Vornado Realty Trust
Annual Report 2012

Plain-text annual report

VORNADO REALTY TRUST 2012 ANNUAL REPORT 10JUL201211394241 6APR201118555177 This Annual Report is printed on recycled paper and is recyclable. V O R N A D O C O M P A N Y P R O F I L E Vornado Realty Trust is a fully-integrated real estate investment trust. The Company owns all or portions of: New York:  31 office properties aggregating 19.7 million square feet and four residential properties containing 1,655 units;  49 Manhattan street retail properties aggregating 2.2 million square feet;  The 1,700 room Hotel Pennsylvania;  A 32.4% interest in Alexander’s, Inc. (NYSE:ALX) which owns six properties in the greater New York metropolitan area including 731 Lexington Avenue, the 1.3 million square foot Bloomberg, L.P. headquarters building; Washington:  73 properties aggregating 19.1 million square feet, including 59 office properties aggregating 16.1 million square feet and seven residential properties containing 2,414 units; Retail Properties:  120 strip shopping centers, malls, and single-tenant retail assets aggregating 20.8 million square feet, primarily in the northeast states, California and Puerto Rico; Other Real Estate/Investments:  The 3.5 million square foot Merchandise Mart in Chicago, whose largest tenant is Motorola Mobility, owned by Google, which leases 572,000 square feet;  A 70% controlling interest in 555 California Street, a three-building office complex in San Francisco’s financial district aggregating 1.8 million square feet known as Bank of America Center;  A 25% interest in Vornado Capital Partners, our $800 million real estate fund. We are the general partner and investment manager of the fund;  A 32.6% interest in Toys “R” Us, Inc.;  A 6.1% interest in JC Penney Company, Inc. (NYSE:JCP); and  Other real estate and related investments. Vornado’s common shares are listed on the New York Stock Exchange and are traded under the symbol: VNO. F I N A N C I A L H I G H L I G H T S Year Ended December 31, Revenues EBITDA (before noncontrolling interests and gains on sale of real estate)* Net income Net income per sharebasic Net income per sharediluted Total assets Total equity Funds from operations* Funds from operations per share* EBITDA, adjusted for comparability* Funds from operations adjusted for comparability* Funds from operations adjusted for comparability per share* 2012 2,766,457,000 1,819,601,000 549,271,000 2.95 2.94 2011 2,732,836,000 2,266,691,000 601,771,000 3.26 3.23 $ $ $ $ $ 21,965,975,000 $ 20,446,487,000 7,904,144,000 818,565,000 4.39 1,964,150,000 964,125,000 5.17 $ $ $ $ $ $ 7,508,447,000 1,230,973,000 6.42 1,952,633,000 939,273,000 4.90 $ $ $ $ $ $ $ $ $ $ $ $ * In these financial highlights and in the Chairman’s letter to our shareholders that follows, we present certain non- GAAP measures, including EBITDA before Noncontrolling Interests and Gains on Sale of Real Estate, EBITDA Adjusted for Comparability, Funds from Operations (“FFO”) and Funds from Operations Adjusted for Comparability. We have provided reconciliations of these non-GAAP measures to the applicable GAAP measures in the appendix section of this Chairman’s letter and in the Company’s Annual Report on Form 10-K, which accompanies this letter or can be viewed at www.vno.com, under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.” To Our Shareholders Vornado’s Funds from Operations Adjusted for Comparability (an apples-to-apples comparison of our continuing business, eliminating certain one-timers) for the year ended December 31, 2012 was $964.1 million, $5.17 per diluted share, compared to $939.3 million, $4.90 per diluted share for the year ended December 31, 2011. Total Funds from Operations (apples-to-apples plus one-timers) for the year ended December 31, 2012 was $818.6 million, $4.39 per diluted share, compared to $1,231.0 million, $6.42 per diluted share, for the year ended December 31, 2011. Net Income attributable to common shares for the year ended December 31, 2012 was $549.3 million, $2.94 per diluted share, versus $601.8 million, $3.23 per diluted share, for the previous year. Our core business is concentrated in New York and Washington, the two most important markets in the nation, is office and retail centric, and represents 91% of our EBITDA. We have run Vornado for 33 years. Cash flow from the core business has increased in both total dollars and on a same-store basis for each of the first 32 years; however, this year both have decreased as a result of the decline in Washington results due to BRAC. Here are our financial results (presented in EBITDA format) by business segment: ($ IN MILLIONS) EBITDA: New York: Office Retail Alexander’s Hotel Pennsylvania Total NewYork Washington Retail – Strips and Malls Merchandise Mart LNR Real Estate Fund Toys “R” Us Other (see page 3 for details) EBITDA before noncontrolling interests and gains on sale of real estate 2012 Same Store % of 2012 EBITDA Cash GAAP 2012 2011 2010 1.0% 2.6% 32.7% (3.4%) 2.0% (9.8%) 1.3% 0.7% 2.4% 2.2% (0.8%) (3.4%) 2.0% (8.6%) 1.2% 4.5% 35.6% 12.0% 2.6% 1.8% 52.0% 22.6% 15.0% 3.8% 5.0% 1.6% n/a 561.6 189.5 40.4 28.4 819.9 355.5 236.4 60.1 79.5 24.6 334.6 1,910.6 (91.0) 538.9 186.8 39.6 30.0 795.3 410.3 229.9 52.7 41.6 9.3 339.0 1,878.1 388.6 518.9 180.2 39.3 23.8 762.2 413.3 224.6 52.7 6.1 0.5 340.0 1,799.4 484.2 100.0% 1,819.6 2,266.7 2,283.6 This letter and this Annual Report contain 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. The Company’s future results, financial condition and business may differ materially from those expressed in these forward-looking statements. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Many of the factors that will determine these items are beyond our ability to control or predict. For further discussion of these factors, see “Forward-Looking Statements” and “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, a copy of which accompanies this letter or can be viewed at www.vno.com. 2 Other EBITDA is comprised of: ($ IN THOUSANDS) Corporate general and administrative expenses 555 California Street Investment income Interest income on mortgages receivable Lexington Realty Trust Other investments Non-cash write-downs: JC Penney: Impairment loss Mark-to-market of derivative position Toys “R” Us impairment Other Recognition of unamortized discount on the subordinated debt of Independence Plaza Gain on sale of Canadian trade shows 1290 Avenue of the Americas and 555 California Street priority return Mezzanine loans loss reversal and net gain on disposition Net gain on extinguishment of debt Net gain from Suffolk Downs sale of partial interest Recognition of disputed receivable from Stop & Shop Discontinued operations – EBITDA of properties sold Other, net Total 2012 (89,192) 40,544 12,319 13,861 31,283 39,386 (224,937) (75,815) (40,000) (11,792) 60,396 31,105 13,222 -- -- -- -- 87,023 21,597 (91,000) 2011 (85,922) 44,724 27,464 14,023 31,924 37,049 -- 12,984 -- (13,794) -- -- -- 82,744 83,907 12,525 23,521 118,467 (1,016) 388,600 2010 (90,343) 45,392 26,617 10,319 41,000 63,232 -- 130,153 -- (31,577) -- -- -- 53,100 92,150 -- -- 139,871 4,286 484,200 3 The following chart reconciles Funds from Operations to Funds from Operations Adjusted for Comparability: ($ IN MILLIONS, EXCEPT SHARE DATA) Funds from Operations, as Reported Adjustments for certain items that affect comparability: Non-cash impairment loss on JC Penney owned shares (Loss) income from mark-to-market of derivative positions in JC Penney Non-cash impairment loss on investment in Toys “R” Us Recognition of unamortized discount on the subordinated debt of Independence Plaza 1290 Avenue of the Americas and 555 California Street priority return and income tax benefit After tax net gain on sale of Canadian trade shows Net gain resulting from Lexington’s stock issuance Discontinued operations – FFO of real estate sold Mezzanine loans loss reversal and gain on disposition Net gain on extinguishment of debt Recognition of disputed receivable from Stop & Shop Write-off of development costs Other Noncontrolling interests’ share of above adjustments Total adjustments Funds from Operations Adjusted for Comparability Funds from Operations Adjusted for Comparability per share 2012 818.6 2011 1,231.0 2010 1,251.5 (224.9 ) (75.8 ) (40.0 ) -- 13.0 -- -- 130.2 -- 60.4 -- -- 25.3 19.7 14.1 68.5 -- -- -- -- (2.4 ) 9.6 (145.5 ) 964.1 5.17 -- -- 9.8 91.9 82.7 83.9 23.5 -- 6.5 (19.6) 291.7 939.3 4.90 -- -- 13.7 100.6 53.1 77.1 -- (30.0) 14.5 (24.6) 334.6 916.9 4.83 Funds from Operations Adjusted for Comparability increased $0.27 per share in 2012, or 5.5%, to $5.17 from $4.90, as detailed below: ($ IN MILLIONS, EXCEPT PER SHARE) Same Store Operations: Amount Per Share New York Washington Retail Merchandise Mart Acquisitions, net of interest expense Toys “R” Us LNR Vornado Capital Partners Investment Income Interest Expense Other, primarily Washington properties taken out of service (0.10 per share) and lease cancellation and development fees last year Accretion from decreased share count Increase in Comparable FFO 15.6 (35.2) 2.8 3.5 12.7 14.7 39.0 15.4 (15.9) (1.6) (26.2) -- 24.8 0.08 (0.17) 0.01 0.02 0.06 0.07 0.19 0.08 (0.08) (0.01) (0.12) 0.14 0.27 4 In 2012, we realized net gains from the sale of real estate of $487.4 million.(1) These sales are summarized as follows: ($ IN MILLIONS) Kings Plaza Mall (32.4% interest) Merchandise Mart: 350 West Mart Center Canadian Trade Shows Boston Design Center Washington Design Center LA Mart Washington Office Center Reston Executive Center 12 Non-Core Retail Assets Independence Plaza – recapitalization Total Proceeds 243.3 228.0 53.0 72.4 50.0 53.0 200.0 126.2 156.7 -- 1,182.6 Net Gains 180.0 54.9 19.2 5.3 -- -- 126.6 36.7 19.7 45.0 487.4 After costs, debt repayments and distributions to shareholders of $202 million, we realized $789 million. Thanks to Mike DeMarco, who very ably took the lead in selling the Mart assets and the two big malls. These gains were partially offset by non-cash impairment losses aggregating $139.3 million,(1) primarily Broadway Mall and South Hills Center. ________________________________ 1 NAREIT’s definition of FFO excludes gains or losses on sale of real estate. 5 Growth As is our custom, we present the chart below that traces our ten-year record of growth, both in absolute dollars and per share amounts: ($ AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) Adjusted for Comparability FFO 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 EBITDA 1,964,150 1,952,633 1,865,310 1,794,950 1,805,524 1,725,957 1,385,243 1,040,257 933,732 794,461 785,026 Amount 964,125 939,273 916,884 758,603 743,635 721,230 559,361 523,661 500,786 402,175 367,967 Per Share 5.17 4.90 4.83 4.37 4.54 4.39 3.59 3.61 3.76 3.45 3.27 Shares Outstanding 197,310 196,541 195,746 194,082 168,903 167,672 166,513 156,487 145,407 137,754 129,586 FFO has grown at 10.1% per year over ten years (4.7% on a per share basis) and 5.98% per year over five years (3.3% on a per share basis). 