.  The nine months ended September 30, 2014 includes an impairment loss of $75,196.

 

 

(b)

The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred compensation plan of $327 and $8,132 for the nine months ended September 30, 2015 and 2014, respectively.

 

 

(c)

The nine months ended September 30, 2015 includes $7,084 from the acceleration of the recognition of compensation expense related to 2013-2015 Out-Performance Plans due to the modification of the vesting criteria of awards such that they will fully vest at age 65.  The accelerated expense will result in lower general and administrative expense for the remainder of 2015 of $867 and $6,217 thereafter.

 

 

(d)

The nine months ended September 30, 2015 and 2014, include $22,972 and $9,343, respectively, of transaction costs related to the spin-off of our strip shopping centers and malls.

 

 

EBITDA by Region

 

Below is a summary of the percentages of EBITDA by geographic region, excluding discontinued operations and other items that affect comparability.

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

 

 

 

2015 

 

2014 

 

 

Region:

 

 

 

 

 

 

 

New York City metropolitan area

 

70%

 

68%

 

 

 

Washington, DC / Northern Virginia area

21%

 

23%

 

 

 

Chicago, IL

 

6%

 

6%

 

 

 

San Francisco, CA

 

3%

 

3%

 

 

 

 

100%

 

100%

 

59

 


 

Results of Operations – Nine Months Ended September 30, 2015 Compared to September 30, 2014

 

 

Revenues

Our revenues, which consist primarily of property rentals, tenant expense reimbursements, and fee and other income, were $1,850,686,000 for the nine months ended September 30, 2015, compared to $1,715,502,000 for the prior year’s nine months, an increase of $135,184,000.  Below are the details of the increase (decrease) by segment:

 

(Amounts in thousands)

 

Total

  

 

New York

  

 

Washington, DC

  

 

Other

  

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property rentals:

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

Acquisitions and other

 

$

 38,683 

  

 

$

 38,269 

  

 

$

 414 

  

 

$

 -   

  

 

Development and redevelopment

 

 

 41,826 

  

 

 

 39,519 

  

 

 

 57 

  

 

 

 2,250 

  

 

Hotel Pennsylvania

 

 

 (3,931)

  

 

 

 (3,931)

  

 

 

 -   

  

 

 

 -   

  

 

Trade shows

 

 

 2,060 

  

 

 

 -   

  

 

 

 -   

  

 

 

 2,060 

  

 

Same store operations  

 

 

 42,208 

  

 

 

 35,779 

  

 

 

 (283)

  

 

 

 6,712 

  

 

 

 

 120,846 

  

 

 

 109,636 

  

 

 

 188 

  

 

 

 11,022 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant expense reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions and other

 

 

 2,797 

  

 

 

 2,945 

  

 

 

 (148)

  

 

 

 -   

  

 

Development and redevelopment

 

 

 2,179 

  

 

 

 2,166 

  

 

 

 13 

  

 

 

 -   

  

 

Same store operations

 

 

 10,894 

  

 

 

 7,537 

  

 

 

 459 

  

 

 

 2,898 

  

 

 

 

 

 15,870 

  

 

 

 12,648 

  

 

 

 324 

  

 

 

 2,898 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS cleaning fees

 

 

 (681)

  

 

 

 (1,213)

  

 

 

 -   

  

 

 

 532 

  

 

Management and leasing fees

 

 

 (3,348)

  

 

 

 (2,510)

  

 

 

 (676)

  

 

 

 (162)

  

 

Lease termination fees

 

 

 (3,265)

  

 

 

 (641)

  

 

 

 (2,284)

  

 

 

 (340)

  

 

Other income

 

 

 5,762 

  

 

 

 4,602 

  

 

 

 331 

  

 

 

 829 

  

 

 

 

 (1,532)

  

 

 

 238 

  

 

 

 (2,629)

  

 

 

 859 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in revenues

 

$

 135,184 

  

 

$

 122,522 

  

 

$

 (2,117)

  

 

$

 14,779 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60

 


 

Results of Operations – Nine Months Ended September 30, 2015 Compared to September 30, 2014 - continued

 

 

Expenses

Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $1,298,141,000 for the nine months ended September 30, 2015, compared to $1,198,854,000 for the prior year’s nine months, an increase of $99,287,000.  Below are the details of the increase by segment:

 

(Amounts in thousands)

 

Total

  

 

New York

  

 

Washington, DC

  

 

Other

  

Increase due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions and other

 

$

 8,544 

  

 

$

 8,628 

  

 

$

 (84)

  

 

$

 -   

  

 

Development and redevelopment

 

 

 14,876 

  

 

 

 11,245 

  

 

 

 1,134 

  

 

 

 2,497 

  

 

Non-reimbursable expenses, including bad debt  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

reserves

 

 

 (1,749)

  

 

 

 (1,715)

  

 

 

 (316)

  

 

 

 282 

  

 

Hotel Pennsylvania

 

 

 165 

  

 

 

 165 

  

 

 

 -   

  

 

 

 -   

  

 

Trade shows

 

 

 68 

  

 

 

 -   

  

 

 

 -   

  

 

 

 68 

  

 

BMS expenses

 

 

 (425)

  

 

 

 (1,307)

  

 

 

 -   

  

 

 

 882 

  

 

Same store operations  

 

 

 25,218 

  

 

 

 19,194 

  

 

 

 1,747 

  

 

 

 4,277 

  

 

 

 

 

 46,697 

  

 

 

 36,210 

  

 

 

 2,481 

  

 

 

 8,006 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

Acquisitions and other

 

 

 23,110 

  

 

 

 23,094 

  

 

 

 16 

  

 

 

 -   

  

 

Development and redevelopment

 

 

 9,560 

  

 

 

 (9,313)

  

 

 

 24,855 

  

 

 

 (5,982)

  

 

Same store operations

 

 

 10,515 

  

 

 

 8,331 

  

 

 

 3,096 

  

 

 

 (912)

  

 

 

 

 

 

 43,185 

  

 

 

 22,112 

  

 

 

 27,967 

  

 

 

 (6,894)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

Mark-to-market of deferred compensation plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

liability (1)

 

 

 (8,459)

  

 

 

 -   

  

 

 

 -   

  

 

 

 (8,459)

  

 

Same store operations

 

 

 13,933 

  (2)

 

 

 5,814 

  

 

 

 (1,975)

  

 

 

 10,094 

  

 

 

 

 

 5,474 

  

 

 

 5,814 

  

 

 

 (1,975)

  

 

 

 1,635 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition and transaction related costs

 

 

 3,931 

  

 

 

 -   

  

 

 

 -   

  

 

 

 3,931 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

Total increase in expenses

 

$

 99,287 

  

 

$

 64,136 

  

 

$

 28,473 

  

 

$

 6,678 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

This decrease in expense is entirely offset by a corresponding decrease in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment income, net” on our consolidated statements of income.

