UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark one)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)   

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended:   

June 30, 2017

 

 

Or

 

TRANSITION REPORT PURSUANT TO SECTION  13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from:

 

to

 

 

Commission File Number:

 001-11954 (Vornado Realty Trust)

 

Commission File Number:

001-34482 (Vornado Realty L.P.)

 

 

 

Vornado Realty Trust

Vornado Realty L.P.

 

 (Exact name of registrants as specified in its charter)

 

Vornado Realty Trust

 

Maryland

 

22-1657560

 

 

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

 

 

 

 

Vornado Realty L.P.

 

Delaware

 

13-3925979

 

 

(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

(Registrants’ 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.  Vornado Realty Trust: Yes ☑   No ☐    Vornado Realty L.P.: Yes ☑   No ☐ 

 

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).  Vornado Realty Trust: Yes ☑   No ☐    Vornado Realty L.P.: Yes ☑   No ☐ 

 

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,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Vornado Realty Trust:

Large Accelerated Filer

 

Accelerated Filer

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

 

Smaller Reporting Company

 

 

Emerging Growth Company

Vornado Realty L.P.:

  Large Accelerated Filer

 

Accelerated Filer

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

 

Smaller Reporting Company

 

 

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

Vornado Realty Trust: Yes ☐   No ☑    Vornado Realty L.P.: Yes ☐   No ☑ 

 

As of June 30, 2017, 189,465,023 of Vornado Realty Trust’s common shares of beneficial interest are outstanding.

  

 


 

EXPLANATORY NOTE

 

This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2017 of Vornado Realty Trust and Vornado Realty L.P.  Unless stated otherwise or the context otherwise requires, references to “Vornado” refer to Vornado Realty Trust, a Maryland real estate investment trust (“REIT”), and references to the “Operating Partnership” refer to Vornado Realty L.P., a Delaware limited partnership. References to the “Company,” “we,” “us” and “our” mean collectively Vornado, the Operating Partnership and those subsidiaries consolidated by Vornado.

 

The Operating Partnership is the entity through which we conduct substantially all of our business and own, either directly or through subsidiaries, substantially all of our assets. Vornado is the sole general partner and also a 93.6% limited partner of the Operating Partnership.  As the sole general partner of the Operating Partnership, Vornado has exclusive control of the Operating Partnership’s day-to-day management.

  

Under the limited partnership agreement of the Operating Partnership, unitholders may present their Class A units for redemption at any time (subject to restrictions agreed upon at the time of issuance of the units that may restrict such right for a period of time). Class A units may be tendered for redemption to the Operating Partnership for cash; Vornado, at its option, may assume that obligation and pay the holder either cash or Vornado common shares on a one-for-one basis.  Because the number of Vornado common shares outstanding at all times equals the number of Class A units owned by Vornado, the redemption value of each Class A unit is equivalent to the market value of one Vornado common share, and the quarterly distribution to a Class A unitholder is equal to the quarterly dividend paid to a Vornado common shareholder.  This one-for-one exchange ratio is subject to specified adjustments to prevent dilution. Vornado generally expects that it will elect to issue its common shares in connection with each such presentation for redemption rather than having the Operating Partnership pay cash. With each such exchange or redemption, Vornado’s percentage ownership in the Operating Partnership will increase. In addition, whenever Vornado issues common shares other than to acquire Class A units of the Operating Partnership, Vornado must contribute any net proceeds it receives to the Operating Partnership and the Operating Partnership must issue to Vornado an equivalent number of Class A units of the Operating Partnership. This structure is commonly referred to as an umbrella partnership REIT, or UPREIT.

 

The Company believes that combining the quarterly reports on Form 10-Q of Vornado and the Operating Partnership into this single report provides the following benefits:

 

enhances investors’ understanding of Vornado and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

eliminates duplicative disclosure and provides a more streamlined and readable presentation because a substantial portion of the disclosure applies to both Vornado and the Operating Partnership; and

creates time and cost efficiencies in the preparation of one combined report instead of two separate reports.

 

The Company believes it is important to understand the few differences between Vornado and the Operating Partnership in the context of how Vornado and the Operating Partnership operate as a consolidated company. The financial results of the Operating Partnership are consolidated into the financial statements of Vornado. Vornado does not have any significant assets, liabilities or operations, other than its investment in the Operating Partnership.  The Operating Partnership, not Vornado, generally executes all significant business relationships other than transactions involving the securities of Vornado. The Operating Partnership holds substantially all of the assets of Vornado. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from equity offerings by Vornado, which are contributed to the capital of the Operating Partnership in exchange for units of limited partnership in the Operating Partnership, as applicable, the Operating Partnership generates all remaining capital required by the Company’s business. These sources may include working capital, net cash provided by operating activities, borrowings under the revolving credit facility, the issuance of secured and unsecured debt and equity securities, and proceeds received from the disposition of certain properties.

2


 

To help investors better understand the key differences between Vornado and the Operating Partnership, certain information for Vornado and the Operating Partnership in this report has been separated, as set forth below:

 

Item 1. Financial Statements (unaudited), which includes the following specific disclosures for Vornado Realty Trust and Vornado Realty L.P.:

 

   •

Note 10. Redeemable Noncontrolling Interests/Redeemable Partnership Units

 

   •

Note 18. Income Per Share/Income Per Class A Unit

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations includes information specific to each entity, where applicable.

 

  This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of Vornado and the Operating Partnership in order to establish that the requisite certifications have been made and that Vornado and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.

         

  

3


 

PART I.

   

Financial Information:

 

Page Number

 

 

 

 

 

 

 

 

 

Item 1.

 

Financial Statements of Vornado Realty Trust:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of June 30, 2017 and December 31, 2016

 

5

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the

 

 

 

 

 

 

Three and Six Months Ended June 30, 2017 and 2016

 

6

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited)

 

 

 

 

 

 

for the Three and Six Months Ended June 30, 2017 and 2016

 

7

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Changes in Equity (Unaudited) for the

 

 

 

 

 

 

Six Months Ended June 30, 2017 and 2016

 

8

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the

 

 

 

 

 

 

Six Months Ended June 30, 2017 and 2016

 

10

 

 

 

 

 

 

 

 

 

 

 

Financial Statements of Vornado Realty L.P.:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of June 30, 2017 and December 31, 2016

 

12

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the

 

 

 

 

 

 

Three and Six Months Ended June 30, 2017 and 2016

 

13

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited)

 

 

 

 

 

 

for the Three and Six Months Ended June 30, 2017 and 2016

 

14

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Changes in Equity (Unaudited) for the

 

 

 

 

 

 

Six Months Ended June 30, 2017 and 2016

 

15

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the

 

 

 

 

 

 

Six Months Ended June 30, 2017 and 2016

 

17

 

 

 

 

 

 

 

 

 

 

 

Vornado Realty Trust and Vornado Realty L.P.:

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

19

 

 

 

 

 

 

 

 

 

 

 

Reports of Independent Registered Public Accounting Firm

 

50

 

 

 

 

 

 

 

 

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition

 

 

 

 

 

 

and Results of Operations

 

52

 

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

100

 

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

101

 

 

 

 

 

 

 

PART II.

 

Other Information:

 

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

102

 

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

102

 

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

102

 

 

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

102

 

 

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

102

 

 

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

102

 

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

102

 

 

 

 

 

 

 

SIGNATURES

 

 

 

103

 

 

 

 

 

 

 

EXHIBIT INDEX

 

105

4


 

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

 

VORNADO REALTY TRUST

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

 

 

 

 

 

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

June 30, 2017

 

December 31, 2016

ASSETS

 

 

 

Real estate, at cost:

 

 

 

 

 

 

Land

$

4,048,971

 

$

4,065,142

 

Buildings and improvements

 

12,750,314

 

 

12,727,980

 

Development costs and construction in progress

 

1,676,353

 

 

1,430,276

 

Leasehold improvements and equipment

 

119,852

 

 

116,560

 

 

Total

 

18,595,490

 

 

18,339,958

 

Less accumulated depreciation and amortization

 

(3,682,903)

 

 

(3,513,574)

Real estate, net

 

14,912,587

 

 

14,826,384

Cash and cash equivalents

 

1,471,303

 

 

1,501,027

Restricted cash

 

86,386

 

 

98,295

Marketable securities

 

187,489

 

 

203,704

Tenant and other receivables, net of allowance for doubtful accounts of $11,513 and $10,920

 

83,768

 

 

94,467

Investments in partially owned entities

 

1,354,089

 

 

1,428,019

Real estate fund investments

 

455,692

 

 

462,132

Receivable arising from the straight-lining of rents, net of allowance of $1,656 and $2,227

 

1,062,456

 

 

1,032,736

Deferred leasing costs, net of accumulated amortization of $242,373 and $228,862

 

449,714

 

 

454,345

Identified intangible assets, net of accumulated amortization of $211,285 and $207,330

 

176,506

 

 

192,731

Assets related to discontinued operations

 

4,378

 

 

5,570

Other assets

 

644,922

 

 

515,437

 

 

 

$

20,889,290

 

$

20,814,847

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

 

 

 

 

 

Mortgages payable, net

$

9,502,694

 

$

9,278,263

Senior unsecured notes, net

 

846,286

 

 

845,577

Unsecured term loan, net

 

372,975

 

 

372,215

Unsecured revolving credit facilities

 

115,630

 

 

115,630

Accounts payable and accrued expenses

 

427,401

 

 

458,694

Deferred revenue

 

264,035

 

 

287,846

Deferred compensation plan

 

104,566

 

 

121,374

Liabilities related to discontinued operations

 

2,406

 

 

2,870

Other liabilities

 

431,983

 

 

435,436

 

Total liabilities

 

12,067,976

 

 

11,917,905

Commitments and contingencies

 

 

 

 

-

Redeemable noncontrolling interests:

 

 

 

 

 

 

Class A units - 12,477,710 and 12,197,162 units outstanding

 

1,171,656

 

 

1,273,018

 

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

 

5,428

 

 

5,428

 

 

Total redeemable noncontrolling interests

 

1,177,084

 

 

1,278,446

Vornado shareholders' equity:

 

 

 

 

 

 

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

 

 

 

 

 

 

 

shares; issued and outstanding 42,823,428 and 42,824,829 shares

 

1,038,011

 

 

1,038,055

 

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

 

 

 

 

 

 

 

250,000,000 shares; issued and outstanding 189,465,023 and 189,100,876 shares

 

7,556

 

 

7,542

 

Additional capital

 

7,279,834

 

 

7,153,332

 

Earnings less than distributions

 

(1,524,806)

 

 

(1,419,382)

 

Accumulated other comprehensive income

 

115,839

 

 

118,972

 

 

Total Vornado shareholders' equity

 

6,916,434

 

 

6,898,519

Noncontrolling interests in consolidated subsidiaries

 

727,796

 

 

719,977

 

Total equity

 

7,644,230

 

 

7,618,496

 

 

 

$

20,889,290

 

$

20,814,847

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

5


VORNADO REALTY TRUST 

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands, except per share amounts)

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2017

 

2016

 

2017

 

2016

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

Property rentals

$

529,294

 

$

527,178

 

$

1,043,112

 

$

1,046,670

 

Tenant expense reimbursements

 

60,687

 

 

60,841

 

 

128,357

 

 

120,416

 

Fee and other income

 

36,058

 

 

33,689

 

 

75,418

 

 

67,659

Total revenues

 

626,039

 

 

621,708

 

 

1,246,887

 

 

1,234,745

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

256,687

 

 

245,138

 

 

517,594

 

 

501,487

 

Depreciation and amortization

 

137,015

 

 

141,313

 

 

275,826

 

 

284,270

 

General and administrative

 

42,470

 

 

45,564

 

 

99,128

 

 

94,268

 

Acquisition and transaction related costs

 

6,471

 

 

2,879

 

 

14,476

 

 

7,486

 

Skyline properties impairment loss

 

-

 

 

-

 

 

-

 

 

160,700

Total expenses

 

442,643

 

 

434,894

 

 

907,024

 

 

1,048,211

Operating income

 

183,396

 

 

186,814

 

 

339,863

 

 

186,534

Income (loss) from partially owned entities

 

46,276

 

 

642

 

 

47,721

 

 

(3,598)

Income from real estate fund investments

 

4,391

 

 

16,389

 

 

4,659

 

 

27,673

Interest and other investment income, net

 

9,307

 

 

10,236

 

 

18,535

 

 

13,754

Interest and debt expense

 

(96,797)

 

 

(105,576)

 

 

(191,082)

 

 

(206,065)

Net gains on disposition of wholly owned

 

 

 

 

 

 

 

 

 

 

 

 

and partially owned assets

 

-

 

 

159,511

 

 

501

 

 

160,225

Income before income taxes

 

146,573

 

 

268,016

 

 

220,197

 

 

178,523

Income tax benefit (expense)

 

248

 

 

(2,109)

 

 

(1,957)

 

 

(4,940)

Income from continuing operations

 

146,821

 

 

265,907

 

 

218,240

 

 

173,583

Income from discontinued operations

 

663

 

 

2,475

 

 

3,091

 

 

3,191

Net income

 

147,484

 

 

268,382

 

 

221,331

 

 

176,774

Less net income attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated subsidiaries

 

(7,677)

 

 

(13,025)

 

 

(14,414)

 

 

(22,703)

 

Operating Partnership

 

(7,706)

 

 

(14,531)

 

 

(10,935)

 

 

(7,044)

Net income attributable to Vornado

 

132,101

 

 

240,826

 

 

195,982

 

 

147,027

Preferred share dividends

 

(16,129)

 

 

(20,363)

 

 

(32,258)

 

 

(40,727)

NET INCOME attributable to common shareholders

$

115,972

 

$

220,463

 

$

163,724

 

$

106,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE - BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.61

 

$

1.16

 

$

0.84

 

$

0.54

 

Income from discontinued operations, net

 

-

 

 

0.01

 

 

0.02

 

 

0.02

 

Net income per common share

$

0.61

 

$

1.17

 

$

0.86

 

$

0.56

 

Weighted average shares outstanding

 

189,395

 

 

188,772

 

 

189,304

 

 

188,715

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE - DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.61

 

$

1.15

 

$

0.84

 

$

0.54

 

Income from discontinued operations, net

 

-

 

 

0.01

 

 

0.02

 

 

0.02

 

Net income per common share

$

0.61

 

$

1.16

 

$

0.86

 

$

0.56

 

Weighted average shares outstanding

 

190,444

 

 

189,885

 

 

190,674

 

 

190,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS PER COMMON SHARE

$

0.71

 

$

0.63

 

$

1.42

 

$

1.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

6


VORNADO REALTY TRUST 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2017

 

2016

 

2017

 

2016

Net income

$

147,484

 

$

268,382

 

$

221,331

 

$

176,774

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

(Reduction) increase in unrealized net gain on

 

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities

 

(1,206)

 

 

28,019

 

 

(16,215)

 

 

39,113

 

Pro rata share of amounts reclassified from accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

other comprehensive income of a

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiary

 

-

 

 

-

 

 

9,268

 

 

-

 

Pro rata share of other comprehensive loss of

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiaries

 

(980)

 

 

(628)

 

 

(1,031)

 

 

(622)

 

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

 

(1,204)

 

 

(6,976)

 

 

4,638

 

 

(11,171)

Comprehensive income

 

144,094

 

 

288,797

 

 

217,991

 

 

204,094

Less comprehensive income attributable to noncontrolling interests

 

(15,173)

 

 

(28,814)

 

 

(25,142)

 

 

(31,432)

Comprehensive income attributable to Vornado Realty Trust

$

128,921

 

$

259,983

 

$

192,849

 

$

172,662

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

7


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

 

Subsidiaries

 

Equity

Balance, December 31, 2016

 

 

42,825

 

$

1,038,055

 

 

189,101

 

$

7,542

 

$

7,153,332

 

$

(1,419,382)

 

$

118,972

 

$

719,977

 

$

7,618,496

Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

195,982

 

 

-

 

 

-

 

 

195,982

Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests in 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

consolidated subsidiaries

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

14,414

 

 

14,414

Dividends on common shares

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(268,817)

 

 

-

 

 

-

 

 

(268,817)

Dividends on preferred shares

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(32,258)

 

 

-

 

 

-

 

 

(32,258)

Common shares issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upon redemption of Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

units, at redemption value

 

 

-

 

 

-

 

 

249

 

 

10

 

 

25,552

 

 

-

 

 

-

 

 

-

 

 

25,562

 

Under employees' share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

option plan

 

 

-

 

 

-

 

 

103

 

 

4

 

 

8,842

 

 

-

 

 

-

 

 

-

 

 

8,846

 

Under dividend reinvestment plan

 

 

-

 

 

-

 

 

8

 

 

-

 

 

780

 

 

-

 

 

-

 

 

-

 

 

780

Contributions

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

991

 

 

991

Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate fund investments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(6,200)

 

 

(6,200)

 

Other

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(1,339)

 

 

(1,339)

Conversion of Series A preferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

shares to common shares

 

 

(2)

 

 

(44)

 

 

2

 

 

-

 

 

44

 

 

-

 

 

-

 

 

-

 

 

-

Deferred compensation shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and options

 

 

-

 

 

-

 

 

2

 

 

-

 

 

1,076

 

 

(285)

 

 

-

 

 

-

 

 

791

Reduction in unrealized net gain on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(16,215)

 

 

-

 

 

(16,215)

Pro rata share of amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassified related to a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiary

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

9,268

 

 

-

 

 

9,268

Pro rata share of other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

comprehensive loss of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiaries

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(1,031)

 

 

-

 

 

(1,031)

Increase in value of interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

rate swaps

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

4,636

 

 

-

 

 

4,636

Adjustments to carry redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A units at redemption value

 

 

-

 

 

-

 

 

-

 

 

-

 

 

90,208

 

 

-

 

 

-

 

 

-

 

 

90,208

Redeemable noncontrolling interests'

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

share of above adjustments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

207

 

 

-

 

 

207

Other

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(46)

 

 

2

 

 

(47)

 

 

(91)

Balance, June 30, 2017

 

 

42,823

 

$

1,038,011

 

 

189,465

 

$

7,556

 

$

7,279,834

 

$

(1,524,806)

 

$

115,839

 

$

727,796

 

$

7,644,230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

8


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

 

Subsidiaries

 

Equity

Balance, December 31, 2015

 

 

52,677

 

$

1,276,954

 

 

188,577

 

$

7,521

 

$

7,132,979

 

$

(1,766,780)

 

$

46,921

 

$

778,483

 

$

7,476,078

Net income attributable to Vornado

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

147,027

 

 

-

 

 

-

 

 

147,027

Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests in 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

consolidated subsidiaries

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

22,703

 

 

22,703

Dividends on common shares

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(237,832)

 

 

-

 

 

-

 

 

(237,832)

Dividends on preferred shares

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(40,727)

 

 

-

 

 

-

 

 

(40,727)

Common shares issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upon redemption of Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

units, at redemption value

 

 

-

 

 

-

 

 

195

 

 

8

 

 

18,200

 

 

-

 

 

-

 

 

-

 

 

18,208

 

Under employees' share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

option plan

 

 

-

 

 

-

 

 

38

 

 

1

 

 

3,092

 

 

-

 

 

-

 

 

-

 

 

3,093

 

Under dividend reinvestment plan

 

 

-

 

 

-

 

 

8

 

 

-

 

 

717

 

 

-

 

 

-

 

 

-

 

 

717

Contributions

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

19,674

 

 

19,674

Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate fund investments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(56,533)

 

 

(56,533)

 

Other

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(10,970)

 

 

(10,970)

Deferred compensation shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and options

 

 

-

 

 

-

 

 

7

 

 

1

 

 

953

 

 

(186)

 

 

-

 

 

-

 

 

768

Increase in unrealized net gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

on available-for-sale securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

39,113

 

 

-

 

 

39,113

Pro rata share of other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

comprehensive loss of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiaries

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(622)

 

 

-

 

 

(622)

Reduction in value of interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

rate swaps

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(11,170)

 

 

-

 

 

(11,170)

Adjustments to carry redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A units at redemption value

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(20,369)

 

 

-

 

 

-

 

 

-

 

 

(20,369)

Redeemable noncontrolling interests'

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

share of above adjustments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(1,685)

 

 

-

 

 

(1,685)

Other

 

 

-

 

 

-

 

 

1

 

 

-

 

 

(1)

 

 

(7)

 

 

(1)

 

 

111

 

 

102

Balance, June 30, 2016

 

 

52,677

 

$

1,276,954

 

 

188,826

 

$

7,531

 

$

7,135,571

 

$

(1,898,505)

 

$

72,556

 

$

753,468

 

$

7,347,575

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

9


VORNADO REALTY TRUST 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

(Amounts in thousands)

For the Six Months Ended June 30,

 

 

 

2017

 

2016

Cash Flows from Operating Activities:

 

 

 

 

 

Net income

$

221,331

 

$

176,774

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

 

 

 

 

 

 

Depreciation and amortization (including amortization of deferred financing costs)

 

289,898

 

 

299,541

 

Equity in net (income) loss of partially owned entities

 

(47,721)

 

 

3,598

 

Distributions of income from partially owned entities

 

44,778

 

 

42,012

 

Other non-cash adjustments

 

30,070

 

 

23,049

 

Straight-lining of rents

 

(28,581)

 

 

(83,883)

 

Amortization of below-market leases, net

 

(24,391)

 

 

(29,811)

 

Net realized and unrealized loss (gain) on real estate fund investments

 

6,201

 

 

(21,277)

 

Net gains on sale of real estate and other

 

(2,267)

 

 

(2,210)

 

Net gains on disposition of wholly owned and partially owned assets

 

(501)

 

 

(160,225)

 

Skyline properties impairment loss

 

-

 

 

160,700

 

Return of capital from real estate fund investments

 

-

 

 

71,888

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Tenant and other receivables, net

 

8,446

 

 

2,358

 

 

Prepaid assets

 

(148,446)

 

 

(131,927)

 

 

Other assets

 

(8,402)

 

 

(29,303)

 

 

Accounts payable and accrued expenses

 

(1,324)

 

 

6,634

 

 

Other liabilities

 

(22,874)

 

 

(9,113)

Net cash provided by operating activities

 

316,217

 

 

318,805

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Development costs and construction in progress

 

(191,073)

 

 

(277,214)

 

Additions to real estate

 

(139,611)

 

 

(170,265)

 

Distributions of capital from partially owned entities

 

113,507

 

 

92,465

 

Investments in partially owned entities

 

(27,720)

 

 

(90,659)

 

Acquisitions of real estate and other

 

(11,841)

 

 

(91,100)

 

Proceeds from sales of real estate and related investments

 

5,180

 

 

159,888

 

Proceeds from repayments of mortgage loans receivable

 

29

 

 

22

 

Net deconsolidation of 7 West 34th Street

 

-

 

 

(48,000)

 

Investments in loans receivable and other

 

-

 

 

(11,700)

 

Purchases of marketable securities

 

-

 

 

(4,379)

Net cash used in investing activities

 

(251,529)

 

 

(440,942)

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

10


VORNADO REALTY TRUST 

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Six Months Ended June 30,

 

 

 

 

2017

 

2016

Cash Flows from Financing Activities:

 

 

 

 

 

 

Dividends paid on common shares

$

(268,817)

 

$

(237,832)

 

Proceeds from borrowings

 

226,929

 

 

1,325,246

 

Dividends paid on preferred shares

 

(32,258)

 

 

(40,727)

 

Distributions to noncontrolling interests

 

(25,617)

 

 

(83,266)

 

Repayments of borrowings

 

(13,971)

 

 

(1,032,115)

 

Proceeds received from exercise of employee share options

 

9,626

 

 

3,810

 

Debt issuance and other costs

 

(2,919)

 

 

(29,478)

 

Contributions from noncontrolling interests

 

991

 

 

11,874

 

Repurchase of shares related to stock compensation agreements and related

 

 

 

 

 

 

 

tax withholdings and other

 

(285)

 

 

(186)

Net cash used in financing activities

 

(106,321)

 

 

(82,674)

Net decrease in cash and cash equivalents and restricted cash

 

(41,633)

 

 

(204,811)

Cash and cash equivalents and restricted cash at beginning of period

 

1,599,322

 

 

1,943,506

Cash and cash equivalents and restricted cash at end of period

$

1,557,689

 

$

1,738,695

 

 

 

Reconciliation of Cash and Cash Equivalents and Restricted Cash:

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

$

1,501,027

 

$

1,835,707

 

Restricted cash at beginning of period

 

98,295

 

 

107,799

 

Cash and cash equivalents and restricted cash at beginning of period

$

1,599,322

 

$

1,943,506

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

$

1,471,303

 

$

1,644,067

 

Restricted cash at end of period

 

86,386

 

 

94,628

 

Cash and cash equivalents and restricted cash at end of period

$

1,557,689

 

$

1,738,695

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Cash payments for interest, excluding capitalized interest of $20,050 and $13,918

$

175,718

 

$

181,432

 

Cash payments for income taxes

$

3,151

 

$

5,003

 

 

 

 

 

 

 

Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

Adjustments to carry redeemable Class A units at redemption value

$

90,208

 

$

(20,369)

 

Accrued capital expenditures included in accounts payable and accrued expenses

 

59,733

 

 

144,079

 

Write-off of fully depreciated assets

 

(35,727)

 

 

(220,654)

 

(Reduction) increase in unrealized net gain on available-for-sale securities

 

(16,215)

 

 

39,113

 

Decrease in assets and liabilities resulting from the deconsolidation of investments

 

 

 

 

 

 

 

that were previously consolidated:

 

 

 

 

 

 

 

 

Real estate, net

 

-

 

 

(122,047)

 

 

 

Mortgage payable, net

 

-

 

 

(290,418)

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

11


VORNADO REALTY L.P. 

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

 

 

 

 

 

(Amounts in thousands, except unit amounts)

June 30, 2017

 

December 31, 2016

ASSETS

 

 

 

Real estate, at cost:

 

 

 

 

 

 

Land

$

4,048,971

 

$

4,065,142

 

Buildings and improvements

 

12,750,314

 

 

12,727,980

 

Development costs and construction in progress

 

1,676,353

 

 

1,430,276

 

Leasehold improvements and equipment

 

119,852

 

 

116,560

 

 

Total

 

18,595,490

 

 

18,339,958

 

Less accumulated depreciation and amortization

 

(3,682,903)

 

 

(3,513,574)

Real estate, net

 

14,912,587

 

 

14,826,384

Cash and cash equivalents

 

1,471,303

 

 

1,501,027

Restricted cash

 

86,386

 

 

98,295

Marketable securities

 

187,489

 

 

203,704

Tenant and other receivables, net of allowance for doubtful accounts of $11,513 and $10,920

 

83,768

 

 

94,467

Investments in partially owned entities

 

1,354,089

 

 

1,428,019

Real estate fund investments

 

455,692

 

 

462,132

Receivable arising from the straight-lining of rents, net of allowance of $1,656 and $2,227

 

1,062,456

 

 

1,032,736

Deferred leasing costs, net of accumulated amortization of $242,373 and $228,862

 

449,714

 

 

454,345

Identified intangible assets, net of accumulated amortization of $211,285 and $207,330

 

176,506

 

 

192,731

Assets related to discontinued operations

 

4,378

 

 

5,570

Other assets

 

644,922

 

 

515,437

 

 

 

$

20,889,290

 

$

20,814,847

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE PARTNERSHIP UNITS AND EQUITY

 

 

 

 

 

Mortgages payable, net

$

9,502,694

 

$

9,278,263

Senior unsecured notes, net

 

846,286

 

 

845,577

Unsecured term loan, net

 

372,975

 

 

372,215

Unsecured revolving credit facilities

 

115,630

 

 

115,630

Accounts payable and accrued expenses

 

427,401

 

 

458,694

Deferred revenue

 

264,035

 

 

287,846

Deferred compensation plan

 

104,566

 

 

121,374

Liabilities related to discontinued operations

 

2,406

 

 

2,870

Other liabilities

 

431,983

 

 

435,436

 

Total liabilities

 

12,067,976

 

 

11,917,905

Commitments and contingencies

 

 

 

 

-

Redeemable partnership units:

 

 

 

 

 

 

Class A units - 12,477,710 and 12,197,162 units outstanding

 

1,171,656

 

 

1,273,018

 

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

 

5,428

 

 

5,428

 

 

Total redeemable partnership units

 

1,177,084

 

 

1,278,446

Equity:

 

 

 

 

 

 

Partners' capital

 

8,325,401

 

 

8,198,929

 

Earnings less than distributions

 

(1,524,806)

 

 

(1,419,382)

 

Accumulated other comprehensive income

 

115,839

 

 

118,972

 

 

Total Vornado Realty L.P. equity

 

6,916,434

 

 

6,898,519

Noncontrolling interests in consolidated subsidiaries

 

727,796

 

 

719,977

 

Total equity

 

7,644,230

 

 

7,618,496

 

 

 

$

20,889,290

 

$

20,814,847

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

12


VORNADO REALTY L.P. 