6 Acquisitions/Dispositions/Fund Our external growth has never been programmed, formulaic or linear, i.e. we do not budget acquisition activity. Each year, we mine our deal flow for opportunities and, as such, our acquisition volume is lumpy. Here is a ten-year schedule of acquisitions and dispositions: Acquisitions(2) Dispositions ($ IN THOUSANDS) 2013 to date 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 Number of Transactions -- 10 12 15 -- 3 38 32 31 17 9 167 Asset Cost -- 1,365,200 1,499,100 542,400 -- 31,500 4,063,600 2,177,000 4,686,000 511,800 533,000 15,409,600 Number of Transactions 4 23 7 5 16 6 5 3 -- 1 3 73 Proceeds 1,004,000 1,222,274 389,212 137,792 262,838 493,172 186,259 105,187 -- 12,900 299,852 4,113,486 Net Gain 261,850 454,005 137,846 56,830 42,987 171,110 60,126 31,662 -- 9,850 161,022 1,387,288 2012 was a good year for acquisitions (outlined below). Kudos to Michael Franco and Wendy Silverstein, Co-Heads of Acquisitions, and the 45th floor team for outstanding performance. ($ IN THOUSANDS) 666 Fifth Avenue Retail 1535 Broadway (Marriott Marquis Retail and Signage) Independence Plaza (58.8% interest) 50/70 West 93rd Street (49.9% interest) 608 Fifth Avenue – Office and Retail 701 Seventh Avenue Mezzanine Loan NY NY NY NY NY NY Vornado Capital Partners(3) – 4 transactions (25% interest) Square Feet/Residential Units Our Ownership 114,000 64,000 781 units 163 units 121,000 -- Total 114,000 64,000 1,328 units 327 units 121,000 -- 132,800 531,200 Asset Cost 707,000 240,000 159,800 50,900 33,900 93,700 79,900 1,365,200 In 2012, the Fund invested $320 million ($79.9 million our share) in four deals: 1100 Lincoln Road (Miami Beach - Retail), 800 Corporate Pointe (Culver City - Office), 520 Broadway (Santa Monica - Office) and 501 Broadway (New York - Retail). For further information, see page 5 of our 2012 Form 10-K. ________________________________ 2 Excludes marketable securities. 3 We are the general partner, a 25% limited partner and the investment manager of Vornado Capital Partners (the “Fund”), an $800 million real estate fund. It is our exclusive investment vehicle during its three-year investment period ending July 2013, excluding carve-outs for land and ground-up development; investments using our securities; investments related to our current properties; and noncontrolling interests in equity and debt securities. 7 Capital Markets Since January 1, 2012, we have executed the following capital markets transactions:  We refinanced 1290 Avenue of the Americas in a single asset CMBS for $950 million ($452 per square foot) 3.3% interest-only for 10 years, which replaced the existing 6.82%, $409 million mortgage. (4)  We completed an additional ten financings secured by real estate aggregating $1.799 billion at a weighted average interest rate of 3.30% and a weighted average term of 7.7 years. Four of these financings were to support newly acquired assets; the other six yielded $74 million of net proceeds.  We extended a $1.250 billion tranche of our $2.5 billion unsecured revolving credit facilities by two years to June 2017, with two 6-month extension options. The interest rate was lowered from LIBOR plus 1.35% with a 0.30% facility fee (drawn or undrawn) to LIBOR plus 1.15% with a 0.20% fee. The second $1.250 billion facility matures in November 2015 and has a one-year extension option.  We redeemed $500 million of exchangeable senior debentures, which had a GAAP interest rate of 5.32% and repaid $200 million of secured debt, which had a weighted average interest rate of 5.89%.  We issued 5.4% Series L and 5.7% Series K perpetual preferred shares (callable after five years without penalty) totaling $600 million, and we redeemed $517 million of preferred shares and units (at a $9 million discount), which had a weighted average rate of 6.82%, resulting in an annual savings of $6.6 million. At year-end we had $2.505 billion of liquidity, comprised of $1.175 billion of cash, restricted cash and marketable securities(5) and $1.330 billion undrawn under our $2.5 billion revolving credit facilities. After unwinding year-end tax stuff, we repaid the line in full. Today, we have $3.2 billion of liquidity. Debt is now 36.2% of our market-value balance sheet. Since stock prices fluctuate, we believe an even better measure of leverage may be debt to EBITDA – ours is currently 6.5x, down from 8.1x in 2008. Vornado remains committed to maintaining our investment grade rating. Our Capital Markets “A team” is headed by EVPs Michael Franco and Wendy Silverstein with SVPs Dan Guglielmone and Richard Reczka. Thank you to Shannon Bauer and Adam Green. ________________________________ 4 5 Think about it, we realized proceeds of $541 million at an interest cost of 64 basis points. Excluding JC Penney securities. 8 Report Card Here is a chart showing Vornado’s total return compared to the Office REIT and RMS indices for various periods ending December 31, 2012 and for 2013 year-to-date: 2013 YTD One-year Three-year Five-year Ten-year Fifteen-year Twenty-year Vornado 9.5% 9.2% 28.2% 9.6% 228.5% 248.7% 1,446.0% Office REIT Index 10.2% 14.2% 34.1% 7.2% 135.6% 174.9% n/a RMS Index 10.5% 17.8% 64.5% 31.2% 199.1% 251.8% n/a The Office REIT Index is compiled by NAREIT and was first published nineteen years ago. RMS is the Morgan Stanley REIT Index and was first published fifteen years ago. This year, for the first time, we have included for comparative purposes the Office REIT Index; after all, we are primarily an office company. Interestingly, the Office REIT Index has under-performed the RMS across the board (sort of indicating that office has underperformed other property types over all periods of time). We outperformed the Office REIT Index for the five year period and both indices for the ten year period. We are very pleased with 2012 performance overall and with our progress and accomplishments in achieving our goals set forth in last year’s letter. We commenced quarterly conference calls in 2012’s second quarter. We sold out of the Mart business asset-by-asset in five separate transactions, realizing $456.4 million of proceeds and $79.4 million of net gain. We are now down to the big building and tag ends. Beginning in 2013, we will no longer show the Mart business as a separate segment. The Mart business has been good to us, yielding a 9.7% unlevered IRR, a 13.9% levered IRR, over a 15-year holding period. In July 2012, we completed a transformative 572,000 square foot headquarters lease at the Chicago Merchandise Mart building with Motorola Mobility, owned by Google. This lease transformed the Mart building into the bull’s eye for creative and tech tenants in the young and hip River North section of Chicago. And, the Mart building remains the pre-eminent location for residential and contract furniture showrooms and related trade shows. We expect the income and value of this giant 3.5 million square foot building to increase – as such it’s a keeper, for now. This asset will be included in the “Other” segment, be managed in Chicago by the very capable Myron Maurer, reporting to New York Division senior management. We continue to own 7 West 34th Street, which will be converted back to an office building and transferred to the New York Division. We made real progress reducing our exposure to the enclosed mall business by selling Kings Plaza and Green Acres for an aggregate of $1.25 billion. It was a good time to sell, and we did well here. The $304 million tax gain from Green Acres was 1031’d into 666 Fifth Avenue retail; the $624 million tax gain from Kings Plaza was paid out to shareholders as a long-term capital gain dividend (our share $202 million, $1.00 per share). To trim non-strategic, non-geographic assets, we sold, or are under contract to sell, 15 retail properties for approximately $430 million, realizing net gains of $98 million. More is yet to come. 9 LNR is under contract to be sold for $1.053 billion, our share $241 million, net.(6) In the third quarter of 2012, we sold our equity investment in Verde to an affiliate of Brookfield Asset Management, for $28 million, recognizing a loss of $4.9 million. We continue to hold $25 million of Verde 4.75% 2018 debentures. In March 2013, we sold 10 million shares of JC Penney (43% of our position), reducing our ownership to 6.1%, realizing an economic loss of $97.3 million. This has obviously been a difficult and very disappointing investment. Exiting the privately held Toys “R” Us is proving to be more difficult.(7) Our aim is to simplify everything in our business, including our 206-page 10-K. Beginning in 2012, we redefined the New York segment to encompass all of our New York assets, including the 1.0 million square feet in 21 freestanding Manhattan street retail assets (previously in the Retail segment) and Hotel Pennsylvania and Alexander’s (previously in the Other segment). Beginning in 2013, we will no longer show the Mart business as a separate segment. We will continue to simplify and prune. _____________________________________ 6 7 Our 8-year investment in LNR is scheduled to come to a close shortly. LNR is the nation’s largest special servicer of Commercial Mortgage Backed Securities (CMBS). As such, it is a work out specialist who accedes to control as a result of an actual or anticipated default – just the time when we become interested. When it was last sold in 2003, we were the under-bidder and then provided finance to the buyer in two tranches: a $60 million tranche, which was repaid in full and a $75 million tranche, which was restructured in 2010. In connection with the restructuring, we added $116 million of new capital becoming the largest single owner with 26.2% in a club of five investors. For the entire investment our IRR is 11.9%; from the restructuring date when we added capital, our IRR is 40.4%. Because of the wonders of the equity method of GAAP accounting, where our share of undistributed income is added to basis, we will realize very little accounting (or tax) gain here. Beginning in the first quarter of 2013, LNR’s FFO will be treated as non-comparable. In December 2012, we recorded a $40 million non-cash impairment charge on our investment in Toys “R” Us. Because of this impairment, going forward, we must record losses, but cannot record gains. Beginning in 2013, we will present Toys as non-comparable FFO. 10 Operating Platforms…Lease, Lease, Lease The mission of our business is to create value for shareholders by growing our asset base through the addition of carefully selected properties and by adding value through intensive and efficient management. Our operating platforms are where the rubber meets the road. And…in our business, leasing is the main event. As in past years, we present below leasing and occupancy statistics for our businesses. Merchandise Mart (SQUARE FEET IN THOUSANDS) Total New York Washington Retail Office Showroom Office Retail 2012 Square feet leased GAAP Mark-to-Market Number of transactions 2011 Square feet leased GAAP Mark-to-Market Number of transactions 2010 Square feet leased GAAP Mark-to-Market Number of transactions Occupancy rate: 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 6,648 1,950 9.1% 687 4.9% 139 6,902 13.6% 706 4,993 5.6% 798 91.5% 93.2% 94.5% 93.1% 94.2% 94.9% 94.1% 94.2% 94.2% 94.1% 3,211 18.4% 149 1,364 (1.9%) 154 95.9% 96.2% 96.1% 95.5% 96.7% 97.6% 97.5% 96.0% 95.5% 95.2% 192 29.5% 23 61 12.9% 9 44 47.0% 15 96.8% 95.6% 96.4% (8) (8) (8) (8) (8) (8) (8) 2,111 3.4% 201 1,735 8.2% 206 1,678 10.0% 219 84.1% 90.6% 95.0% 93.3% 95.0% 93.3% 92.2% 91.2% 91.5% 93.9% 1,422 20.5 % 166 1,348 15.1 % 176 1,140 15.8 % 157 93.4 % 93.2 % 92.6 % 91.6 % 92.0 % 94.2 % 92.7 % 95.6 % 93.9 % 93.0 % 593 39.9% 4 241 15.7% 8 171 (6.1%) 15 90.0% 90.1% 90.9% 88.8% 96.5% 96.7% 97.4% 97.0% 96.5% 92.6% 380 11.0% 154 306 1.5% 158 596 4.0% 238 94.7% 89.8% 95.0% 89.4% 92.2% 93.7% 93.6% 94.7% 97.6% 95.1% In 2012, we leased 6,648,000 square feet. Thank you to our all-star leasing captains: Glen Weiss, Brendan Owen, Jim Creedon, Sherri White, Leigh Lyons, Michael Zucker and Paul Heinen.