(2)

Results primarily from the acceleration of the recognition of compensation expense of $8,911 related to 2013-2015 Out-Performance Plans due to the modification of the vesting criteria of awards such that they fully vest at age 65.  The accelerated expense will result in lower general and administrative expense during the remainder of 2015 of $1,077 and $7,834 thereafter. 

 

61

 


 

Results of Operations – Nine Months Ended September 30, 2015 Compared to September 30, 2014 - continued

 

 

Loss from Partially Owned Entities

Summarized below are the components of loss from partially owned entities for the nine months ended September 30, 2015 and 2014.

 

 

(Amounts in thousands)

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ownership at

 

For the Nine Months Ended September 30,

 

 

 

 

 

 

  

 

September 30, 2015

 

2015 

  

 

2014 

 

 

Our Share of Net (Loss) Income:

 

 

 

 

 

 

 

 

 

 

 

Alexander's

32.4%

 

$

 22,558 

  

 

$

 20,471 

 

 

India real estate ventures

 

4.1%-36.5%

 

 

 (18,380)

  (1)

 

 

 (2,440)

 

 

Partially owned office buildings (2)

 

Various

 

 

 (14,573)

  

 

 

 (1,387)

 

 

Toys (3)

 

32.5%

 

 

 2,000 

  

 

 

 (74,162)

 

 

Other investments (4)

 

Various

 

 

 (314)

  

 

 

 (21,158)

 

 

 

 

 

 

  

 

 

 

$

 (8,709)

  

 

$

 (78,676)

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes $14,806 for our share of non-cash impairment losses.

 

 

(2)

Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue, 512 West 22nd Street and others.

 

 

(3)

For the nine months ended September 30, 2015, we recognized net income of $2,000 from our investment in Toys, representing management fees earned and received, compared to a net loss of $74,162 for the nine months ended September 30, 2014, comprised of (i) $4,691 for our share of Toys’ net loss, (ii) a $75,196 non-cash impairment loss, partially offset by (iii) $5,725 of management fees earned and received.

 

 

(4)

Includes interests in UE, PREIT Associates, Independence Plaza, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others.  In the third quarter of 2014, we recognized a $10,263 non-cash charge, comprised of a $5,959 impairment loss and a $4,304 loan loss reserve, on our equity and debt investments in Suffolk Downs.

 

 

Income from Real Estate Fund Investments

 

Below are the components of the income from our real estate fund investments for the nine months ended September 30, 2015 and 2014.

 

 

  

 

 

 

 

 (Amounts in thousands)

  

 

For the Nine Months Ended September 30,

 

 

 

  

 

2015 

 

2014 

 

 

Net investment income  

 

$

 13,716 

 

$

 10,860 

 

 

Net realized gains on exited investments

 

 

 24,684 

 

 

 126,653 

 

 

Previously recorded unrealized gains on exited investments

 

 

 (23,279)

 

 

 (50,316)

 

 

Net unrealized gains on held investments

 

 

 37,001 

 

 

 55,221 

 

 

Income from real estate fund investments

 

 

 52,122 

 

 

 142,418 

 

 

Less income attributable to noncontrolling interests

 

 

 (29,453)

 

 

 (81,217)

 

 

Income from real estate fund investments attributable to Vornado (1)

 

$

 22,669 

 

$

 61,201 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excludes property management, leasing and development fees of $2,015 and $1,925 for the nine months ended September 30, 2015 and 2014, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

 

 

62

 


 

Results of Operations – Nine Months Ended September 30, 2015 Compared to September 30, 2014 - continued

 

 

Interest and Other Investment Income, net

 

Interest and other investment income, net was $19,618,000 for the nine months ended September 30, 2015, compared to $28,814,000 for the prior year’s nine months, a decrease of $9,196,000. This decrease resulted primarily from a decrease in the value of investments in our deferred compensation plan (offset by a corresponding decrease in the liability for plan assets in general and administrative expenses). 

 

Interest and Debt Expense

 

Interest and debt expense was $279,110,000 for the nine months ended September 30, 2015, compared to $301,042,000 for the prior year’s nine months, a decrease of $21,932,000.  This decrease was primarily due to (i) $26,652,000 of interest savings from the redemption of the $445,000,000 principal amount of the outstanding 7.875% senior unsecured notes during the fourth quarter of 2014, (ii) $16,021,000 of interest savings from the redemption of the $500,000,000 principal amount of the outstanding 4.25% senior unsecured notes on January 1, 2015, partially offset by (iii) $12,700,000 of lower capitalized interest, (iv) $5,297,000 of interest expense from the issuance of $450,000,000 of senior unsecured notes in June 2014 and (v) $3,188,000 of higher interest expense from the current year’s financings of 150 West 34th Street and the Center Building.

 

Net Gain on Disposition of Wholly Owned and Partially Owned Assets

 

For the nine months ended September 30, 2015, we recognized a $104,897,000 net gain on disposition of wholly owned and partially owned assets, primarily from the sale of 1750 Pennsylvania Avenue, compared to $13,205,000 for the prior year’s nine months, primarily from the sale of  residential condominiums and a land parcel. 