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands, except per unit amounts)

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2017

 

2016

 

2017

 

2016

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

Property rentals

$

529,294

 

$

527,178

 

$

1,043,112

 

$

1,046,670

 

Tenant expense reimbursements

 

60,687

 

 

60,841

 

 

128,357

 

 

120,416

 

Fee and other income

 

36,058

 

 

33,689

 

 

75,418

 

 

67,659

Total revenues

 

626,039

 

 

621,708

 

 

1,246,887

 

 

1,234,745

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

256,687

 

 

245,138

 

 

517,594

 

 

501,487

 

Depreciation and amortization

 

137,015

 

 

141,313

 

 

275,826

 

 

284,270

 

General and administrative

 

42,470

 

 

45,564

 

 

99,128

 

 

94,268

 

Acquisition and transaction related costs

 

6,471

 

 

2,879

 

 

14,476

 

 

7,486

 

Skyline properties impairment loss

 

-

 

 

-

 

 

-

 

 

160,700

Total expenses

 

442,643

 

 

434,894

 

 

907,024

 

 

1,048,211

Operating income

 

183,396

 

 

186,814

 

 

339,863

 

 

186,534

Income (loss) from partially owned entities

 

46,276

 

 

642

 

 

47,721

 

 

(3,598)

Income from real estate fund investments

 

4,391

 

 

16,389

 

 

4,659

 

 

27,673

Interest and other investment income, net

 

9,307

 

 

10,236

 

 

18,535

 

 

13,754

Interest and debt expense

 

(96,797)

 

 

(105,576)

 

 

(191,082)

 

 

(206,065)

Net gains on disposition of wholly owned

 

 

 

 

 

 

 

 

 

 

 

 

and partially owned assets

 

-

 

 

159,511

 

 

501

 

 

160,225

Income before income taxes

 

146,573

 

 

268,016

 

 

220,197

 

 

178,523

Income tax benefit (expense)

 

248

 

 

(2,109)

 

 

(1,957)

 

 

(4,940)

Income from continuing operations

 

146,821

 

 

265,907

 

 

218,240

 

 

173,583

Income from discontinued operations

 

663

 

 

2,475

 

 

3,091

 

 

3,191

Net income

 

147,484

 

 

268,382

 

 

221,331

 

 

176,774

Less net income attributable to noncontrolling interests in

 

 

 

 

 

 

 

 

 

 

 

 

consolidated subsidiaries

 

(7,677)

 

 

(13,025)

 

 

(14,414)

 

 

(22,703)

Net income attributable to Vornado Realty L.P.

 

139,807

 

 

255,357

 

 

206,917

 

 

154,071

Preferred unit distributions

 

(16,177)

 

 

(20,412)

 

 

(32,355)

 

 

(40,824)

NET INCOME attributable to Class A unitholders

$

123,630

 

$

234,945

 

$

174,562

 

$

113,247

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER CLASS A UNIT - BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.61

 

$

1.16

 

$

0.84

 

$

0.54

 

Income from discontinued operations, net

 

-

 

 

0.01

 

 

0.02

 

 

0.02

 

Net income per Class A unit

$

0.61

 

$

1.17

 

$

0.86

 

$

0.56

 

Weighted average units outstanding

 

201,127

 

 

200,369

 

 

200,987

 

 

200,220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER CLASS A UNIT - DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.61

 

$

1.15

 

$

0.84

 

$

0.54

 

Income from discontinued operations, net

 

-

 

 

0.01

 

 

0.01

 

 

0.01

 

Net income per Class A unit

$

0.61

 

$

1.16

 

$

0.85

 

$

0.55

 

Weighted average units outstanding

 

202,623

 

 

201,975

 

 

202,617

 

 

201,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DISTRIBUTIONS PER CLASS A UNIT

$

0.71

 

$

0.63

 

$

1.42

 

$

1.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

13


VORNADO REALTY L.P. 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2017

 

2016

 

2017

 

2016

Net income

$

147,484

 

$

268,382

 

$

221,331

 

$

176,774

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

(Reduction) increase in unrealized net gain on

 

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities

 

(1,206)

 

 

28,019

 

 

(16,215)

 

 

39,113

 

Pro rata share of amounts reclassified from accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

other comprehensive income of a

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiary

 

-

 

 

-

 

 

9,268

 

 

-

 

Pro rata share of other comprehensive loss of

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiaries

 

(980)

 

 

(628)

 

 

(1,031)

 

 

(622)

 

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

 

(1,204)

 

 

(6,976)

 

 

4,638

 

 

(11,171)

Comprehensive income

 

144,094

 

 

288,797

 

 

217,991

 

 

204,094

Less comprehensive income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

in consolidated subsidiaries

 

(7,677)

 

 

(13,025)

 

 

(14,414)

 

 

(22,703)

Comprehensive income attributable to Vornado Realty L.P.

$

136,417

 

$

275,772

 

$

203,577

 

$

181,391

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

14


VORNADO REALTY L.P. 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

controlling

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A Units

 

Earnings

 

Other

 

Interests in

 

 

 

 

 

 

 

Preferred Units

 

Owned by Vornado

 

Less Than

 

Comprehensive

 

Consolidated

 

Total

 

 

 

 

Units

 

Amount

 

Units

 

Amount

 

Distributions

 

Income

 

Subsidiaries

 

Equity

Balance, December 31, 2016

 

 

42,825

 

$

1,038,055

 

 

189,101

 

$

7,160,874

 

$

(1,419,382)

 

$

118,972

 

$

719,977

 

$

7,618,496

Net income attributable to Vornado Realty L.P.

 

 

-

 

 

-

 

 

-

 

 

-

 

 

206,917

 

 

-

 

 

-

 

 

206,917

Net income attributable to redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

partnership units

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(10,935)

 

 

-

 

 

-

 

 

(10,935)

Net income attributable to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interests in consolidated subsidiaries

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

14,414

 

 

14,414

Distributions to Vornado

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(268,817)

 

 

-

 

 

-

 

 

(268,817)

Distributions to preferred unitholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(32,258)

 

 

-

 

 

-

 

 

(32,258)

Class A Units issued to Vornado:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upon redemption of redeemable Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

units, at redemption value

 

 

-

 

 

-

 

 

249

 

 

25,562

 

 

-

 

 

-

 

 

-

 

 

25,562

 

Under Vornado's employees' share option

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

plan

 

 

-

 

 

-

 

 

103

 

 

8,846

 

 

-

 

 

-

 

 

-

 

 

8,846

 

Under Vornado's dividend reinvestment plan

 

 

-

 

 

-

 

 

8

 

 

780

 

 

-

 

 

-

 

 

-

 

 

780

Contributions

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

991

 

 

991

Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate fund investments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(6,200)

 

 

(6,200)

 

Other

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(1,339)

 

 

(1,339)

Conversion of Series A preferred units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to Class A units

 

 

(2)

 

 

(44)

 

 

2

 

 

44

 

 

-

 

 

-

 

 

-

 

 

-

Deferred compensation units and options

 

 

-

 

 

-

 

 

2

 

 

1,076

 

 

(285)

 

 

-

 

 

-

 

 

791

Reduction in unrealized net gain on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(16,215)

 

 

-

 

 

(16,215)

Pro rata share of amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassified related to a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiary

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

9,268

 

 

-

 

 

9,268

Pro rata share of other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of nonconsolidated subsidiaries

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(1,031)

 

 

-

 

 

(1,031)

Increase in value of interest rate swaps

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

4,636

 

 

-

 

 

4,636

Adjustments to carry redeemable Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

units at redemption value

 

 

-

 

 

-

 

 

-

 

 

90,208

 

 

-

 

 

-

 

 

-

 

 

90,208

Redeemable partnership units' share of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

above adjustments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

207

 

 

-

 

 

207

Other

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(46)

 

 

2

 

 

(47)

 

 

(91)

Balance, June 30, 2017

 

 

42,823

 

$

1,038,011

 

 

189,465

 

$

7,287,390

 

$

(1,524,806)

 

$

115,839

 

$

727,796

 

$

7,644,230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

15


VORNADO REALTY L.P. 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

controlling

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A Units

 

Earnings

 

Other

 

Interests in

 

 

 

 

 

 

 

Preferred Units

 

Owned by Vornado

 

Less Than

 

Comprehensive

 

Consolidated

 

Total

 

 

 

 

Units

 

Amount

 

Units

 

Amount

 

Distributions

 

Income

 

Subsidiaries

 

Equity

Balance, December 31, 2015

 

 

52,677

 

$

1,276,954

 

 

188,577

 

$

7,140,500

 

$

(1,766,780)

 

$

46,921

 

$

778,483

 

$

7,476,078

Net income attributable to Vornado Realty L.P.

 

 

-

 

 

-

 

 

-

 

 

-

 

 

154,071

 

 

-

 

 

-

 

 

154,071

Net income attributable to redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

partnership units

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(7,044)

 

 

-

 

 

-

 

 

(7,044)

Net income attributable to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interests in consolidated subsidiaries

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

22,703

 

 

22,703

Distributions to Vornado

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(237,832)

 

 

-

 

 

-

 

 

(237,832)

Distributions to preferred unitholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(40,727)

 

 

-

 

 

-

 

 

(40,727)

Class A Units issued to Vornado:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upon redemption of redeemable Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

units, at redemption value

 

 

-

 

 

-

 

 

195

 

 

18,208

 

 

-

 

 

-

 

 

-

 

 

18,208

 

Under Vornado's employees' share option plan

 

 

-

 

 

-

 

 

38

 

 

3,093

 

 

-

 

 

-

 

 

-

 

 

3,093

 

Under Vornado's dividend reinvestment plan

 

 

-

 

 

-

 

 

8

 

 

717

 

 

-

 

 

-

 

 

-

 

 

717

Contributions

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

19,674

 

 

19,674

Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate fund investments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(56,533)

 

 

(56,533)

 

Other

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(10,970)

 

 

(10,970)

Deferred compensation units and options

 

 

-

 

 

-

 

 

7

 

 

954

 

 

(186)

 

 

-

 

 

-

 

 

768

Increase in unrealized net gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

on available-for-sale securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

39,113

 

 

-

 

 

39,113

Pro rata share of other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of nonconsolidated subsidiaries

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(622)

 

 

-

 

 

(622)

Reduction in value of interest rate swaps

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(11,170)

 

 

-

 

 

(11,170)

Adjustments to carry redeemable Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

units at redemption value

 

 

-

 

 

-

 

 

-

 

 

(20,369)

 

 

-

 

 

-

 

 

-

 

 

(20,369)

Redeemable partnership units' share of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

above adjustments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(1,685)

 

 

-

 

 

(1,685)

Other

 

 

-

 

 

-

 

 

1

 

 

(1)

 

 

(7)

 

 

(1)

 

 

111

 

 

102

Balance, June 30, 2016

 

 

52,677

 

$

1,276,954

 

 

188,826

 

$

7,143,102

 

$

(1,898,505)

 

$

72,556

 

$

753,468

 

$

7,347,575

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

16


VORNADO REALTY L.P. 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

(Amounts in thousands)

For the Six Months Ended June 30,

 

 

 

2017

 

2016

Cash Flows from Operating Activities:

 

 

 

 

 

Net income

$

221,331

 

$

176,774

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

 

 

 

 

 

 

Depreciation and amortization (including amortization of deferred financing costs)

 

289,898

 

 

299,541

 

Equity in net (income) loss of partially owned entities

 

(47,721)

 

 

3,598

 

Distributions of income from partially owned entities

 

44,778

 

 

42,012

 

Other non-cash adjustments

 

30,070

 

 

23,049

 

Straight-lining of rents

 

(28,581)

 

 

(83,883)

 

Amortization of below-market leases, net

 

(24,391)

 

 

(29,811)

 

Net realized and unrealized loss (gain) on real estate fund investments

 

6,201

 

 

(21,277)

 

Net gains on sale of real estate and other

 

(2,267)

 

 

(2,210)

 

Net gains on disposition of wholly owned and partially owned assets

 

(501)

 

 

(160,225)

 

Skyline properties impairment loss

 

-

 

 

160,700

 

Return of capital from real estate fund investments

 

-

 

 

71,888

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Tenant and other receivables, net

 

8,446

 

 

2,358

 

 

Prepaid assets

 

(148,446)

 

 

(131,927)

 

 

Other assets

 

(8,402)

 

 

(29,303)

 

 

Accounts payable and accrued expenses

 

(1,324)

 

 

6,634

 

 

Other liabilities

 

(22,874)

 

 

(9,113)

Net cash provided by operating activities

 

316,217

 

 

318,805

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Development costs and construction in progress

 

(191,073)

 

 

(277,214)

 

Additions to real estate

 

(139,611)

 

 

(170,265)

 

Distributions of capital from partially owned entities

 

113,507

 

 

92,465

 

Investments in partially owned entities

 

(27,720)

 

 

(90,659)

 

Acquisitions of real estate and other

 

(11,841)

 

 

(91,100)

 

Proceeds from sales of real estate and related investments

 

5,180

 

 

159,888

 

Proceeds from repayments of mortgage loans receivable

 

29

 

 

22

 

Net deconsolidation of 7 West 34th Street

 

-

 

 

(48,000)

 

Investments in loans receivable and other

 

-

 

 

(11,700)

 

Purchases of marketable securities

 

-

 

 

(4,379)

Net cash used in investing activities

 

(251,529)

 

 

(440,942)

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

17


VORNADO REALTY L.P. 

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Six Months Ended June 30,

 

 

 

 

2017

 

2016

Cash Flows from Financing Activities:

 

 

 

 

 

 

Distributions to Vornado

$

(268,817)

 

$

(237,832)

 

Proceeds from borrowings

 

226,929

 

 

1,325,246

 

Distributions to preferred unitholders

 

(32,258)

 

 

(40,727)

 

Distributions to redeemable security holders and noncontrolling interests in

 

 

 

 

 

 

 

consolidated subsidiaries

 

(25,617)

 

 

(83,266)

 

Repayments of borrowings

 

(13,971)

 

 

(1,032,115)

 

Proceeds received from exercise of Vornado stock options

 

9,626

 

 

3,810

 

Debt issuance and other costs

 

(2,919)

 

 

(29,478)

 

Contributions from noncontrolling interests in consolidated subsidiaries

 

991

 

 

11,874

 

Repurchase of Class A units related to stock compensation agreements and related

 

 

 

 

 

 

 

tax withholdings and other

 

(285)

 

 

(186)

Net cash used in financing activities

 

(106,321)

 

 

(82,674)

Net decrease in cash and cash equivalents and restricted cash

 

(41,633)

 

 

(204,811)

Cash and cash equivalents and restricted cash at beginning of period

 

1,599,322

 

 

1,943,506

Cash and cash equivalents and restricted cash at end of period

$

1,557,689

 

$

1,738,695

 

 

 

Reconciliation of Cash and Cash Equivalents and Restricted Cash:

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

$

1,501,027

 

$

1,835,707

 

Restricted cash at beginning of period

 

98,295

 

 

107,799

 

Cash and cash equivalents and restricted cash at beginning of period

$

1,599,322

 

$

1,943,506

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

$

1,471,303

 

$

1,644,067

 

Restricted cash at end of period

 

86,386

 

 

94,628

 

Cash and cash equivalents and restricted cash at end of period

$

1,557,689

 

$

1,738,695

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Cash payments for interest, excluding capitalized interest of $20,050 and $13,918

$

175,718

 

$

181,432

 

Cash payments for income taxes

$

3,151

 

$

5,003

 

 

 

 

 

 

 

Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

Adjustments to carry redeemable Class A units at redemption value

$

90,208

 

$

(20,369)

 

Accrued capital expenditures included in accounts payable and accrued expenses

 

59,733

 

 

144,079

 

Write-off of fully depreciated assets

 

(35,727)

 

 

(220,654)

 

(Reduction) increase in unrealized net gain on available-for-sale securities

 

(16,215)

 

 

39,113

 

Decrease in assets and liabilities resulting from the deconsolidation of investments

 

 

 

 

 

 

 

that were previously consolidated:

 

 

 

 

 

 

 

 

Real estate, net

 

-

 

 

(122,047)

 

 

 

Mortgage payable, net

 

-

 

 

(290,418)

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

18


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

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 as of June 30, 2017.  All references to the “Company,” “we,” “us,” and “our” mean collectively Vornado, the Operating Partnership and those entities/subsidiaries consolidated by Vornado.

 

On July 17, 2017, we completed the spin-off of our Washington, DC segment comprised of (i) 37 office properties totaling over 11.1 million square feet, five multifamily properties with 3,133 units and five other assets totaling approximately 406,000 square feet and (ii) 18 future development assets totaling over 10.4 million square feet of estimated potential development density, and $275.0 million of cash to JBG SMITH Properties (“JBGS”).  On July 18, 2017, JBGS was combined with the management business and certain Washington, DC assets of The JBG Companies (“JBG”), a Washington, DC real estate company.  Steven Roth, the Chairman of the Board of Trustees and Chief Executive Officer of Vornado, is the Chairman of the Board of Trustees of JBGS.  Mitchell Schear, former President of our Washington, DC business, is a member of the Board of Trustees of JBGS.  We are providing transition services to JBGS initially including information technology, financial reporting and payroll services. The spin-off was effected through a tax-free distribution by Vornado to the holders of Vornado common shares of all of the common shares of JBGS at the rate of one JBGS common share for every two common shares of Vornado and the distribution by the Operating Partnership to the holders of its common units of all of the outstanding common units of JBG SMITH Properties LP (“JBGSLP”) at the rate of one JBGSLP common unit for every two common units of VRLP held of record.  See JBGS’ Amendment No. 3 on Form 10 (File No. 001-37994) filed with the Securities and Exchange Commission on June 9, 2017 for additional information. Beginning in the third quarter of 2017, the historical financial results of our Washington, DC segment will be reflected in our consolidated financial statements as discontinued operations for all periods presented.

  

 

 

2.    Basis of Presentation

 

The accompanying consolidated financial statements are unaudited and include the accounts of Vornado and the Operating Partnership and their consolidated subsidiaries.  All inter-company 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 Securities and Exchange Commission (“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, 2016, 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 six months ended June 30, 2017 are not necessarily indicative of the operating results for the full year.

19


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

3.    Recently Issued Accounting Literature  

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update ("ASU 2014-09") establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).  ASU 2014-09, as amended by subsequent ASUs on the topic, 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.  This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of 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. When adopting this standard, we are permitted to use either the full retrospective method or the modified retrospective method.  We will adopt this standard effective as of January 1, 2018 and currently expect to utilize the modified retrospective method of adoption. We have progressed with our project plan for adopting this standard, including gathering and evaluating the inventory of our revenue streams.  We expect this standard will have an impact on the presentation of certain lease and non-lease components of revenue from leases upon the adoption of the update (“ASU 2016-02”) Leases  with no impact on “total revenues.”  We expect this standard will have an impact on the timing of gains on certain sales of real estate. We are continuing to evaluate the impact of this standard on our consolidated financial statements.

 

In January 2016, the FASB issued an update (“ASU 2016-01”) Recognition and Measurement of Financial Assets and Financial Liabilities to ASC Topic 825, Financial Instruments.  ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments.  ASU 2016-01 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017.  While the adoption of this standard requires us to continue to measure “marketable securities” at fair value at each reporting date, the changes in fair value will be recognized in current period earnings as opposed to “other comprehensive income.”

 

In February 2016, the FASB issued an update ASU 2016-02 establishing ASC Topic 842, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.  ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase.  Lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases.  Lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases.  ASU 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted.  We are currently evaluating the overall impact of the adoption of ASU 2016-02 on our consolidated financial statements, including the timing of adopting this standard. ASU 2016-02 will more significantly impact the accounting for leases in which we are a lessee.  We have a number of ground leases for which we will be required to record a right-of-use asset and lease liability equal to the present value of the remaining minimum lease payments upon adoption of this standard.  We also expect that this standard will have an impact on the presentation of certain lease and non-lease components of revenue from leases with no impact on “total revenues.” In particular, items such as reimbursable real estate taxes and insurance expenses, will be presented in “property rentals” and non-lease components, such as certain reimbursable operating expenses, will be presented in “tenant expense reimbursements” on our consolidated statements of income.

 

In March 2016, the FASB issued an update (“ASU 2016-09”) Improvements to Employee Share-Based Payment Accounting to ASC Topic 718, Compensation – Stock Compensation (“ASC 718”).  ASU 2016-09 amends several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  ASU 2016-09 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2016.  The adoption of this update as of January 1, 2017, did not have a material impact on our consolidated financial statements.

 

20


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

3.    Recently Issued Accounting Literature - continued

 

In August 2016, the FASB issued an update (“ASU 2016-15”) Classification of Certain Cash Receipts and Cash Payments to ASC Topic 230, Statement of Cash Flows. ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice with respect to (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions, and (viii) separately identifiable cash flows and application of the predominance principle.  ASU 2016-15 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted.  We elected to early adopt ASU 2016-15 effective January 1, 2017, with retrospective application to our consolidated statements of cash flows. The adoption of ASU 2016-15 impacted our classification of distributions received from equity method investees. We selected the nature of earnings approach for classifying distributions. Under this approach, the distributions from equity method investees are classified on the basis of the nature of the activity of the investee that generated the distribution.  The retrospective application of ASU 2016-15 resulted in the reclassification of certain distributions of income from partially owned entities to distributions of capital from partially owned entities, which reduced net cash provided by operating activities and net cash used in investing activities by $4,488,000 for the six months ended June 30, 2016.

 

In November 2016, the FASB issued an update (“ASU 2016-18”) Restricted Cash to ASC Topic 230, Statement of Cash Flows. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents.  Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning of period and end of period balances on the statement of cash flows upon adoption of this standard. ASU 2016-18 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted.  We elected to early adopt ASU 2016-18 effective January 1, 2017, with retrospective application to our consolidated statements of cash flows.  Accordingly, the consolidated statements of cash flows present a reconciliation of the changes in cash and cash equivalents and restricted cash. Restricted cash primarily consists of security deposits, cash restricted for the purposes of facilitating a Section 1031 Like-Kind Exchange, cash restricted in connection with our deferred compensation plan and cash escrowed under loan agreements for debt service, real estate taxes, property insurance and capital improvements.

 

In February 2017, the FASB issued an update (“ASU 2017-05”) Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets to ASC Subtopic 610-20, Other Income–Gains and Losses from the Derecognition of Nonfinancial Assets. ASU 2017-05 clarifies the scope of recently established guidance on nonfinancial asset derecognition as well as the accounting for partial sales of nonfinancial assets. This update conforms the derecognition guidance on nonfinancial assets with the model for transactions in ASC 606. ASU 2017-05 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We expect to utilize the modified retrospective method of adoption. The adoption of this standard is not expected to have an impact on our consolidated financial statements.  

 

In May 2017, the FASB issued an update (“ASU 2017-09”) Scope of Modification Accounting to ASC 718. ASU 2017-09 provides guidance about which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. ASU 2017-09 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The adoption of this standard is not expected to have an impact on our consolidated financial statements.  

21


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

4.     Real Estate Fund Investments

 

We are the general partner and investment manager of Vornado Capital Partners Real Estate Fund (the “Fund”) and own a 25.0% interest in the Fund, which has an eight-year term and a three-year investment period that ended in July 2013.  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.

 

We are also the general partner and investment manager of the Crowne Plaza Times Square Hotel Joint Venture (the “Crowne Plaza Joint Venture”) and own a 57.1% interest in the joint venture which owns the 24.7% interest in the Crowne Plaza Times Square Hotel not owned by the Fund.  The Crowne Plaza Joint Venture is also accounted for under ASC 946 and we consolidate the accounts of the joint venture into our consolidated financial statements, retaining the fair value basis of accounting.

 

As of June 30, 2017, we had six real estate fund investments through the Fund and the Crowne Plaza Joint Venture with an aggregate fair value of $455,692,000, or $143,092,000 in excess of cost, and had remaining unfunded commitments of $117,902,000, of which our share was $34,519,000.  Below is a summary of income from the Fund and the Crowne Plaza Joint Venture for the three and six months ended June 30, 2017 and 2016.

 

(Amounts in thousands)

For the Three Months Ended

 

For the Six Months Ended

 

 

  

June 30,

 

June 30,

 

 

 

2017

  

2016

 

2017

  

2016

Net investment income

$

3,646

 

$

1,723

 

$

10,860

 

$

6,396

Net realized gain on exited investments

 

-

 

 

-

 

 

241

 

 

14,676

Previously recorded unrealized gain on exited investment

 

-

 

 

-

 

 

-

 

 

(14,254)

Net unrealized gain (loss) on held investments

 

745

 

 

14,666

 

 

(6,442)

 

 

20,855

Income from real estate fund investments(1)

 

4,391

 

 

16,389

 

 

4,659

 

 

27,673

Less income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

in consolidated subsidiaries

 

(4,695)

 

 

(8,845)

 

 

(8,198)

 

 

(14,818)

(Loss) income from real estate fund investments attributable to

 

 

 

 

 

 

 

 

 

 

 

 

the Operating Partnership

 

(304)

 

 

7,544

 

 

(3,539)

 

 

12,855

Less loss (income) attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

in the Operating Partnership

 

19

 

 

(465)

 

 

221

 

 

(794)

(Loss) income from real estate fund investments attributable to

 

 

 

 

 

 

 

 

 

 

 

 

Vornado

$

(285)

 

$

7,079

 

$

(3,318)

 

$

12,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excludes $1,381 and $935 of management and leasing fees for the three months ended June 30, 2017 and 2016, respectively, and $2,381 and $1,695 for the six months ended June 30, 2017 and 2016, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

22


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

5.    Marketable Securities

 

Below is a summary of our marketable securities portfolio as of June 30, 2017 and December 31, 2016.

 

(Amounts in thousands)

As of June 30, 2017

 

As of December 31, 2016

 

 

 

 

 

GAAP

 

Unrealized

 

 

 

 

GAAP

 

Unrealized

 

 

Fair Value

 

Cost

 

Gain

 

Fair Value

 

Cost

 

Gain

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lexington Realty Trust

$

183,027

 

$

72,549

 

$

110,478

 

$

199,465

 

$

72,549

 

$

126,916

 

Other

 

4,462

 

 

650

 

 

3,812

 

 

4,239

 

 

650

 

 

3,589

 

 

$

187,489

 

$

73,199

 

$

114,290

 

$

203,704

 

$

73,199

 

$

130,505

 

6.    Investments in Partially Owned Entities

 

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

 

As of June 30, 2017, we own 1,654,068 Alexander’s common shares, representing a 32.4% interest in Alexander’s.  We account for our investment in Alexander’s under the equity method.  We manage, lease and develop Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable.

 

As of June 30, 2017, the market value (“fair value” pursuant to ASC Topic 820, Fair Value Measurements (“ASC 820”)) of our investment in Alexander’s, based on Alexander’s June 30, 2017 closing share price of $421.46, was $697,124,000, or $570,494,000 in excess of the carrying amount on our consolidated balance sheet.  As of June 30, 2017, the carrying amount of our investment in Alexander’s, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander’s by approximately $39,468,000.  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.

 

On June 1, 2017, Alexander’s completed a $500,000,000 refinancing of the office portion of 731 Lexington Avenue. The interest-only loan is at LIBOR plus 0.90% (2.06% at June 30, 2017) and matures in June 2020 with four one-year extension options. In connection therewith, Alexander’s purchased an interest rate cap with a notional amount of $500,000,000 that caps LIBOR at a rate of 6%.  The property was previously encumbered by a $300,000,000 interest-only mortgage at LIBOR plus 0.95% which was scheduled to mature in March 2021.

 

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

 

As of June 30, 2017, we own 5,717,184 UE operating partnership units, representing a 4.8% 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.  In 2017 and 2016, we provided UE with information technology support.  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 June 30, 2017, the fair value of our investment in UE, based on UE’s June 30, 2017 closing share price of $23.73, was $135,669,000, or $93,777,000 in excess of the carrying amount on our consolidated balance sheet.

 

During the six months ended June 30, 2017, UE issued approximately 14,000,000 operating partnership units related to property acquisitions and a public offering of its common stock.  As a result, our ownership interest in UE decreased to 4.8% from 5.4%. In accordance with ASC 323-10-40-1, we account for a unit issuance by an equity method investee as if we had sold a proportionate share of our investment. The average issuance price per unit of the newly issued UE capital is $26.07.  Our average per unit carrying amount is $4.55. Accordingly, we recorded a $15,900,000 net gain in connection with this issuance which is included in “income (loss) from partially owned entities” on our consolidated statements of income.

23


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

6.    Investments in Partially Owned Entities – continued

 

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

 

As of June 30, 2017, we own 6,250,000 PREIT operating partnership units, representing an 8.0% 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 June 30, 2017, the fair value of our investment in PREIT, based on PREIT’s June 30, 2017 closing share price of $11.32, was $70,750,000, or $46,854,000 below the carrying amount on our consolidated balance sheet. As of June 30, 2017, the carrying amount of our investment in PREIT exceeds our share of the equity in the net assets of PREIT by approximately $84,087,000. 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.