(9) Since the beginning of 2012, we signed 15 leases of over 50,000 square feet, totaling 2,660,000 square feet. The big deals of the year were the 646,000 square foot lease extension (to 2035) with Macy’s in Penn Plaza (17.8% GAAP mark- to-market) and the 572,000 square foot headquarters lease with Motorola Mobility, owned by Google, at the Merchandise Mart.(10) ________________________________ 8 9 10 Included in New York Office. And thank you to our Springfield Town Center leasing team headed by Michael Khouri, Jill Creps, Terry Furry and Jessica Secreti, whose accomplishments will hit our leasing chart in 2014. Runner-ups in the large-lease category were: 315,000 square foot leases with Interpublic Group at 909 Third Avenue and 100 West 33rd Street, and a 209,000 square foot lease with Information Builders at Two Penn Plaza. 11 In the Penn Plaza District of Manhattan, we own 6.7 million square feet of Class A office in five buildings, plus the 1,700- room Hotel Pennsylvania, plus street retail. Four million square feet sits atop Penn Station, the busiest commuter hub in North America, and is all interconnected below ground. The Penn Plaza District is anchored by Penn Station, Madison Square Garden and Macy’s flagship (the largest store in the nation measured by both size and sales volume and,…as I like to say, equivalent to ten regional malls). We sit at the gateway to Manhattan’s West Side at the northern edge of the Midtown South submarket. We benefit from spillover from the Chelsea and Park Avenue South submarkets, which are flooded by tech firms and workers who don’t wear ties. Interestingly, in 2012, the Penn Plaza District had the city’s highest percentage increase in rental rate and the lowest vacancy rate (6.3%). We have a forever history of being full here, averaging over 96% occupancy over the last ten years. Our average in-place rents in Penn Plaza have steadily grown from $37.98 in 2003 to $51.16 in 2012. Our lease renewal rate fluctuates between a high 60% to a higher 70%. The streets are teeming with people. Hotel Pennsylvania, all our street retail here, Moynihan Station are all opportunities in our future. We are excited about the prospects for 280 Park Avenue (at 48th Street) where we (together with partner SL Green) are well along in the stem-to-stern renovation of this 1.2 million square foot building. After renovation, 280 will be the most modern building on Park Avenue, and… the best. Our largest acquisition in 2012 was $707 million for 666 Fifth Avenue retail (Uniqlo’s flagship, Swatch, and Hollister stores). We already owned 50% of the office building above. This deal certainly stands on its own, but we benefited here from a double whammy, since it also served as a 1031 like-kind exchange for the Green Acres gain. Here’s the math: we sold Green Acres at a 5.3% cash cap rate; we acquired 666 retail at a 4.4% cash cap rate, but at a 5.6% GAAP cap rate (which adjusts for under-market rents). The icing on the cake was a ten year $390 million non-recourse mortgage at 3.6% interest-only which leveraged our first-year cash return to 5.4%. And, the leases here have rent bumps every year. This asset’s return is pure i.e., no capex will be expended during the 15-year initial lease terms. We are delighted to have moved this capital to Fifth Avenue from Valley Stream. We own a best-in-class 49-property, 2.2 million square foot street retail business in Manhattan. This portfolio is laden with opportunity. This year’s to-do list for Sherri White and her team is re-leasing and creating value from three of our large flagship locations whose old low-rent leases are expiring shortly… and, of course leasing the retail and signage at our newest marquis site, the Marriott hotel, Times Square. In Washington our focus, of course, continues to be re-leasing the BRAC move-outs. Last year, and again this year, we set forth our estimate of the financial effect of BRAC – please see page 80 in our 2012 Form 10-K. The eye of the BRAC storm is Skyline, where we are currently 40% vacant (by contrast Crystal City is 15% vacant). In Skyline, we have a $678 million ($257 per square foot) non-recourse mortgage and are currently in negotiation with the special servicer to restructure this loan. Mitchell and team will lease all the BRAC space. In 2012, we leased 2.1 million square feet in Washington, up from 1.7 million square feet in each of the two prior years. Our mix is normally about 70% private sector and 30% government. We lease well more than our fair share in Washington. We recently backed up this boast with hard statistics confirming that in almost every sub-market our lease signings are double our market share (and in all sub-markets are at least greater than our market share). In fact, in Crystal City where we have a 63% market share, we did 100% of all leases over 20,000 square feet. We have many value-creating development opportunities in Washington, where we have: rights to add 3.6 million square feet to Crystal City (above tear-downs), a 46% co-managing ownership interest in the best development site in Rosslyn, on the edge of the Potomac River overlooking the Kennedy Center, and 20 acres of land in Pentagon City zoned for 2,100 residential units, plus office, plus hotel.  Subject to improving market conditions, we are preparing the first step in our ambitious redevelopment program for Crystal City: 1900 Crystal Drive, a new 700,000 square foot glass office tower (replacing a 370,000 square foot tear-down), which will rise 150 feet above the Crystal City skyline.  We currently own 2,414 residential rental units in Washington. In 2012 we were 97.8% occupied and enjoyed 8.3% rental growth. This fall we will begin development of a new-build of 700 rental units and a Whole Foods Market in Pentagon City. 12 David Greenbaum has run our ever-growing New York flagship business since the very beginning. Mitchell Schear has run our largest-in-the-market Washington business for ten years to the day (today is his anniversary). Both are recognized leaders, most capable and deserve our deep thanks. Bob Minutoli and team are doing a fine job polishing our core retail portfolio, while pruning certain unwanted assets. We are excited about the total transformation of Springfield Town Center (Springfield, VA, southwest quadrant of the Washington Beltway), which is well underway for a fall 2014 opening. Here, we are razing the existing mall and rebuilding 706,000 square feet of shops, theater, restaurants, etc. between an existing Macy’s, JC Penney and Target anchors. This is a big deal, where we are investing $225 million of fresh capital on top of a like amount of existing investment. Bob Minutoli with Bob Byrne and Bill Rowe are our very capable development team leaders here. * * * Stop & Shop Litigation In February 2013, we received $124 million pursuant to a settlement agreement with Stop & Shop for our claim under a 1992 Agreement which provided for annual rent of $6 million for a period potentially through 2031. The settlement terminates Vornado’s right to receive this rent and ends litigation between the parties which started ten years ago. In prior years, Vornado recognized $48 million of rental income under the Agreement. This settlement, net of expenses, will result in Vornado recognizing $59 million of income in the first quarter of 2013. Thank you to Joe, David and Rob, our great Sullivan & Cromwell legal team. Dividends Dividends are an important portion of shareholder return. Our policy is to pay out our taxable income. In 2012, we paid a regular dividend of $2.76 per share, of which $2.36 was ordinary income and $0.40 was long-term capital gain. We also paid in December an additional $1.00 special long-term capital gain dividend from the sale of Kings Plaza. Based on 2012 year-end closing stock price of $80.08, our regular dividend yielded 3.4% and our total dividend yielded 4.7%. In January 2013, the dividend was raised to $0.73 per quarter, a new indicated annual rate of $2.92 per share. It’s too early to predict whether and how much any special year-end dividend might be this year. Sustainability At Vornado, we believe that environmental sustainability is not only responsible citizenry, it is also good business. Our goal is to be a leader in sustainability by creating a corporate culture that integrates the principles of environmental responsibility and sustainable growth into our business practices. Highlights of our work in 2012 include the LEED certification for Existing Buildings of 30 of our Washington properties, as well as winning the NAREIT Leader in the Light Gold Award for the third year in a row, winning the 2013 ENERGY STAR Partner of the Year with over 25 million square feet of EPA-designated Energy Star buildings and being first among real estate firms in Newsweek’s “Greenest Companies” Listing. Thanks to Suki. Please see our website at www.vno.com for our annual sustainability report. 13 * * * It feels to me that we are on the footholds of a major economic expansion in America. What’s going on in the real economy - housing, autos, innovation, etc. is the real McCoy. It also feels to me like interest rates will stay lower for longer than the pundits expect and that we are near the tipping point where market participants will start to believe and act as if it’s their God-given right to zero-bound interest rates. I don’t expect cap rates to rise anytime soon. We are, after all, in an extended period of easy money, worldwide – central bankers as Santa Claus. I have no idea, and doubt that anyone does, how to unwind this easy money feast. I can see the bubble on the horizon; the fat lady entering the building. In our industry and in our city, highly leveraged players are back, facilitated by new credit market participants – 85-90% loans are again available, the whole menu of PIK, mezz, participating this-and-that, are back. A dear friend and real estate legend commented to me that recent events in Cyprus should increase the value of New York real estate by 10%. Our basic instinct is to build, acquire and grow. But, my belly tells me that prices are now higher than future prospects and therefore, we will buy carefully and likely sell more than we buy. Maybe low multiple businesses are low multiple for a reason. And…maybe low multiple businesses don’t belong inside high multiple businesses. I worry a lot about the Internet’s accelerating effect on commodity retail. I don’t worry too much about officing at home, and such. I cannot worry about densification (more workers in less space); it is a trend that is here to stay and that we will deal with. * * * 14 Michael Fascitelli After 16 years at Vornado, my friend and partner Mike Fascitelli has