 

Income Tax Benefit (Expense)

 

Income tax benefit related to our taxable REIT subsidiaries was $84,245,000 for the nine months ended September 30, 2015, compared to an expense of $6,783,000 for the prior year’s nine months.  The decrease in expense of $91,028,000 was primarily attributable to the reversal of the valuation allowances against certain of our deferred tax assets, as we have concluded that it is more-likely-than-not that we will generate sufficient taxable income from the sale of 220 Central Park South residential condominium units to realize the deferred tax assets. 

 

63

 


 

Results of Operations – Nine Months Ended September 30, 2015 Compared to September 30, 2014 - continued

 

 

Income from Discontinued Operations

We have reclassified the revenues and expenses of the UE portfolio and other retail properties that were sold or are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all the periods presented in the accompanying financial statements.  The table below sets forth the combined results of assets related to discontinued operations for the nine months ended September 30, 2015 and 2014.

 

 

 

  

 

 

  

 

 

 

 

 

(Amounts in thousands)

 

For the Nine Months Ended September 30,

 

 

 

 

  

 

2015 

 

2014 

 

 

Total revenues

 

$

 24,868  

 

$

 297,039 

 

 

Total expenses

 

 

 16,672  

 

 

 204,619 

 

 

  

 

 

 8,196  

 

 

 92,420 

 

 

Net gain on sale of our interest in Monmouth Mall

  

 

 

 33,153  

 

 

 -   

 

 

Transaction related costs (primarily UE spin off)

  

 

 

 (22,972) 

 

 

 (9,343)

 

 

Net gain on sale of lease position in Geary Street, CA

  

 

 

 21,376  

 

 

 -   

 

 

Net gains on sale of real estate

  

 

 

 10,867  

 

 

 57,796 

 

 

Impairment losses

  

 

 

 (256) 

 

 

 (20,842)

 

 

Pretax income from discontinued operations

  

 

 

 50,364  

 

 

 120,031 

 

 

Income tax expense

  

 

 

 (86) 

 

 

 (1,575)

 

 

Income from discontinued operations

 

$

 50,278  

 

$

 118,456 

 

 

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

 

Net income attributable to noncontrolling interests in consolidated subsidiaries was $38,370,000 for the nine months ended September 30, 2015, compared to $85,239,000 for the prior year’s nine months, a decrease of $46,869,000.  This decrease resulted primarily from lower net income allocated to the noncontrolling interests, including noncontrolling interests of our real estate fund investments.

 

Net Income Attributable to Noncontrolling Interests in the Operating Partnership

 

Net income attributable to noncontrolling interests in the Operating Partnership was $28,189,000 for the nine months ended September 30, 2015, compared to $16,552,000 for the prior year’s nine months, an increase of $11,637,000.  This increase resulted primarily from higher net income subject to allocation to unitholders.

 

Preferred Share Dividends

 

Preferred share dividends were $60,213,000 for the nine months ended September 30, 2015, compared to $61,099,000 for the prior year’s nine months, a decrease of $886,000. 

 

64

 


 

Results of Operations – Nine Months Ended September 30, 2015 Compared to September 30, 2014 - continued

 

 

Same Store EBITDA

Same store EBITDA represents EBITDA from property level operations which are owned by us in both the current and prior year reporting periods.  Same store EBITDA excludes segment-level overhead expenses, which are expenses that we do not consider to be property-level expenses, as well as other non-operating items.  We also present same store EBITDA on a cash basis which excludes income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash adjustments.  We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers.  Same store EBITDA should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies. 

 

Below are reconciliations of EBITDA to same store EBITDA for each of our segments for the nine months ended September 30, 2015, compared to nine months ended September 30, 2014.

 

 

 

 

 

  

 

  

 

 

(Amounts in thousands)

  

 

New York

  

Washington, DC

  

EBITDA for the nine months ended September 30, 2015

 

$

 807,323 

  

$

 351,579 

  

 

Add-back:

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

 28,238 

  

 

 18,498 

  

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

 (34,824)

  

 

 -   

  

 

 

Dispositions, including net gains on sale

 

 

 316 

  

 

 (108,055)

  

 

 

Properties taken out-of-service for redevelopment

 

 

 (50,303)

  

 

 (144)

  

 

 

Other non-operating income

 

 

 (20,381)

  

 

 (3,296)

  

Same store EBITDA for the nine months ended September 30, 2015

 

$

 730,369 

  

$

 258,582 

  

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the nine months ended September 30, 2014

 

$

 735,710 

  

$

 252,700 

  

 

Add-back:

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

 22,424 

  

 

 20,473 

  

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

 50 

  

 

 -   

  

 

 

Dispositions, including net gains on sale

 

 

 (18,187)

  

 

 (5,751)

  

 

 

Properties taken out-of-service for redevelopment

 

 

 (17,795)

  

 

 (981)

  

 

 

Other non-operating income

 

 

 (6,347)

  

 

 (4,109)

  

Same store EBITDA for the nine months ended September 30, 2014

 

$

 715,855 

  

$

 262,332 

  

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in same store EBITDA -

 

 

 

 

 

 

 

 

Nine months ended September 30, 2015 vs. September 30, 2014

 

$

 14,514 

 (1)

$

 (3,750)

 (2)

 

 

 

 

  

 

 

 

  

 

 

 

% increase (decrease) in same store EBITDA

 

 

 2.0% 

  

 

 (1.4%)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on following page.

 

65

 


 

Results of Operations – Nine Months Ended September 30, 2015 Compared to September 30, 2014 - continued

 

 

Notes to preceding tabular information:

 

 

(1)              New York:

 

The $14,514,000 increase in New York same store EBITDA resulted primarily from increases in Office and Retail EBITDA of $8,496,000 and $10,369,000, respectively, partially offset by a decrease in Hotel Pennsylvania EBITDA of $4,523,000.  The Office and Retail EBITDA increases resulted primarily from higher rents, including signage, partially offset by higher operating expenses, net of reimbursements.

 

 

(2)              Washington, DC:

 

The $3,750,000 decrease in Washington, DC same store EBITDA resulted primarily from higher net operating expenses of $972,000, lower fee and other income of $1,311,000, lower management and leasing fees of $677,000, and lower income from partially owned entities.