 

Farley Post Office Joint Venture

 

In September 2016, our 50.1% joint venture with the Related Companies (“Related”) was designated by Empire State Development (“ESD”), an entity of New York State to redevelop the historic Farley Post Office building.  The building will include a new Moynihan Train Hall and approximately 850,000 rentable square feet of commercial space, comprised of approximately 730,000 square feet of office space and approximately 120,000 square feet of retail space.  On June 15, 2017, the joint venture closed a 99-year, triple-net lease with ESD for the commercial space at the Farley Post Office building and made a $230,000,000 upfront contribution, of which our share is $115,230,000, towards the construction of the train hall. The lease calls for annual rent payments of $5,000,000 plus payments in lieu of real estate taxes. Simultaneously, the joint venture completed a $271,000,000 loan facility, with an initial advance of $202,299,000.  The interest only loan is at LIBOR plus 3.25% (4.41% at June 30, 2017) and matures in June 2019 with two one-year extension options.

 

The joint venture has also entered into a development agreement with ESD and a design-build contract with Skanska Moynihan Train Hall Builders.  Under the development agreement with ESD, the joint venture is obligated to build the Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture’s obligations.  Under the design-build agreement, Skanska Moynihan Train Hall Builders is obligated to fulfill all of the joint venture’s obligations.  The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bears a full guaranty from Skanska AB.

 

Mezzanine Loan – New York

 

On May 9, 2017, a $150,000,000 mezzanine loan owned by a joint venture in which we have a 33.3% ownership interest was repaid at its maturity and we received our $50,000,000 share. The mezzanine loan earned interest at LIBOR plus 9.42%.

 

Sterling Suffolk Racecourse, LLC (“Suffolk Downs JV”)

 

On May 26, 2017, Suffolk Downs JV, a joint venture in which we have a 21.2% equity interest, sold the property comprising the Suffolk Downs race track in East Boston, Massachusetts (“Suffolk Downs”) for $155,000,000, which resulted in net proceeds and a net gain to us of $15,314,000.  In addition, we were repaid $29,318,000 of principal and $6,129,000 of accrued interest on our debt investments in Suffolk Downs JV, resulting in a net gain of $11,373,000.  

24


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

6.    Investments in Partially Owned Entities – continued

 

Below is a schedule summarizing our investments in partially owned entities.

 

(Amounts in thousands)

 

Percentage

 

 

 

 

 

Ownership at

 

Balance as of

 

 

 

June 30, 2017

 

June 30, 2017

 

December 31, 2016

Investments: 

 

 

 

 

 

 

 

 

 

 

Partially owned office buildings (1)

 

 

Various

 

$

804,492

 

$

825,421

 

Alexander’s

 

 

32.4%

 

 

126,630

 

 

129,324

 

PREIT

 

 

8.0%

 

 

117,604

 

 

122,883

 

UE

 

 

4.8%

 

 

41,892

 

 

24,523

 

India real estate ventures

 

 

4.1%-36.5%

 

 

26,491

 

 

30,290

 

Other investments (2)

 

 

Various

 

 

236,980

 

 

295,578

 

 

 

 

 

 

$

1,354,089

 

$

1,428,019

 

 

 

 

 

 

 

 

 

 

 

 

7 West 34th Street (3)

 

 

53.0%

 

$

(45,789)

 

$

(43,022)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue, 512 West 22nd Street, 85 Tenth Avenue, 61 Ninth Avenue and others.

(2)

Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, Farley Post Office Joint Venture, Toys "R" Us, Inc. (which has a carrying amount of zero) and others.

(3)

Our negative basis results from a deferred gain from the sale of a 47.0% ownership interest in the property and is included in "other liabilities" on our consolidated balance sheets.

25


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

6.    Investments in Partially Owned Entities – continued

 

Below is a schedule net income (loss) from partially owned entities.

 

(Amounts in thousands)

 

Percentage

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

 

 

 

Ownership at

 

June 30,

 

June 30,

 

 

 

 

 

 

June 30, 2017

 

2017

 

2016

 

2017

 

2016

Our Share of Net Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UE (see page 23 for details):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain resulting from UE operating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

partnership unit issuances

 

4.8%

 

$

15,900

 

$

-

 

$

15,900

 

$

-

 

 

 

Equity in net earnings

 

 

 

 

2,894

 

 

1,071

 

 

3,985

 

 

1,947

 

 

 

Management fees

 

 

 

 

209

 

 

209

 

 

418

 

 

418

 

 

 

 

 

 

 

 

 

 

19,003

 

 

1,280

 

 

20,303

 

 

2,365

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alexander's (see page 23 for details):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in net income

 

32.4%

 

 

6,690

 

 

6,812

 

 

13,582

 

 

13,749

 

 

 

Management, leasing and development fees

 

 

 

 

1,507

 

 

1,688

 

 

3,016

 

 

3,413

 

 

 

 

 

 

 

 

 

 

8,197

 

 

8,500

 

 

16,598

 

 

17,162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partially owned office buildings (1)

 

Various

 

 

(7,897)

 

 

(12,398)

 

 

(17,840)

 

 

(26,647)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

India real estate ventures

 

4.1%-36.5%

 

 

(1,644)

 

 

(1,934)

 

 

10

 

 

(2,620)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PREIT (see page 24 for details)

 

8.0%

 

 

(902)

 

 

(527)

 

 

(3,732)

 

 

(4,815)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other investments (2)

 

Various

 

 

29,519

 

 

5,721

 

 

32,382

 

 

10,957

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

46,276

 

$

642

 

$

47,721

 

$

(3,598)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 7 West 34th Street, 330 Madison Avenue, 512 West 22nd Street, 85 Tenth Avenue and others.

(2)

Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, Toys "R" Us, Inc. and others. In the second quarter of 2017, we recognized $26,687 of net gains, comprised of $15,314 representing our share of a net gain on the sale of Suffolk Downs and $11,373 representing the net gain on repayment of our debt investments in Suffolk Downs JV. See page 24 for details.

26


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

7.    Dispositions

 

Discontinued Operations

 

The tables below set forth the assets and liabilities related to discontinued operations as of June 30, 2017 and December 31, 2016 and their combined results of operations and cash flows for the three and six months ended June 30, 2017 and 2016.

 

(Amounts in thousands)

Balance as of

 

 

June 30, 2017

 

December 31, 2016

Assets related to discontinued operations:

 

 

 

 

 

Real estate, net

$

1,927

 

$

2,642

Other assets

 

2,451

 

 

2,928

 

$

4,378

 

$

5,570

 

 

 

 

 

 

 

Liabilities related to discontinued operations:

 

 

 

 

 

Other liabilities

$

2,406

 

$

2,870

 

(Amounts in thousands)

For the Three Months Ended June 30,

 

For the Six Months Ended June 30,

 

 

2017

 

2016

 

2017

 

2016

Income from discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Total revenues

$

848

 

$

947

 

$

1,172

 

$

2,129

Total expenses

 

185

 

 

682

 

 

348

 

 

1,148

 

 

663

 

 

265

 

 

824

 

 

981

Net gains on the sale of real estate

 

-

 

 

2,210

 

 

2,267

 

 

2,210

Pretax income from discontinued operations

 

663

 

 

2,475

 

 

3,091

 

 

3,191

Income tax expense

 

-

 

 

-

 

 

-

 

 

-

Income from discontinued operations

$

663

 

$

2,475

 

$

3,091

 

$

3,191

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

 

For the Six Months Ended June 30,

 

 

 

 

 

 

2017

 

2016

Cash flows related to discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

$

400

 

$

(4,685)

Cash flows from investing activities

 

 

 

 

 

 

 

3,419

 

 

-

27


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

8.    Identified Intangible Assets and Liabilities

 

The following summarizes our identified intangible assets (primarily above-market leases) and liabilities (primarily acquired below-market leases) as of June 30, 2017 and December 31, 2016.

 

 

(Amounts in thousands)

 Balance as of

 

 

 

June 30, 2017

 

December 31, 2016

 

 

Identified intangible assets:

 

 

 

 

 

 

 

Gross amount

$

387,791

 

$

400,061

 

 

Accumulated amortization

 

(211,285)

 

 

(207,330)

 

 

Total, net

$

176,506

 

$

192,731

 

 

Identified intangible liabilities (included in deferred revenue):

 

 

 

 

 

 

 

Gross amount

$

581,471

 

$

586,969

 

 

Accumulated amortization

 

(340,131)

 

 

(323,183)

 

 

Total, net

$

241,340

 

$

263,786

 

 

Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $12,932,000 and $12,301,000 for the three months ended June 30, 2017 and 2016, respectively, and $24,391,000 and $29,808,000 for the six months ended June 30, 2017 and 2016, 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, 2018 is as follows:

 

 

(Amounts in thousands)

 

 

 

 

2018

$

44,474

 

 

2019

 

32,297

 

 

2020

 

23,472

 

 

2021

 

18,646

 

 

2022

 

15,530

 

 

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $6,971,000 and $8,066,000 for the three months ended June 30, 2017 and 2016, respectively, and $14,079,000 and $15,859,000 for the six months ended June 30, 2017 and 2016, 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, 2018 is as follows:

 

 

(Amounts in thousands)

 

 

 

 

2018

$

20,073

 

 

2019

 

15,737

 

 

2020

 

12,291

 

 

2021

 

11,288

 

 

2022

 

9,532

 

 

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 (a component of operating expense) of $458,000 and $458,000 for the three months ended June 30, 2017 and 2016, respectively, and $916,000 and $916,000 for the six months ended June 30, 2017 and 2016, respectively.  Estimated annual amortization of these below-market leases, net of above-market leases, for each of the five succeeding years commencing January 1, 2018 is as follows:

 

 

(Amounts in thousands)

 

 

 

 

2018

$

1,832

 

 

2019

 

1,832

 

 

2020

 

1,832

 

 

2021

 

1,832

 

 

2022

 

1,832

 

28


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

9.    Debt

 

The following is a summary of our debt:

 

(Amounts in thousands)

Interest Rate at

 

Balance as of

 

 

 

 

 

June 30, 2017

 

June 30, 2017

 

December 31, 2016

Mortgages Payable:

 

 

 

 

 

 

 

 

 

Fixed rate

 

3.84%

 

$

6,084,795

 

$

6,099,873

 

Variable rate

 

2.93%

 

 

3,502,460

 

 

3,274,424

 

 

Total

 

 

 

3.51%

 

 

9,587,255

 

 

9,374,297

 

Deferred financing costs, net and other

 

 

 

 

(84,561)

 

 

(96,034)

 

 

Total, net

 

 

 

 

 

$

9,502,694

 

$

9,278,263

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured Debt:

 

 

 

 

 

 

 

 

 

Senior unsecured notes

 

3.68%

 

$

850,000

 

$

850,000

 

Deferred financing costs, net and other

 

 

 

 

(3,714)

 

 

(4,423)

 

 

Senior unsecured notes, net

 

 

 

 

846,286

 

 

845,577

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured term loan

 

2.37%

 

 

375,000

 

 

375,000

 

Deferred financing costs, net and other

 

 

 

 

(2,025)

 

 

(2,785)

 

 

Unsecured term loan, net

 

 

 

 

372,975

 

 

372,215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured revolving credit facilities

 

2.14%

 

 

115,630

 

 

115,630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total, net

 

 

 

 

 

$

1,334,891

 

$

1,333,422

 

On June 20, 2017, we completed a $220,000,000 financing of The Bartlett, a 699-unit residential building with a 39,000 square foot Whole Foods Market at its base, located in Arlington, Virginia.  The five-year interest-only loan is at LIBOR plus 1.70% (2.90% at June 30, 2017), and matures in June 2022.  On July 17, 2017, the property, the loan and the $217,000,000 of net proceeds were transferred to JBGS in connection with the tax-free spin-off of our Washington, DC segment.

29


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

10.    Redeemable Noncontrolling Interests/Redeemable Partnership Units

 

Redeemable noncontrolling interests on Vornado’s consolidated balance sheets and redeemable partnership units on the consolidated balance sheets of the Operating Partnership are primarily comprised of Class A Operating Partnership units 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 Vornado’s consolidated statements of changes in equity and to “partners’ capital” on the consolidated balance sheets of the Operating Partnership.

 

 

(Amounts in thousands)

 

 

 

 

Balance as of December 31, 2015

$

1,229,221

 

 

Net income

 

7,044

 

 

Other comprehensive income

 

1,685

 

 

Distributions

 

(15,763)

 

 

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

 

(18,208)

 

 

Adjustments to carry redeemable Class A units at redemption value

 

20,369

 

 

Other, net

 

21,149

 

 

Balance as of June 30, 2016

$

1,245,497

 

 

 

 

 

 

 

Balance as of December 31, 2016

$

1,278,446

 

 

Net income

 

10,935

 

 

Other comprehensive loss

 

(207)

 

 

Distributions

 

(18,078)

 

 

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

 

(25,562)

 

 

Adjustments to carry redeemable Class A units at redemption value

 

(90,208)

 

 

Other, net

 

21,758

 

 

Balance as of June 30, 2017

$

1,177,084

 

 

As of June 30, 2017 and December 31, 2016, the aggregate redemption value of redeemable Class A units of the Operating Partnership, which are those units held by third parties, was $1,171,656,000 and $1,273,018,000, respectively.

 

Redeemable noncontrolling interests/redeemable partnership units 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 $50,561,000 as of June 30, 2017 and December 31, 2016.    Changes in the value from period to period, if any, are charged to “interest and debt expense” on our consolidated statements of income.

30


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

11.    Accumulated Other Comprehensive Income (“AOCI”)

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

 

(Amounts in thousands)

 

 

 

Securities

 

Pro rata share of

 

Interest

 

 

 

 

 

 

available-

 

nonconsolidated

 

rate

 

 

 

 

Total

 

for-sale

 

subsidiaries' OCI

 

swaps

 

Other

For the Three Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2017

 

$

119,019

 

$

115,496

 

$

(2,841)

 

$

13,908

 

$

(7,544)

 

OCI before reclassifications

 

 

(3,180)

 

 

(1,206)

 

 

(980)

 

 

(1,206)

 

 

212

 

Amounts reclassified from AOCI

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Net current period OCI

 

 

(3,180)

 

 

(1,206)

 

 

(980)

 

 

(1,206)

 

 

212

Balance as of June 30, 2017

 

$

115,839

 

$

114,290

 

$

(3,821)

 

$

12,702

 

$

(7,332)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2016

 

$

53,399

 

$

89,542

 

$

(9,313)

 

$

(23,563)

 

$

(3,267)

 

OCI before reclassifications

 

 

19,157

 

 

28,019

 

 

(628)

 

 

(6,975)

 

 

(1,259)

 

Amounts reclassified from AOCI

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Net current period OCI

 

 

19,157

 

 

28,019

 

 

(628)

 

 

(6,975)

 

 

(1,259)

Balance as of June 30, 2016

 

$

72,556

 

$

117,561

 

$

(9,941)

 

$

(30,538)

 

$

(4,526)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2016

 

$

118,972

 

$

130,505

 

$

(12,058)

 

$

8,066

 

$

(7,541)

 

OCI before reclassifications

 

 

(12,401)

 

 

(16,215)

 

 

(1,031)

 

 

4,636

 

 

209

 

Amounts reclassified from AOCI

 

 

9,268

 

 

-

 

 

9,268

 

 

-

 

 

-

Net current period OCI

 

 

(3,133)

 

 

(16,215)

 

 

8,237

 

 

4,636

 

 

209

Balance as of June 30, 2017

 

$

115,839

 

$

114,290

 

$

(3,821)

 

$

12,702

 

$

(7,332)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2015

 

$

46,921

 

$

78,448

 

$

(9,319)

 

$

(19,368)

 

$

(2,840)

 

OCI before reclassifications

 

 

25,635

 

 

39,113

 

 

(622)

 

 

(11,170)

 

 

(1,686)

 

Amounts reclassified from AOCI

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Net current period OCI

 

 

25,635

 

 

39,113

 

 

(622)

 

 

(11,170)

 

 

(1,686)

Balance as of June 30, 2016

 

$

72,556

 

$

117,561

 

$

(9,941)

 

$

(30,538)

 

$

(4,526)

31


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

12.    Variable Interest Entities (“VIEs”)

 

Unconsolidated VIEs

 

As of June 30, 2017 and December 31, 2016, we have several 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 (see Note 6 – Investments in Partially Owned Entities).  As of June 30, 2017 and December 31, 2016, the net carrying amount of our investments in these entities was $393,418,000 and $392,150,000, respectively, and our maximum exposure to loss in these entities is limited to our investments.

 

Consolidated VIEs

 

Our most significant consolidated VIEs are the Operating Partnership (for Vornado), real estate fund investments, and certain properties that have noncontrolling interests.  These entities are VIEs because the noncontrolling interests do not have substantive kick-out or participating rights.  We consolidate these entities because we control all of their significant business activities.

 

As of June 30, 2017, the total assets and liabilities of our consolidated VIEs, excluding the Operating Partnership, were $3,648,565,000 and $1,756,632,000, respectively.  As of December 31, 2016, the total assets and liabilities of our consolidated VIEs, excluding the Operating Partnership, were $3,638,483,000 and $1,762,322,000, respectively.

32


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

13.    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) interest rate swaps and (v) mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units).  The tables below aggregate the fair values of these financial assets and liabilities by their levels in the fair value hierarchy as of June 30, 2017 and December 31, 2016, respectively.

 

(Amounts in thousands)

As of June 30, 2017

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

Marketable securities

$

187,489

 

$

187,489

 

$

-

 

$

-

Real estate fund investments

 

455,692

 

 

-

 

 

-

 

 

455,692

Deferred compensation plan assets ($2,691 included in restricted

 

 

 

 

 

 

 

 

 

 

 

 

cash and $101,875 in other assets)

 

104,566

 

 

54,717

 

 

-

 

 

49,849

Interest rate swaps (included in other assets)

 

20,998

 

 

-

 

 

20,998

 

 

-

 

Total assets

$

768,745

 

$

242,206

 

$

20,998

 

$

505,541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mandatorily redeemable instruments (included in other liabilities)

$

50,561

 

$

50,561

 

$

-

 

$

-

Interest rate swap (included in other liabilities)

 

5,011

 

 

-

 

 

5,011

 

 

-

 

Total liabilities

$

55,572

 

$

50,561

 

$

5,011

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

As of December 31, 2016

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

Marketable securities

$

203,704

 

$

203,704

 

$

-

 

$

-

Real estate fund investments

 

462,132

 

 

-

 

 

-

 

 

462,132

Deferred compensation plan assets ($4,187 included in restricted

 

 

 

 

 

 

 

 

 

 

 

 

cash and $117,187 in other assets)

 

121,374

 

 

63,930

 

 

-

 

 

57,444

Interest rate swaps (included in other assets)

 

21,816

 

 

-

 

 

21,816

 

 

-

 

Total assets

$

809,026

 

$

267,634

 

$

21,816

 

$

519,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mandatorily redeemable instruments (included in other liabilities)

$

50,561

 

$

50,561

 

$

-

 

$

-

Interest rate swap (included in other liabilities)

 

10,122

 

 

-

 

 

10,122

 

 

-

 

Total liabilities

$

60,683

 

$

50,561

 

$

10,122

 

$

-

 

33


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

13.    Fair Value Measurements – continued

 

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

 

Real Estate Fund Investments

 

As of June 30, 2017, we had six real estate fund investments with an aggregate fair value of $455,692,000, or $143,092,000 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 0.3 to 3.5 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, current and anticipated market conditions, industry publications and 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 June 30, 2017 and December 31, 2016.

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Range

 

(based on fair value of investments)

Unobservable Quantitative Input

 

June 30, 2017

 

December 31, 2016

 

June 30, 2017

 

December 31, 2016

Discount rates

 

3.0% to 16.0%

 

10.0% to 14.9%

 

11.1%

 

12.6%

Terminal capitalization rates

 

4.7% to 5.8%

 

4.3% to 5.8%

 

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 six months ended June 30, 2017 and 2016.

 

(Amounts in thousands)

For the Three Months Ended

 

For the Six Months Ended

 

June 30,

 

June 30,

 

 

 

2017

 

 

2016

 

2017

 

2016

Beginning balance

$

454,946

 

$

566,696

 

$

462,132

 

$

574,761

Dispositions / distributions

 

-

 

 

(57,212)

 

 

-

 

 

(71,888)

Net unrealized gain (loss)

 

745

 

 

14,666

 

 

(6,442)

 

 

20,855

Net realized gain

 

-

 

 

-

 

 

241

 

 

422

Other, net

 

1

 

 

-

 

 

(239)

 

 

-

Ending balance

$

455,692

 

$

524,150

 

$

455,692

 

$

524,150

                         

 

34


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

13.    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 six months ended June 30, 2017 and 2016.   

 

(Amounts in thousands)

For the Three Months Ended

 

For the Six Months Ended

 

June 30,

 

June 30,

 

 

 

2017

 

 

2016

 

2017

 

2016

Beginning balance

$

56,910

 

$

57,184

 

$

57,444

 

$

59,186

Purchases

 

1,350

 

 

1,106

 

 

1,813

 

 

2,272

Sales

 

(9,375)

 

 

(779)

 

 

(12,112)

 

 

(2,151)

Realized and unrealized gains

 

830

 

 

2,219

 

 

1,905

 

 

312

Other, net

 

134

 

 

410

 

 

799

 

 

521

Ending balance

$

49,849

 

$

60,140

 

$

49,849

 

$

60,140

                         

 

Fair Value Measurements on a Nonrecurring Basis

 

There were no assets measured at fair value on a nonrecurring basis on our consolidated balance sheets as of June 30, 2017 and December 31, 2016.

 

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), 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 values of cash equivalents and borrowings under our unsecured revolving credit facilities and unsecured term loan are classified as Level 1.  The fair values 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 June 30, 2017 and December 31, 2016.

 

(Amounts in thousands)

 

As of June 30, 2017

 

As of December 31, 2016

 

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

 

 

Amount

 

Value

 

Amount

 

Value

Cash equivalents

$

1,103,553

 

$

1,103,553

 

$

1,307,105

 

$

1,307,105

Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgages payable

$

9,587,255

 

$

9,626,000

 

$

9,374,297

 

$

9,356,000

 

Senior unsecured notes

 

850,000

 

 

887,000

 

 

850,000

 

 

899,000

 

Unsecured term loan

 

375,000

 

 

375,000

 

 

375,000

 

 

375,000

 

Unsecured revolving credit facilities

 

115,630

 

 

116,000

 

 

115,630

 

 

116,000

 

Total

$

10,927,885

 (1) 

$

11,004,000

 

$

10,714,927

 (1) 

$

10,746,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (1) 

Excludes $90,300 and $103,242 of deferred financing costs, net and other as of June 30, 2017 and December 31, 2016, respectively.

35


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

 

14.    Stock-based Compensation

 

Vornado’s 2010 Omnibus Share Plan provides for grants of incentive and non-qualified Vornado stock options, restricted stock, 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.  Equity-based compensation expense was $7,349,000 and $7,215,000 for the three months ended June 30, 2017 and 2016, respectively, and $21,626,000 and $21,786,000 for the six months ended June 30, 2017 and 2016, respectively.

 

15.    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 Six Months Ended

 

June 30,

  

June 30,

 

 

2017

  

2016

 

2017

  

2016

BMS cleaning fees

$

21,294

 

$

18,794

 

$

43,290

 

$

36,940

Management and leasing fees

 

4,892

 

 

4,604

 

 

9,529

 

 

9,403

Lease termination fees

 

1,459

 

 

3,199

 

 

5,625

 

 

5,604

Other income

 

8,413

 

 

7,092

 

 

16,974

 

 

15,712

 

$

36,058

 

$

33,689

 

$

75,418

 

$

67,659

                         

 

Management and leasing fees include management fees from Interstate Properties, a related party, of $124,000 and $128,000 for the three months ended June 30, 2017 and 2016, respectively, and $252,000 and $262,000 for the six months ended June 30, 2017 and 2016, respectively.  The above table excludes fee income from partially owned entities, which is included in “income (loss) from partially owned entities” (see Note 6 – Investments in Partially Owned Entities). 

36


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

16.     Interest and Other Investment Income, Net

 

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

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2017

 

2016

 

2017

 

2016

Dividends on marketable securities

$

3,539

 

$

3,230

 

$

6,984

 

$

6,445

Interest on loans receivable

 

2,102

 

 

748

 

 

2,845

 

 

1,496

Mark-to-market income of investments in our

 

 

 

 

 

 

 

 

 

 

 

 

deferred compensation plan (1)

 

789

 

 

4,359

 

 

3,258

 

 

2,421

Other, net

 

2,877

 

 

1,899

 

 

5,448

 

 

3,392

 

$

9,307

 

$

10,236

 

$

18,535

 

$

13,754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

This 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.

 

17.     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 Six Months Ended

 

June 30,

 

June 30,

 

 

2017

 

2016

 

2017

 

2016

Interest expense

$

100,486

 

$

104,435

 

$

197,060

 

$

204,730

Amortization of deferred financing costs

 

8,353

 

 

8,508

 

 

17,334

 

 

17,773

Capitalized interest and debt expense

 

(12,042)

 

 

(7,367)

 

 

(23,312)

 

 

(16,438)

 

$

96,797

 

$

105,576

 

$

191,082

 

$

206,065

                         

37


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

18.          Income Per Share/Income Per Class A Unit

 

Vornado Realty Trust

 

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 stock awards and Out-Performance Plan awards.

 

(Amounts in thousands, except per share amounts)

For the Three Months Ended

 

For the Six Months Ended

 

June 30,

 

June 30,

 

 

 

 

2017

 

2016

 

2017

 

2016

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of income

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to noncontrolling interests

$

131,479

 

$

238,504

 

$

193,084

 

$

144,033

 

Income from discontinued operations, net of income

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to noncontrolling interests

 

622

 

 

2,322

 

 

2,898

 

 

2,994

 

Net income attributable to Vornado

 

132,101

 

 

240,826

 

 

195,982

 

 

147,027

 

Preferred share dividends

 

(16,129)

 

 

(20,363)

 

 

(32,258)

 

 

(40,727)

 

Net income attributable to common shareholders

 

115,972

 

 

220,463

 

 

163,724

 

 

106,300

 

Earnings allocated to unvested participating securities

 

(13)

 

 

(25)

 

 

(27)

 

 

(30)

 

Numerator for basic income per share

 

115,959

 

 

220,438

 

 

163,697

 

 

106,270

 

Impact of assumed conversions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred share dividends

 

20

 

 

21

 

 

-

 

 

-

 

 

Earnings allocated to Out-Performance Plan units

 

-

 

 

-

 

 

233

 

 

24

 

Numerator for diluted income per share

$

115,979

 

$

220,459

 

$

163,930

 

$

106,294

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic income per share – weighted average shares

 

189,395

 

 

188,772

 

 

189,304

 

 

188,715

 

Effect of dilutive securities(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock options and restricted share awards

 

1,011

 

 

1,070

 

 

1,089

 

 

1,020

 

 

Convertible preferred shares

 

38

 

 

43

 

 

-

 

 

-

 

 

Out-Performance Plan units

 

-

 

 

-

 

 

281

 

 

265

 

Denominator for diluted income per share – weighted average

 

 

 

 

 

 

 

 

 

 

 

 

 

shares and assumed conversions

 

190,444

 

 

189,885

 

 

190,674

 

 

190,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.61

 

$

1.16

 

$

0.84

 

$

0.54

 

Income from discontinued operations, net

 

-

 

 

0.01

 

 

0.02

 

 

0.02

 

Net income per common share

$

0.61

 

$

1.17

 

$

0.86

 

$

0.56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.61

 

$

1.15

 

$

0.84

 

$

0.54

 

Income from discontinued operations, net

 

-

 

 

0.01

 

 

0.02

 

 

0.02

 

Net income per common share

$

0.61

 

$

1.16

 

$

0.86

 

$

0.56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The effect of dilutive securities for the three months ended June 30, 2017 and 2016 excludes an aggregate of 12,268 and 12,278 weighted average common share equivalents, respectively, and 12,125 and 12,052 weighted average common share equivalents for the six months ended June 30, 2017 and 2016, respectively, as their effect was anti-dilutive.

38


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

18.          Income Per Share/Income Per Class A Unit - continued

 

Vornado Realty L.P.

 

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

 

(Amounts in thousands, except per unit amounts)

For the Three Months Ended

 

For the Six Months Ended

 

June 30,

 

June 30,

 

 

 

 

2017

 

2016

 

2017

 

2016

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of income

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to noncontrolling interests

$

139,144

 

$

252,882

 

$

203,826

 

$

150,880

 

Income from discontinued operations

 

663

 

 

2,475

 

 

3,091

 

 

3,191

 

Net income attributable to Vornado Realty L.P.