decided to step down as President and CEO effective April 15th. Mike will remain a member of our Board of Trustees. Mike plans to take a break after which he will pursue new challenges. Mike has made an indelible impact on the history of Vornado. He joined 16 years ago as President, Chief Growth Officer and my partner. These past 16 years at Vornado have been a period of growth and change. Mike led our Vornado teams in acquisitions totaling over $22 billion…which were fueled by capital market transactions totaling $28 billion. Outstanding performance. It has been a great run. Mike is a highly intelligent, capable and caring leader. The Vornado Board and I could not be more appreciative of his efforts and accomplishments these last 16 years…thank you, Mike. * * * Thanks to Mark Falanga, who left us in March 2013, after successfully completing the Mart’s transformation. Thanks to Gerry Storch for his over seven years as CEO of Toys “R” Us. Thanks to Tony Deering for his over seven years of service on our Board and its Audit Committee. Tony is a seasoned CFO and CEO, a knowledgeable, wise and excellent director. * * * I’ll say it again and again…I am fortunate to work every day with the gold medal team. Our operating platforms are the best in the business. Thanks to my partners, Michael Franco, David Greenbaum, Joe Macnow, Mitchell Schear, Wendy Silverstein and Bob Minutoli and thanks to Glen Weiss, Sherri White and Laurie Kramer. Thank you as well to our very talented and hard working 46 Senior Vice-Presidents and 88 Vice-Presidents who make the trains run on time, every day. Our Vornado family has grown with 20 marriages and 49 babies this year. We all wish baby Scarlett a full and speedy recovery. On behalf of Vornado’s senior management and 4,428 associates, we thank our shareholders, analysts and other stakeholders for their continued support. Again this year, I offer to assist shareholders with tickets to my wife’s productions on Broadway – this year, it’s Kinky Boots, which I highly recommend. Please call if I can be of help. Steven Roth Chairman April 5, 2013 15 Below is a reconciliation of Net Income to EBITDA: ($ IN MILLIONS) Net Income Interest and debt expense Depreciation, amortization, and income taxes Cumulative effect of change in accounting principle EBITDA Gains on sale of real estate Real Estate impairment loss Noncontrolling Interests EBITDA before noncontrolling interests and gains on sale of real estate Non-comparable items 2012 617.3 760.5 742.3 -- 2,120.1 (487.4) 141.6 45.3 1,819.6 144.6 2011 2010 662.3 797.9 647.9 828.1 2009 106.2 826.8 2008 359.3 821.9 2007 541.5 853.5 2006 2005 2004 2003 2002 554.8 698.4 536.9 418.9 592.9 313.3 460.7 296.1 232.9 305.9 782.2 706.4 739.0 568.1 680.9 530.7 346.2 298.7 281.1 257.7 -- -- -- -- -- -- -- -- -- 2,242.4 2,182.4 1,672.0 1,749.3 2,075.9 1,783.9 1,302.0 1,204.9 1,037.9 (61.4) (63.0) (46.7) (67.0) (80.5) (45.9) (34.5) (78.8) (168.5) 29.8 55.9 109.0 55.2 23.2 25.1 -- 55.4 -- 69.8 -- 79.9 -- -- -- 133.5 156.5 175.7 137.4 30.1 826.6 (3.4) -- 2,266.7 2,283.6 1,673.6 1,737.7 2,065.2 1,817.9 1,401.0 1,282.6 1,045.1 960.6 (314.1) (418.3) 121.4 67.8 (339.2) (432.7) (360.7) (348.9) (250.6) (175.6) EBITDA adjusted for comparability 1,964.2 1,952.6 1,865.3 1,795.0 1,805.5 1,726.0 1,385.2 1,040.3 933.7 794.5 785.0 Below is a reconciliation of Net Income to FFO: ($ IN MILLIONS, EXCEPT SHARE AMOUNTS) Net Income Preferred share dividends Net Income applicable to common shares Depreciation and amortization of real property Net gains on sale of real estate and insurance settlements Real estate impairment loss Cumulative effect of change in accounting principle Partially-owned entity adjustments: Depreciation and amortization of real property Net gains on sale of real estate Income tax effect of adjustments included above Noncontrolling interests’ share of above adjustments Interest on exchangeable senior debentures Preferred share dividends Funds From Operations Funds From Operations per share 2009 106.2 (57.1) 49.1 508.6 (45.3) 23.2 -- 140.6 (1.4) (22.9) (47.0) -- 0.2 605.1 $3.49 2008 2007 359.3 (57.1) 302.2 509.4 541.5 (57.1) 484.4 451.3 (57.5) (60.8) -- -- -- -- 115.9 134.0 (9.5) (23.2) (49.7) 25.3 0.2 813.1 $4.97 (15.5) (28.8) (46.7) 25.0 0.3 943.2 $5.75 2006 554.8 (57.5) 497.3 337.7 (33.8) -- -- 105.6 (13.2) (21.0) (39.8) 24.7 0.7 858.2 $5.51 2005 2004 2003 2002 536.9 592.9 460.7 232.9 (46.5) (21.9) (20.8) (23.2) 490.4 276.9 571.0 228.3 439.9 208.6 (31.6) (75.8) (161.8) -- -- 42.1 (2.9) (4.6) -- -- 49.4 (3.0) -- -- -- 54.8 (6.8) -- 209.7 195.8 -- -- 30.1 51.9 (3.4) -- (32.0) (28.0) (20.1) (50.5) 18.0 0.9 757.2 $5.21 -- 8.1 750.0 $5.63 -- 3.6 518.2 $4.44 -- 6.2 439.8 $3.91 16 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FORM 10-K For the Fiscal Year Ended: December 31, 2012 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-11954 VORNADO REALTY TRUST (Exact name of Registrant as specified in its charter) Maryland (State or other jurisdiction of incorporation or organization) 22-1657560 (I.R.S. Employer Identification Number) 888 Seventh Avenue, New York, New York (Address of Principal Executive Offices) Registrant’s telephone number including area code: (212) 894-7000 10019 (Zip Code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common Shares of beneficial interest, $.04 par value per share Series A Convertible Preferred Shares of beneficial interest, no par value Cumulative Redeemable Preferred Shares of beneficial interest, no par value: 6.75% Series F 6.625% Series G 6.75% Series H 6.625% Series I 6.875% Series J 5.70% Series K 5.40% Series L Name of Each Exchange on Which Registered New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE   Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES  NO  Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES  NO  Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  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). YES  NO  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  Large Accelerated Filer  Non-Accelerated Filer (Do not check if smaller reporting company)  Accelerated Filer  Smaller Reporting Company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES  NO  The aggregate market value of the voting and non-voting common shares held by non-affiliates of the registrant, i.e. by persons other than officers and trustees of Vornado Realty Trust, was $14,174,711,000 at June 30, 2012. As of December 31, 2012, there were 186,734,711 of the registrant’s common shares of beneficial interest outstanding. Documents Incorporated by Reference Part III: Portions of Proxy Statement for Annual Meeting of Shareholders to be held on May 23, 2013.    Item Financial Information: Page Number INDEX PART I. PART II. PART III. PART IV. Signatures 1. 1A. 1B. 2. 3. 4. 5. 6. 7. 7A. 8. 9. 9A. 9B. 10. 11. 12. 13. 14. 15. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures about Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance(1) Executive Compensation(1) Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters(1) Certain Relationships and Related Transactions, and Director Independence(1) Principal Accounting Fees and Services(1) Exhibits, Financial Statement Schedules 4 12 25 25 63 63 64 66 68 125 126 182 182 184 184 185 185 185 185 186 187 (1) These items are omitted in whole or in part because the registrant will file a definitive Proxy Statement pursuant to Regulation 14A under the Securities Exchange Act of 1934 with the Securities and Exchange Commission no later than 120 days after December 31, 2012, portions of which are incorporated by reference herein. 2   FORWARD-LOOKING STATEMENTS Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They 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 Annual Report on Form 10-K. 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 this Annual Report on Form 10-K. 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K. 3   ITEM 1. BUSINESS PART I 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”). Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors. Vornado is the sole general partner of, and owned approximately 94.0% of the common limited partnership interest in the Operating Partnership at December 31, 2012. All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership. As of December 31, 2012, we own all or portions of: New York:   19.7 million square feet of Manhattan office space in 31 properties and four residential properties containing 1,655 units; 2.2 million square feet of Manhattan street retail space in 49 properties;  The 1,700 room Hotel Pennsylvania located on Seventh Avenue at 33rd Street in the heart of the Penn Plaza district;  A 32.4% interest in Alexander’s, Inc. (NYSE: ALX), which owns six properties in the greater New York metropolitan area, including 731 Lexington Avenue, the 1.3 million square foot Bloomberg, L.P. headquarters building; Washington, DC:  73 properties aggregating 19.1 million square feet, including 59 office properties aggregating 16.1 million square feet and seven residential properties containing 2,414 units; Retail Properties:  114 strip shopping centers and single tenant retail assets aggregating 15.6 million square feet, primarily in the northeast states and California;  Six regional malls aggregating 5.2 million square feet, located in the northeast / mid-Atlantic states and Puerto Rico; Other Real Estate and Related Investments:  The 3.5 million square foot Merchandise Mart in Chicago;  A 70% controlling interest in 555 California Street, a three-building office complex in San Francisco’s financial district aggregating 1.8 million square feet, known as the Bank of America Center;  A 25.0% interest in Vornado Capital Partners, our $800 million real estate fund. We are the general partner and investment manager of the fund;  A 32.6% interest in Toys “R” Us, Inc.;  A 10.7% interest in J.C. Penney Company, Inc. (NYSE: JCP); and  Other real estate and related investments and mortgage and mezzanine loans on real estate. 4   OBJECTIVES AND STRATEGY Our business objective is to maximize shareholder value. We intend to achieve this objective by continuing to pursue our investment philosophy and executing our operating strategies through:  Maintaining a superior team of operating and investment professionals and an entrepreneurial spirit;  Investing in properties in select markets, such as New York City and Washington, DC, where we believe there is a high likelihood of capital appreciation; Investing in retail properties in select under-stored locations such as the New York City metropolitan area;  Acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents;   Developing and redeveloping our existing properties to increase returns and maximize value; and  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 possible 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. VORNADO CAPITAL PARTNERS REAL ESTATE FUND (THE “FUND”) In February 2011, the Fund’s subscription period closed with an aggregate of $800,000,000 of capital commitments, of which we committed $200,000,000. We are the general partner and investment manager of the Fund, which has an eight-year term and a three- year investment period. During the investment period, which concludes in July 2013, the Fund is our exclusive investment vehicle for all investments that fit within its investment parameters, including debt, equity and other interests in real estate, and excluding (i) investments in vacant land and ground-up development; (ii) investments acquired by merger or primarily for our securities or properties; (iii) properties which can be combined with or relate to our existing properties; (iv) securities of commercial mortgage loan servicers and investments derived from any such investments; (v) non-controlling interests in equity and debt securities; and (vi) investments located outside of North America. The Fund’s 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. During 2012, the Fund made four investments (described below) aggregating $203,700,000. As of December 31, 2012, the Fund has nine investments with an aggregate fair value of $600,786,000, or $67,642,000 in excess of cost, and has remaining unfunded commitments of $217,676,000, of which our share was $54,419,000. 