 

 

Reconciliation of Same Store EBITDA to Cash Basis Same Store EBITDA

 

 

(Amounts in thousands)

 

New York

  

Washington, DC

Same store EBITDA for the nine months ended September 30, 2015

 

$

 730,369 

  

$

 258,582 

Less: Adjustments for straight line rents, amortization of acquired

 

 

 

 

 

 

 

below-market leases, net, and other non-cash adjustments

 

 

 (91,370)

  

 

 (18,203)

Cash basis same store EBITDA for the nine months ended

 

 

 

 

 

 

 

September 30, 2015

 

$

 638,999 

  

$

 240,379 

 

 

 

 

 

 

 

 

 

 

Same store EBITDA for the nine months ended September 30, 2014

 

$

 715,855 

  

$

 262,332 

Less: Adjustments for straight line rents, amortization of acquired

 

 

 

 

 

 

 

below-market leases, net, and other non-cash adjustments

 

 

 (91,576)

  

 

 (4,383)

Cash basis same store EBITDA for the nine months ended

 

 

 

 

 

 

 

September 30, 2014

 

$

 624,279 

  

$

 257,949 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash basis same store EBITDA -  

 

 

 

 

 

 

 

Nine months ended September 30, 2015 vs. September 30, 2014

 

$

 14,720 

  

$

 (17,570)

 

 

 

  

 

 

 

  

 

 

% increase (decrease) in cash basis same store EBITDA

 

 

 2.4% 

  

 

 (6.8%)

66

 


 

SUPPLEMENTAL INFORMATION

 

Reconciliation of Net Income to EBITDA for the Three Months Ended June 30, 2015

 

(Amounts in thousands)

  

New York

  

Washington, DC

Net income attributable to Vornado for the three months ended June 30, 2015

  

$

 118,212 

  

$

 16,454 

Interest and debt expense

  

 

 61,057 

  

 

 20,891 

Depreciation and amortization

  

 

 95,567 

  

 

 47,803 

Income tax expense

  

 

 1,152 

  

 

 486 

EBITDA for the three months ended June 30, 2015

  

$

 275,988 

  

$

 85,634 

 

 

 

 

  

 

 

 

 

 

                   

 

 

Reconciliation of EBITDA to Same Store EBITDA – Three Months Ended September 30, 2015 Compared to June 30, 2015

 

(Amounts in thousands)

 

New York

  

Washington, DC

EBITDA for the three months ended September 30, 2015

 

$

 282,390 

  

$

 182,688 

 

Add-back:

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

 8,305 

  

 

 6,282 

 

Less EBITDA from:

 

 

 

 

 

 

 

 

Acquisitions

 

 

 (7,379)

  

 

 -   

 

 

Dispositions, including net gains on sale

 

 

 121 

  

 

 (104,006)

 

 

Properties taken out-of-service for redevelopment

 

 

 (19,588)

  

 

 (20)

 

 

Other non-operating income

 

 

 (11,145)

  

 

 (1,414)

Same store EBITDA for the three months ended September 30, 2015

 

$

 252,704 

  

$

 83,530 

 

 

 

 

 

 

 

 

 

 

EBITDA for the three months ended June 30, 2015

 

$

 275,988 

  

$

 85,634 

 

Add-back:

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

 7,889 

  

 

 6,512 

 

Less EBITDA from:

 

 

 

 

 

 

 

 

Acquisitions

 

 

 (3,534)

  

 

 -   

 

 

Dispositions, including net gains on sale

 

 

 161 

  

 

 (2,067)

 

 

Properties taken out-of-service for redevelopment

 

 

 (17,162)

  

 

 (47)

 

 

Other non-operating income

 

 

 (8,329)

  

 

 (1,753)

Same store EBITDA for the three months ended June 30, 2015

 

$

 255,013 

  

$

 88,279 

 

 

 

 

 

 

 

 

 

 

Decrease in same store EBITDA -

 

 

 

 

 

 

 

Three months ended September 30, 2015 vs. June 30, 2015

 

$

 (2,309)

  

$

 (4,749)

 

 

 

  

 

 

 

  

 

 

% decrease in same store EBITDA

 

 

 (0.9%)

  

 

 (5.4%)

 

67

 


 

SUPPLEMENTAL INFORMATION – CONTINUED

 

Reconciliation of Same Store EBITDA to Cash Basis Same Store EBITDA – Three Months Ended September 30, 2015 Compared to June 30, 2015

 

 

(Amounts in thousands)

 

New York

  

Washington, DC

Same store EBITDA for the three months ended September 30, 2015

 

$

 252,704 

  

$

 83,530 

Less: Adjustments for straight line rents, amortization of acquired

 

 

 

 

 

 

 

below-market leases, net, and other non-cash adjustments

 

 

 (38,937)

  

 

 (6,913)

Cash basis same store EBITDA for the three months ended

 

 

 

 

 

 

 

September 30, 2015

 

$

 213,767 

  

$

 76,617 

 

 

 

 

 

 

 

 

 

 

Same store EBITDA for the three months ended June 30, 2015

 

$

 255,013 

  

$

 88,279 

Less: Adjustments for straight line rents, amortization of acquired

 

 

 

 

 

 

 

below-market leases, net, and other non-cash adjustments

 

 

 (33,593)

  

 

 (5,707)

Cash basis same store EBITDA for the three months ended

 

 

 

 

 

 

 

June 30, 2015

 

$

 221,420 

  

$

 82,572 

 

 

 

 

 

 

 

 

 

 

Decrease in cash basis same store EBITDA -  

 

 

 

 

 

 

 

Three months ended September 30, 2015 vs. June 30, 2015

 

$

 (7,653)

  

$

 (5,955)

 

 

 

  

 

 

 

  

 

 

% decrease in cash basis same store EBITDA

 

 

 (3.5%)

  

 

 (7.2%)

68

 


 

Liquidity and Capital Resources

 

Property rental income is our primary source of cash flow and is dependent upon the occupancy and rental rates of our properties.   Our cash requirements include property operating expenses, capital improvements, tenant improvements, leasing commissions, dividends to shareholders, distributions to unitholders of the Operating Partnership, as well as acquisition and development costs.  Other sources of liquidity to fund cash requirements include proceeds from debt financings, including mortgage loans, senior unsecured borrowings, and our revolving credit facilities, proceeds from the issuance of common and preferred equity, and asset sales.    