 

139,807

 

 

255,357

 

 

206,917

 

 

154,071

 

Preferred unit distributions

 

(16,177)

 

 

(20,412)

 

 

(32,355)

 

 

(40,824)

 

Net income attributable to Class A unitholders

 

123,630

 

 

234,945

 

 

174,562

 

 

113,247

 

Earnings allocated to unvested participating securities

 

(742)

 

 

(1,059)

 

 

(1,759)

 

 

(1,412)

 

Numerator for basic income per Class A unit

 

122,888

 

 

233,886

 

 

172,803

 

 

111,835

 

Impact of assumed conversions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred unit distributions

 

20

 

 

22

 

 

-

 

 

-

 

Numerator for diluted income per Class A unit

$

122,908

 

$

233,908

 

$

172,803

 

$

111,835

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic income per Class A unit – weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

average units

 

201,127

 

 

200,369

 

 

200,987

 

 

200,220

 

Effect of dilutive securities(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado stock options and restricted unit awards

 

1,458

 

 

1,564

 

 

1,630

 

 

1,601

 

 

Convertible preferred units

 

38

 

 

42

 

 

-

 

 

-

 

Denominator for diluted income per Class A unit – weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

average units and assumed conversions

 

202,623

 

 

201,975

 

 

202,617

 

 

201,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER CLASS A UNIT – BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.61

 

$

1.16

 

$

0.84

 

$

0.54

 

Income from discontinued operations, net

 

-

 

 

0.01

 

 

0.02

 

 

0.02

 

Net income per Class A unit

$

0.61

 

$

1.17

 

$

0.86

 

$

0.56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER CLASS A UNIT – DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.61

 

$

1.15

 

$

0.84

 

$

0.54

 

Income from discontinued operations, net

 

-

 

 

0.01

 

 

0.01

 

 

0.01

 

Net income per Class A unit

$

0.61

 

$

1.16

 

$

0.85

 

$

0.55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The effect of dilutive securities for the three months ended June 30, 2017 and 2016 excludes an aggregate of 89 and 187 weighted average Class A unit equivalents, respectively, and 182 and 231 weighted average Class A unit equivalents for the six months ended June 30, 2017 and 2016, respectively, as their effect was anti-dilutive.

39


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

19.          Commitments and Contingencies  

 

Insurance

 

We maintain general liability insurance with limits of $300,000,000 per occurrence and per property, and all risk property and rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as flood and earthquake. Our California properties have earthquake insurance with coverage of $180,000,000 per occurrence and in the annual aggregate, subject to a deductible in the amount of 5% of the value of the affected property. 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 the Terrorism Risk Insurance Program Reauthorization Act of 2015, 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 acts of terrorism including 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 $1,976,000 and 17% of the balance of a covered loss and the Federal government is responsible for the remaining portion of a covered loss. We are ultimately responsible for any loss incurred by PPIC.

 

We continue to monitor the state of the insurance market and the scope and cost 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 cost 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.  

40


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

19.          Commitments and Contingencies – 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 currently 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 cost to us.

 

Generally, 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 June 30, 2017, the aggregate dollar amount of these guarantees and master leases is approximately $774,000,000.

 

As of June 30, 2017, $20,777,000 of letters of credit were outstanding under one of our unsecured revolving credit facilities.  Our unsecured revolving credit facilities contain financial covenants that require us to maintain minimum interest rate 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 unsecured 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 June 30, 2017, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $52,000,000.

 

As of June 30, 2017, we have construction commitments aggregating approximately $543,000,000.

 

Upon completion of the spin-off of our Washington, DC segment, on July 17, 2017, we incurred approximately $47,000,000 of additional transaction costs, primarily for advisory fees which will be recognized as expense in the quarter ended September 30, 2017.   

41


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

20.    Segment Information

Below is a summary of net income and a reconciliation of net income to EBITDA(1) and NOI(1) by segment for the three months ended June 30, 2017 and 2016.

 

(Amounts in thousands)

For the Three Months Ended June 30, 2017

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

626,039

 

$

436,862

 

$

118,336

 

$

70,841

 

Total expenses

 

 

442,643

 

 

279,835

 

 

82,317

 

 

80,491

 

Operating income (loss)

 

 

183,396

 

 

157,027

 

 

36,019

 

 

(9,650)

 

Income (loss) from partially owned entities

 

 

46,276

 

 

(272)

 

 

255

 

 

46,293

 

Income from real estate fund investments

 

 

4,391

 

 

-

 

 

-

 

 

4,391

 

Interest and other investment income (loss), net

 

 

9,307

 

 

1,499

 

 

(23)

 

 

7,831

 

Interest and debt expense

 

 

(96,797)

 

 

(60,335)

 

 

(12,008)

 

 

(24,454)

 

Income before income taxes

 

 

146,573

 

 

97,919

 

 

24,243

 

 

24,411

 

Income tax benefit (expense)

 

 

248

 

 

906

 

 

(362)

 

 

(296)

 

Income from continuing operations

 

 

146,821

 

 

98,825

 

 

23,881

 

 

24,115

 

Income from discontinued operations

 

 

663

 

 

-

 

 

-

 

 

663

 

Net income

 

 

147,484

 

 

98,825

 

 

23,881

 

 

24,778

 

Less net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in consolidated subsidiaries

 

 

(7,677)

 

 

(2,645)

 

 

-

 

 

(5,032)

 

Net income attributable to the Operating Partnership

 

 

139,807

 

 

96,180

 

 

23,881

 

 

19,746

 

Interest and debt expense(2)

 

 

118,585

 

 

78,202

 

 

13,567

 

 

26,816

 

Depreciation and amortization(2)

 

 

168,248

 

 

110,449

 

 

33,648

 

 

24,151

 

Income tax expense (benefit)(2)

 

 

289

 

 

(869)

 

 

353

 

 

805

 

EBITDA(1)

 

 

426,929

 

 

283,962

(3)

 

71,449

(4)

 

71,518

(5)

Non-cash adjustments for straight-line rents, amortization of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

acquired below-market leases, net, and other (2)

 

 

(44,580)

 

 

(26,741)

 

 

(1,826)

 

 

(16,013)

 

NOI(1)

 

$

382,349

 

$

257,221

(3)

$

69,623

(4)

$

55,505

(5)

                               

 

(Amounts in thousands)

For the Three Months Ended June 30, 2016

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

621,708

 

$

425,770

 

$

127,468

 

$

68,470

 

Total expenses

 

 

434,894

 

 

268,135

 

 

89,106

 

 

77,653

 

Operating income (loss)

 

 

186,814

 

 

157,635

 

 

38,362

 

 

(9,183)

 

Income (loss) from partially owned entities

 

 

642

 

 

(1,001)

 

 

(2,370)

 

 

4,013

 

Income from real estate fund investments

 

 

16,389

 

 

-

 

 

-

 

 

16,389

 

Interest and other investment income, net

 

 

10,236

 

 

1,214

 

 

34

 

 

8,988

 

Interest and debt expense

 

 

(105,576)

 

 

(56,395)

 

 

(19,817)

 

 

(29,364)

 

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

159,511

 

 

159,511

 

 

-

 

 

-

 

Income (loss) before income taxes

 

 

268,016

 

 

260,964

 

 

16,209

 

 

(9,157)

 

Income tax expense

 

 

(2,109)

 

 

(816)

 

 

(318)

 

 

(975)

 

Income (loss) from continuing operations

 

 

265,907

 

 

260,148

 

 

15,891

 

 

(10,132)

 

Income from discontinued operations

 

 

2,475

 

 

-

 

 

-

 

 

2,475

 

Net income (loss)

 

 

268,382

 

 

260,148

 

 

15,891

 

 

(7,657)

 

Less net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in consolidated subsidiaries

 

 

(13,025)

 

 

(3,397)

 

 

-

 

 

(9,628)

 

Net income (loss) attributable to the Operating Partnership

 

 

255,357

 

 

256,751

 

 

15,891

 

 

(17,285)

 

Interest and debt expense(2)

 

 

127,799

 

 

71,171

 

 

21,926

 

 

34,702

 

Depreciation and amortization(2)

 

 

173,352

 

 

111,314

 

 

37,196

 

 

24,842

 

Income tax expense (2)

 

 

4,704

 

 

889

 

 

2,205

 

 

1,610

 

EBITDA(1)

 

 

561,212

 

 

440,125

(3)

 

77,218

(4)

 

43,869

(5)

Non-cash adjustments for straight-line rents, amortization of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

acquired below-market leases, net, and other (2)

 

 

(74,383)

 

 

(50,045)

 

 

(6,067)

 

 

(18,271)

 

NOI(1)

 

$

486,829

 

$

390,080

(3)

$

71,151

(4)

$

25,598

(5)

                               

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on pages 45 through 48.

42


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

20.    Segment Information - continued

Below is a summary of net income and a reconciliation of net income to EBITDA(1) and NOI(1) by segment for the six months ended June 30, 2017.  

 

(Amounts in thousands)

For the Six Months Ended June 30, 2017

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

1,246,887

 

$

863,101

 

$

234,543

 

$

149,243

 

Total expenses

 

 

907,024

 

 

560,656

 

 

166,305

 

 

180,063

 

Operating income (loss)

 

 

339,863

 

 

302,445

 

 

68,238

 

 

(30,820)

 

Income (loss) from partially owned entities

 

 

47,721

 

 

(2,365)

 

 

342

 

 

49,744

 

Income from real estate fund investments

 

 

4,659

 

 

-

 

 

-

 

 

4,659

 

Interest and other investment income, net

 

 

18,535

 

 

2,971

 

 

41

 

 

15,523

 

Interest and debt expense

 

 

(191,082)

 

 

(118,322)

 

 

(23,569)

 

 

(49,191)

 

Net gains on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

501

 

 

-

 

 

-

 

 

501

 

Income (loss) before income taxes

 

 

220,197

 

 

184,729

 

 

45,052

 

 

(9,584)

 

Income tax (expense) benefit

 

 

(1,957)

 

 

763

 

 

(716)

 

 

(2,004)

 

Income (loss) from continuing operations

 

 

218,240

 

 

185,492

 

 

44,336

 

 

(11,588)

 

Income from discontinued operations

 

 

3,091

 

 

-

 

 

-

 

 

3,091

 

Net income (loss)

 

 

221,331

 

 

185,492

 

 

44,336

 

 

(8,497)

 

Less net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in consolidated subsidiaries

 

 

(14,414)

 

 

(5,489)

 

 

-

 

 

(8,925)

 

Net income (loss) attributable to the Operating Partnership

 

 

206,917

 

 

180,003

 

 

44,336

 

 

(17,422)

 

Interest and debt expense(2)

 

 

234,912

 

 

154,125

 

 

26,748

 

 

54,039

 

Depreciation and amortization(2)

 

 

339,785

 

 

223,259

 

 

69,141

 

 

47,385

 

Income tax expense (benefit)(2)

 

 

2,718

 

 

(642)

 

 

720

 

 

2,640

 

EBITDA(1)

 

 

784,332

 

 

556,745

(3)

 

140,945

(4)

 

86,642

(5)

Non-cash adjustments for straight-line rents, amortization of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

acquired below-market leases, net, and other (2)

 

 

(61,708)

 

 

(52,159)

 

 

(5,892)

 

 

(3,657)

 

NOI(1)

 

$

722,624

 

$

504,586

(3)

$

135,053

(4)

$

82,985

(5)

                               

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on pages 45 through 48.

43


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

20.    Segment Information - continued

Below is a summary of net income and a reconciliation of net income to EBITDA(1) and NOI(1) by segment for the six months ended June 30, 2016.    

  

 

(Amounts in thousands)

 

For the Six Months Ended June 30, 2016

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

1,234,745

 

$

836,595

 

$

255,480

 

$

142,670

 

Total expenses

 

 

1,048,211

 

 

537,730

 

 

345,671

 

 

164,810

 

Operating income (loss)

 

 

186,534

 

 

298,865

 

 

(90,191)

 

 

(22,140)

 

(Loss) income from partially owned entities

 

 

(3,598)

 

 

(4,564)

 

 

(3,679)

 

 

4,645

 

Income from real estate fund investments

 

 

27,673

 

 

-

 

 

-

 

 

27,673

 

Interest and other investment income, net

 

 

13,754

 

 

2,329

 

 

92

 

 

11,333

 

Interest and debt expense

 

 

(206,065)

 

 

(110,981)

 

 

(35,752)

 

 

(59,332)

 

Net gains on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

160,225

 

 

159,511

 

 

-

 

 

714

 

Income (loss) before income taxes

 

 

178,523

 

 

345,160

 

 

(129,530)

 

 

(37,107)

 

Income tax expense

 

 

(4,940)

 

 

(1,775)

 

 

(582)

 

 

(2,583)

 

Income (loss) from continuing operations

 

 

173,583

 

 

343,385

 

 

(130,112)

 

 

(39,690)

 

Income from discontinued operations

3,191

 

 

-

 

 

-

 

 

3,191

 

Net income (loss)

 

 

176,774

 

 

343,385

 

 

(130,112)

 

 

(36,499)

 

Less net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in consolidated subsidiaries

 

 

(22,703)

 

 

(6,826)

 

 

-

 

 

(15,877)

 

Net income (loss) attributable to the Operating Partnership

 

 

154,071

 

 

336,559

 

 

(130,112)

 

 

(52,376)

 

Interest and debt expense(2)

 

 

253,919

 

 

142,369

 

 

40,637

 

 

70,913

 

Depreciation and amortization(2)

 

 

348,163

 

 

219,717

 

 

77,795

 

 

50,651

 

Income tax expense(2)

 

 

7,965

 

 

1,979

 

 

2,470

 

 

3,516

 

EBITDA(1)

 

 

764,118

 

 

700,624

(3)

 

(9,210)

(4)

 

72,704

(5)

Non-cash adjustments for straight-line rents, amortization of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

acquired below-market leases, net, and other (2)

 

 

(133,739)

 

 

(97,555)

 

 

(10,264)

 

 

(25,920)

 

NOI(1)

 

$

630,379

 

$

603,069

(3)

$

(19,474)

(4)

$

46,784

(5)

                               

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on pages 45 through 48.

44


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

20.    Segment Information – continued

 

Notes to preceding tabular information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization."  NOI represents "Net Operating Income" (the equivalent of EBITDA on a cash basis). We calculate EBITDA and NOI on an Operating Partnership basis which is before allocation to the noncontrolling interest of the Operating Partnership.  We consider EBITDA the primary 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. We also consider NOI a key non-GAAP financial measure. As properties are bought and sold based on a multiple of NOI, we utilize this measure to make investment decisions as well as to compare the performance of our assets to those of our peers. EBITDA and NOI should not be considered substitutes for net income. EBITDA and NOI may not be comparable to similarly titled measures employed by other companies.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Our 7.5% interest in Fashion Centre Mall/Washington Tower and our interest in Rosslyn Plaza (ranging from 43.7% to 50.4%) will not be included in the spin-off of our Washington, DC segment and have been reclassified to Other. The prior year's presentation has been conformed to the current year.  In addition, on January 1, 2017, we reclassified our investment in 85 Tenth Avenue from Other to the New York segment as a result of the December 1, 2016 repayment of our loans receivable and the receipt of a 49.9% ownership interest in the property. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

Interest and debt expense, depreciation and amortization and income tax expense (benefit) in the reconciliation of net income (loss) to EBITDA and straight-line rents, amortization of acquired below-market leases, net and other non-cash adjustments in the reconciliation of EBITDA to NOI include our share of these items from partially owned entities.

 

45


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

20.    Segment Information – continued

 

Notes to preceding tabular information - continued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

 

June 30,

 

 

 

 

 

 

 

 

 

2017

 

2016

 

 

2017

 

2016

 

 

 

Office

 

$

169,327

 

$

165,576

(a)

 

$

339,405

 

$

320,585

(a)

 

 

Retail

 

 

90,183

 

 

91,421

(a)

 

 

179,446

 

 

181,022

(a)

 

 

Residential

 

 

6,190

 

 

6,337

 

 

 

12,468

 

 

12,687

 

 

 

Alexander's

 

 

11,742

 

 

11,805

 

 

 

23,304

 

 

23,374

 

 

 

Hotel Pennsylvania

 

 

6,520

 

 

3,797

 

 

 

2,122

 

 

325

 

 

 

 

Total New York EBITDA, as adjusted

 

 

283,962

 

 

278,936

 

 

 

556,745

 

 

537,993

 

 

 

Certain items that impact EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain on sale of 47% ownership interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in 7 West 34th Street

 

 

-

 

 

159,511

 

 

 

-

 

 

159,511

 

 

 

 

EBITDA from sold properties

 

 

-

 

 

1,678

 

 

 

-

 

 

3,120

 

 

 

 

 

Total of certain items that impact EBITDA

 

 

-

 

 

161,189

 

 

 

-

 

 

162,631

 

 

 

 

 

 

Total New York EBITDA

 

$

283,962

 

$

440,125

 

 

$

556,745

 

$

700,624

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

June 30,

 

 

 

 

 

 

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

Office

 

$

158,105

 

$

142,639

(a)

$

317,632

 

$

277,071

(a)

 

 

Retail

 

 

80,193

 

 

71,084

(a)

 

159,827

 

 

139,433

(a)

 

 

Residential

 

 

5,341

 

 

5,627

 

 

10,881

 

 

11,199

 

 

 

Alexander's

 

 

7,029

 

 

6,616

 

 

14,059

 

 

13,233

 

 

 

Hotel Pennsylvania

 

 

6,553

 

 

3,830

 

 

2,187

 

 

390

 

 

 

 

Total New York NOI, as adjusted

 

 

257,221

 

 

229,796

 

 

504,586

 

 

441,326

 

 

 

Certain items that impact NOI:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain on sale of 47% ownership interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in 7 West 34th Street

 

 

-

 

 

159,511

 

 

-

 

 

159,511

 

 

 

 

NOI from sold properties

 

 

-

 

 

773

 

 

-

 

 

2,232

 

 

 

 

 

Total of certain items that impact NOI

 

 

-

 

 

160,284

 

 

-

 

 

161,743

 

 

 

 

 

 

Total New York NOI

 

$

257,221

 

$

390,080

 

$

504,586

 

$

603,069

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Beginning in January 2017 for office buildings with retail at the base, we have adjusted the allocation of real estate taxes between the retail and office elements above. This has no effect on our consolidated financial statements but resulted in a reallocation of $3,931 and $7,845 of income from retail to office for the three and six months ended June 30, 2016, respectively.

 

46


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

20.    Segment Information – continued

Notes to preceding tabular information - continued:

 

(4)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

 

 

 

 

 

June 30,

 

June 30,

 

 

 

 

 

 

 

 

2017

 

2016

 

2017

 

2016

 

 

Office

 

$

57,418

 

$

61,357

 

$

113,710

 

$

119,376

 

 

Residential

 

 

14,031

 

 

10,118

 

 

27,235

 

 

20,426

 

 

 

Total Washington, DC EBITDA, as adjusted

 

 

71,449

 

 

71,475

 

 

140,945

 

 

139,802

 

 

Certain items that impact EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA from sold properties

 

 

-

 

 

5,743

 

 

-

 

 

11,688

 

 

 

Skyline properties impairment loss

 

 

-

 

 

-

 

 

-

 

 

(160,700)

 

 

 

Total of certain items that impact EBITDA

 

 

-

 

 

5,743

 

 

-

 

 

(149,012)

 

 

 

 

Total Washington, DC EBITDA

 

$

71,449

 

$

77,218

 

$

140,945

 

$

(9,210)

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

 

 

 

 

 

June 30,

 

June 30,

 

 

 

 

 

 

 

 

2017

 

2016

 

2017

 

2016

 

 

Office

 

$

55,592

 

$

57,501

 

$

107,818

 

$

112,937

 

 

Residential

 

 

14,031

 

 

10,118

 

 

27,235

 

 

20,426

 

 

 

Total Washington, DC NOI, as adjusted

 

 

69,623

 

 

67,619

 

 

135,053

 

 

133,363

 

 

Certain items that impact NOI:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI from sold properties

 

 

-

 

 

3,532

 

 

-

 

 

7,863

 

 

 

Skyline properties impairment loss

 

 

-

 

 

-

 

 

-

 

 

(160,700)

 

 

 

Total of certain items that impact NOI

 

 

-

 

 

3,532

 

 

-

 

 

(152,837)

 

 

 

 

Total Washington, DC NOI

 

$

69,623

 

$

71,151

 

$

135,053

 

$

(19,474)

47


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

20.    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 Six Months Ended

 

 

 

 

June 30,

 

June 30,

 

 

 

 

 

 

 

 

2017

 

2016

 

2017

 

2016

 

 

theMART (including trade shows)

 

$

24,122

 

$

25,965

 

$

48,306

 

$

48,993

 

 

555 California Street

 

 

12,144

 

 

12,117

 

 

24,227

 

 

23,732

 

 

Other investments

 

 

12,383

 

 

17,407

 

 

23,998

 

 

33,091

 

 

 

 

 

48,649

 

 

55,489

 

 

96,531

 

 

105,816

 

 

Our share of real estate fund investments

 

 

(304)

 

 

7,544

 

 

(3,539)

 

 

12,855

 

 

Corporate general and administrative expenses(a)

 

 

(23,235)

 

 

(24,239)

 

 

(56,222)

 

 

(54,845)

 

 

Investment income and other, net(a)

 

 

9,629

 

 

5,471

 

 

18,169

 

 

12,446

 

 

Net gain resulting from UE operating partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

unit issuances

 

 

15,900

 

 

-

 

 

15,900

 

 

-

 

 

Net gain on sale of property at Suffolk Downs

 

 

15,314

 

 

-

 

 

15,314

 

 

-

 

 

Net gain on repayment of our Suffolk Downs JV

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

debt investments

 

 

11,373

 

 

-

 

 

11,373

 

 

-

 

 

Acquisition and transaction related costs(b)

 

 

(6,471)

 

 

(2,879)

 

 

(14,476)

 

 

(7,486)

 

 

Residual retail properties discontinued operations

 

 

663

 

 

2,483

 

 

3,091

 

 

3,204

 

 

Other

 

 

-

 

 

-

 

 

501

 

 

714

 

 

 

Total Other

 

$

71,518

 

$

43,869

 

$

86,642

 

$

72,704

 

 

 

The elements of "Other" NOI are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

 

June 30,

 

June 30,

 

 

 

 

 

 

 

 

2017

 

2016

 

2017

 

2016

 

 

theMART (including trade shows)

 

$

22,904

 

$

24,233

 

$

45,808

 

$

45,955

 

 

555 California Street

 

 

11,258

 

 

8,033

 

 

22,633

 

 

13,922

 

 

Other investments

 

 

6,630

 

 

6,002

 

 

15,909

 

 

13,528

 

 

 

 

 

40,792

 

 

38,268

 

 

84,350

 

 

73,405

 

 

Our share of real estate fund investments

 

 

1,995

 

 

1,522

 

 

4,931

 

 

3,865

 

 

Corporate general and administrative expenses(a)

 

 

(17,790)

 

 

(19,267)

 

 

(40,268)

 

 

(39,364)

 

 

Investment income and other, net(a)

 

 

9,629

 

 

5,471

 

 

18,169

 

 

12,446

 

 

Net gain on sale of property at Suffolk Downs

 

 

15,314

 

 

-

 

 

15,314

 

 

-

 

 

Net gain on repayment of our Suffolk Downs JV

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

debt investments

 

 

11,373

 

 

-

 

 

11,373

 

 

-

 

 

Acquisition and transaction related costs(b)

 

 

(6,471)

 

 

(2,879)

 

 

(14,476)

 

 

(7,486)

 

 

Residual retail properties discontinued operations

 

 

663

 

 

2,483

 

 

3,091

 

 

3,204

 

 

Other

 

 

-

 

 

-

 

 

501

 

 

714

 

 

 

Total Other

 

$

55,505

 

$

25,598

 

$

82,985

 

$

46,784

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

The amounts in these captions (for this table only) exclude the results of the mark-to-market of our deferred compensation plan of $789 and $4,359 of income for the three months ended June 30, 2017 and 2016, respectively, and $3,258 and $2,421 of income for the six months ended June 30, 2017 and 2016, respectively.

 

 

(b)

Includes transaction costs related to the spin-off of our Washington, DC business of $6,211 and $1,606 for the three months ended June 30, 2017 and 2016, respectively, and $13,464 and $1,858 for the six months ended June 30, 2017 and 2016, respectively.

48


VORNADO REALTY TRUST AND VORNADO REALTY L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

21.    Subsequent Event

 

330 Madison Avenue

 

On July 19, 2017, the joint venture, in which we have a 25% interest, completed a $500,000,000 refinancing of 330 Madison Avenue, an 845,000 square foot Manhattan office building.  The seven-year interest only loan matures in August 2024 and has a fixed rate of 3.43%.  Our share of net proceeds, after repayment of the existing LIBOR plus 1.30% $150,000,000 mortgage and closing costs, was approximately $85,000,000.

  

 

49


  

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 June 30, 2017, and the related consolidated statements of income and comprehensive income for the three month and six month periods ended June 30, 2017 and 2016 and changes in equity and cash flows for the six month periods ended June 30, 2017 and 2016.  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, 2016, 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 13, 2017, 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, 2016 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

July 31, 2017

  

50


  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Partners

Vornado Realty L.P.

New York, New York

 

We have reviewed the accompanying consolidated balance sheet of Vornado Realty L.P. and consolidated subsidiaries (the “Partnership”) as of June 30, 2017, and the related consolidated statements of income and comprehensive income for the three month and six month periods ended June 30, 2017 and 2016 and changes in equity, and cash flows for the six month periods ended June 30, 2017 and 2016. These interim financial statements are the responsibility of the Partnership’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 L.P. as of December 31, 2016, 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 13, 2017, 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, 2016 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

July 31, 2017

  

51


  

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, 2016.  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 six months ended June 30, 2017.  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 six months ended June 30, 2017 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 year presentation.

52


  

Overview

 

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 as of June 30, 2017.  All references to the “Company,” “we,” “us,” and “our” mean collectively Vornado, the Operating Partnership and those entities/subsidiaries consolidated by Vornado.

 

On July 17, 2017, we completed the spin-off of our Washington, DC segment comprised of (i) 37 office properties totaling over 11.1 million square feet, five multifamily properties with 3,133 units and five other assets totaling approximately 406,000 square feet and (ii) 18 future development assets totaling over 10.4 million square feet of estimated potential development density, and $275.0 million of cash to JBG SMITH Properties (“JBGS”).  On July 18, 2017, JBGS was combined with the management business and certain Washington, DC assets of The JBG Companies (“JBG”), a Washington, DC real estate company.  Steven Roth, the Chairman of the Board of Trustees and Chief Executive Officer of Vornado, is the Chairman of the Board of Trustees of JBGS.  Mitchell Schear, former President of our Washington, DC business, is a member of the Board of Trustees of JBGS.  We are providing transition services to JBGS initially including information technology, financial reporting and payroll services. The spin-off was effected through a tax-free distribution by Vornado to the holders of Vornado common shares of all of the common shares of JBGS at the rate of one JBGS common share for every two common shares of Vornado and the distribution by the Operating Partnership to the holders of its common units of all of the outstanding common units of JBG SMITH Properties LP (“JBGSLP”) at the rate of one JBGSLP common unit for every two common units of VRLP held of record.  See JBGS’ Amendment No. 3 on Form 10 (File No. 001-37994) filed with the Securities and Exchange Commission on June 9, 2017 for additional information. Beginning in the third quarter of 2017, the historical financial results of our Washington, DC segment will be reflected in our consolidated financial statements as discontinued operations for all periods presented.

  

 

Business Objective and Operating Strategy

 

Our business objective is to maximize Vornado shareholder value, which we measure by the total return provided to Vornado’s shareholders. Below is a table comparing Vornado’s performance to the FTSE NAREIT Office Index (“Office REIT”) and the MSCI US REIT Index (“MSCI”) for the following periods ended June 30, 2017:

  

 

 

 

 

 

Total Return(1)

 

 

 

 

 

Vornado

 

Office REIT

 

MSCI

 

 

Three-month

(5.7%)

 

1.0%

 

1.7%

 

 

Six-month

(8.8%)

 

2.6%

 

2.7%

 

 

One-year

(3.6%)

 

6.6%

 

(1.8%)

 

 

Three-year

5.2%

 

24.4%

 

26.6%

 

 

Five-year

44.6%

 

55.3%

 

56.5%

 

 

Ten-year

36.3%

 

44.3%

 

78.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

 Past performance is not necessarily indicative of future performance.

 

53


  

Overview – continued

 

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, 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, 2016, for additional information regarding these factors.

54


  

Overview – continued

 

Vornado Realty Trust

 

Quarter Ended June 30, 2017 Financial Results Summary

 

Net income attributable to common shareholders for the quarter ended June 30, 2017 was $115,972,000, or $0.61 per diluted share, compared to $220,463,000, or $1.16 per diluted share, for the prior year’s quarter.  The quarters ended June 30, 2017 and 2016 include certain items that impact net income attributable to common shareholders, which are listed in the table on the following page.  The aggregate of these items, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders for the quarters ended June 30, 2017 and 2016 by $34,021,000, or $0.18 per diluted share, and $153,920,000, or $0.81 per diluted share, respectively.

 

Funds From Operations attributable to common shareholders plus assumed conversions (“FFO”) for the quarter ended June 30, 2017 was $257,673,000, or $1.35 per diluted share, compared to $229,432,000, or $1.21 per diluted share, for the prior year’s quarter.  FFO for the quarters ended June 30, 2017 and 2016 include certain items that impact FFO, which are listed in the table on the following page.  The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO for the quarters ended June 30, 2017 and 2016 by $19,788,000, or $0.10 per diluted share, and $4,418,000, or $0.02 per diluted share, respectively.