800 Corporate Pointe On November 30, 2012, the Fund acquired 800 Corporate Pointe, a 243,000 square foot office building and the accompanying six-level parking structure (1,964 spaces) located in Culver City, Los Angeles, California, for $95,700,000 in cash. 501 Broadway On August 20, 2012, the Fund acquired 501 Broadway, a 9,000 square foot retail property in New York for $31,000,000. The purchase price consisted of $11,000,000 in cash and a $20,000,000 mortgage loan. The three-year loan bears interest at LIBOR plus 2.75%, with a floor of 3.50%, and has two one-year extension options. 1100 Lincoln Road On July 2, 2012, the Fund acquired 1100 Lincoln Road, a 167,000 square foot retail property, the western anchor of the Lincoln Road Shopping District in Miami Beach, Florida, for $132,000,000. The purchase price consisted of $66,000,000 in cash and a $66,000,000 mortgage loan. The three-year loan bears interest at LIBOR plus 2.75% and has two one-year extension options. 520 Broadway On April 26, 2012, the Fund acquired 520 Broadway, a 112,000 square foot office building in Santa Monica, California for $61,000,000 in cash and subsequently placed a $30,000,000 mortgage loan on the property. The three-year loan bears interest at LIBOR plus 2.25% and has two one-year extension options. 5   ACQUISITIONS AND INVESTMENTS Independence Plaza In 2011, we acquired a 51% interest in the subordinated debt of Independence Plaza, a three-building 1,328 unit residential complex in the Tribeca submarket of Manhattan which has 54,500 square feet of retail space and 550 parking spaces, for $45,000,000 and a warrant to purchase 25% of the equity for $1,000,000. On December 21, 2012, we acquired a 58.75% interest in the property as follows: (i) buying one of the equity partners’ 33.75% interest for $160,000,000, (ii) exercising our warrant for 25% of the equity and (iii) contributing the appreciated value of our interest in the subordinated debt as preferred equity. In connection therewith, we recognized income of $105,366,000, comprised of $60,396,000 from the accelerated amortization of the discount on the subordinated debt immediately preceding the conversion to preferred equity, and a $44,970,000 purchase price fair value adjustment upon exercising the warrant. The current transaction values the property at $844,800,000. The property is currently encumbered by a $334,225,000 mortgage. We expect to refinance the $334,225,000 mortgage in 2013, substantially decreasing our cash investment. We manage the retail space at the property and Stellar Management, our partner, manages the residential space. 666 Fifth Avenue - Retail On December 6, 2012, we acquired a retail condominium located at 666 Fifth Avenue at 53rd Street for $707,000,000 in cash. The property has 126 feet of frontage on Fifth Avenue and contains 114,000 square feet, 39,000 square feet in fee and 75,000 square feet by long-term lease from the 666 Fifth Avenue office condominium, which is 49.5% owned by us. Marriott Marquis Times Square - Retail and Signage On July 30, 2012, we entered into a lease with Host Hotels & Resorts, Inc. (NYSE: HST) (“Host”), under which we will redevelop the retail and signage components of the Marriott Marquis Times Square Hotel. The Marriott Marquis with over 1,900 rooms is one of the largest hotels in Manhattan. It is located in the heart of the bow-tie of Times Square and spans the entire block front from 45th Street to 46th Street on Broadway. The Marriott Marquis is directly across from our 1540 Broadway iconic retail property leased to Forever 21 and Disney flagship stores. We plan to spend over $140,000,000 to redevelop and substantially expand the existing retail space, including converting the below grade parking garage into retail, and creating six-story, 300 foot wide block front, dynamic LED signs. During the term of the lease we will pay fixed rent equal to the sum of $12,500,000, plus a portion of the property’s net cash flow after we receive a 5.2% preferred return on our invested capital. The lease contains put/call options which, if exercised, would lead to our ownership. Host can exercise the put option during defined periods following the conversion of the project to a condominium. We can exercise our call option under the same terms, at any time after the fifteenth year of the lease term. 6       DISPOSITIONS Merchandise Mart On December 31, 2012, we completed the sale of the Boston Design Center, a 554,000 square foot showroom building in Boston, Massachusetts, for $72,400,000 in cash, which resulted in a net gain of $5,252,000. On July 26, 2012, we completed the sale of the Washington Design Center, a 393,000 square foot showroom building in Washington, DC, and the Canadian Trade Shows, for an aggregate of $103,000,000 in cash. The sale of the Canadian Trade Shows resulted in an after-tax net gain of $19,657,000. On June 22, 2012, we completed the sale of L.A. Mart, a 784,000 square foot showroom building in Los Angeles, California for $53,000,000, of which $18,000,000 was cash and $35,000,000 was nine-month seller financing at 6.0%, which was paid on December 28, 2012. On January 6, 2012, we completed the sale of 350 West Mart Center, a 1.2 million square foot office building in Chicago, Illinois, for $228,000,000 in cash, which resulted in a net gain of $54,911,000. Washington, DC On November 7, 2012, we completed the sale of three office buildings (“Reston Executive”) located in suburban Fairfax County, Virginia, containing 494,000 square feet for $126,250,000, which resulted in a net gain of $36,746,000. On July 26, 2012, we completed the sale of 409 Third Street S.W., a 409,000 square foot office building in Washington, DC, for $200,000,000 in cash, which resulted in a net gain of $126,621,000. This building is contiguous to the Washington Design Center and was sold to the same purchaser. Retail Properties On February 13, 2013, we entered into an agreement to sell the Plant, a power strip shopping center in San Jose, California, for $203,000,000. The sale will result in net proceeds of approximately $93,000,000 after repaying the existing loan and closing costs, and a financial statement gain of approximately $33,000,000. The sale, which is subject to customary closing conditions, is expected to be completed by the second quarter of 2013. On January 24, 2013, we completed the sale of the Green Acres Mall located in Valley Stream, New York, for $500,000,000, which resulted in net proceeds of $185,000,000, after repaying the existing loan and closing costs. The financial statement gain of $205,000,000 will be recognized in the first quarter of 2013 and the tax gain of $304,000,000 has been deferred as part of a like-kind exchange. In 2012, we sold 12 non-core retail properties in separate transactions, for an aggregate of $157,000,000 in cash, which resulted in a net gain aggregating $22,266,000. In addition, we have entered into an agreement to sell a building on Market Street, Philadelphia, which is part of the Gallery at Market East for $60,000,000, which will result in a net gain of approximately $35,000,000. The sale, which is subject to customary closing conditions, is expected to be completed in the first quarter of 2013. Other On January 24, 2013, LNR Property LLC (“LNR”) entered into a definitive agreement to be sold. We own 26.2% of LNR and expect to receive net proceeds of approximately $241,000,000. The sale, which is subject to customary closing conditions, is expected to be completed in the second quarter of 2013. 7   FINANCING ACTIVITIES Secured Debt On November 16, 2012, we completed a $120,000,000 refinancing of 4 Union Square South, a 206,000 square foot Manhattan retail property. The seven-year loan bears interest at LIBOR plus 2.15% (2.36% at December 31, 2012) and amortizes based on a 30- year schedule beginning in the third year. We retained net proceeds of approximately $42,000,000, after repaying the existing loan and closing costs. On November 8, 2012, we completed a $950,000,000 refinancing of 1290 Avenue of the Americas (70% owned), a 2.1 million square foot Manhattan office building. The 10-year fixed rate interest-only loan bears interest at 3.34%. The partnership retained net proceeds of approximately $522,000,000, after repaying the existing loan and closing costs. On August 17, 2012, we completed a $98,000,000 refinancing of 435 Seventh Avenue, a 43,000 square foot retail property in Manhattan. The seven-year loan bears interest at LIBOR plus 2.25% (2.46% at December 31, 2012). We retained net proceeds of approximately $44,000,000, after repaying the existing loan and closing costs. On July 26, 2012, we completed a $150,000,000 refinancing of 2101 L Street, a 380,000 square foot office building located in Washington, DC. The 12-year fixed rate loan bears interest at 3.97% and amortizes based on a 30-year schedule beginning in the third year. On March 5, 2012, we completed a $325,000,000 refinancing of 100 West 33rd Street, a 1.1 million square foot property located on the entire Sixth Avenue block front between 32nd and 33rd Streets in Manhattan. The building contains the 257,000 square foot Manhattan Mall and 848,000 square feet of office space. The three-year loan bears interest at LIBOR plus 2.50% (2.71% at December 31, 2012) and has two one-year extension options. We retained net proceeds of approximately $87,000,000, after repaying the existing loan and closing costs. On January 9, 2012, we completed a $300,000,000 refinancing of 350 Park Avenue, a 559,000 square foot Manhattan office building. The five-year fixed rate loan bears interest at 3.75% and amortizes based on a 30-year schedule beginning in the third year. The proceeds of the new loan and $132,000,000 of existing cash were used to repay the existing loan and closing costs. Senior Unsecured Debt In April 2012, we redeemed all of the outstanding exchangeable and convertible senior debentures at par, for an aggregate of $510,215,000 in cash. 8   FINANCING ACTIVITIES - CONTINUED Preferred Securities In July 2012 and January 2013, we sold an aggregate of $600,000,000 of cumulative redeemable preferred securities with a weighted average cost of 5.55%. The net proceeds aggregating $581,824,000 were used primarily to redeem outstanding cumulative redeemable