 

We anticipate that cash flow from continuing operations over the next twelve months will be adequate to fund our business operations, cash distributions to unitholders of the Operating Partnership, cash dividends to shareholders, debt amortization and recurring capital expenditures.  Capital requirements for development expenditures and acquisitions may require funding from borrowings and/or equity offerings.

 

We may from time to time purchase or retire outstanding debt securities or redeem our equity securities.  Such purchases, if any, will depend on prevailing market conditions, liquidity requirements and other factors.  The amounts involved in connection with these transactions could be material to our consolidated financial statements.

 

 

Cash Flows for the Nine Months Ended September 30, 2015

 

Our cash and cash equivalents were $788,137,000 at September 30, 2015, a $410,340,000 decrease over the balance at December 31, 2014.  Our consolidated outstanding debt was $10,007,007,000 at September 30, 2015, a $396,683,000 increase over the balance at December 31, 2014.  As of September 30, 2015 and December 31, 2014, $0 and $0, respectively, was outstanding under our revolving credit facilities.  During the remainder of 2015 and 2016, $0 and $1,409,929,000, respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it.

 

Cash flows provided by operating activities of $443,525,000 was comprised of (i) net income of $575,886,000, (ii) return of capital from real estate fund investments of $91,036,000, (iii) distributions of income from partially owned entities of $51,650,000, and (iv) $10,350,000 of non-cash adjustments, which include depreciation and amortization expense, the reversal of allowance for deferred tax assets, the effect of straight-lining of rental income, loss from partially owned entities and impairment losses on real estate, partially offset by (v) the net change in operating assets and liabilities of $285,397,000 (including the acquisition of real estate fund investments of $95,010,000).

 

Net cash used in investing activities of $480,383,000 was comprised of (i) $388,565,000 of acquisitions of real estate and other, (ii) $339,586,000 of development costs and construction in progress, (iii) $207,845,000 of additions to real estate, (iv) $144,890,000 of investments in partially owned entities, and (v) $25,845,000 of investments in loans receivable, partially offset by (vi) $375,850,000 of proceeds from sales of real estate and related investments, (vii) $201,895,000 of changes in restricted cash, (viii) $31,822,000 of capital distributions from partially owned entities, and (ix) $16,781,000 of proceeds from repayments of mortgage and mezzanine loans receivable and other.

 

Net cash used in financing activities of $373,482,000 was comprised of (i) $2,539,677,000 for the repayments of borrowings, (ii) $355,945,000 of dividends paid on common shares, (iii) $225,000,000 of distributions in connection with the spin-off of UE, (iv) $93,738,000 of distributions to noncontrolling interests, (v) $60,213,000 of dividends paid on preferred shares, (vi) $37,467,000 of debt issuance costs, and (vii) $4,900,000 for the repurchase of shares related to stock compensation agreements resulting from exercises of long-term equity awards by executives of the company and/or related tax withholdings and other, partially offset by (viii) $2,876,460,000 of proceeds from borrowings, (ix) $51,725,000 of contributions from noncontrolling interests, and (x) $15,273,000 of proceeds received from the exercise of employee share options.

 

 

Capital Expenditures

 

Capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions.  Recurring capital expenditures include expenditures to maintain a property’s competitive position within the market and tenant improvements and leasing commissions necessary to re-lease expiring leases or renew or extend existing leases.  Non-recurring capital improvements include expenditures to lease space that has been vacant for more than nine months and expenditures completed in the year of acquisition and the following two years that were planned at the time of acquisition, as well as tenant improvements and leasing commissions for space that was vacant at the time of acquisition of a property.

 

69

 


 
 

Liquidity and Capital Resources – continued

 

Capital Expenditures - continued

 

Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to the cash expended in the nine months ended September 30, 2015.

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

Total

 

New York

 

Washington, DC

 

Other

Expenditures to maintain assets

$

 76,461 

 

$

 41,796 

 

$

 14,722 

 

$

 19,943 

Tenant improvements

 

 128,271 

 

 

 50,702 

 

 

 45,837 

 

 

 31,732 

Leasing commissions

 

 40,661 

 

 

 26,909 

 

 

 5,792 

 

 

 7,960 

Non-recurring capital expenditures

 

 101,517 

 

 

 67,623 

 

 

 32,762 

 

 

 1,132 

Total capital expenditures and leasing commissions (accrual basis)

 

 346,910 

 

 

 187,030 

 

 

 99,113 

 

 

 60,767 

Adjustments to reconcile to cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures in the current year applicable to prior periods

 

 100,704 

 

 

 50,013 

 

 

 27,029 

 

 

 23,662 

 

 

Expenditures to be made in future periods for the current period

 

 (196,872)

 

 

 (99,269)

 

 

 (70,128)

 

 

 (27,475)

Total capital expenditures and leasing commissions (cash basis)

$

 250,742 

 

$

 137,774 

 

$

 56,014 

 

$

 56,954 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

Per square foot per annum

$

 9.13 

 

$

 11.81 

 

$

 6.68 

 

$

n/a

 

Percentage of initial rent

 

11.2%

 

 

9.2%

 

 

17.0%

 

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Development and Redevelopment Expenditures

 

Development and redevelopment expenditures consist of all hard and soft costs associated with the development or redevelopment of a property, including capitalized interest, debt and operating costs until the property is substantially completed and ready for its intended use.  Our development project budgets below include initial leasing costs, which are reflected as non-recurring capital expenditures in the table above.  

           

We are constructing a residential condominium tower containing 392,000 salable square feet on our 220 Central Park South development site.  The incremental development cost of this project is approximately $1.3 billion of which $238,000,000 has been expended as of September 30, 2015.  On September 22, 2015, we upsized the loan on our 220 Central Park South development by $350,000,000 to $950,000,000.  In connection with the upsizing, the standby commitment for a $500,000,000 mezzanine loan for this development has been terminated.