 

Six Months Ended June 30, 2017 Financial Results Summary

 

Net income attributable to common shareholders for the six months ended June 30, 2017 was $163,724,000, or $0.86 per diluted share, compared to $106,300,000, or $0.56 per diluted share, for the six months ended June 30, 2016.   The six months ended June 30, 2017 and 2016 include certain items that impact net income attributable to common shareholders, which are listed in the table on the following page.  The aggregate of these items, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders for the six months ended June 30, 2017 by $25,095,000, or $0.13 per diluted share, and decreased net income attributable to common shareholders for the six months ended June 30, 2016 by $949,000, or $0.00 per diluted share.

 

FFO for the six months ended June 30, 2017 was $463,422,000, or $2.43 per diluted share, compared to $433,104,000, or $2.28 per diluted share, for the six months ended June 30, 2016.  FFO for the six months ended June 30, 2017 and 2016 include certain items that impact FFO, which are listed in the table on the following page. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO for the six months ended June 30, 2017 and 2016 by $9,863,000, or $0.05 per diluted share, and $9,102,000, or $0.05 per diluted share, respectively.

55


  

Overview – continued

 

Vornado Realty Trust - continued

 

(Amounts in thousands)

For the Three Months Ended

 

For the Six Months Ended

 

June 30,

 

June 30,

 

 

 

2017

 

2016

 

2017

 

2016

Certain items that impact net income attributable to

 

 

 

 

 

 

 

 

 

 

 

common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

Net gain on repayment of our Suffolk Downs JV debt investments

$

11,373

 

$

-

 

$

11,373

 

$

-

 

Acquisition and transaction related costs

 

(6,471)

 

 

(2,879)

 

 

(14,476)

 

 

(7,486)

 

Net income (loss) from discontinued operations and

 

 

 

 

 

 

 

 

 

 

 

 

 

sold properties

 

663

 

 

104

 

 

824

 

 

(1,325)

 

(Loss) income from real estate fund investments, net

 

(304)

 

 

7,544

 

 

(3,539)

 

 

12,855

 

Net gains on sale of real estate

 

-

 

 

161,721

 

 

2,267

 

 

161,721

 

Default interest on Skyline properties mortgage loan

 

-

 

 

(2,711)

 

 

-

 

 

(2,711)

 

Skyline properties impairment loss

 

-

 

 

-

 

 

-

 

 

(160,700)

 

Other

 

-

 

 

-

 

 

501

 

 

714

 

Our share of partially owned entities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain resulting from Urban Edge Properties ("UE")

 

 

 

 

 

 

 

 

 

 

 

 

 

operating partnership unit issuances

 

15,900

 

 

-

 

 

15,900

 

 

-

 

 

Net gains on sale of real estate

 

15,339

 

 

319

 

 

17,192

 

 

319

 

 

Real estate impairment losses

 

(167)

 

 

(49)

 

 

(3,218)

 

 

(4,402)

 

 

Other

 

(67)

 

 

(25)

 

 

(67)

 

 

(25)

 

 

 

 

36,266

 

 

164,024

 

 

26,757

 

 

(1,040)

Noncontrolling interests' share of above adjustments

 

(2,245)

 

 

(10,104)

 

 

(1,662)

 

 

91

Total of certain items that impact net income attributable to

 

 

 

 

 

 

 

 

 

 

 

common shareholders, net

$

34,021

 

$

153,920

 

$

25,095

 

$

(949)



Certain items that impact FFO:

 

 

 

 

 

 

 

 

 

 

 

 

Net gain on repayment of our Suffolk Downs JV debt investments

$

11,373

 

$

-

 

$

11,373

 

$

-

 

Acquisition and transaction related costs

 

(6,471)

 

 

(2,879)

 

 

(14,476)

 

 

(7,486)

 

FFO from discontinued operations and sold properties

 

663

 

 

2,889

 

 

824

 

 

6,349

 

(Loss) income from real estate fund investments, net

 

(304)

 

 

7,544

 

 

(3,539)

 

 

12,855

 

Default interest on Skyline properties mortgage loan

 

-

 

 

(2,711)

 

 

-

 

 

(2,711)

 

Other

 

-

 

 

-

 

 

501

 

 

714

 

Our share of partially owned entities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain resulting from UE operating partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

unit issuances

 

15,900

 

 

-

 

 

15,900

 

 

-

 

 

Other

 

(67)

 

 

(25)

 

 

(67)

 

 

(25)

 

 

 

 

21,094

 

 

4,818

 

 

10,516

 

 

9,696

Noncontrolling interests' share of above adjustments

 

(1,306)

 

 

(400)

 

 

(653)

 

 

(594)

Total of certain items that impact FFO, net

$

19,788

 

$

4,418

 

$

9,863

 

$

9,102

56


  

Overview – continued

 

Vornado Realty L.P.

 

Quarter Ended June 30, 2017 Financial Results Summary

 

Net income attributable to Class A unitholders for the quarter ended June 30, 2017 was $123,630,000, or $0.61 per diluted Class A unit, compared to $234,945,000, or $1.16 per diluted Class A unit, for the prior year’s quarter.  The quarters ended June 30, 2017 and 2016 include certain items that impact net income attributable to Class A unitholders, which are listed in the table below.  The aggregate of these items increased net income attributable to Class A unitholders for the quarters ended June 30, 2017 and 2016 by $36,266,000, or $0.18, and $164,024,000, or $0.81 per diluted Class A unit, respectively.

 

Six Months Ended June 30, 2017 Financial Results Summary

 

Net income attributable to Class A unitholders for the six months ended June 30, 2017 was $174,562,000, or $0.85 per diluted Class A unit, compared to $113,247,000, or $0.55 per diluted Class A unit, for the six months ended June 30, 2016.  The six months ended June 30, 2017 and 2016 include certain items that impact net income attributable to Class A unitholders, which are listed in the table below.  The aggregate of these items increased net income attributable to Class A unitholders for the six months ended June 30, 2017 by $26,757,000, or $0.13 per diluted Class A unit, and decreased net income attributable to Class A unitholders for the six months ended June 30, 2016 by $1,040,000, or $0.01 per diluted Class A unit.

 

(Amounts in thousands)

For the Three Months Ended

 

For the Six Months Ended

 

June 30,

 

June 30,

 

 

 

2017

 

2016

 

2017

 

2016

Certain items that impact net income attributable to

 

 

 

 

 

 

 

 

 

 

 

Class A unitholders:

 

 

 

 

 

 

 

 

 

 

 

 

Net gain on repayment of our Suffolk Downs JV debt investments

$

11,373

 

$

-

 

$

11,373

 

$

-

 

Acquisition and transaction related costs

 

(6,471)

 

 

(2,879)

 

 

(14,476)

 

 

(7,486)

 

Net income (loss) from discontinued operations and

 

 

 

 

 

 

 

 

 

 

 

 

 

sold properties

 

663

 

 

104

 

 

824

 

 

(1,325)

 

(Loss) income from real estate fund investments, net

 

(304)

 

 

7,544

 

 

(3,539)

 

 

12,855

 

Net gains on sale of real estate

 

-

 

 

161,721

 

 

2,267

 

 

161,721

 

Default interest on Skyline properties mortgage loan

 

-

 

 

(2,711)

 

 

-

 

 

(2,711)

 

Skyline properties impairment loss

 

-

 

 

-

 

 

-

 

 

(160,700)

 

Other

 

-

 

 

-

 

 

501

 

 

714

 

Our share of partially owned entities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain resulting from UE operating partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

unit issuances

 

15,900

 

 

-

 

 

15,900

 

 

-

 

 

Net gains on sale of real estate

 

15,339

 

 

319

 

 

17,192

 

 

319

 

 

Real estate impairment losses

 

(167)

 

 

(49)

 

 

(3,218)

 

 

(4,402)

 

 

Other

 

(67)

 

 

(25)

 

 

(67)

 

 

(25)

Total of certain items that impact net income attributable to

 

 

 

 

 

 

 

 

 

 

 

Class A unitholders, net

$

36,266

 

$

164,024

 

$

26,757

 

$

(1,040)

57


  

Overview – continued

 

Vornado Realty Trust and Vornado Realty L.P.

 

Same Store EBITDA and NOI

 

The percentage (decrease) increase in same store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and same store Net Operating Income (“NOI”) of our operating segments and theMART and 555 California Street, which are included in Other, are summarized below.

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

555

 

 

 

 

 

 

 

 

Washington,

 

 

 

 

 

California

 

 

 

 

New York

 

DC

 

theMART

 

Street

Same store EBITDA % (decrease) increase :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2017 compared to June 30, 2016

(0.5

%)

(1)(2)

 

(2.7

%)

 

(4.5

%)

(3)

 

(2.9

%)

 

Six months ended June 30, 2017 compared to June 30, 2016

1.5

%

(1)(2)

 

(1.2

%)

 

(0.2

%)

(4)

 

(1.0

%)

 

Three months ended June 30, 2017 compared to March 31, 2017

3.6

%

(1)(2)

 

(0.5

%)

 

1.7

%

 

 

0.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same store NOI % increase (decrease):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2017 compared to June 30, 2016

10.6

%

(1)(2)

 

0.5

%

 

(2.8

%)

(3)

 

33.7

%

 

Six months ended June 30, 2017 compared to June 30, 2016

12.9

%

(1)(2)

 

0.1

%

 

0.9

%

(4)

 

54.3

%

 

Three months ended June 30, 2017 compared to March 31, 2017

4.5

%

(1)(2)

 

2.5

%

 

2.3

%

 

 

(1.0

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

NOI

 

(1)

Excluding Hotel Pennsylvania - same store % (decrease) increase:

 

 

 

 

 

 

 

 

Three months ended June 30, 2017 compared to June 30, 2016

(1.5

%)

 

9.6

%

 

 

 

Six months ended June 30, 2017 compared to June 30, 2016

1.2

%

 

12.5

%

 

 

 

Three months ended June 30, 2017 compared to March 31, 2017

(0.4

%)

 

0.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

NOI

 

(2)

Excluding $2,557,000 of one-time prior period tenant adjustments in the

 

 

 

 

 

 

 

 three months ended June 30, 2017 - same store % increase:

 

 

 

 

 

 

 

 

Three months ended June 30, 2017 compared to June 30, 2016

0.4

%

 

11.7

%

 

 

 

Six months ended June 30, 2017 compared to June 30, 2016

2.0

%

 

13.5

%

 

 

 

Three months ended June 30, 2017 compared to March 31, 2017

4.5

%

 

5.5

%

 

 

 

 

 

 

 

 

 

 

 

 

(3)

The three months ended June 30, 2016 includes a $2,300,000 reversal of an expense accrued in the prior quarters. Excluding this amount, same store EBITDA increased by 4.0% and same store NOI increased by 6.5%.

(4)

The six months ended June 30, 2016 includes a $2,000,000 reversal of an expense accrued in 2015. Excluding this amount, same store EBITDA increased by 3.8% and same store NOI increased by 5.2%.

 

Calculations of same store EBITDA, same store NOI, 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.

58


  

Overview – continued

 

Financings

 

On June 1, 2017, Alexander’s, Inc. (NYSE: ALX), in which we have a 32.4% ownership interest, completed a $500,000,000 refinancing of the office portion of 731 Lexington Avenue. The interest-only loan is at LIBOR plus 0.90% (2.06% at June 30, 2017) and matures in June 2020 with four one-year extension options. In connection therewith, Alexander’s purchased an interest rate cap with a notional amount of $500,000,000 that caps LIBOR at a rate of 6%.  The property was previously encumbered by a $300,000,000 interest-only mortgage at LIBOR plus 0.95% which was scheduled to mature in March 2021.

 

On June 20, 2017, we completed a $220,000,000 financing of The Bartlett, a 699-unit residential building with a 39,000 square foot Whole Foods Market at its base, located in Arlington, Virginia.  The five-year interest-only loan is at LIBOR plus 1.70% (2.90% at June 30, 2017), and matures in June 2022.  On July 17, 2017, the property, the loan and the $217,000,000 of net proceeds were transferred to JBGS in connection with the tax-free spin-off of our Washington, DC segment.

 

On July 19, 2017, the joint venture, in which we have a 25% interest, completed a $500,000,000 refinancing of 330 Madison Avenue, an 845,000 square foot Manhattan office building.  The seven-year interest only loan matures in August 2024 and has a fixed rate of 3.43%.  Our share of net proceeds, after repayment of the existing LIBOR plus 1.30% $150,000,000 mortgage and closing costs, was approximately $85,000,000.

  

Other Activities

 

On May 9, 2017, a $150,000,000 mezzanine loan owned by a joint venture in which we have a 33.3% ownership interest was repaid at its maturity and we received our $50,000,000 share. The mezzanine loan earned interest at LIBOR plus 9.42%.

 

On May 26, 2017, Suffolk Downs JV, a joint venture in which we have a 21.2% equity interest, sold the property comprising the Suffolk Downs race track in East Boston, Massachusetts (“Suffolk Downs”) for $155,000,000, which resulted in net proceeds and a net gain to us of $15,314,000.  In addition, we were repaid $29,318,000 of principal and $6,129,000 of accrued interest on our debt investments in Suffolk Downs JV, resulting in a net gain of $11,373,000.  

 

Washington, DC Segment

 

We completed the spin-off of our Washington, DC segment on July 17, 2017.  Our Washington, DC segment EBITDA as adjusted was $140,945,000 for the six months ended June 30, 2017, which is $1,143,000 ahead of the prior year’s first half as a result of an increase in EBITDA from the core business of $6,665,000, offset by a decline in EBITDA of $5,522,000 from 1700 M Street, 1800 South Bell and 1750 Crystal Drive being taken out-of-service for redevelopment.  These results are slightly ahead of the guidance we published for the first half of 2017.

59


  

Overview – continued

 

Recently Issued Accounting Literature

  

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update ("ASU 2014-09") establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).  ASU 2014-09, as amended by subsequent ASUs on the topic, 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.  This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of 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. When adopting this standard, we are permitted to use either the full retrospective method or the modified retrospective method.  We will adopt this standard effective as of January 1, 2018 and currently expect to utilize the modified retrospective method of adoption. We have progressed with our project plan for adopting this standard, including gathering and evaluating the inventory of our revenue streams.  We expect this standard will have an impact on the presentation of certain lease and non-lease components of revenue from leases upon the adoption of the update (“ASU 2016-02”) Leases  with no impact on “total revenues.”  We expect this standard will have an impact on the timing of gains on certain sales of real estate. We are continuing to evaluate the impact of this standard on our consolidated financial statements.

 

In January 2016, the FASB issued an update (“ASU 2016-01”) Recognition and Measurement of Financial Assets and Financial Liabilities to ASC Topic 825, Financial Instruments.  ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments.  ASU 2016-01 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017.  While the adoption of this standard requires us to continue to measure “marketable securities” at fair value at each reporting date, the changes in fair value will be recognized in current period earnings as opposed to “other comprehensive income.”

 

In February 2016, the FASB issued an update ASU 2016-02 establishing ASC Topic 842, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.  ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase.  Lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases.  Lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases.  ASU 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted.  We are currently evaluating the overall impact of the adoption of ASU 2016-02 on our consolidated financial statements, including the timing of adopting this standard. ASU 2016-02 will more significantly impact the accounting for leases in which we are a lessee.  We have a number of ground leases for which we will be required to record a right-of-use asset and lease liability equal to the present value of the remaining minimum lease payments upon adoption of this standard.  We also expect that this standard will have an impact on the presentation of certain lease and non-lease components of revenue from leases with no impact on “total revenues.” In particular, items such as reimbursable real estate taxes and insurance expenses, will be presented in “property rentals” and non-lease components, such as certain reimbursable operating expenses, will be presented in “tenant expense reimbursements” on our consolidated statements of income.

 

In March 2016, the FASB issued an update (“ASU 2016-09”) Improvements to Employee Share-Based Payment Accounting to ASC Topic 718, Compensation – Stock Compensation (“ASC 718”).  ASU 2016-09 amends several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  ASU 2016-09 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2016.  The adoption of this update as of January 1, 2017, did not have a material impact on our consolidated financial statements.

60


  

Overview – continued

 

Recently Issued Accounting Literature – continued

 

In August 2016, the FASB issued an update (“ASU 2016-15”) Classification of Certain Cash Receipts and Cash Payments to ASC Topic 230, Statement of Cash Flows. ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice with respect to (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions, and (viii) separately identifiable cash flows and application of the predominance principle.  ASU 2016-15 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted.  We elected to early adopt ASU 2016-15 effective January 1, 2017, with retrospective application to our consolidated statements of cash flows. The adoption of ASU 2016-15 impacted our classification of distributions received from equity method investees. We selected the nature of earnings approach for classifying distributions. Under this approach, the distributions from equity method investees are classified on the basis of the nature of the activity of the investee that generated the distribution.  The retrospective application of ASU 2016-15 resulted in the reclassification of certain distributions of income from partially owned entities to distributions of capital from partially owned entities, which reduced net cash provided by operating activities and net cash used in investing activities by $4,488,000 for the six months ended June 30, 2016.

 

In November 2016, the FASB issued an update (“ASU 2016-18”) Restricted Cash to ASC Topic 230, Statement of Cash Flows. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents.  Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning of period and end of period balances on the statement of cash flows upon adoption of this standard. ASU 2016-18 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted.  We elected to early adopt ASU 2016-18 effective January 1, 2017, with retrospective application to our consolidated statements of cash flows.  Accordingly, the consolidated statements of cash flows present a reconciliation of the changes in cash and cash equivalents and restricted cash. Restricted cash primarily consists of security deposits, cash restricted for the purposes of facilitating a Section 1031 Like-Kind Exchange, cash restricted in connection with our deferred compensation plan and cash escrowed under loan agreements for debt service, real estate taxes, property insurance and capital improvements.

 

In February 2017, the FASB issued an update (“ASU 2017-05”) Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets to ASC Subtopic 610-20, Other Income–Gains and Losses from the Derecognition of Nonfinancial Assets. ASU 2017-05 clarifies the scope of recently established guidance on nonfinancial asset derecognition as well as the accounting for partial sales of nonfinancial assets. This update conforms the derecognition guidance on nonfinancial assets with the model for transactions in ASC 606. ASU 2017-05 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We expect to utilize the modified retrospective method of adoption. The adoption of this standard is not expected to have an impact on our consolidated financial statements.  

 

In May 2017, the FASB issued an update (“ASU 2017-09”) Scope of Modification Accounting to ASC 718. ASU 2017-09 provides guidance about which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. ASU 2017-09 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The adoption of this standard is not expected to have an 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, 2016 in Management’s Discussion and Analysis of Financial Condition and Results of Operations. There have been no significant changes to our policies during 2017.

61


  

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

 

 

 

555 California

 

Washington, DC

 

 

 

 

 

 

 

Office

 

Retail

 

theMART

 

Street

 

Office

Three Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total square feet leased

 

543

 

 

24

 

 

91

 

 

5

 

 

196

 

Our share of square feet leased:

 

402

 

 

19

 

 

91

 

 

3

 

 

186

 

 

Initial rent(1)

$

79.50

 

$

160.08

 

$

46.91

 

$

89.00

 

$

42.43

 

 

Weighted average lease term (years)

 

7.8

 

 

7.8

 

 

6.2

 

 

7.2

 

 

5.2

 

 

Second generation relet space:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

288

 

 

18

 

 

89

 

 

-

 

 

141

 

 

 

GAAP basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent(2)

$

66.53

 

$

154.39

 

$

45.98

 

$

-

 

$

44.63

 

 

 

 

Prior straight-line rent

$

56.47

 

$

114.45

 

$

41.49

 

$

-

 

$

43.70

 

 

 

 

Percentage increase

 

17.8%

 

 

34.9%

 

 

10.8%

 

 

-  %

 

 

2.1%

 

 

 

Cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial rent(1)

$

67.31

 

$

145.80

 

$

46.45

 

$

-

 

$

44.67

 

 

 

 

Prior escalated rent

$

59.19

 

$

116.83

 

$

44.97

 

$

-

 

$

45.90

 

 

 

 

Percentage increase (decrease)

 

13.7%

 

 

24.8%

 

 

3.3%

 

 

-  %

 

 

(2.7%)

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

 

$

57.66

 

$

70.12

 

$

31.10

 

$

134.00

 

$

37.58

 

 

 

 

Per square foot per annum

 

$

7.39

 

$

8.99

 

$

5.02

 

$

18.61

 

$

7.23

 

 

 

 

     Percentage of initial rent

 

9.3%

 

 

5.6%

 

 

10.7%

 

 

20.9%

 

 

17.0%

 

(Square feet in thousands)

New York

 

 

 

555 California

 

Washington, DC

 

 

 

 

 

 

 

Office

 

Retail

 

theMART

 

Street

 

Office

Six Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total square feet leased

 

1,096

 

 

36

 

 

191

 

 

71

 

 

740

 

Our share of square feet leased:

 

782

 

 

30

 

 

191

 

 

50

 

 

710

 

 

Initial rent(1)

$

77.41

 

$

190.57

 

$

47.28

 

$

87.03

 

$

42.88

 

 

Weighted average lease term (years)

 

7.6

 

 

5.8

 

 

7.2

 

 

10.8

 

 

7.9

 

 

Second generation relet space:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

492

 

 

22

 

 

185

 

 

46

 

 

623

 

 

 

GAAP basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent(2)

$

68.94

 

$

229.02

 

$

46.86

 

$

95.09

 

$

44.11

 

 

 

 

Prior straight-line rent

$

60.51

 

$

169.89

 

$

36.44

 

$

80.30

 

$

42.06

 

 

 

 

Percentage increase

 

13.9%

 

 

34.8%

 

 

28.6%

 

 

18.4%

 

 

4.9%

 

 

 

Cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial rent(1)

$

70.21

 

$

215.42

 

$

46.77

 

$

86.49

 

$

43.12

 

 

 

 

Prior escalated rent

$

63.67

 

$

177.62

 

$

38.69

 

$

78.67

 

$

45.73

 

 

 

 

Percentage increase (decrease)

 

10.3%

 

 

21.3%

 

 

20.9%

 

 

9.9%

 

 

(5.7%)

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

 

$

69.35

 

$

59.96

 

$

44.48

 

$

95.09

 

$

59.36

 

 

 

 

Per square foot per annum

 

$

9.13

 

$

10.34

 

$

6.18

 

$

8.80

 

$

7.51

 

 

 

 

     Percentage of initial rent

 

11.8%

 

 

5.4%

 

 

13.1%

 

 

10.1%

 

 

17.5%

 

 

 

 

 

 

 

 

(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.

 

 

 

62


  

Overview - continued

 

 

 

 

 

 

 

 

 

 

 

 

 

Square footage (in service) and Occupancy as of June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Square feet in thousands)

 

 

 

 

Square Feet (in service)

 

 

 

 

 

 

 

 

Number of

 

Total

 

Our

 

 

 

 

 

 

 

 

Properties

 

Portfolio

 

Share

 

Occupancy %

New York:

 

 

 

 

 

 

 

 

 

 

 

Office

 

36

 

20,231

 

16,959

 

96.7%

 

 

Retail

 

71

 

2,677

 

2,472

 

95.3%

 

 

Residential - 1,699 units

11

 

1,564

 

831

 

94.8%

 

 

Alexander's, including 312 residential units

 

7

 

2,437

 

790

 

99.4%

 

 

Hotel Pennsylvania

 

1

 

1,400

 

1,400

 

 

 

 

 

 

 

 

 

 

28,309

 

22,452

 

96.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Washington, DC:

 

 

 

 

 

 

 

 

 

 

 

Office

 

40

 

10,364

 

9,618

 

87.9%

 

 

Residential - 3,104 units

7

 

3,111

 

3,111

 

98.4%

 

 

Other

 

5

 

330

 

330

 

100.0%

 

 

 

 

 

 

 

 

13,805

 

13,059

 

90.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

theMART

3

 

3,682

 

3,673

 

98.9%

 

 

555 California Street

3

 

1,738

 

1,217

 

90.7%

 

 

Rosslyn Plaza Office and Residential - 196 units

6

 

705

 

319

 

67.3%

 

 

Other

4

 

1,837

 

877

 

99.7%

 

 

 

 

 

 

 

 

7,962

 

6,086

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total square feet as of June 30, 2017

 

 

 

50,076

 

41,597

 

 

 

63


  

Overview - continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square footage (in service) and Occupancy as of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Square feet in thousands)

 

 

 

 

Square Feet (in service)

 

 

 

 

 

 

 

 

Number of

 

Total

 

Our

 

 

 

 

 

 

 

 

properties

 

Portfolio

 

Share

 

Occupancy %

New York:

 

 

 

 

 

 

 

 

 

 

 

Office

 

36

 

20,227

 

16,962

 

96.3%

 

 

Retail

 

70

 

2,672

 

2,464

 

97.1%

 

 

Residential - 1,692 units

11

 

1,559

 

826

 

95.7%

 

 

Alexander's, including 312 residential units

 

7

 

2,437

 

790

 

99.8%

 

 

Hotel Pennsylvania

 

1

 

1,400

 

1,400

 

 

 

 

 

 

 

 

 

 

28,295

 

22,442

 

96.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Washington, DC:

 

 

 

 

 

 

 

 

 

 

 

Office

 

40

 

10,648

 

9,890

 

88.8%

 

 

Residential - 2,862 units

7

 

2,992

 

2,992

 

97.9%

 

 

Other

 

5

 

330

 

330

 

100.0%

 

 

 

 

 

 

 

 

13,970

 

13,212

 

90.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

theMART

 

3

 

3,671

 

3,662

 

98.9%

 

 

555 California Street

 

3

 

1,738

 

1,217

 

92.4%

 

 

Rosslyn Plaza Office and Residential - 196 units

 

6

 

746

 

339

 

64.0%

 

 

Other

 

4

 

1,811

 

850

 

99.8%

 

 

 

 

 

 

 

 

7,966

 

6,068

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total square feet as of December 31, 2016

 

 

 

50,231

 

41,722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64


  

Net Income, EBITDA and NOI by Segment for the Three Months Ended June 30, 2017 and 2016

Below is a summary of net income and a reconciliation of net income to EBITDA(1) and NOI(1) by segment for the three months ended June 30, 2017 and 2016.

 

(Amounts in thousands)

For the Three Months Ended June 30, 2017

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

626,039

 

$

436,862

 

$

118,336

 

$

70,841

 

Total expenses

 

 

442,643

 

 

279,835

 

 

82,317

 

 

80,491

 

Operating income (loss)

 

 

183,396

 

 

157,027

 

 

36,019

 

 

(9,650)

 

Income (loss) from partially owned entities

 

 

46,276

 

 

(272)

 

 

255

 

 

46,293

 

Income from real estate fund investments

 

 

4,391

 

 

-

 

 

-

 

 

4,391

 

Interest and other investment income (loss), net

 

 

9,307

 

 

1,499

 

 

(23)

 

 

7,831

 

Interest and debt expense

 

 

(96,797)

 

 

(60,335)

 

 

(12,008)

 

 

(24,454)

 

Income before income taxes

 

 

146,573

 

 

97,919

 

 

24,243

 

 

24,411

 

Income tax benefit (expense)

 

 

248

 

 

906

 

 

(362)

 

 

(296)

 

Income from continuing operations

 

 

146,821

 

 

98,825

 

 

23,881

 

 

24,115

 

Income from discontinued operations

 

 

663

 

 

-

 

 

-

 

 

663

 

Net income

 

 

147,484

 

 

98,825

 

 

23,881

 

 

24,778

 

Less net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in consolidated subsidiaries

 

 

(7,677)

 

 

(2,645)

 

 

-

 

 

(5,032)

 

Net income attributable to the Operating Partnership

 

 

139,807

 

 

96,180

 

 

23,881

 

 

19,746

 

Interest and debt expense(2)

 

 

118,585

 

 

78,202

 

 

13,567

 

 

26,816

 

Depreciation and amortization(2)

 

 

168,248

 

 

110,449

 

 

33,648

 

 

24,151

 

Income tax expense (benefit)(2)

 

 

289

 

 

(869)

 

 

353

 

 

805

 

EBITDA(1)

 

 

426,929

 

 

283,962

(3)

 

71,449

(4)

 

71,518

(5)

Non-cash adjustments for straight-line rents, amortization of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

acquired below-market leases, net, and other (2)

 

 

(44,580)

 

 

(26,741)

 

 

(1,826)

 

 

(16,013)

 

NOI(1)

 

$

382,349

 

$

257,221

(3)

$

69,623

(4)

$

55,505

(5)

                               

 

(Amounts in thousands)

For the Three Months Ended June 30, 2016

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

621,708

 

$

425,770

 

$

127,468

 

$

68,470

 

Total expenses

 

 

434,894

 

 

268,135

 

 

89,106

 

 

77,653

 

Operating income (loss)

 

 

186,814

 

 

157,635

 

 

38,362

 

 

(9,183)

 

Income (loss) from partially owned entities

 

 

642

 

 

(1,001)

 

 

(2,370)

 

 

4,013

 

Income from real estate fund investments

 

 

16,389

 

 

-

 

 

-

 

 

16,389

 

Interest and other investment income, net

 

 

10,236

 

 

1,214

 

 

34

 

 

8,988

 

Interest and debt expense

 

 

(105,576)

 

 

(56,395)

 

 

(19,817)

 

 

(29,364)

 

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

159,511

 

 

159,511

 

 

-

 

 

-

 

Income (loss) before income taxes

 

 

268,016

 

 

260,964

 

 

16,209

 

 

(9,157)

 

Income tax expense

 

 

(2,109)

 

 

(816)

 

 

(318)

 

 

(975)

 

Income (loss) from continuing operations

 

 

265,907

 

 

260,148

 

 

15,891

 

 

(10,132)

 

Income from discontinued operations

 

 

2,475

 

 

-

 

 

-

 

 

2,475

 

Net income (loss)

 

 

268,382

 

 

260,148

 

 

15,891

 

 

(7,657)

 

Less net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in consolidated subsidiaries

 

 

(13,025)

 

 

(3,397)

 

 

-

 

 

(9,628)

 

Net income (loss) attributable to the Operating Partnership

 

 

255,357

 

 

256,751

 

 

15,891

 

 

(17,285)

 

Interest and debt expense(2)

 

 

127,799

 

 

71,171

 

 

21,926

 

 

34,702

 

Depreciation and amortization(2)

 

 

173,352

 

 

111,314

 

 

37,196

 

 

24,842

 

Income tax expense (2)

 

 

4,704

 

 

889

 

 

2,205

 

 

1,610

 

EBITDA(1)

 

 

561,212

 

 

440,125

(3)

 

77,218

(4)

 

43,869

(5)

Non-cash adjustments for straight-line rents, amortization of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

acquired below-market leases, net, and other (2)

 

 

(74,383)

 

 

(50,045)

 

 

(6,067)

 

 

(18,271)

 

NOI(1)

 

$

486,829

 

$

390,080

(3)

$

71,151

(4)

$

25,598

(5)

                               

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on the following pages.