preferred securities with an aggregate face amount of $517,500,000 and a weighted average cost of 6.82%. The details of these transactions are described below. On February 19, 2013, we redeemed all of the outstanding 6.75% Series F Cumulative Redeemable Preferred Shares and 6.75% Series H Cumulative Redeemable Preferred Shares at par, for an aggregate of $262,500,000 in cash, plus accrued and unpaid dividends through the date of redemption. On January 25, 2013, we sold 12,000,000 5.40% Series L Cumulative Redeemable Preferred Shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement. We retained aggregate net proceeds of $290,853,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to the Operating Partnership in exchange for 12,000,000 Series L Preferred Units (with economic terms that mirror those of the Series L Preferred Shares). Dividends on the Series L Preferred Shares are cumulative and payable quarterly in arrears. The Series L Preferred Shares are not convertible into, or exchangeable for, any of our properties or securities. On or after five years from the date of issuance (or sooner under limited circumstances), we may redeem the Series L Preferred Shares at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption. The Series L Preferred Shares have no maturity date and will remain outstanding indefinitely unless redeemed by us. On August 16, 2012, we redeemed all of the outstanding 7.0% Series E Cumulative Redeemable Preferred Shares at par, for an aggregate of $75,000,000 in cash, plus accrued and unpaid dividends through the date of redemption. On July 19, 2012, we redeemed all of the outstanding 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units with an aggregate face amount of $180,000,000 for $168,300,000 in cash, plus accrued and unpaid distributions through the date of redemption. On July 11, 2012, we sold 12,000,000 5.70% Series K Cumulative Redeemable Preferred Shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement. We retained aggregate net proceeds of $290,971,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to the Operating Partnership in exchange for 12,000,000 Series K Preferred Units (with economic terms that mirror those of the Series K Preferred Shares). Dividends on the Series K Preferred Shares are cumulative and payable quarterly in arrears. The Series K Preferred Shares are not convertible into, or exchangeable for, any of our properties or securities. On or after five years from the date of issuance (or sooner under limited circumstances), we may redeem the Series K Preferred Shares at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption. The Series K Preferred Shares have no maturity date and will remain outstanding indefinitely unless redeemed by us. 9       DEVELOPMENT AND REDEVELOPMENT PROJECTS In 2012, we commenced the re-tenanting and repositioning of 280 Park Avenue (50% owned), and the renovation of the 1.4 million square foot Springfield Mall, both of which are expected to be substantially completed in 2014. We budgeted approximately $285,000,000 for these projects, of which $31,000,000 was expended in 2012 and $132,000,000 is expected to be expended in 2013 and the balance is expected to be expended in 2014. During 2012, we completed the demolition of the existing residential building down to the second-level, at 220 Central Park South. In addition, we continued lobby renovations at several of our office buildings in New York and Washington, as well as the re- tenanting and repositioning of a number of our strip shopping centers. We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including the Hotel Pennsylvania and in Washington, including 1900 Crystal Drive, Rosslyn and Pentagon City. In 2010, two of our wholly owned subsidiaries entered into agreements with Cuyahoga County, Ohio (the “County”) to develop and operate the Cleveland Medical Mart and Convention Center (the “Facility”), a 1,000,000 square foot showroom, trade show and conference center in Cleveland’s central business district. The County is funding the development of the Facility, using the proceeds it received from the issuance of general obligation bonds and other sources, up to the development budget of $418,000,000 and maintains effective control of the property. During the 17-year development and operating period, our subsidiaries will receive net settled payments of approximately $10,000,000 per year, which are net of a $36,000,000 annual obligation to the County. Our subsidiaries’ obligation has been pledged by the County to the bondholders, but is payable by our subsidiaries only to the extent that they first receive at least an equal payment from the County. Construction of the Facility is expected to be completed in 2013. As of December 31, 2012, $379,658,000 of the $418,000,000 development budget was expended. There can be no assurance that any of our development or redevelopment projects will commence, or if commenced, be completed on schedule or within budget. STOP & SHOP SETTLEMENT On February 6, 2013, we received $124,000,000 pursuant to a settlement agreement with Stop & Shop for our claim under a 1992 agreement which provided for additional annual rent of $6,000,000 for a period potentially through 2031. The settlement terminates our right to receive this rent under the 1992 agreement and ends litigation between the parties, which started ten years ago. In prior years, we recognized $47,900,000 of rental income under the agreement. This settlement will result in $59,000,000 of net income that will be recognized in the first quarter of 2013. 10   SEGMENT DATA We operate in the following business segments: New York, Washington, DC, Retail Properties, Merchandise Mart and Toys “R” Us (“Toys”). Financial information related to these business segments for the years ended December 31, 2012, 2011 and 2010 is set forth in Note 26 – Segment Information to our consolidated financial statements in this Annual Report on Form 10-K. The Toys segment has 651 locations internationally. SEASONALITY Our revenues and expenses are subject to seasonality during the year which impacts quarterly net earnings, cash flows and funds from operations, and therefore impacts comparisons of the current quarter to the previous quarter. The business of Toys is highly seasonal. Historically, Toys’ fourth quarter net income, which we record on a one-quarter lag basis in our first quarter, accounts for more than 80% of its fiscal year net income. The New York and Washington, DC segments have historically experienced higher utility costs in the first and third quarters of the year. The Retail Properties segment revenue in the fourth quarter is typically higher due to the recognition of percentage and specialty rental income. TENANTS ACCOUNTING FOR OVER 10% OF REVENUES None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2012, 2011 and 2010. CERTAIN ACTIVITIES We do not base our acquisitions and investments on specific allocations by type of property. We have historically held our properties for long-term investment; however, it is possible that properties in the portfolio may be sold as circumstances warrant. Further, we have not adopted a policy that limits the amount or percentage of assets which could be invested in a specific property or property type. While we may seek the vote of our shareholders in connection with any particular material transaction, generally our activities are reviewed and may be modified from time to time by our Board of Trustees without the vote of shareholders. EMPLOYEES As of December 31, 2012, we have approximately 4,428 employees, of which 327 are corporate staff. The New York segment has 3,308 employees, including 2,641 employees of Building Maintenance Services LLC, a wholly owned subsidiary, which provides cleaning, security and engineering services primarily to our New York and Washington, DC properties and 516 employees at the Hotel Pennsylvania. The Washington, DC, Retail Properties and Merchandise Mart segments have 456, 110 and 227 employees, respectively. The foregoing does not include employees of partially owned entities, including Toys or Alexander’s, of which we own 32.6% and 32.4%, respectively. PRINCIPAL EXECUTIVE OFFICES Our principal executive offices are located at 888 Seventh Avenue, New York, New York 10019; telephone (212) 894-7000. MATERIALS AVAILABLE ON OUR WEBSITE Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, as well as Reports on Forms 3, 4 and 5 regarding officers, trustees or 10% beneficial owners of us, filed or furnished pursuant to Section 13(a), 15(d) or 16(a) of the Securities Exchange Act of 1934 are available free of charge through our website (www.vno.com) as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. Also available on our website are copies of our Audit Committee Charter, Compensation Committee Charter, Corporate Governance and Nominating Committee Charter, Code of Business Conduct and Ethics and Corporate Governance Guidelines. In the event of any changes to these charters or the code or guidelines, changed copies will also be made available on our website. Copies of these documents are also available directly from us free of charge. Our website also includes other financial information, including certain non-GAAP financial measures, none of which is a part of this Annual Report on Form 10-K. Copies of our filings under the Securities Exchange Act of 1934 are also available free of charge from us, upon request. 11   ITEM 1A. RISK FACTORS Material factors that may adversely affect our business, operations and financial condition are summarized below. The risks and uncertainties described herein may not be the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. See “Forward-Looking Statements” contained herein on page 3. REAL ESTATE INVESTMENTS’ VALUE AND INCOME FLUCTUATE DUE TO VARIOUS FACTORS. The value of real estate fluctuates depending on conditions in the general economy and the real estate business. These conditions may also adversely impact our revenues and cash flows. The factors that affect the value of our real estate investments include, among other things: changes in real estate taxes and other expenses; national, regional and local economic conditions; competition from other available space; local conditions such as an oversupply of space or a reduction in demand for real estate in the area; how well we manage our properties; the development and/or redevelopment of our properties; changes in market rental rates; the timing and costs associated with property improvements and rentals;         whether we are able to pass all or portions of any increases in operating costs through to tenants;   whether tenants and users such as customers and shoppers consider a property attractive;            the financial condition of our tenants, including the extent of tenant bankruptcies or defaults; availability of financing on acceptable terms or at all; fluctuations in interest rates; our ability to obtain adequate insurance; changes in zoning laws and taxation; government regulation; consequences of any armed conflict involving, or terrorist attacks against, the United States; potential liability under environmental or other laws or regulations; natural disasters; general competitive factors; and climate changes. The rents or sales proceeds we receive and the occupancy levels at our properties may decline as a result of adverse changes in any of these factors. If rental revenues, sales proceeds and/or occupancy levels decline, we generally would expect to have less cash available to pay indebtedness and for distribution to shareholders. In addition, some of our major expenses, including mortgage payments, real estate taxes and maintenance costs generally do not decline when the related rents decline. Capital markets and economic conditions can materially affect our financial condition and results of operations and the value of our debt and equity securities. There are many factors that can affect the value of our debt and equity securities, including the state of the capital markets and the economy, which over the past few years have negatively affected substantially all businesses, including ours. Demand for office and retail space may decline nationwide as it did in 2008 and 2009, due to bankruptcies, downsizing, layoffs and cost cutting. Government action or inaction may adversely affect the state of the capital markets. The cost and availability of credit may be adversely affected by illiquid credit markets and wider credit spreads, which may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our tenants. Our inability or the inability of our tenants to timely refinance maturing liabilities and access the capital markets to meet liquidity needs may materially affect our financial condition and results of operations and the value of our debt and equity securities. 