 

We are in the process of redeveloping the retail space at the Marriott Marquis Times Square Hotel, including converting the below grade parking garage into retail, which is expected to be completed by the end of 2015.  The retail space includes 20,000 square feet on grade and 24,000 square feet below grade.  As part of the redevelopment, we have completed the construction of a six-story, 300 foot wide block front, dynamic LED sign, which was lit for the first time in November 2014.  The incremental development cost of this project is approximately $220,000,000, of which $196,000,000 has been expended as of September 30, 2015.

 

We are developing The Bartlett, a 699-unit residential project in Pentagon City, which is expected to be completed in 2016.  The project will include a 37,000 square foot Whole Foods Market at the base of the building.  The incremental development cost of this project is approximately $250,000,000, of which $145,000,000 has been expended as of September 30, 2015.

 

We are redeveloping an existing 171,000 square foot office building in Crystal City (2221 S. Clark Street), which we have leased to WeWork, into 216 rental residential units and 2 floors of co-working space.  The incremental development cost of this project is approximately $40,000,000, of which $19,000,000 has been expended as of September 30, 2015.  The redevelopment is expected to be completed in phases beginning in the fourth quarter of 2015.

 

We have substantially completed the repositioning of 280 Park Avenue (50% owned). Our share of the incremental development costs of this project is approximately $63,000,000, of which $61,000,000 was expended as of September 30, 2015.

 

We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including the Penn Plaza District, and in Washington, including Crystal City, Rosslyn and Pentagon City.

 

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

 

70

 


 

Liquidity and Capital Resources – continued

 

Development and Redevelopment Expenditures - continued

 

Below is a summary of development and redevelopment expenditures incurred in the nine months ended September 30, 2015.  These expenditures include interest of $48,817,000, payroll of $3,557,000 and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $68,003,000, that were capitalized in connection with the development and redevelopment of these projects.

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

Total

 

New York

 

Washington, DC

 

Other

220 Central Park South

$

 98,680 

 

$

 -   

 

$

 -   

 

$

 98,680 

The Bartlett

 

 72,309 

 

 

 -   

 

 

 72,309 

 

 

 -   

330 West 34th Street

 

 25,707 

 

 

 25,707 

 

 

 -   

 

 

 -   

90 Park Avenue

 

 20,430 

 

 

 20,430 

 

 

 -   

 

 

 -   

Marriott Marquis Times Square - retail and signage

 

 19,069 

 

 

 19,069 

 

 

 -   

 

 

 -   

Wayne Towne Center

 

 17,827 

 

 

 -   

 

 

 -   

 

 

 17,827 

2221 South Clark Street (residential conversion)

 

 14,478 

 

 

 -   

 

 

 14,478 

 

 

 -   

640 Fifth Avenue

 

 11,603 

 

 

 11,603 

 

 

 -   

 

 

 -   

Penn Plaza

 

 11,003 

 

 

 11,003 

 

 

 -   

 

 

 -   

251 18th Street

 

 4,863 

 

 

 -   

 

 

 4,863 

 

 

 -   

S. Clark Street/12th Street

 

 3,120 

 

 

 -   

 

 

 3,120 

 

 

 -   

608 Fifth Avenue

 

 2,527 

 

 

 2,527 

 

 

 -   

 

 

 -   

Other

 

 37,970 

 

 

 4,932 

 

 

 17,969 

 

 

 15,069 

 

 

 

 

$

 339,586 

 

$

 95,271 

 

$

 112,739 

 

$

 131,576 

 

 

Cash Flows for the Nine Months Ended September 30, 2014

 

Our cash and cash equivalents were $1,683,142,000 at September 30, 2014, a $1,099,852,000 increase over the balance at December 31, 2013. The increase is primarily due to cash flows from operating and financing activities, partially offset by cash flows from investing activities, as discussed below.

 

Cash flows provided by operating activities of $828,569,000 was comprised of (i) net income of $433,040,000, (ii) $264,302,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental income, equity in net loss of partially owned entities and impairment losses on real estate, (iii) return of capital from real estate fund investments of $215,676,000 and (iv) distributions of income from partially owned entities of $42,164,000, partially offset by (v) the net change in operating assets and liabilities of $126,613,000, including $3,392,000 related to Real Estate Fund investments.

 

Net cash used in investing activities of $197,139,000 was comprised of (i) $368,571,000 of development costs and construction in progress, (ii) $171,660,000 of additions to real estate, (iii) $95,546,000 of acquisitions of real estate and other, (iv) $91,697,000 of investments in partially owned entities, and (v) $11,380,000 of investment in loans receivable, partially offset by (vi) $335,489,000 of proceeds from sales of real estate and related investments, (vii) $101,592,000 of changes in restricted cash, (viii) $96,504,000 of proceeds from repayments of mortgage and mezzanine loans receivable and other and (ix) $8,130,000 of distributions of capital from partially owned entities.   

 

Net cash provided by financing activities of $468,422,000 was comprised of (i) $1,713,285,000 of proceeds from borrowings, (ii) $13,738,000 of proceeds received from the exercise of employee share options, and (iii) $5,297,000 of contributions from noncontrolling interests, partially offset by (iv) $410,724,000 of dividends paid on common shares, (v) $343,354,000 for the repayments of borrowings, (vi) $208,773,000 of distributions to noncontrolling interests, (vii) purchase of marketable securities in connection with the defeasance of mortgage notes payable of $198,884,000, (viii) $61,102,000 of dividends paid on preferred shares, (ix) $40,424,000 of debt issuance costs and (x) $637,000 for the repurchase of shares related to stock compensation agreements and/or related tax withholdings.