 

 

 

 

 

 

 

 

 

 

 

 

 

65


  

Net Income, EBITDA and NOI by Segment for the Three Months Ended June 30, 2017 and 2016 - continued

Notes to preceding tabular information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization."  NOI represents "Net Operating Income" (the equivalent of EBITDA on a cash basis). We calculate EBITDA and NOI on an Operating Partnership basis which is before allocation to the noncontrolling interest of the Operating Partnership.  We consider EBITDA the primary 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. We also consider NOI a key non-GAAP financial measure. As properties are bought and sold based on a multiple of NOI, we utilize this measure to make investment decisions as well as to compare the performance of our assets to those of our peers. EBITDA and NOI should not be considered substitutes for net income. EBITDA and NOI may not be comparable to similarly titled measures employed by other companies.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Our 7.5% interest in Fashion Centre Mall/Washington Tower and our interest in Rosslyn Plaza (ranging from 43.7% to 50.4%) will not be included in the spin-off of our Washington, DC segment and have been reclassified to Other. The prior year's presentation has been conformed to the current year.  In addition, on January 1, 2017, we reclassified our investment in 85 Tenth Avenue from Other to the New York segment as a result of the December 1, 2016 repayment of our loans receivable and the receipt of a 49.9% ownership interest in the property. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

Interest and debt expense, depreciation and amortization and income tax expense (benefit) in the reconciliation of net income (loss) to EBITDA and straight-line rents, amortization of acquired below-market leases, net and other non-cash adjustments in the reconciliation of EBITDA to NOI include our share of these items from partially owned entities.

 

66


  

Net Income, EBITDA and NOI by Segment for the Three Months Ended June 30, 2017 and 2016 - continued

Notes to preceding tabular information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended June 30,

 

 

 

 

 

 

 

 

2017

 

2016

 

 

Office

$

169,327

 

$

165,576

(a)

 

Retail

 

90,183

 

 

91,421

(a)

 

Residential

 

6,190

 

 

6,337

 

 

Alexander's

 

11,742

 

 

11,805

 

 

Hotel Pennsylvania

 

6,520

 

 

3,797

 

 

 

Total New York EBITDA, as adjusted

 

283,962

 

 

278,936

 

 

Certain items that impact EBITDA:

 

 

 

 

 

 

 

 

Net gain on sale of 47% ownership interest in 7 West 34th Street

 

-

 

 

159,511

 

 

 

EBITDA from sold properties

 

-

 

 

1,678

 

 

 

 

Total of certain items that impact EBITDA

 

-

 

 

161,189

 

 

 

 

 

Total New York EBITDA

$

283,962

 

$

440,125

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended June 30,

 

 

 

 

 

 

 

 

2017

 

2016

 

 

Office

$

158,105

 

$

142,639

(a)

 

Retail

 

80,193

 

 

71,084

(a)

 

Residential

 

5,341

 

 

5,627

 

 

Alexander's

 

7,029

 

 

6,616

 

 

Hotel Pennsylvania

 

6,553

 

 

3,830

 

 

 

Total New York NOI, as adjusted

 

257,221

 

 

229,796

 

 

Certain items that impact NOI:

 

 

 

 

 

 

 

 

Net gain on sale of 47% ownership interest in 7 West 34th Street

 

-

 

 

159,511

 

 

 

NOI from sold properties

 

-

 

 

773

 

 

 

 

Total of certain items that impact NOI

 

-

 

 

160,284

 

 

 

 

 

Total New York NOI

$

257,221

 

$

390,080

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Beginning in January 2017 for office buildings with retail at the base, we have adjusted the allocation of real estate taxes between the retail and office elements above. This has no effect on our consolidated financial statements but resulted in a reallocation of $3,931 of income from retail to office for the three months ended June 30, 2016.

67


  

Net Income, EBITDA and NOI by Segment for the Three Months Ended June 30, 2017 and 2016 - continued

 

Notes to preceding tabular information - continued:

 

 

 

 

 

 

 

 

(4)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended June 30,

 

 

 

 

 

 

 

 

2017

 

2016

 

 

 Office 

$

57,418

 

$

61,357

 

 

Residential

 

14,031

 

 

10,118

 

 

 

Total Washington, DC EBITDA, as adjusted

 

71,449

 

 

71,475

 

 

Certain items that impact EBITDA:

 

 

 

 

 

 

 

 

EBITDA from sold properties

 

-

 

 

5,743

 

 

 

 

Total Washington, DC EBITDA

$

71,449

 

$

77,218

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended June 30,

 

 

 

 

 

 

 

 

2017

 

2016

 

 

Office

$

55,592

 

$

57,501

 

 

Residential

 

14,031

 

 

10,118

 

 

 

Total Washington, DC NOI, as adjusted

 

69,623

 

 

67,619

 

 

Certain items that impact NOI:

 

 

 

 

 

 

 

 

NOI from sold properties

 

-

 

 

3,532

 

 

 

 

Total Washington, DC NOI

$

69,623

 

$

71,151

 

68


  

Net Income, EBITDA and NOI by Segment for the Three Months Ended June 30, 2017 and 2016 - continued

Notes to preceding tabular information - continued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5)

The elements of "Other" EBITDA are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Three Months Ended June 30,

 

 

 

 

 

 

 

2017

 

2016

 

 

 

 

 

 

 

 

theMART (including trade shows)

$

24,122

 

$

25,965

 

555 California Street

 

 

12,144

 

 

12,117

 

Other investments

 

 

12,383

 

 

17,407

 

 

 

 

 

 

 

 

48,649

 

 

55,489

 

Our share of real estate fund investments

 

(304)

 

 

7,544

 

Corporate general and administrative expenses(a)

 

(23,235)

 

 

(24,239)

 

Investment income and other, net (a)

 

9,629

 

 

5,471

 

Net gain resulting from UE operating partnership unit issuances

 

15,900

 

 

-

 

Net gain on sale of property at Suffolk Downs

 

15,314

 

 

-

 

Net gain on repayment of our Suffolk Downs JV debt investments

 

11,373

 

 

-

 

Acquisition and transaction related costs(b)

 

(6,471)

 

 

(2,879)

 

Residual retail properties discontinued operations

 

663

 

 

2,483

 

 

 

Total Other

$

71,518

 

$

43,869

 

 

The elements of "Other" NOI are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended June 30,

 

 

 

 

 

 

 

2017

 

2016

 

theMART (including trade shows)

$

22,904

 

$

24,233

 

555 California Street

 

11,258

 

 

8,033

 

Other investments

 

6,630

 

 

6,002

 

 

 

40,792

 

 

38,268

 

Our share of real estate fund investments

 

1,995

 

 

1,522

 

Corporate general and administrative expenses(a)

 

(17,790)

 

 

(19,267)

 

Investment income and other, net(a)

 

9,629

 

 

5,471

 

Net gain on sale of property at Suffolk Downs

 

15,314

 

 

-

 

Net gain on repayment of our Suffolk Downs JV debt investments

 

11,373

 

 

-

 

Acquisition and transaction related costs(b)

 

(6,471)

 

 

(2,879)

 

Residual retail properties discontinued operations

 

663

 

 

2,483

 

 

 

Total Other

$

55,505

 

$

25,598

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

The amounts in these captions (for this table only) exclude the results of the mark-to-market of our deferred compensation plan of $789 and $4,359 of income for the three months ended June 30, 2017 and 2016, respectively.

 

(b)

The three months ended June 30, 2017 and 2016 include $6,211 and $1,606, respectively, of transaction costs related to the spin-off of our Washington, DC business.

69


  

EBITDA by Region

 

Below is a summary of the percentages of EBITDA by geographic region, excluding gains on sale of real estate, non-cash impairment losses and operations of sold properties.

 

 

 

 

 

For the Three Months Ended June 30,

 

 

 

 

 

2017

 

2016

 

 

Region:

 

 

 

 

 

 

 

New York City metropolitan area

 

72%

 

72%

 

 

 

Washington, DC / Northern Virginia area

19%

 

18%

 

 

 

Chicago, IL

 

6%

 

7%

 

 

 

San Francisco, CA

 

3%

 

3%

 

 

 

 

100%

 

100%

 

 

70


  

Results of Operations – Three Months Ended June 30, 2017 Compared to June 30, 2016

 

 

Revenues

Our revenues, which consist of property rentals, tenant expense reimbursements, and fee and other income, were $626,039,000 for the three months ended June 30, 2017, compared to $621,708,000 for the prior year’s quarter, an increase of $4,331,000.  Below are the details of the increase (decrease) by segment:

  

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

Washington, DC

 

 

Other

 

(Decrease) increase due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property rentals:

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Acquisitions, dispositions and other

 

$

(3,264)

 

 

$

6,115

 

 

$

(9,379)

 

 

$

-

 

 

Development and redevelopment

 

 

9

 

 

 

29

 

 

 

(221)

 

 

 

201

 

 

Hotel Pennsylvania

 

 

2,921

 

 

 

2,921

 

 

 

-

 

 

 

-

 

 

Trade shows

 

 

195

 

 

 

-

 

 

 

-

 

 

 

195

 

 

Same store operations

 

 

2,255

 

 

 

850

 

 

 

76

 

 

 

1,329

 

 

 

 

2,116

 

 

 

9,915

 

 

 

(9,524)

 

 

 

1,725

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant expense reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions, dispositions and other

 

 

(1,344)

 

 

 

(1,158)

 

 

 

(186)

 

 

 

-

 

 

Development and redevelopment

 

 

1,307

 

 

 

-

 

 

 

319

 

 

 

988

 

 

Same store operations

 

 

(117)

 

 

 

(198)

 

 

 

(4)

 

 

 

85

 

 

 

 

 

(154)

 

 

 

(1,356)

 

 

 

129

 

 

 

1,073

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS cleaning fees

 

 

2,500

 

 

 

3,210

 

 

 

-

 

 

 

(710)

 

 

Management and leasing fees

 

 

288

 

 

 

625

 

 

 

(429)

 

 

 

92

 

 

Lease termination fees

 

 

(1,740)

 

 

 

(1,913)

 

 

 

217

 

 

 

(44)

 

 

Other income

 

 

1,321

 

 

 

611

 

 

 

475

 

 

 

235

 

 

 

 

2,369

 

 

 

2,533

 

 

 

263

 

 

 

(427)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in revenues

 

$

4,331

 

 

$

11,092

 

 

$

(9,132)

 

 

$

2,371

 

 

71


  

Results of Operations – Three Months Ended June 30, 2017 Compared to June 30, 2016 - continued

 

 

Expenses

Our expenses, which consist of operating, depreciation and amortization, general and administrative expenses, and acquisition and transaction related costs, were $442,643,000 for the three months ended June 30, 2017, compared to $434,894,000 for the prior year’s quarter, an increase of $7,749,000.  Below are the details of the increase (decrease) by segment:

  

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

Washington, DC

 

 

Other

 

(Decrease) increase due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions, dispositions and other

 

$

(5,498)

 

 

$

(952)

 

 

$

(4,546)

 

 

$

-

 

 

Development and redevelopment

 

 

203

 

 

 

7

 

 

 

133

 

 

 

63

 

 

Non-reimbursable expenses, including

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

bad debt reserves

 

 

1,296

 

 

 

48

 

 

 

1,048

 

 

 

200

 

 

Hotel Pennsylvania

 

 

197

 

 

 

197

 

 

 

-

 

 

 

-

 

 

Trade shows

 

 

(500)

 

 

 

-

 

 

 

-

 

 

 

(500)

 

 

BMS expenses

 

 

3,017

 

 

 

3,726

 

 

 

-

 

 

 

(709)

 

 

Same store operations

 

 

12,834

 

 

 

8,344

 

 

 

885

 

 

 

3,605

 

 

 

 

 

11,549

 

 

 

11,370

 

 

 

(2,480)

 

 

 

2,659

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions, dispositions and other

 

 

(2,127)

 

 

 

(20)

 

 

 

(2,107)

 

 

 

-

 

 

Development and redevelopment

 

 

(4,357)

 

 

 

-

 

 

 

(4,239)

 

 

 

(118)

 

 

Same store operations

 

 

2,186

 

 

 

(1,751)

 

 

 

3,056

 

 

 

881

 

 

 

 

 

 

(4,298)

 

 

 

(1,771)

 

 

 

(3,290)

 

 

 

763

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark-to-market of deferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation plan liability

 

 

(3,570)

 

 

 

-

 

 

 

-

 

 

 

(3,570)

 (1) 

 

Same store operations

 

 

476

 

 

 

2,101

 

 

 

(1,019)

 

 

 

(606)

 

 

 

 

 

(3,094)

 

 

 

2,101

 

 

 

(1,019)

 

 

 

(4,176)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition and transaction related costs

 

 

3,592

 

 

 

-

 

 

 

-

 

 

 

3,592

 (2) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in expenses

 

$

7,749

 

 

$

11,700

 

 

$

(6,789)

 

 

$

2,838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

This decrease in expense is entirely offset by a corresponding increase 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)

Primarily from the transaction costs related to the spin-off of our Washington, DC business. Upon completion of the spin-off on July 17, 2017, we incurred approximately $47,000 of additional transaction costs, primarily for advisory fees which will be recognized as expense in the quarter ended September 30, 2017.

 

72


  

Results of Operations – Three Months Ended June 30, 2017 Compared to June 30, 2016 - continued

 

Income from Partially Owned Entities

Summarized below are the components of income (loss) from partially owned entities for the three months ended June 30, 2017 and 2016.

  

(Amounts in thousands)

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

 

Ownership at

 

For the Three Months Ended June 30,

 

 

 

 

 

June 30, 2017

 

2017

 

2016

 

Our Share of Net Income (Loss):

 

 

 

 

 

 

 

 

 

UE (1)

 

4.8%

 

$

19,003

 

$

1,280

 

Alexander's

 

32.4%

 

 

8,197

 

 

8,500

 

Partially owned office buildings (2)

 

Various

 

 

(7,897)

 

 

(12,398)

 

India real estate ventures

 

4.1%-36.5%

 

 

(1,644)

 

 

(1,934)

 

PREIT

 

8.0%

 

 

(902)

 

 

(527)

 

Other investments (3)

 

Various

 

 

29,519

 

 

5,721

 

 

 

 

 

 

 

 

$

46,276

 

$

642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

2017 includes a $15,900 net gain resulting from UE operating partnership unit issuances.

 

(2)

Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 7 West 34th Street, 330 Madison Avenue, 512 West 22nd Street, 85 Tenth Avenue and others.

 

(3)

Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, Toys "R" Us, Inc. and others. In the second quarter of 2017, we recognized $26,687 of net gains, comprised of $15,314 representing our share of a net gain on the sale of Suffolk Downs and $11,373 representing the net gain on repayment of our debt investments in Suffolk Downs JV.  See page 59 for details.

 

 

Income from Real Estate Fund Investments

Below are the components of the (loss) income from our real estate fund investments for the three months ended June 30, 2017 and 2016.

(Amounts in thousands)

 

 

For the Three Months Ended June 30,

 

 

 

 

2017

  

2016

Net investment income

 

$

3,646

 

$

1,723

Net unrealized gain on held investments

 

 

745

 

 

14,666

Income from real estate fund investments (1)

 

 

4,391

 

 

16,389

Less income attributable to noncontrolling interests in consolidated subsidiaries

 

 

(4,695)

 

 

(8,845)

(Loss) income from real estate fund investments attributable to the Operating Partnership

 

 

(304)

 

 

7,544

Less loss (income) attributable to noncontrolling interests in the Operating Partnership

 

 

19

 

 

(465)

(Loss) income from real estate fund investments attributable to Vornado

 

$

(285)

 

$

7,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excludes $1,381 and $935 of management and leasing fees for the three months ended June 30, 2017 and 2016, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

73


  

Results of Operations – Three Months Ended June 30, 2017 Compared to June 30, 2016 - continued

 

Interest and Other Investment Income, net

 

Interest and other investment income, net, was $9,307,000 for the three months ended June 30, 2017, compared to $10,236,000 in the prior year’s quarter, a decrease of $929,000. This decrease resulted primarily from a reduction in the value of investments in our deferred compensation plan (offset by a corresponding increase in the liability for plan assets in general and administrative expenses).

 

Interest and Debt Expense

 

Interest and debt expense was $96,797,000 for the three months ended June 30, 2017, compared to $105,576,000 in the prior year’s quarter, a decrease of $8,779,000.  This decrease was primarily due to (i) $10,344,000 of interest savings from the disposition of the Skyline properties and the refinancing of theMART and  (ii) $4,675,000 higher capitalized interest and debt expense, partially offset by (iii) $2,011,000 of higher interest expense from the refinancing of 350 Park Avenue and the $375,000,000 drawn on our $750,000,000 delayed draw term loan and (iv) $2,054,000 of higher interest expense from the 1535 Broadway capital lease obligation.

 

Net Gain on Disposition of Wholly Owned and Partially Owned Assets

For the three months ended June 30, 2016, we recognized a $159,511,000 net gain from the sale of a 47% ownership interest in 7 West 34th Street. 

 

Income Tax Benefit (Expense)

 

For the three months ended June 30, 2017, income tax benefit was $248,000, compared to an expense of $2,109,000 for the prior year’s quarter, a decrease of $2,357,000.  This decrease was primarily due to our right this year to offset certain tax losses against certain taxable income of our taxable REIT subsidiaries.

 

Income from Discontinued Operations

 

The table below sets forth the combined results of operations of assets related to discontinued operations for the three months ended June 30, 2017 and 2016. 

(Amounts in thousands)

For the Three Months Ended June 30,

 

 

2017

 

2016

Total revenues

$

848

 

$

947

Total expenses

 

185

 

 

682

 

 

663

 

 

265

Net gains on the sale of real estate

 

-

 

 

2,210

Pretax income from discontinued operations

 

663

 

 

2,475

Income tax expense

 

-

 

 

-

Income from discontinued operations

$

663

 

$

2,475

             

74


  

Results of Operations – Three Months Ended June 30, 2017 Compared to June 30, 2016 - continued

 

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

 

Net income attributable to noncontrolling interests in consolidated subsidiaries was $7,677,000 for the three months ended June 30, 2017, compared to $13,025,000 for the prior year’s quarter, a decrease of $5,348,000.  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 (Vornado Realty Trust)

 

Net income attributable to noncontrolling interests in the Operating Partnership was $7,706,000 for the three months ended June 30, 2017, compared to $14,531,000 for the prior year’s quarter, a decrease of $6,825,000.  This decrease resulted primarily from lower net income subject to allocation to unitholders.

 

Preferred Share Dividends of Vornado Realty Trust

Preferred share dividends were $16,129,000 for the three months ended June 30, 2017, compared to $20,363,000 for the prior year’s quarter, a decrease of $4,234,000.  The decrease is primarily due to the redemption of the 6.875% Series J cumulative redeemable preferred shares on September 1, 2016.

 

Preferred Unit Distributions of Vornado Realty L.P.

Preferred unit distributions were $16,177,000 for the three months ended June 30, 2017, compared to $20,412,000 for the prior year’s quarter, a decrease of $4,235,000.  The decrease is primarily due to the redemption of the 6.875% Series J cumulative redeemable preferred units on September 1, 2016.

  

 

75


  

Results of Operations – Three Months Ended June 30, 2017 Compared to June 30, 2016 - 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 NOI 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 and theMART and 555 California Street, which are included in Other, for the three months ended June 30, 2017 compared to June 30, 2016.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

555 California

(Amounts in thousands)

 

New York

 

Washington, DC

 

theMART

 

Street

EBITDA for the three months ended June 30, 2017

$

283,962

 

$

71,449

 

 

$

24,122

 

$

12,144

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

9,908

 

 

6,276

 

 

 

2,063

 

 

-

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(4,963)

 

 

-

 

 

 

169

 

 

-

 

 

Dispositions

 

(235)

 

 

(382)

 

 

 

-

 

 

-

 

 

Development properties placed into and out of service

 

(6,081)

 

 

(3,454)

 

 

 

-

 

 

-

 

 

Other non-operating income, net

 

(899)

 

 

(396)

 

 

 

-

 

 

-

Same store EBITDA for the three months ended June 30, 2017

$

281,692

 

$

73,493

 

 

$

26,354

 

$

12,144

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the three months ended June 30, 2016

$

440,125

 

$

77,218

 

 

$

25,965

 

$

12,117

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

7,807

 

 

7,295

 

 

 

1,626

 

 

125

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(153)

 

 

-

 

 

 

-

 

 

-

 

 

Dispositions, including net gains on sale

 

(161,429)

 

 

(5,713)

 

 

 

-

 

 

-

 

 

Development properties placed into and out of service

 

(7,508)

 

 

(3,097)

 

 

 

-

 

 

262

 

 

Other non-operating loss (income), net

 

4,368

 

 

(137)

 

 

 

-

 

 

-

Same store EBITDA for the three months ended June 30, 2016

$

283,210

 

$

75,566

 

 

$

27,591

 

$

12,504

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Decrease in same store EBITDA for the three months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017 compared to June 30, 2016

$

(1,518)

 

$

(2,073)

 

 

$

(1,237)

 

$

(360)

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

 

% decrease in same store EBITDA

 

(0.5%)

(1)(2)

 

(2.7%)

 

 

 

(4.5%)

(3)

 

(2.9%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excluding Hotel Pennsylvania, same store EBITDA decreased by 1.5%. 

(2)

The three months ended June 30, 2017 includes $2,557 of one-time prior period tenant adjustments.  Excluding this item, same store EBITDA increased by 0.4%.

(3)

The three months ended June 30, 2016 includes a $2,300 reversal of an expense accrued in the prior quarters. Excluding this amount, same store EBITDA increased by 4.0%.

 

76


  

Results of Operations – Three Months Ended June 30, 2017 Compared to June 30, 2016 - continued

 

Reconciliation of NOI to Same Store NOI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

555 California

(Amounts in thousands)

 

New York

 

Washington, DC

 

theMART

 

Street

NOI for the three months ended June 30, 2017

$

257,221

 

$

69,623

 

$

22,904

 

$

11,258

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

8,771

 

 

5,672

 

 

1,997

 

 

-

 

Less NOI from:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(4,569)

 

 

-

 

 

169

 

 

-

 

 

Dispositions

 

(235)

 

 

(382)

 

 

-

 

 

-

 

 

Development properties placed into and out of service

 

(1,562)

 

 

(3,661)

 

 

-

 

 

-

 

 

Other non-operating income, net

 

(2,252)

 

 

(396)

 

 

-

 

 

-

Same store NOI for the three months ended June 30, 2017

$

257,374

 

$

70,856

 

$

25,070

 

$

11,258

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI for the three months ended June 30, 2016

$

390,080

 

$

71,151

 

$

24,233

 

$

8,033

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

6,752

 

 

6,182

 

 

1,567

 

 

124

 

Less NOI from:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(105)

 

 

-

 

 

-

 

 

-

 

 

Dispositions, including net gains on sale

 

(160,524)

 

 

(3,502)

 

 

-

 

 

-

 

 

Development properties placed into and out of service

 

(1,218)

 

 

(3,210)

 

 

-

 

 

262

 

 

Other non-operating income, net

 

(2,262)

 

 

(135)

 

 

-

 

 

-

Same store NOI for the three months ended June 30, 2016

$

232,723

 

$

70,486

 

$

25,800

 

$

8,419

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in same store NOI for the three months ended

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017 compared to June 30, 2016

$

24,651

 

$

370

 

$

(730)

 

$

2,839

 

 

 

  

 

 

 

  

 

 

 

 

  

 

 

 

% increase (decrease) in same store NOI

 

10.6%

(1)(2)

 

0.5%

 

 

(2.8%)

(3)

 

33.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excluding Hotel Pennsylvania, same store NOI increased by 9.6%. 

(2)

The three months ended June 30, 2017 includes $2,557 of one-time prior period tenant adjustments.  Excluding this item, same store NOI increased by 11.7%.

(3)

The three months ended June 30, 2016 includes a $2,300 reversal of an expense accrued in the prior quarters. Excluding this amount, same store NOI increased by 6.5%.

77


  

Net Income, EBITDA and NOI  by Segment for the Six Months Ended June 30, 2017 and 2016

Below is a summary of net income and a reconciliation of net income to EBITDA(1)  and NOI(1)  by segment for the six months ended June 30, 2017 and 2016.

 

(Amounts in thousands)

For the Six Months Ended June 30, 2017

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

1,246,887

 

$

863,101

 

$

234,543

 

$

149,243

 

Total expenses

 

 

907,024

 

 

560,656

 

 

166,305

 

 

180,063

 

Operating income (loss)

 

 

339,863

 

 

302,445

 

 

68,238

 

 

(30,820)

 

Income (loss) from partially owned entities

 

 

47,721

 

 

(2,365)

 

 

342

 

 

49,744

 

Income from real estate fund investments

 

 

4,659

 

 

-

 

 

-

 

 

4,659

 

Interest and other investment income, net

 

 

18,535

 

 

2,971

 

 

41

 

 

15,523

 

Interest and debt expense

 

 

(191,082)

 

 

(118,322)

 

 

(23,569)

 

 

(49,191)

 

Net gains on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

501

 

 

-

 

 

-

 

 

501

 

Income (loss) before income taxes

 

 

220,197

 

 

184,729

 

 

45,052

 

 

(9,584)

 

Income tax (expense) benefit

 

 

(1,957)

 

 

763

 

 

(716)

 

 

(2,004)

 

Income (loss) from continuing operations

 

 

218,240

 

 

185,492

 

 

44,336

 

 

(11,588)

 

Income from discontinued operations

 

 

3,091

 

 

-

 

 

-

 

 

3,091

 

Net income (loss)

 

 

221,331

 

 

185,492

 

 

44,336

 

 

(8,497)

 

Less net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in consolidated subsidiaries

 

 

(14,414)

 

 

(5,489)

 

 

-

 

 

(8,925)

 

Net income (loss) attributable to the Operating Partnership

 

 

206,917

 

 

180,003

 

 

44,336

 

 

(17,422)

 

Interest and debt expense(2)

 

 

234,912

 

 

154,125

 

 

26,748

 

 

54,039

 

Depreciation and amortization(2)

 

 

339,785

 

 

223,259

 

 

69,141

 

 

47,385

 

Income tax expense (benefit)(2)

 

 

2,718

 

 

(642)

 

 

720

 

 

2,640

 

EBITDA(1)

 

 

784,332

 

 

556,745

(3)

 

140,945

(4)

 

86,642

(5)

Non-cash adjustments for straight-line rents, amortization of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

acquired below-market leases, net, and other (2)

 

 

(61,708)

 

 

(52,159)

 

 

(5,892)

 

 

(3,657)

 

NOI(1)

 

$

722,624

 

$

504,586

(3)

$

135,053

(4)

$

82,985

(5)

                               

 

(Amounts in thousands)

 

For the Six Months Ended June 30, 2016

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

1,234,745

 

$

836,595

 

$

255,480

 

$

142,670

 

Total expenses

 

 

1,048,211

 

 

537,730

 

 

345,671

 

 

164,810

 

Operating income (loss)

 

 

186,534

 

 

298,865

 

 

(90,191)

 

 

(22,140)

 

(Loss) income from partially owned entities

 

 

(3,598)

 

 

(4,564)

 

 

(3,679)

 

 

4,645

 

Income from real estate fund investments

 

 

27,673

 

 

-

 

 

-

 

 

27,673

 

Interest and other investment income, net

 

 

13,754

 

 

2,329

 

 

92

 

 

11,333

 

Interest and debt expense

 

 

(206,065)

 

 

(110,981)

 

 

(35,752)

 

 

(59,332)

 

Net gains on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

160,225

 

 

159,511

 

 

-

 

 

714

 

Income (loss) before income taxes

 

 

178,523

 

 

345,160

 

 

(129,530)

 

 

(37,107)

 

Income tax expense

 

 

(4,940)

 

 

(1,775)

 

 

(582)

 

 

(2,583)

 

Income (loss) from continuing operations

 

 

173,583

 

 

343,385

 

 

(130,112)

 

 

(39,690)

 

Income from discontinued operations

3,191

 

 

-

 

 

-

 

 

3,191

 

Net income (loss)

 

 

176,774

 

 

343,385

 

 

(130,112)

 

 

(36,499)

 

Less net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in consolidated subsidiaries

 

 

(22,703)

 

 

(6,826)

 

 

-

 

 

(15,877)

 

Net income (loss) attributable to the Operating Partnership

 

 

154,071

 

 

336,559

 

 

(130,112)

 

 

(52,376)

 

Interest and debt expense(2)

 

 

253,919

 

 

142,369

 

 

40,637

 

 

70,913

 

Depreciation and amortization(2)

 

 

348,163

 

 

219,717

 

 

77,795

 

 

50,651

 

Income tax expense(2)

 

 

7,965

 

 

1,979

 

 

2,470

 

 

3,516

 

EBITDA(1)

 

 

764,118

 

 

700,624

(3)

 

(9,210)

(4)

 

72,704

(5)

Non-cash adjustments for straight-line rents, amortization of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

acquired below-market leases, net, and other (2)

 

 

(133,739)

 

 

(97,555)

 

 

(10,264)

 

 

(25,920)

 

NOI(1)

 

$

630,379

 

$

603,069

(3)

$

(19,474)

(4)

$

46,784

(5)

                               

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on the following pages.

78


  

Net Income, EBITDA and NOI by Segment for the Six Months Ended June 30, 2017 and 2016 - continued

Notes to preceding tabular information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization."  NOI represents "Net Operating Income" (the equivalent of EBITDA on a cash basis). We calculate EBITDA and NOI on an Operating Partnership basis which is before allocation to the noncontrolling interest of the Operating Partnership.  We consider EBITDA the primary 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. We also consider NOI a key non-GAAP financial measure. As properties are bought and sold based on a multiple of NOI, we utilize this measure to make investment decisions as well as to compare the performance of our assets to those of our peers. EBITDA and NOI should not be considered substitutes for net income. EBITDA and NOI may not be comparable to similarly titled measures employed by other companies.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Our 7.5% interest in Fashion Centre Mall/Washington Tower and our interest in Rosslyn Plaza (ranging from 43.7% to 50.4%) will not be included in the spin-off of our Washington, DC segment and have been reclassified to Other. The prior year's presentation has been conformed to the current year.  In addition, on January 1, 2017, we reclassified our investment in 85 Tenth Avenue from Other to the New York segment as a result of the December 1, 2016 repayment of our loans receivable and the receipt of a 49.9% ownership interest in the property. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

Interest and debt expense, depreciation and amortization and income tax expense (benefit) in the reconciliation of net income (loss) to EBITDA and straight-line rents, amortization of acquired below-market leases, net and other non-cash adjustments in the reconciliation of EBITDA to NOI include our share of these items from partially owned entities.

 

79


  

Net Income, EBITDA and NOI by Segment for the Six Months Ended June 30, 2017 and 2016 - continued

Notes to preceding tabular information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Six Months Ended June 30,

 

 

 

 

 

 

 

 

2017

 

2016

 

 

Office

$

339,405

 

$

320,585

(a)

 

Retail

 

179,446

 

 

181,022

(a)

 

Residential

 

12,468

 

 

12,687

 

 

Alexander's

 

23,304

 

 

23,374

 

 

Hotel Pennsylvania

 

2,122

 

 

325

 

 

 

Total New York EBITDA, as adjusted

 

556,745

 

 

537,993

 

 

Certain items that impact EBITDA

 

 

 

 

 

 

 

 

Net gain on sale of 47% ownership interest in 7 West 34th Street

 

-

 

 

159,511

 

 

 

EBITDA from sold properties

 

-

 

 

3,120

 

 

 

 

Total of certain items that impact EBITDA

 

-

 

 

162,631

 

 

 

 

 

Total of New York EBITDA

$

556,745

 

$

700,624

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Six Months Ended June 30,

 

 

 

 

 

 

 

 

2017

 

2016

 

 

Office

$

317,632

 

$

277,071

(a)

 

Retail

 

159,827

 

 

139,433

(a)

 

Residential

 

10,881

 

 

11,199

 

 

Alexander's

 

14,059

 

 

13,233

 

 

Hotel Pennsylvania

 

2,187

 

 

390

 

 

 

Total New York NOI, as adjusted

 

504,586

 

 

441,326

 

 

Certain items that impact NOI:

 

 

 

 

 

 

 

 

Net gain on sale of 47% ownership interest in 7 West 34th Street

 

-

 

 

159,511

 

 

 

NOI from sold properties

 

-

 

 

2,232

 

 

 

 

Total of certain items that impact NOI

 

-

 

 

161,743

 

 

 

 

 

Total New York NOI

$

504,586

 

$

603,069

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Beginning in January 2017 for office buildings with retail at the base, we have adjusted the allocation of real estate taxes between the retail and office elements above. This has no effect on our consolidated financial statements but resulted in a reallocation of $7,845 of income from retail to office for the six months ended June 30, 2016.

80


  

Net Income, EBITDA and NOI by Segment for the Six Months Ended June 30, 2017 and 2016 - continued

 

 

Notes to preceding tabular information - continued:

 

 

 

 

 

 

 

 

(4)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Six Months Ended June 30,

 

 

 

 

 

 

 

2017

 

2016

 

Office

$

113,710

 

$

119,376

 

Residential

 

 

27,235

 

 

20,426

 

 

Total Washington, DC EBITDA, as adjusted

 

140,945

 

 

139,802

 

Certain items that impact EBITDA:

 

 

 

 

 

 

 

Skyline properties impairment loss

 

-

 

 

(160,700)

 

 

EBITDA from sold properties

 

-

 

 

11,688

 

 

Total of certain items that impact EBITDA

 

-

 

 

(149,012)

 

 

 

Total Washington, DC EBITDA

$

140,945

 

$

(9,210)

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Six Months Ended June 30,

 

 

 

 

 

 

 

2017

 

2016

 

Office

$

107,818

 

$

112,937

 

Residential

 

27,235

 

 

20,426

 

 

Total Washington, DC NOI, as adjusted

 

135,053

 

 

133,363

 

Certain items that impact NOI:

 

 

 

 

 

 

 

Skyline properties impairment loss

 

-

 

 

(160,700)

 

 

NOI from sold properties

 

-

 

 

7,863

 

 

Total of certain items that impact NOI

 

-

 

 

(152,837)

 

 

 

Total Washington, DC NOI

$

135,053

 

$

(19,474)

81


  

Net Income, EBITDA and NOI by Segment for the Six Months Ended June 30, 2017 and 2016 - continued

Notes to preceding tabular information - continued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5)

The elements of "Other" EBITDA are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Six Months Ended June 30,

 

 

 

 

 

 

 

2017

 

2016

 

theMART (including trade shows)

$

48,306

 

$

48,993

 

555 California Street

 

24,227

 

 

23,732

 

Other investments

 

23,998

 

 

33,091

 

 

 

 

 

 

 

 

96,531

 

 

105,816

 

Our share of real estate fund investments

 

(3,539)

 

 

12,855

 

Corporate general and administrative expenses(a)

 

(56,222)

 

 

(54,845)

 

Investment income and other, net(a)

 

18,169

 

 

12,446

 

Net gain resulting from UE operating partnership unit issuances

 

15,900

 

 

-

 

Net gain on sale of property at Suffolk Downs

 

15,314

 

 

-

 

Net gain on repayment of our Suffolk Downs JV debt investments

 

11,373

 

 

-

 

Acquisition and transaction related costs(b)

 

(14,476)

 

 

(7,486)

 

Residual retail properties discontinued operations

 

3,091

 

 

3,204

 

Other

 

501

 

 

714

 

 

Total Other

$

86,642

 

$

72,704

 

 

The elements of "Other" NOI are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Six Months Ended  June 30,

 

 

 

 

 

 

 

 

2017

 

2016

 

theMART (including trade shows)

$

45,808

 

$

45,955

 

555 California Street

 

22,633

 

 

13,922

 

Other investments

 

15,909

 

 

13,528

 

 

 

 

 

 

 

 

84,350

 

 

73,405

 

Our share of real estate fund investments

 

4,931

 

 

3,865

 

Corporate general and administrative expenses(a)

 

(40,268)

 

 

(39,364)

 

Investment income and other, net(a)

 

18,169

 

 

12,446

 

Net gain on sale of property at Suffolk Downs

 

15,314

 

 

-

 

Net gain on repayment of our Suffolk Downs JV debt investments

 

11,373

 

 

-

 

Acquisition and transaction related costs(b)

 

(14,476)

 

 

(7,486)

 

Residual retail properties discontinued operations

 

3,091

 

 

3,204

 

Other

 

501

 

 

714

 

 

Total Other

$

82,985

 

$

46,784

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

The amounts in these captions (for this table only) exclude the results of the mark-to-market of our deferred compensation plan of $3,258 and $2,421 of income for the six months ended June 30, 2017 and 2016, respectively.

 

(b)

The six months ended June 30, 2017 and 2016 include $13,464 and $1,858, respectively, of transaction costs related to the spin-off of our Washington, DC business.

82


  

EBITDA by Region

 

Below is a summary of the percentages of EBITDA by geographic region, excluding gains on sale of real estate, non-cash impairment losses and operations of sold properties.

 

 

 

 

 

For the Six Months Ended June 30,

 

 

 

 

 

2017

 

2016

 

 

Region:

 

 

 

 

 

 

 

New York City metropolitan area

 

72%

 

72%

 

 

 

Washington, DC / Northern Virginia area

19%

 

19%

 

 

 

Chicago, IL

 

6%

 

6%

 

 

 

San Francisco, CA

 

3%

 

3%

 

 

 

 

100%

 

100%

 

 

83


  

Results of Operations – Six Months Ended June 30, 2017 Compared to June 30, 2016

 

Revenues

Our revenues, which consist of property rentals, tenant expense reimbursements, and fee and other income, were $1,246,887,000 for the six months ended June 30, 2017, compared to $1,234,745,000 for the prior year’s six months, an increase of $12,142,000.  Below are the details of the increase (decrease) by segment:

  

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

Washington, DC

 

 

Other

(Decrease) increase due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property rentals:

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

Acquisitions, dispositions and other

 

$

(13,603)

 

 

$

5,173

 

 

$

(18,776)

(1)

 

$

-

 

Development and redevelopment

 

 

(573)

 

 

 

29

 

 

 

(1,173)

 

 

 

571

 

Hotel Pennsylvania

 

 

3,003

 

 

 

3,003

 

 

 

-

 

 

 

-

 

Trade shows

 

 

1,188

 

 

 

-

 

 

 

-

 

 

 

1,188

 

Same store operations

 

 

6,427

 

 

 

2,725

 

 

 

606

 

 

 

3,096

 

 

 

(3,558)

 

 

 

10,930

 

 

 

(19,343)

 

 

 

4,855

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant expense reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions, dispositions and other

 

 

(2,339)

 

 

 

(1,993)

 

 

 

(346)

 

 

 

-

 

Development and redevelopment

 

 

1,449

 

 

 

-

 

 

 

87

 

 

 

1,362

 

Same store operations

 

 

8,831

 

 

 

9,179

 

 

 

(616)

 

 

 

268

 

 

 

 

7,941

 

 

 

7,186

 

 

 

(875)

 

 

 

1,630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS cleaning fees

 

 

6,891

 

 

 

6,674

 

 

 

541

 

 

 

(324)

 

Management and leasing fees

 

 

127

 

 

 

1,099

 

 

 

(1,103)

 

 

 

131

 

Lease termination fees

 

 

21

 

 

 

(377)

 

 

 

369

 

 

 

29

 

Other income

 

 

720

 

 

 

994

 

 

 

(526)

 

 

 

252

 

 

 

7,759

 

 

 

8,390

 

 

 

(719)

 

 

 

88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in revenues

 

$

12,142

 

 

$

26,506

 

 

$

(20,937)

 

 

$

6,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Primarily from the disposition of the Skyline properties by the receiver on December 21, 2016.

 

 

 

84


  

Results of Operations – Six Months Ended June 30, 2017 Compared to June 30, 2016 - continued

 

Expenses

Our expenses, which consist of operating, depreciation and amortization, general and administrative expenses, acquisition and transaction related costs and Skyline properties impairment loss, were $907,024,000 for the six months ended June 30, 2017, compared to $1,048,211,000 for the prior year’s six months, a decrease of $141,187,000.  Below are the details of the (decrease) increase by segment:

  

(Amounts in thousands)

 

Total

 

 

New York

 

 

Washington, DC

 

 

Other

 

(Decrease) increase due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions, dispositions and other

 

$

(12,449)

 

 

$

(2,998)

 

 

$

(9,451)

(1)

 

$

-

 

 

Development and redevelopment

 

 

(807)

 

 

 

(3)

 

 

 

(895)

 

 

 

91

 

 

Non-reimbursable expenses, including bad debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reserves

 

 

(2,239)

 

 

 

(2,268)

 

 

 

(239)

 

 

 

268

 

 

Hotel Pennsylvania

 

 

1,267

 

 

 

1,267

 

 

 

-

 

 

 

-

 

 

Trade shows

 

 

91

 

 

 

-

 

 

 

-

 

 

 

91

 

 

BMS expenses

 

 

6,292

 

 

 

6,616

 

 

 

-

 

 

 

(324)

 

 

Same store operations

 

 

23,952

 

 

 

16,556

 

 

 

2,139

 

 

 

5,257

 

 

 

 

 

16,107

 

 

 

19,170

 

 

 

(8,446)

 

 

 

5,383

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions, dispositions and other

 

 

(6,427)

 

 

 

(292)

 

 

 

(6,135)

(1)

 

 

-

 

 

Development and redevelopment

 

 

(10,553)

 

 

 

-

 

 

 

(10,364)

(2)

 

 

(189)

 

 

Same store operations

 

 

8,536

 

 

 

(329)

 

 

 

8,310

 

 

 

555

 

 

 

 

 

 

(8,444)

 

 

 

(621)

 

 

 

(8,189)

 

 

 

366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark-to-market of deferred compensation plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

liability

 

 

837

 

 

 

-

 

 

 

-

 

 

 

837

(3)

 

Same store operations

 

 

4,023

 

 

 

4,377

 

 

 

(2,031)

 

 

 

1,677

 

 

 

 

 

4,860

 

 

 

4,377

 

 

 

(2,031)

 

 

 

2,514

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition and transaction related costs

 

 

6,990

 

 

 

-

 

 

 

-

 

 

 

6,990

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Skyline properties impairment loss

 

 

(160,700)

 

 

 

-

 

 

 

(160,700)

(5)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total (decrease) increase in expenses

 

$

(141,187)

 

 

$

22,926

 

 

$

(179,366)

 

 

$

15,253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Primarily from the disposition of the Skyline properties by the receiver on December 21, 2016.

(2)

Primarily due to the demolition of two adjacent office properties, 1726 M Street and 1150 17th Street.

(3)

This increase in expense is entirely offset by a corresponding increase 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.

(4)

Primarily from the transaction costs related to the spin-off of our Washington, DC business.

(5)

On March 15, 2016, we notified the servicer of the $678,000 mortgage loan on the Skyline properties in Virginia that cash flow would be insufficient to service the debt and pay other property related costs and expenses and that we were not willing to fund additional cash shortfalls.  Accordingly, at our request, the loan was transferred to the special servicer.  Consequently, based on our shortened estimated holding period for the underlying assets, we concluded that the excess of carrying amount over our estimate of fair value was not recoverable and recognized a $160,700 non-cash impairment loss in the first quarter of 2016.  The Company’s estimate of fair value was derived from a discounted cash flow model based upon market conditions and expectations of growth and utilized unobservable quantitative inputs, including a capitalization rate of 8.0% and a discount rate of 8.2%.  In the second quarter of 2016, cash flow became insufficient to service the debt and we ceased making debt service payments.  Pursuant to the loan agreement, the loan was in default and was subject to incremental default interest which increased the weighted average interest rate from 2.97% to 4.51% while the outstanding balance remained unpaid. On August 24, 2016, the Skyline properties were placed into receivership. On December 21, 2016, the disposition of Skyline properties was completed by the servicer. In connection therewith, the Skyline properties' assets (approximately $236,535) and liabilities (approximately $724,412), were removed from our consolidated balance sheet which resulted in a net gain of $487,877. There was no taxable income related to this transaction.

 

85


  

Results of Operations – Six Months Ended June 30, 2017 Compared to June 30, 2016 - continued

 

Income (Loss) from Partially Owned Entities

 

Summarized below are the components of income (loss) from partially owned entities for the six months ended June 30, 2017 and 2016.

 

(Amounts in thousands)

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

 

Ownership at

 

For the Six Months Ended June 30,

 

 

 

 

 

 

June 30, 2017

 

2017

 

2016

Our Share of Net Income (Loss):

 

 

 

 

 

 

 

 

UE (1)

 

4.8%

 

$

20,303

 

$

2,365

Partially owned office buildings(2)

 

Various

 

 

(17,840)

 

 

(26,647)

Alexander's

32.4%

 

 

16,598

 

 

17,162

PREIT

 

8.0%

 

 

(3,732)

 

 

(4,815)

India real estate ventures

 

4.1%-36.5%

 

 

10

 

 

(2,620)

Other investments (3)

 

Various

 

 

32,382

 

 

10,957

 

 

 

 

 

 

 

 

$

47,721

 

$

(3,598)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

2017 includes a $15,900 net gain resulting from the issuance of UE operating partnership units.

(2)

Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 7 West 34th Street, 330 Madison Avenue, 512 West 22nd Street, 85 Tenth Avenue and others.

(3)

Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, Toys "R" Us, Inc. and others. In the second quarter of 2017, we recognized $26,687 of net gains, comprised of $15,314 representing our share of a net gain on the sale of Suffolk Downs and $11,373 representing the net gain on repayment of our debt investments in Suffolk Downs JV.  See page 59 for details.

 

Income from Real Estate Fund Investments

 

Below are the components of the income from our real estate fund investments for the six months ended June 30, 2017 and 2016.

 

(Amounts in thousands)

  

For the Six Months Ended June 30,

 

 

 

2017

  

2016

Net investment income

$

10,860

 

$

6,396

Net realized gain on exited investments

 

241

 

 

14,676

Previously recorded unrealized gain on exited investment

 

-

 

 

(14,254)

Net unrealized (loss) gain on held investments

 

(6,442)

 

 

20,855

Income from real estate fund investments (1)

 

4,659

 

 

27,673

Less income attributable to noncontrolling interests in consolidated subsidiaries

 

(8,198)

 

 

(14,818)

(Loss) income from real estate fund investments attributable to the Operating Partnership

 

(3,539)

 

 

12,855

Less loss (income) attributable to noncontrolling interests in Operating Partnership

 

221

 

 

(794)

(Loss) income from real estate fund investments attributable to Vornado

$

(3,318)

 

$

12,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excludes $2,381 and $1,695 of management and leasing fees for the six months ended June 30, 2017 and 2016, respectively, which are included as a component of "fee and other income" on our consolidated statements of income.

 

Interest and Other Investment Income, net

 

Interest and other investment income, net, was $18,535,000 for the six months ended June 30, 2017, compared to $13,754,000 for the prior year’s six months, an increase of $4,781,000.  This increase resulted primarily from an increase 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).

 

86


  

Results of Operations – Six Months Ended June 30, 2017 Compared to June 30, 2016 - continued

 

Interest and Debt Expense

 

Interest and debt expense was $191,082,000 for the six months ended June 30, 2017, compared to $206,065,000 for the prior year’s six months, a decrease of $14,983,000.  This decrease was primarily due to (i) $17,856,000 of interest savings from the disposition of the Skyline properties and the refinancing of theMART and (ii) $6,874,000 higher capitalized interest and debt expense, partially offset by (iii) $3,963,000 of higher interest expense from the refinancing of 350 Park Avenue and the $375,000,000 drawn on our $750,000,000 delayed draw term loan and (iv) $3,137,000 of higher interest expense from the 1535 Broadway capital lease obligation.

 

Income Tax Expense

 

        For the six months ended June 30, 2017, income tax expense was $1,957,000, compared to $4,940,000 for the prior year’s six months, a decrease of $2,983,000.

 

Income from Discontinued Operations

The table below sets forth the combined results of operations of assets related to discontinued operations for the six months ended June 30, 2017 and 2016.

 

 

 

 

 

 

 

(Amounts in thousands)

For the Six Months Ended June 30,

 

 

2017

 

2016

Total revenues

$

1,172

 

$

2,129

Total expenses

 

348

 

 

1,148

 

 

824

 

 

981

Net gains on the sale of real estate

 

2,267

 

 

2,210

Pretax income from discontinued operations

 

3,091

 

 

3,191

Income tax expense

 

-

 

 

-

Income from discontinued operations

$

3,091

 

$

3,191

 

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

 

Net income attributable to noncontrolling interests in consolidated subsidiaries was $14,414,000 for the six months ended June 30, 2017, compared to $22,703,000 for the prior year’s six months, a decrease of $8,289,000.  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 (Vornado Realty Trust)

 

Net income attributable to noncontrolling interests in the Operating Partnership was $10,935,000 for the six months ended June 30, 2017, compared to $7,044,000 for the prior year’s six months, an increase of $3,891,000. This increase resulted primarily from higher net income subject to allocation to unitholders.

 

Preferred Share Dividends of Vornado Realty Trust

 

Preferred share dividends were $32,258,000 for the six months ended June 30, 2017, compared to $40,727,000 for the prior year’s six months, a decrease of $8,469,000.  This decrease resulted primarily from the redemption of the 6.875% Series J cumulative redeemable preferred shares on September 1, 2016.

 

Preferred Unit Distributions of Vornado Realty L.P.

 

Preferred unit distributions were $32,355,000 for the six months ended June 30, 2017, compared to $40,824,000 for the prior year’s six months, a decrease of $8,469,000.  This decrease resulted primarily from the redemption of the 6.875% Series J cumulative redeemable preferred units on September 1, 2016.

 

87


  

Results of Operations – Six Months Ended June 30, 2017 Compared to June 30, 2016 - 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 cash basis same store NOI 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 and theMART and 555 California Street, which are included in Other, for the six months ended June 30, 2017 compared to June 30, 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

555 California

(Amounts in thousands)

New York

 

Washington, DC

 

theMART

 

Street

EBITDA for the six months ended June 30, 2017

$

556,745

 

$

140,945

 

$

48,306

 

$

 

24,227

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

22,151

 

 

13,228

 

 

3,773

 

 

 

-

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(10,160)

 

 

-

 

 

169

 

 

 

-

 

 

Dispositions

 

(533)

 

 

(384)

 

 

-

 

 

 

-

 

 

Development properties placed into and out of service

 

(12,336)

 

 

(5,711)

 

 

-

 

 

 

-

 

 

Other non-operating income, net

 

(2,887)

 

 

(713)

 

 

(20)

 

 

 

-

Same store EBITDA for the six months ended June 30, 2017

$

552,980

 

$

147,365

 

$

52,228

 

$

 

24,227

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the six months ended June 30, 2016

$

700,624

 

$

(9,210)

 

$

48,993

 

$

 

23,732

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

17,774

 

 

15,259

 

 

3,344

 

 

 

189

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(152)

 

 

-

 

 

-

 

 

 

-

 

 

Dispositions, including net gains on sale

 

(162,461)

 

 

(11,615)

 

 

-

 

 

 

-

 

 

Development properties placed into and out of service

 

(16,078)

 

 

(5,702)

 

 

-

 

 

 

556

 

 

Other non-operating loss, net

 

5,139

 

 

160,400

 

 

-

 

 

 

-

Same store EBITDA for the six months ended June 30, 2016

$

544,846

 

$

149,132

 

$

52,337

 

$

 

24,477

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in same store EBITDA for the six months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017 compared to June 30, 2016

$

8,134

 

$

(1,767)

 

$

(109)

 

$

 

(250)

 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

% increase (decrease) in same store EBITDA

 

1.5%

(1)(2)

 

(1.2%)

 

 

(0.2%)

(3)

 

 

(1.0%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excluding Hotel Pennsylvania, same store EBITDA increased by 1.2%. 

(2)

The six months ended June 30, 2017 includes $2,557 one-time prior period tenant adjustments.  Excluding this item, same store EBITDA increased by 2.0%.

(3)

The six months ended June 30, 2016 includes a $2,000 reversal of an expense accrued in 2015. Excluding this amount, same store EBITDA increased by 3.8%.

 

88


  

Results of Operations – Six Months Ended June 30, 2017 Compared to June 30, 2016 - continued

 

Reconciliation of NOI to Same Store NOI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

555 California

(Amounts in thousands)

 

New York

 

Washington, DC

 

theMART

 

Street

NOI for the six months ended June 30, 2017

$

504,586

 

$

135,053

 

$

45,808

 

$

22,633

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

18,205

 

 

11,933

 

 

3,629

 

 

-

 

Less NOI from:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(9,951)

 

 

-

 

 

169

 

 

-

 

 

Dispositions

 

(533)

 

 

(382)

 

 

-

 

 

-

 

 

Development properties placed into and out of service

 

(2,841)

 

 

(5,934)

 

 

-

 

 

-

 

 

Other non-operating income, net

 

(6,971)

 

 

(713)

 

 

(31)

 

 

-

Same store NOI for the six months ended June 30, 2017

$

502,495

 

$

139,957

 

$

49,575

 

$

22,633

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI for the six months ended June 30, 2016

$

603,069

 

$

(19,474)

 

$

45,955

 

$

13,922

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

13,995

 

 

12,815

 

 

3,201

 

 

189

 

Less NOI from:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(105)

 

 

-

 

 

-

 

 

-

 

 

Dispositions, including net gains on sale

 

(161,573)

 

 

(7,791)

 

 

-

 

 

-

 

 

Development properties placed into and out of service

 

(3,905)

 

 

(6,074)

 

 

-

 

 

556

 

 

Other non-operating (income) loss, net

 

(6,483)

 

 

160,400

 

 

-

 

 

-

Same store NOI for the six months ended June 30, 2016

$

444,998

 

$

139,876

 

$

49,156

 

$

14,667

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase in same store NOI for the six months ended

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017 compared to June 30, 2016

$

57,497

 

$

81

 

$

419

 

$

7,966

 

 

 

  

 

 

 

  

 

 

 

 

  

 

 

 

% increase in same store NOI

 

12.9%

(1)(2)

 

0.1%

 

 

0.9%

(3)

 

54.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excluding Hotel Pennsylvania, same store NOI increased by 12.5%. 

(2)

The six months ended June 30, 2017 includes $2,557 of one-time prior period tenant adjustments.  Excluding this amount, same store NOI increased by 13.5%.

(3)

The six months ended June 30, 2016 includes a $2,000 reversal of an expense accrued in 2015. Excluding this amount, same store NOI increased by 5.2%.

89


  

SUPPLEMENTAL INFORMATION

 

Reconciliation of Net Income to EBITDA for the Three Months Ended March 31, 2017

 

(Amounts in thousands)

 

New York

 

Washington, DC

Net income attributable to Vornado for the three months ended March 31, 2017

 

$

83,823

 

$

20,455

Interest and debt expense

 

 

75,923

 

 

13,181

Depreciation and amortization

 

 

112,810

 

 

35,493

Income tax expense

 

 

227

 

 

367

EBITDA for the three months ended March 31, 2017

 

$

272,783

 

$

69,496

 

 

 

 

 

 

 

 

 

 

                   

 

 

Reconciliation of EBITDA to Same Store EBITDA – Three Months Ended June 30, 2017 Compared to March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

555

(Amounts in thousands)

 

New York

 

Washington, DC

 

theMART

 

California

EBITDA for the three months ended June 30, 2017

$

283,962

 

$

71,449

 

$

24,122

 

$

12,144

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

9,908

 

 

6,276

 

 

2,063

 

 

-

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(164)

 

 

-

 

 

169

 

 

-

 

 

Dispositions

 

(164)

 

 

(383)

 

 

-

 

 

-

 

 

Development properties placed into and out of service

 

(6,081)

 

 

(3,454)

 

 

-

 

 

-

 

 

Other non-operating income, net

 

(899)

 

 

(396)

 

 

-

 

 

-

Same store EBITDA for the three months ended June 30, 2017

$

286,562

 

$

73,492

 

$

26,354

 

$

12,144

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the three months ended March 31, 2017

$

272,783

 

$

69,496

 

$

24,184

 

$

12,083

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

12,243

 

 

6,952

 

 

1,710

 

 

-

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

-

 

 

-

 

 

31

 

 

-

 

 

Dispositions

 

(228)

 

 

-

 

 

-

 

 

-

 

 

Development properties placed into and out of service

 

(6,255)

 

 

(2,260)

 

 

-

 

 

-

 

 

Other non-operating income, net

 

(1,892)

 

 

(316)

 

 

(20)

 

 

-

Same store EBITDA for the three months ended March 31, 2017

$

276,651

 

$

73,872

 

$

25,905

 

$

12,083

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in same store EBITDA for the three months

 

 

 

 

 

 

 

 

 

 

 

 

ended June 30, 2017 compared to March 31, 2017

$

9,911

 

$

(380)

 

$

449

 

$

61

 

 

 

  

 

 

 

  

 

 

  

 

 

 

 

 

% increase (decrease) in same store EBITDA

 

3.6%

(1)(2)

 

(0.5%)

 

 

1.7%

 

 

0.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excluding Hotel Pennsylvania, same store EBITDA decreased by 0.4%. 