 

71

 


 

Liquidity and Capital Resources – continued

 

 

Capital Expenditures in the nine months ended September 30, 2014

 

Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to the cash expended in the nine months ended September 30, 2014.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

Total

 

New York

 

Washington, DC

 

Other

Expenditures to maintain assets

$

 61,235 

 

$

 33,464 

 

$

 9,815 

 

$

 17,956 

Tenant improvements

 

 135,999 

 

 

 102,411 

 

 

 16,280 

 

 

 17,308 

Leasing commissions

 

 59,322 

 

 

 50,173 

 

 

 3,555 

 

 

 5,594 

Non-recurring capital expenditures

 

 67,016 

 

 

 25,038 

 

 

 23,428 

 

 

 18,550 

Total capital expenditures and leasing commissions (accrual basis)

 

 323,572 

 

 

 211,086 

 

 

 53,078 

 

 

 59,408 

Adjustments to reconcile to cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures in the current year applicable to prior periods

 

 110,934 

 

 

 40,117 

 

 

 48,294 

 

 

 22,523 

 

 

Expenditures to be made in future periods for the current period

 

 (209,157)

 

 

 (132,814)

 

 

 (35,664)

 

 

 (40,679)

Total capital expenditures and leasing commissions (cash basis)

$

 225,349 

 

$

 118,389 

 

$

 65,708 

 

$

 41,252 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

Per square foot per annum

$

 6.40 

 

$

 6.80 

 

$

 5.09 

 

$

n/a

 

Percentage of initial rent

 

10.3%

 

 

9.5%

 

 

12.9%

 

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Development and Redevelopment Expenditures in the nine months ended September 30, 2014

 

Below is a summary of development and redevelopment expenditures incurred in the nine months ended September 30, 2014.  These expenditures include interest of $46,517,000, payroll of $5,460,000 and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $46,799,000, that were capitalized in connection with the development and redevelopment of these projects.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

Total

 

New York

 

Washington, DC

 

Other

Springfield Town Center

$

 92,696 

 

$

 -   

 

$

 -   

 

$

 92,696 

Marriott Marquis Times Square - retail and signage

 

 71,566 

 

 

 71,566 

 

 

 -   

 

 

 -   

220 Central Park South

 

 54,543 

 

 

 -   

 

 

 -   

 

 

 54,543 

330 West 34th Street

 

 32,014 

 

 

 32,014 

 

 

 -   

 

 

 -   

The Bartlett

 

 20,300 

 

 

 -   

 

 

 20,300 

 

 

 -   

608 Fifth Avenue

 

 18,127 

 

 

 18,127 

 

 

 -   

 

 

 -   

Wayne Towne Center

 

 16,109 

 

 

 -   

 

 

 -   

 

 

 16,109 

7 West 34th Street

 

 9,454 

 

 

 9,454 

 

 

 -   

 

 

 -   

90 Park Avenue

 

 6,293 

 

 

 6,293 

 

 

 

 

 

 

Other

 

 47,469 

 

 

 13,347 

 

 

 23,443 

 

 

 10,679 

 

 

 

 

$

 368,571 

 

$

 150,801 

 

$

 43,743 

 

$

 174,027 

 

72

 


 

Liquidity and Capital Resources – continued

 

 

Other Commitments and Contingencies

 

We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

 

Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.

 

Our mortgage loans are non-recourse to us.  However, in certain cases we have provided guarantees or master leased tenant space.  These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans.  As of September 30, 2015, the aggregate dollar amount of these guarantees and master leases is approximately $430,000,000.

 

At September 30, 2015, $40,647,000 of letters of credit were outstanding under one of our revolving credit facilities.  Our revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

 

As of September 30, 2015, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $76,000,000.

73

 


 

Funds From Operations (“FFO”)

 

FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciated real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets, extraordinary items and other specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries.  FFO and FFO per diluted share are non-GAAP financial measures used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions.  FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flows as a liquidity measure.  FFO may not be comparable to similarly titled measures employed by other companies.  The calculations of both the numerator and denominator used in the computation of income per share are disclosed in Note 19 – Income per Share, in our consolidated financial statements on page 28 of this Quarterly Report on Form 10-Q.

 

FFO for the Three and Nine Months Ended September 30, 2015 and 2014

 

FFO attributable to common shareholders plus assumed conversions was $236,039,000, or $1.25 per diluted share for the three months ended September 30, 2015, compared to $217,362,000, or $1.15 per diluted share, for the prior year’s three months. FFO attributable to common shareholders plus assumed conversions was $779,506,000, or $4.11 per diluted share for the nine months ended September 30, 2015, compared to $684,247,000, or $3.63 per diluted share, for the prior year’s nine months.  Details of certain items that affect comparability are discussed in the financial results summary of our “Overview”.

 

(Amounts in thousands, except per share amounts)

For The Three Months Ended

 

For the Nine Months Ended

 

September 30,

 

September 30,

 

 

 

2015 

 

2014 

 

2015 

 

2014 

Reconciliation of our net income to FFO:

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Vornado

$

 219,234 

 

$

 151,524 

 

$

 509,327 

 

$

 331,249 

Depreciation and amortization of real property

 

 134,623 

 

 

 123,578 

 

 

 382,175 

 

 

 387,549 

Net gains on sale of real estate

 

 (135,557)

 

 

 (57,796)

 

 

 (146,424)

 

 

 (57,796)

Real estate impairment losses

 

 -   

 

 

 -   

 

 

 256 

 

 

 20,842 

Proportionate share of adjustments to equity in net loss of

 

 

 

 

 

 

 

 

 

 

 

 

partially owned entities to arrive at FFO:

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization of real property

 

 38,131 

 

 

 26,604 

 

 

 106,685 

 

 

 93,416 

 

 

Net gains on sale of real estate

 

 -   

 

 

 (760)

 

 

 (4,513)

 

 

 (760)

 

 

Real estate impairment losses

 

 2,313 

 

 

 -   

 

 

 12,617 

 

 

 -   

 

 

Income tax effect of above adjustments

 

 -   

 

 

 (207)

 

 

 -   

 

 

 (7,287)

Noncontrolling interests' share of above adjustments

 

 (2,364)

 

 

 (5,240)

 

 

 (20,473)

 

 

 (21,916)

FFO attributable to Vornado

 

 256,380 

 

 

 237,703 

 

 

 839,650 

 

 

 745,297 

Preferred share dividends

 

 (20,364)

 

 

 (20,365)

 

 

 (60,213)

 

 

 (61,099)

FFO attributable to common shareholders

 

 236,016 

 

 

 217,338 

 

 

 779,437 

 

 