(2)

The three months ended June 30, 2017 includes $2,557 of one-time prior period tenant adjustments.  Excluding this item, same store EBITDA increased by 4.5%.

 

90


  

SUPPLEMENTAL INFORMATION – CONTINUED

 

Reconciliation of NOI to Same Store NOI – Three Months Ended June 30, 2017 Compared to March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

555 California

(Amounts in thousands)

 

New York

 

 

Washington, DC

 

theMART

 

Street

NOI for the three months ended June 30, 2017

$

257,221

 

 

$

69,623

 

$

22,904

 

$

11,258

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

8,771

 

 

 

5,672

 

 

1,997

 

 

-

 

Less NOI from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(63)

 

 

 

-

 

 

169

 

 

-

 

 

Dispositions

 

(164)

 

 

 

(382)

 

 

-

 

 

-

 

 

Development properties placed into and out of service

 

(1,562)

 

 

 

(3,661)

 

 

-

 

 

-

 

 

Other non-operating income, net

 

(2,252)

 

 

 

(396)

 

 

-

 

 

-

Same store NOI for the three months ended June 30, 2017

$

261,951

 

 

$

70,856

 

$

25,070

 

$

11,258

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI for the three months ended March 31, 2017

$

247,365

 

 

$

65,430

 

$

22,904

 

$

11,375

 

Add-back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

9,434

 

 

 

6,261

 

 

1,632

 

 

-

 

Less NOI from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dispositions

 

(228)

 

 

 

-

 

 

-

 

 

-

 

 

Development properties placed into and out of service

 

(1,279)

 

 

 

(2,275)

 

 

-

 

 

-

 

 

Other non-operating income, net

 

(4,623)

 

 

 

(316)

 

 

(31)

 

 

-

Same store NOI for the three months ended March 31, 2017

$

250,669

 

 

$

69,100

 

$

24,505

 

$

11,375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in same store NOI for the three months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017 compared to March 31, 2017

$

11,282

 

 

$

1,756

 

$

565

 

$

(117)

 

 

 

  

 

 

 

  

 

 

 

 

 

  

 

 

 

% increase (decrease) in same store NOI

 

4.5%

(1)(2)

 

 

2.5%

 

 

2.3%

 

 

(1.0%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excluding Hotel Pennsylvania, same store NOI increased by 0.1%. 

(2)

The three months ended June 30, 2017 includes $2,557 of one-time prior period tenant adjustments.  Excluding this item, same store NOI increased by 5.5%. 

91


  

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, debt service, 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.

92


  

Liquidity and Capital Resources – continued

 

Cash Flows for the Six Months Ended June 30, 2017

 

Our cash and cash equivalents and restricted cash were $1,557,689,000 as of June 30, 2017, a $41,633,000 decrease from the balance at December 31, 2016.  Our consolidated outstanding debt, net was $10,837,585,000 as of June 30, 2017, a $225,900,000 increase from the balance at December 31, 2016.  As of June 30, 2017 and December 31, 2016, $115,630,000 was outstanding under our revolving credit facilities.  During the remainder of 2017 and 2018, $117,919,000 and $207,930,000, respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it.

 

Net Cash Provided by Operating Activities

 

Net cash provided by operating activities of $316,217,000 was comprised of (i) net income of $221,331,000, (ii) $222,708,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rents, amortization of below-market leases, net, net realized and unrealized loss on real estate fund investments, net gains on sale of real estate and other, equity in net income from partially owned entities and net gains on disposition of wholly owned and partially owned assets and (iii) distributions of income from partially owned entities of $44,778,000, partially offset by (iv) the net change in operating assets and liabilities of $172,600,000.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities of $251,529,000 was primarily comprised of (i) $191,073,000 of development costs and construction in progress, (ii) $139,611,000 of additions to real estate, (iii) $27,720,000 of investments in partially owned entities and (iv) $11,841,000 of acquisitions of real estate, partially offset by (v) $113,507,000 of capital distributions from partially owned entities and (vi) $5,180,000 of proceeds from sales of real estate and related investments.

 

Net Cash Used in Financing Activities

 

Net cash used in financing activities of Vornado Realty Trust of $106,321,000 was primarily comprised of (i) $268,817,000 of dividends paid on common shares, (ii) $32,258,000 of dividends paid on preferred shares, (iii) $25,617,000 of distributions to noncontrolling interests and (iv) $13,971,000 for the repayments of borrowings, partially offset by (v) $226,929,000 of proceeds from borrowings and (vi) $9,626,000 of proceeds received from exercise of employee share options.

 

Net cash used in financing activities of the Operating Partnership of $106,321,000 was primarily comprised of (i) $268,817,000 of distributions to Vornado, (ii) $32,258,000 of distributions to preferred unitholders, (iii) $25,617,000 of distributions to redeemable security holders and noncontrolling interests in consolidated subsidiaries and (iv) $13,971,000 for the repayments of borrowings, partially offset by (v) $226,929,000 of proceeds from borrowings and (vi) $9,626,000 of proceeds received from exercise of Vornado stock options.

93


  

Liquidity and Capital Resources – continued

 

Capital Expenditures for the Six Months Ended June 30, 2017

 

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.

 

Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to the cash expended for the six months ended June 30, 2017.

  

 

 

 

 

 

 

 

 

 

 

 

 

 

555 California

 

 

 

(Amounts in thousands)

Total

 

New York

 

theMART

 

Street

 

Washington, DC

Expenditures to maintain assets

$

54,674

 

$

39,972

 

$

4,361

 

$

3,148

 

$

7,193

Tenant improvements

 

56,737

 

 

14,828

 

 

7,309

 

 

3,454

 

 

31,146

Leasing commissions

 

15,264

 

 

7,768

 

 

1,083

 

 

768

 

 

5,645

Non-recurring capital expenditures

 

37,725

 

 

32,905

 

 

110

 

 

526

 

 

4,184

Total capital expenditures and leasing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

commissions (accrual basis)

 

164,400

 

 

95,473

 

 

12,863

 

 

7,896

 

 

48,168

Adjustments to reconcile to cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures in the current year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

applicable to prior periods

 

65,985

 

 

26,238

 

 

5,987

 

 

8,439

 

 

25,321

 

 

Expenditures to be made in future

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

periods for the current period

 

(68,784)

 

 

(25,576)

 

 

(7,704)

 

 

4,263

 

 

(39,767)

Total capital expenditures and leasing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

commissions (cash basis)

$

161,601

 

$

96,135

 

$

11,146

 

$

20,598

 

$

33,722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot per annum

$

8.37

 

$

9.16

 

$

6.18

 

$

8.80

 

$

7.51

 

Percentage of initial rent

 

13.2%

 

 

11.2%

 

 

13.1%

 

 

10.1%

 

 

17.5%



Development and Redevelopment Expenditures for the Six Months Ended June 30, 2017

 

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 397,000 salable square feet on our 220 Central Park South development site.  The incremental development cost of this project is estimated to be approximately $1.3 billion, of which $744,967,000 has been expended as of June 30, 2017.

   

We are developing a 173,000 square foot Class A office building, located along the western edge of the High Line at 512 West 22nd Street in the West Chelsea submarket of Manhattan (55.0% owned).  The incremental development cost of this project is estimated to be approximately $130,000,000, of which our share is $72,000,000.  As of June 30, 2017, $50,847,000 has been expended, of which our share is $27,966,000.

 

We are developing a 170,000 square foot office and retail building at 61 Ninth Avenue, located on the southwest corner of Ninth Avenue and 15th Street in the West Chelsea submarket of Manhattan.  In February 2016, the venture purchased an adjacent five story loft building and air rights in exchange for a 10% common and preferred equity interest in the venture valued at $19,400,000, which reduced our ownership interest to 45.1% from 50.1%. The incremental development cost of this project is estimated to be approximately $152,000,000, of which our share is $69,000,000.  As of June 30, 2017, $74,055,000 has been expended, of which our share is $33,399,000.

94


  

Liquidity and Capital Resources – continued

 

Development and Redevelopment Expenditures for the Six Months Ended June 30, 2017 - continued

 

We are developing a 34,000 square foot office and retail building at 606 Broadway, located on the northeast corner of Broadway and Houston Street in Manhattan (50.0% owned). The venture’s incremental development cost of this project is estimated to be approximately $60,000,000, of which our share is $30,000,000. As of June 30, 2017, $28,430,000 has been expended, of which our share is $14,215,000.

 

During the first quarter of 2017, we completed the demolition of two adjacent Washington, DC office properties, 1726 M Street and 1150 17th Street, and will replace them in the future with a new 335,000 square foot Class A office building, to be addressed 1700 M Street.  The incremental development cost of the project is estimated to be approximately $170,000,000, of which $18,577,000 has been expended as of June 30, 2017.

 

A joint venture in which we have a 50.1% ownership interest is redeveloping the historic Farley Post Office building which will include a new Moynihan Train Hall and approximately 850,000 rentable square feet of commercial space, comprised of approximately 730,000 square feet of office space and approximately 120,000 square feet of retail space.  As of June 30, 2017, $255,467,000 has been expended, of which our share is $127,989,000.  The joint venture has also entered into a development agreement with Empire State Development (“ESD”) and a design-build contract with Skanska Moynihan Train Hall Builders.  Under the development agreement with ESD, the joint venture is obligated to build the Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture’s obligations.  Under the design-build agreement, Skanska Moynihan Train Hall Builders is obligated to fulfill all of the joint venture’s obligations.  The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bears a full guaranty from Skanska AB.

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

 

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.

 

Below is a summary of development and redevelopment expenditures incurred for the six months ended June 30, 2017.  These expenditures include interest of $23,312,000, payroll of $4,581,000 and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $15,089,000, which were capitalized in connection with the development and redevelopment of these projects.

  

 

 

 

 

 

 

 

 

 

 

 

555 California

 

 

 

 

 

(Amounts in thousands)

Total

 

New York

 

theMART

 

Street

 

Washington, DC

 

Other

220 Central Park South

$

126,384

 

$

-

 

$

-

 

$

-

 

$

-

 

$

126,384

606 Broadway

 

9,467

 

 

9,467

 

 

-

 

 

-

 

 

-

 

 

-

1700 M Street

 

7,442

 

 

-

 

 

-

 

 

-

 

 

7,442

 

 

-

The Bartlett

 

6,690

 

 

-

 

 

-

 

 

-

 

 

6,690

 

 

-

315/345 Montgomery Street

 

6,632

 

 

-

 

 

-

 

 

6,632

 

 

-

 

 

-

90 Park Avenue

 

6,002

 

 

6,002

 

 

-

 

 

-

 

 

-

 

 

-

Penn Plaza

 

3,724

 

 

3,724

 

 

-

 

 

-

 

 

-

 

 

-

304 Canal Street

 

2,534

 

 

2,534

 

 

-

 

 

-

 

 

-

 

 

-

Other

 

22,198

 

 

5,138

 

 

3,957

 

 

-

 

 

12,207

 

 

896

 

 

 

 

$

191,073

 

$

26,865

 

$

3,957

 

$

6,632

 

$

26,339

 

$

127,280

95


  

Liquidity and Capital Resources – continued

 

Cash Flows for the Six Months Ended June 30, 2016

 

Our cash and cash equivalents and restricted cash were $1,738,695,000 at June 30, 2016, a $204,811,000 decrease from the balance at December 31, 2015.  The decrease is due to cash flows from investing and financing activities, partially offset by cash flows from operating activities, as discussed below.

 

Net Cash Provided by Operating Activities

 

Net cash provided by operating activities of $318,805,000 was comprised of (i) net income of $176,774,000, (ii) $189,482,000 of non-cash adjustments, which include depreciation and amortization expense, real estate impairment losses, net gain on the disposition of wholly owned and partially owned assets, the effect of straight-lining of rents, net realized and unrealized gain on real estate fund investments and equity in net loss of partially owned entities, (iii) return of capital from real estate fund investments of $71,888,000, (iv) distributions of income from partially owned entities of $42,012,000, partially offset by (v) the net change in operating assets and liabilities of $161,351,000.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities of $440,942,000 was primarily comprised of (i) $277,214,000 of development costs and construction in progress, (ii) $170,265,000 of additions to real estate, (iii) $91,100,000 of acquisitions of real estate and other, (iv) $90,659,000 of investments in partially owned entities, (v) $48,000,000 due to the net deconsolidation of 7 West 34th Street, (vi) $11,700,000 of investments in loans receivable and other and (vii) $4,379,000 in purchases of marketable securities, partially offset by (viii) $159,888,000 of proceeds from sales of real estate and related investments and (ix) $92,465,000 of capital distributions from partially owned entities.

 

Net Cash Used in Financing Activities

 

Net cash used in financing activities of Vornado Realty Trust of $82,674,000 was comprised of (i) $1,032,115,000 for the repayments of borrowings, (ii) $237,832,000 of dividends paid on common shares, (iii) $83,266,000 of distributions to noncontrolling interests, (iv) $40,727,000 of dividends paid on preferred shares, (v) $29,478,000 of debt issuance and other costs, and (vi) $186,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings and other, partially offset by (vii) $1,325,246,000 of proceeds from borrowings, (viii) $11,874,000 of contributions from noncontrolling interests and (ix) $3,810,000 of proceeds received from exercise of employee share options.

 

Net cash used in financing activities of the Operating Partnership of $82,674,000 was comprised of (i) $1,032,115,000 for the repayments of borrowings, (ii) $237,832,000 of distributions to Vornado, (iii) $83,266,000 of distributions to redeemable security holders and noncontrolling interests in consolidated subsidiaries, (iv) $40,727,000 of distributions to preferred unitholders, (v) $29,478,000 of debt issuance and other costs, and (vi) $186,000 for the repurchase of Class A units related to stock compensation agreements and related tax withholdings and other, partially offset by (vii) $1,325,246,000 of proceeds from borrowings, (viii) $11,874,000 of contributions from noncontrolling interests in consolidated subsidiaries and (ix) $3,810,000 of proceeds received from exercise of Vornado stock options.

96


  

Liquidity and Capital Resources – continued

 

Capital Expenditures for the Six Months Ended June 30, 2016

 

Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to the cash expended for the six months ended June 30, 2016.

  

 

 

 

 

 

 

 

 

 

 

 

 

 

555 California

 

 

 

(Amounts in thousands)

Total

 

New York

 

theMART

 

Street

 

Washington, DC

Expenditures to maintain assets

$

37,688

 

$

22,201

 

$

6,653

 

$

2,400

 

$

6,434

Tenant improvements

 

46,270

 

 

38,490

 

 

1,383

 

 

-

 

 

6,397

Leasing commissions

 

24,939

 

 

22,499

 

 

146

 

 

-

 

 

2,294

Non-recurring capital expenditures

 

22,971

 

 

17,104

 

 

132

 

 

874

 

 

4,861

Total capital expenditures and leasing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

commissions (accrual basis)

 

131,868

 

 

100,294

 

 

8,314

 

 

3,274

 

 

19,986

Adjustments to reconcile to cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures in the current year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

applicable to prior periods

 

118,340

 

 

60,696

 

 

14,903

 

 

5,056

 

 

37,685

 

 

Expenditures to be made in future

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

periods for the current period

 

(44,768)

 

 

(38,368)

 

 

2,550

 

 

2,757

 

 

(11,707)

Total capital expenditures and leasing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

commissions (cash basis)

$

205,440

 

$

122,622

 

$

25,767

 

$

11,087

 

$

45,964

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot per annum

$

6.20

 

$

6.88

 

$

3.46

 

$

9.20

 

$

4.00

 

Percentage of initial rent

 

9.9%

  

 

8.6%

 

 

6.8%

 

 

10.9%

  

 

10.0%



Development and Redevelopment Expenditures for the Six Months Ended June 30, 2016

 

Below is a summary of development and redevelopment expenditures incurred for the six months ended June 30, 2016.  These expenditures include interest of $16,438,000, payroll of $6,401,000, and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $30,224,000, which were capitalized in connection with the development and redevelopment of these projects.

  

 

 

 

 

 

 

 

 

 

 

 

 

 

555 California

 

 

 

 

 

 

(Amounts in thousands)

Total

 

New York

 

theMART

 

Street

 

Washington, DC

 

Other

220 Central Park South

$

130,696

 

$

-

 

$

-

 

$

-

 

$

-

 

$

130,696

The Bartlett

 

48,700

 

 

-

 

 

-

 

 

-

 

 

48,700

 

 

-

640 Fifth Avenue

 

17,368

 

 

17,368

 

 

-

 

 

-

 

 

-

 

 

-

90 Park Avenue

 

16,243

 

 

16,243

 

 

-

 

 

-

 

 

-

 

 

-

2221 South Clark Street (residential conversion)

 

12,589

 

 

-

 

 

-

 

 

-

 

 

12,589

 

 

-

Wayne Towne Center

 

7,055

 

 

-

 

 

-

 

 

-

 

 

-

 

 

7,055

Penn Plaza

 

6,766

 

 

6,766

 

 

-

 

 

-

 

 

-

 

 

-

330 West 34th Street

 

2,812

 

 

2,812

 

 

-

 

 

-

 

 

-

 

 

-

Other

 

34,985

 

 

5,391

 

 

11,031

 

 

836

 

 

17,713

 

 

14

 

 

 

 

$

277,214

 

$

48,580

 

$

11,031

 

$

836

 

$

79,002

 

$

137,765

97


  

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 currently 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 cost to us.

 

Generally, 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 June 30, 2017, the aggregate dollar amount of these guarantees and master leases is approximately $774,000,000.

 

As of June 30, 2017, $20,777,000 of letters of credit were outstanding under one of our unsecured revolving credit facilities.  Our unsecured revolving credit facilities contain financial covenants that require us to maintain minimum interest rate 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 unsecured 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 June 30, 2017, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $52,000,000.

 

As of June 30, 2017, we have construction commitments aggregating approximately $543,000,000.

 

Upon completion of the spin-off of our Washington, DC segment, on July 17, 2017, we incurred approximately $47,000,000 of additional transaction costs, primarily for advisory fees which will be recognized as expense in the quarter ended September 30, 2017.   

 

98


  

Funds From Operations (“FFO”)

 

Vornado Realty Trust

 

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 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 flow 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 18 – Income Per Share/Income Per Class A Unit, in our consolidated financial statements on page 38 of this Quarterly Report on Form 10-Q.

 

FFO for the Three and Six Months Ended June 30, 2017 and 2016

 

FFO attributable to common shareholders plus assumed conversions was $257,673,000, or $1.35 per diluted share for the three months ended June 30, 2017, compared to $229,432,000, or $1.21 per diluted share, for the prior year’s three months.  FFO attributable to common shareholders plus assumed conversions was $463,422,000, or $2.43 per diluted share for the six months ended June 30, 2017, compared to $433,104,000, or $2.28 per diluted share, for the prior year’s six months.  Details of certain adjustments to FFO are discussed in the financial results summary of our “Overview”.

  

(Amounts in thousands, except per share amounts)

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2017

 

2016

 

2017

 

2016

Reconciliation of our net income to FFO:

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common shareholders

$

115,972

 

$

220,463

 

$

163,724

 

$

106,300

 

Per diluted share

$

0.61

 

$

1.16

 

$

0.86

 

$

0.56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO adjustments:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization of real property

$

128,527

 

$

133,218

 

$

258,996

 

$

267,339

Net gains on sale of real estate

 

-

 

 

(161,721)

 

 

(2,267)

 

 

(161,721)

Real estate impairment losses

 

-

 

 

-

 

 

-

 

 

160,700

Proportionate share of adjustments to equity in net income (loss) of

 

 

 

 

 

 

 

 

 

 

 

 

partially owned entities to arrive at FFO:

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization of real property

 

37,682

 

 

38,308

 

 

76,756

 

 

77,354

 

 

Net gains on sale of real estate

 

(15,339)

 

 

(319)

 

 

(17,192)

 

 

(319)

 

 

Real estate impairment losses

 

167

 

 

49

 

 

3,218

 

 

4,402

 

 

 

 

151,037

 

 

9,535

 

 

319,511

 

 

347,755

Noncontrolling interests' share of above adjustments

 

(9,356)

 

 

(588)

 

 

(19,873)

 

 

(21,469)

FFO adjustments, net

$

141,681

 

$

8,947

 

$

299,638

 

$

326,286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO attributable to common shareholders (non-GAAP)

$

257,653

 

$

229,410

 

$

463,362

 

$

432,586

Convertible preferred share dividends

 

20

 

 

22

 

 

60

 

 

43

Earnings allocated to Out-Performance Plan units

 

-

 

 

-

 

 

-

 

 

475

FFO attributable to common shareholders plus assumed

 

 

 

 

 

 

 

 

 

 

 

 

conversions (non-GAAP)

$

257,673

 

$

229,432

 

$

463,422

 

$

433,104

 

Per diluted share (non-GAAP)

$

1.35

 

$

1.21

 

$

2.43

 

$

2.28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Weighted Average Shares

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

189,395

 

 

188,772

 

 

189,304

 

 

188,715

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock options and restricted share awards

 

1,011

 

 

1,070

 

 

1,089

 

 

1,020

 

Convertible preferred shares

 

38

 

 

43

 

 

57

 

 

43

 

Out-Performance Plan units

 

-

 

 

-

 

 

-

 

 

265

Denominator for FFO per diluted share

 

190,444

 

 

189,885

 

 

190,450

 

 

190,043

 

99


  

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)

2017

 

2016

 

 

 

 

 

 

 

Weighted

 

Effect of 1%

 

 

 

 

Weighted

 

 

 

June 30,

 

 

Average

 

Change In

 

December 31,

 

Average

 

 

 

Balance

 

 

Interest Rate

 

Base Rates

 

Balance

 

Interest Rate

Consolidated debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable rate

$

3,993,090

 

 

2.86%

 

$

39,931

 

$

3,765,054

 

2.40%

 

Fixed rate

 

6,934,795

 

 

3.82%

 

 

-

 

 

6,949,873

 

3.82%

 

 

 

$

10,927,885

 

 

3.47%

 

 

39,931

 

$

10,714,927

 

3.32%

Pro rata share of debt of non-consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

entities (non-recourse):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable rate – excluding Toys "R" Us, Inc.

$

1,272,836

 

 

2.96%

 

 

12,728

 

$

1,109,376

 

2.49%

 

Variable rate – Toys "R" Us, Inc.

 

1,255,604

 

 

6.43%

 

 

12,556

 

 

1,162,072

 

6.05%

 

Fixed rate - excluding Toys "R" Us, Inc.

 

2,102,611

 

 

5.04%

 

 

-

 

 

2,120,068

 

5.04%

 

Fixed rate - Toys "R" Us, Inc.

 

466,577

 

 

10.06%

 

 

-

 

 

671,181

 

9.42%

 

 

 

$

5,097,628

 

 

5.32%

 

 

25,284

 

$

5,062,697

 

5.30%

Noncontrolling interests' share of consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

subsidiaries

 

 

 

 

 

 

 

(1,427)

 

 

 

 

 

Total change in annual net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

the Operating Partnership

 

 

 

 

 

 

 

63,788

 

 

 

 

 

Noncontrolling interests’ share of the Operating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partnership

 

 

 

 

 

 

 

(3,948)

 

 

 

 

 

Total change in annual net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado

 

 

 

 

 

 

$

59,840

 

 

 

 

 

Total change in annual net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

the Operating Partnership per diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A unit

 

 

 

 

 

 

$

0.31

 

 

 

 

 

Total change in annual net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vornado per diluted share

 

 

 

 

 

 

$

0.31

 

 

 

 

 

 

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 June 30, 2017, we have an interest rate swap on a $410,000,000 mortgage loan on Two Penn Plaza that swapped the rate from LIBOR plus 1.65% (2.70% as of June 30, 2017) to a fixed rate of 4.78% through March 2018, an interest rate swap on a $375,000,000 mortgage loan on 888 Seventh Avenue that swapped the rate from LIBOR plus 1.60% (2.65% as of June 30, 2017) to a fixed rate of 3.15% through December 2020 and an interest rate swap on a $700,000,000 mortgage loan on 770 Broadway that swapped the rate from LIBOR plus 1.75% (2.83% as of June 30, 2017) to a fixed rate of 2.56% through September 2020.

 

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 current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt.  As of June 30, 2017, the estimated fair value of our consolidated debt was $11,004,000,000.

100


  

Item 4.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures (Vornado Realty Trust)

 

Disclosure Controls and Procedures:  Our management, with the participation of Vornado’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our 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, Vornado’s Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2017, such disclosure controls and procedures were effective.

 

Internal Control Over Financial Reporting:  There have not been any changes in our 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, our internal control over financial reporting.

 

Evaluation of Disclosure Controls and Procedures (Vornado Realty L.P.)

 

Disclosure Controls and Procedures:  Vornado Realty L.P.’s management, with the participation of Vornado’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our 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, Vornado’s Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2017, such disclosure controls and procedures were effective.

 

Internal Control Over Financial Reporting:  There have not been any changes in our 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, our internal control over financial reporting.

 

101


  

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 currently 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, 2016.

 

 

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

 

Vornado Realty Trust

 

None.

 

Vornado Realty L.P.

 

During the quarter ended June 30, 2017, we issued 30,204 Class A units in connection with equity awards issued pursuant to Vornado’s omnibus share plan, including with respect to grants of restricted Vornado common shares and restricted units of the Operating Partnership and upon conversion, surrender or exchange of the Operating Partnership’s units or Vornado stock options, and consideration received included $774,032 in cash proceeds. Such units were issued in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.

 

 

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.

 

102


  

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:  July 31, 2017

By:

/s/ Matthew Iocco

 

 

Matthew Iocco, Chief Accounting Officer (duly
authorized officer and principal accounting officer)

  

103


  

SIGNATURES

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

 

 

 

VORNADO REALTY L.P.

 

 

(Registrant)

 

 

 

 

 

 

Date:  July 31, 2017

By:

/s/ Matthew Iocco

 

 

Matthew Iocco, Chief Accounting Officer of Vornado
Realty Trust, sole General Partner of Vornado Realty
L.P. (duly authorized officer and principal accounting
officer)

  

104


  

 

EXHIBIT INDEX

  

  

  

  

  

  

  

Exhibit No.

 

  

  

  

  

 

 

 

 

 

 

 

10.32

**

-

Form of 2017 Amendment to Vornado Realty Trust  2015, 2016, and 2017 Outperformance Plan

Award Agreements.

 

 

 

 

 

 

 

 

15.1

 

-

Letter regarding Unaudited Interim Financial Information of Vornado Realty Trust

 

 

 

 

 

 

 

 

15.2

 

-

Letter regarding Unaudited Interim Financial Information of Vornado Realty L.P.

 

 

 

 

 

 

 

 

31.1

 

-

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

  

     

  

  

  

  

 

31.2

 

-

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

  

     

  

  

  

  

 

31.3

 

-

Rule 13a-14 (a) Certification of the Chief Executive Officer of Vornado Realty L.P.

 

 

 

 

  

  

  

 

31.4

 

-

Rule 13a-14 (a) Certification of the Chief Financial Officer of Vornado Realty L.P.

 

 

 

 

 

 

 

 

32.1

 

-

Section 1350 Certification of the Chief Executive Officer of Vornado Realty Trust

  

     

  

  

  

  

 

32.2

 

-

Section 1350 Certification of the Chief Financial Officer of Vornado Realty Trust

  

 

 

 

 

 

 

 

32.3

 

-

Section 1350 Certification of the Chief Executive Officer of Vornado Realty L.P.

 

 

 

 

  

  

  

 

32.4

 

-

Section 1350 Certification of the Chief Financial Officer of Vornado Realty L.P.

 

 

 

 

 

 

 

 

101.INS

 

-

XBRL Instance Document of Vornado Realty Trust and Vornado Realty L.P.

  

     

  

  

  

  

 

101.SCH

 

-

XBRL Taxonomy Extension Schema of Vornado Realty Trust and Vornado Realty L.P.

  

     

  

  

  

  

 

101.CAL

 

-

XBRL Taxonomy Extension Calculation Linkbase of Vornado Realty Trust and Vornado Realty L.P.

  

     

  

  

  

  

 

101.DEF

 

-

XBRL Taxonomy Extension Definition Linkbase of Vornado Realty Trust and Vornado Realty L.P.

  

     

  

  

  

  

 

101.LAB

 

-

XBRL Taxonomy Extension Label Linkbase of Vornado Realty Trust and Vornado Realty L.P.

  

     

  

  

  

  

 

101.PRE

 

-

XBRL Taxonomy Extension Presentation Linkbase of Vornado Realty Trust and Vornado Realty L.P.

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**

 

Management contract or compensatory agreement

 

                 

 

105