 684,198 

Convertible preferred share dividends

 

 23 

 

 

 24 

 

 

 69 

 

 

 49 

FFO attributable to common shareholders plus assumed conversions

$

 236,039 

 

$

 217,362 

 

$

 779,506 

 

$

 684,247 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Weighted Average Shares

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 188,504 

 

 

 187,671 

 

 

 188,291 

 

 

 187,503 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock options and restricted share awards

 

 1,032 

 

 

 1,099 

 

 

 1,187 

 

 

 1,046 

 

 

Convertible preferred shares

 

 45 

 

 

 42 

 

 

 46 

 

 

 43 

 

Denominator for FFO per diluted share

 

 189,581 

 

 

 188,812 

 

 

 189,524 

 

 

 188,592 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO attributable to common shareholders plus assumed conversions

 

 

 

 

 

 

 

 

 

 

 

 

per diluted share

$

 1.25 

 

$

 1.15 

 

$

 4.11 

 

$

 3.63 

74

 


 

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

We have exposure to fluctuations in market interest rates. Market interest rates are sensitive to many factors that are beyond our control. Our exposure to a change in interest rates on our consolidated and non-consolidated debt (all of which arises out of non-trading activity) is as follows:

 

(Amounts in thousands, except per share amounts)

2015 

 

2014 

 

 

 

 

 

  

 

Weighted

 

Effect of 1%

 

 

 

 

Weighted

 

 

 

September 30,

  

 

Average

 

Change In

 

December 31,

 

Average

 

 

 

Balance

  

 

Interest Rate

 

Base Rates

 

Balance

 

Interest Rate

Consolidated debt:

 

 

  

 

 

 

 

 

 

 

 

 

 

 

Variable rate

$

 2,818,142 

  

 

2.01%

 

$

 28,181 

 

$

 1,763,769 

 

2.20%

 

Fixed rate

 

 7,188,865 

  

 

4.34%

 

 

 -   

 

 

 7,846,555 

 

4.36%

 

 

 

$

 10,007,007 

  

 

3.69%

 

 

 28,181 

 

$

 9,610,324 

 

3.97%

Pro rata share of debt of non-consolidated

 

 

  

 

 

 

 

 

 

 

 

 

 

 

entities (non-recourse):

 

 

  

 

 

 

 

 

 

 

 

 

 

 

Variable rate – excluding Toys

$

 472,046 

  

 

1.86%

 

 

 4,720 

 

$

 319,387 

 

1.72%

 

Variable rate – Toys

 

 1,046,123 

  

 

7.05%

 

 

 10,461 

 

 

 1,199,835 

 

6.47%

 

Fixed rate (including $662,214 and

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

$674,443 of Toys debt in 2015 and 2014)

 

 2,780,337 

  

 

6.39%

 

 

 -   

 

 

 2,754,410 

 

6.45%

 

 

 

$

 4,298,506 

  

 

6.05%

 

 

 15,181 

 

$

 4,273,632 

 

6.10%

Noncontrolling interests’ share of above

 

 

  

 

 

 

 

 (2,515)

 

 

 

 

 

Total change in annual net income

 

 

  

 

 

 

$

 40,847 

 

 

 

 

 

Per share-diluted

 

 

  

 

 

 

$

 0.22 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

We may utilize various financial instruments to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies, depending on our analysis of the interest rate environment and the costs and risks of such strategies. As of September 30, 2015, we have one interest rate swap on a $418,000,000 mortgage loan that swapped the rate from LIBOR plus 1.65% (1.85% at September 30, 2015) to a fixed rate of 4.78% through March 2018. 

 

 

Fair Value of Debt

 

The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the rate at which similar loans could be made currently to borrowers with similar credit ratings, for the remaining term of such debt.  As of September 30, 2015, the estimated fair value of our consolidated debt was $10,156,000,000.

 

 

Item 4.   Controls and Procedures

Disclosure Controls and Procedures:  The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a‑15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2015, such disclosure controls and procedures were effective.

 

Internal Control Over Financial Reporting:  There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

75

 


 
PART II.   OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

 

We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

 

 

Item 1A. Risk Factors

 

 

There were no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2014.

 

 

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

 

None.

 

 

Item 3.   Defaults Upon Senior Securities

        None.

 

 

Item 4.   Mine Safety Disclosures

        Not applicable.

 

 

Item 5.   Other Information

        None.

 

Item 6.   Exhibits

Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the attached Exhibit Index.

 

76

 


 
 

SIGNATURES

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

 

 

 

VORNADO REALTY TRUST

 

 

(Registrant)

 

 

 

 

 

 

Date:  November 2, 2015

By:

/s/ Stephen W. Theriot

 

 

Stephen W. Theriot, Chief Financial Officer
(duly authorized officer and principal financial and
accounting officer)

77

 


 
 

EXHIBIT INDEX

 

 

 

 

 

 

 

Exhibit No.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15.1

 

-

Letter regarding Unaudited Interim Financial Information

 

 

 

 

 

 

 

 

31.1

 

-

Rule 13a-14 (a) Certification of the Chief Executive Officer

 

     

 

 

 

 

 

31.2

 

-

Rule 13a-14 (a) Certification of the Chief Financial Officer

 

     

 

 

 

 

 

32.1

 

-

Section 1350 Certification of the Chief Executive Officer

 

     

 

 

 

 

 

32.2

 

-

Section 1350 Certification of the Chief Financial Officer

 

 

 

 

 

 

 

 

101.INS

 

-

XBRL Instance Document

 

     

 

 

 

 

 

101.SCH

 

-

XBRL Taxonomy Extension Schema

 

     

 

 

 

 

 

101.CAL

 

-

XBRL Taxonomy Extension Calculation Linkbase

 

     

 

 

 

 

 

101.DEF

 

-

XBRL Taxonomy Extension Definition Linkbase

 

     

 

 

 

 

 

101.LAB

 

-

XBRL Taxonomy Extension Label Linkbase

 

     

 

 

 

 

 

101.PRE

 

-

XBRL Taxonomy Extension Presentation Linkbase

 

     

 

 

 

 

 

 

 

 

 

 

 

78