12   Real estate is a competitive business. Our business segments – New York, Washington, DC, Retail Properties, Merchandise Mart and Toys – operate in a highly competitive environment. We have a large concentration of properties in the New York City metropolitan area and in the Washington, DC / Northern Virginia area. We compete with a large number of property owners and developers, some of which may be willing to accept lower returns on their investments than we are. Principal factors of competition include rents charged, sales prices, attractiveness of location, the quality of the property and the breadth and quality of services provided. Our success depends upon, among other factors, trends of the national, regional and local economies, financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulation, legislation and population trends. We depend on leasing space to tenants on economically favorable terms and collecting rent from tenants who may not be able to pay. Our financial results depend significantly on leasing space in our properties to tenants on economically favorable terms. In addition, because a majority of our income comes from renting of real property, our income, funds available to pay indebtedness and funds available for distribution to shareholders will decrease if a significant number of our tenants cannot pay their rent or if we are not able to maintain occupancy levels on favorable terms. If a tenant does not pay its rent, we may not be able to enforce our rights as landlord without delays and may incur substantial legal costs. During periods of economic adversity, there may be an increase in the number of tenants that cannot pay their rent and an increase in vacancy rates. Bankruptcy or insolvency of tenants may decrease our revenue, net income and available cash. From time to time, some of our tenants have declared bankruptcy, and other tenants may declare bankruptcy or become insolvent in the future. In the case of our shopping centers, the bankruptcy or insolvency of a major tenant could cause us to suffer lower revenues and operational difficulties, including leasing the remainder of the property. As a result, the bankruptcy or insolvency of a major tenant could result in decreased revenue, net income and funds available for the payment of indebtedness or for distribution to shareholders. We may incur costs to comply with environmental laws. Our operations and properties are subject to various federal, state and local laws and regulations concerning the protection of the environment, including air and water quality, hazardous or toxic substances and health and safety. Under some environmental laws, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property. The owner or operator may also be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by those parties because of the contamination. These laws often impose liability without regard to whether the owner or operator knew of the release of the substances or caused the release. The presence of contamination or the failure to remediate contamination may impair our ability to sell or lease real estate or to borrow using the real estate as collateral. Other laws and regulations govern indoor and outdoor air quality including those that can require the abatement or removal of asbestos-containing materials in the event of damage, demolition, renovation or remodeling and also govern emissions of and exposure to asbestos fibers in the air. The maintenance and removal of lead paint and certain electrical equipment containing polychlorinated biphenyls (PCBs) and underground storage tanks are also regulated by federal and state laws. We are also subject to risks associated with human exposure to chemical or biological contaminants such as molds, pollens, viruses and bacteria which, above certain levels, can be alleged to be connected to allergic or other health effects and symptoms in susceptible individuals. Our predecessor companies may be subject to similar liabilities for activities of those companies in the past. We could incur fines for environmental compliance and be held liable for the costs of remedial action with respect to the foregoing regulated substances or tanks or related claims arising out of environmental contamination or human exposure to contamination at or from our properties. Each of our properties has been subject to varying degrees of environmental assessment. The environmental assessments did not, as of this date, reveal any environmental condition material to our business. However, identification of new compliance concerns or undiscovered areas of contamination, changes in the extent or known scope of contamination, discovery of additional sites, human exposure to the contamination or changes in clean-up or compliance requirements could result in significant costs to us. 13   Inflation or deflation may adversely affect our financial condition and results of operations. Although neither inflation nor deflation has materially impacted our operations in the recent past, increased inflation could have a pronounced negative impact on our mortgages and interest rates and general and administrative expenses, as these costs could increase at a rate higher than our rents. Inflation could also have an adverse effect on consumer spending which could impact our tenants’ sales and, in turn, our percentage rents, where applicable. Conversely, deflation could lead to downward pressure on rents and other sources of income. In addition, we own residential properties which are leased to tenants with one-year lease terms. Because these are short-term leases, declines in market rents will impact our residential properties faster than if the leases were for longer terms. Some of our potential losses may not be covered by insurance. We maintain general liability insurance with limits of $300,000,000 per occurrence and all risk property and rental value insurance with limits of $2.0 billion per occurrence, including coverage for terrorist acts, with sub-limits for certain perils such as floods. Our California properties have earthquake insurance with coverage of $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $180,000,000 annual aggregate. Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to 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 nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Program Reauthorization Act. 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. Coverage for NBCR losses is up to $2.0 billion per occurrence, for which PPIC is responsible for a deductible of $3,200,000 and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss. We are ultimately responsible for any loss borne by PPIC. We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, we cannot anticipate what coverage will be available on commercially reasonable terms in future policy years. Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured notes and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our ability to finance our properties and expand our portfolio. Because we operate a hotel, we face the risks associated with the hospitality industry. We own and operate the Hotel Pennsylvania in New York City. The following factors, among others, are common to the hotel industry and may reduce the revenues generated by the hotel, which would reduce cash available for distribution to our shareholders:      our hotel competes for guests with other hotels, a number of which have greater marketing and financial resources; if there is an increase in operating costs resulting from inflation and other factors, we may not be able to offset such increase by increasing room rates; our hotel is subject to the fluctuating and seasonal demands of business travelers and tourism; our hotel is subject to general and local economic and social conditions that may affect demand for travel in general, including war and terrorism; and physical condition, which may require substantial additional capital. Because of the ownership structure of the Hotel Pennsylvania, we face potential adverse effects from changes to the applicable tax laws. Under the Internal Revenue Code, REITs like us are not allowed to operate hotels directly or indirectly. Accordingly, we lease the Hotel Pennsylvania to our taxable REIT subsidiary (“TRS”). While the TRS structure allows the economic benefits of ownership to flow to us, the TRS is subject to tax on its income from the operations of the hotel at the federal and state level. In addition, the TRS is subject to detailed tax regulations that affect how it may be capitalized and operated. If the tax laws applicable to a TRS are modified, we may be forced to modify the structure for owning the hotel, and such changes may adversely affect the cash flows from the hotel. In addition, the Internal Revenue Service, the United States Treasury Department and Congress frequently review federal income tax legislation, and we cannot predict whether, when or to what extent new federal tax laws, regulations, interpretations or rulings will be adopted. Any such actions may prospectively or retroactively modify the tax treatment of the TRS and, therefore, may adversely affect our after-tax returns from the hotel. 14   Compliance or failure to comply with the Americans with Disabilities Act or other safety regulations and requirements could result in substantial costs. The Americans with Disabilities Act (“ADA”) generally requires that public buildings, including our properties, meet certain federal requirements related to access and use by disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants and/or legal fees to their counsel. From time to time persons have asserted claims against us with respect to some of our properties under the ADA, but to date such claims have not resulted in any material expense or liability. If, under the ADA, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our financial condition and results of operations, as well as the amount of cash available for distribution to shareholders. Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these requirements, we could incur fines or private damage awards. We do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that will affect our cash flow and results of operations. We face risks associated with our tenants being designated “Prohibited Persons” by the Office of Foreign Assets Control. Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) maintains a list of persons designated as terrorists or who are otherwise blocked or banned (“Prohibited Persons”) from conducting business or engaging in transactions in the United States. Our leases, loans and other agreements may require us to comply with OFAC requirements. If a tenant or other party with whom we conduct business is placed on the OFAC list we may be required to terminate the lease or other agreement. Any such termination could result in a loss of revenue or otherwise negatively affect our financial results and cash flows. Our business and operations would suffer in the event of system failures. Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for our internal information technology systems, our systems are vulnerable to damages from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business. We may also incur additional costs to remedy damages caused by such disruptions. The occurrence of cyber incidents, or a deficiency in our cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results. A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. Our three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our tenants, and private data exposure. We have implemented processes, procedures and controls to help mitigate these risks, but these measures, as well as our increased awareness of a risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident. 15   OUR INVESTMENTS ARE CONCENTRATED IN THE NEW YORK CITY METROPOLITAN AREA AND WASHINGTON, DC / NORTHERN VIRGINIA AREA. CIRCUMSTANCES AFFECTING THESE AREAS GENERALLY COULD ADVERSELY AFFECT OUR BUSINESS. A significant portion of our properties are located in the New York City / New Jersey metropolitan area and Washington, DC / Northern Virginia area and are affected by the economic cycles and risks inherent to those areas. In 2012, approximately 74% of our EBITDA, excluding items that affect comparability, came from properties located in the New York City metropolitan areas and the Washington, DC / Northern Virginia area. We may continue to concentrate a significant portion of our future acquisitions in these areas or in other geographic real estate markets in the United States or abroad. Real estate markets are subject to economic downturns and we cannot predict how economic conditions will impact these markets in either the short or long term. Declines in the economy or declines in real estate markets in these areas could hurt our financial performance and the value of our properties. In addition to the factors affecting the national economic condition generally, the factors affecting economic conditions in these regions include:          financial performance and productivity of the publishing, advertising, financial, technology, retail, insurance and real estate industries; space needs of, and budgetary constraints affecting, the United States Government, including the effect of a deficit reduction plan and/or base closures and repositioning under the Defense Base Closure and Realignment Act of 2005, as amended; business layoffs or downsizing; industry slowdowns; relocations of businesses; changing demographics; increased telecommuting and use of alternative work places; infrastructure quality; and any oversupply of, or reduced demand for, real estate. It is impossible for us to assess the future effects of trends in the economic and investment climates of the geographic areas in which we concentrate, and more generally of the United States, or the real estate markets in these areas. Local, national or global economic downturns, would negatively affect our businesses and profitability. Terrorist attacks, such as those of September 11, 2001 in New York City and the Washington, DC area, may adversely affect the value of our properties and our ability to generate cash flow. We have significant investments in large metropolitan areas, including the New York, Washington, DC and San Francisco metropolitan areas. In the aftermath of a terrorist attack, tenants in these areas may choose to relocate their businesses to less populated, lower-profile areas of the United States that may be perceived to be less likely targets of future terrorist activity and fewer customers may choose to patronize businesses in these areas. This, in turn, would trigger a decrease in the demand for space in these areas, which could increase vacancies in our properties and force us to lease space on less favorable terms. As a result, the value of our properties and the level of our revenues and cash flows could decline materially. Natural Disasters could have a concentrated impact on the areas where we operate and could adversely impact our results. We have significant investments in large metropolitan areas, including the New York, Washington, DC and San Francisco metropolitan areas. As much of our investments are concentrated along the Eastern Seaboard, natural disasters, such as those resulting from Superstorm Sandy, could impact several of our properties. Additionally, natural disasters, including earthquakes, could impact several of our properties in other areas in which we operate. Potentially adverse consequences of “global warming” could similarly have an impact on our properties. As a result, we could become subject to significant losses and/or repair costs that may or may not be fully covered by insurance and to the risk of business interruption. The incurrence of these losses, costs or business interruptions may adversely affect our operating and financial results. 16   WE MAY ACQUIRE OR SELL ASSETS OR ENTITIES OR DEVELOP PROPERTIES. OUR FAILURE OR INABILITY TO CONSUMMATE THESE TRANSACTIONS OR MANAGE THE RESULTS OF THESE TRANSACTIONS COULD ADVERSELY AFFECT OUR OPERATIONS AND FINANCIAL RESULTS. We have grown substantially since 2002 through acquisitions. We may not be able to maintain this growth and our failure to do so could adversely affect our stock price. We have grown substantially since 2002, increasing our total assets from approximately $9.0 billion at December 31, 2002 to approximately $22.0 billion at December 31, 2012. We may not be able to maintain a similar rate of growth in the future or manage growth effectively. Our failure to do so may have a material adverse effect on our financial condition and results of operations as well as the amount of cash available for distributions to shareholders. We may acquire or develop properties or acquire other real estate related companies and this may create risks. We may acquire or develop properties or acquire other real estate related companies when we believe that an acquisition or development is consistent with our business strategy. We may not, however, succeed in consummating desired acquisitions or in completing developments on time or within budget. In addition, we may face competition in pursuing acquisition or development opportunities that could increase our costs. When we do pursue a project or acquisition, we may not succeed in leasing or selling newly-developed or acquired properties at rents or sales prices sufficient to cover costs of acquisition or development and operations. Difficulties in integrating acquisitions may prove costly or time-consuming and could divert management’s attention. Acquisitions or developments in new markets or industries where we do not have the same level of market knowledge may result in weaker than anticipated performance. We may also abandon acquisition or development opportunities that we have begun pursuing and consequently fail to recover expenses already incurred and have devoted management time to a matter not consummated. Furthermore, acquisitions of new properties or companies will expose us to the liabilities of those properties or companies, some of which we may not be aware of at the time of acquisition. Development of our existing properties presents similar risks. From time to time we have made, and in the future we may seek to make, one or more material acquisitions. The announcement of such a material acquisition may result in a rapid and significant decline in the price of our common shares. We are continuously looking at material transactions that we believe will maximize shareholder value. However, an announcement by us of one or more significant acquisitions could result in a quick and significant decline in the price of our common shares. It may be difficult to buy and sell real estate quickly, which may limit our flexibility. Real estate investments are relatively difficult to buy and sell quickly. Consequently, we may have limited ability to vary our portfolio promptly in response to changes in economic or other conditions. We may not be permitted to dispose of certain properties or pay down the debt associated with those properties when we might otherwise desire to do so without incurring additional costs. In addition, when we dispose of or sell assets, we may not be able to reinvest the sales proceeds and earn similar returns. As part of an acquisition of a property, or a portfolio of properties, we may agree, and in the past have agreed, not to dispose of the acquired properties or reduce the mortgage indebtedness for a long-term period, unless we pay certain of the resulting tax costs of the seller. These agreements could result in us holding on to properties that we would otherwise sell and not pay down or refinance. In addition, when we dispose of or sell assets, we may not be able to reinvest the sales proceeds and earn returns similar to those generated by the assets that were sold. From time to time we make investments in companies over which we do not have sole control. Some of these companies operate in industries that differ from our current operations, with different risks than investing in real estate. From time to time we make debt or equity investments in other companies that we may not control or over which we may not have sole control. These investments include but are not limited to, Alexander’s, Inc. (“Alexander’s”), Toys “R” Us (“Toys”), Lexington Realty Trust (“Lexington”), J.C. Penney Company, Inc. (“J.C. Penney”), and other equity and mezzanine investments. Although these businesses generally have a significant real estate component, some of them operate in businesses that are different from our primary lines of business including, without limitation, operating or managing toy stores and department stores. Consequently, investments in these businesses, among other risks, subjects us to the operating and financial risks of industries other than real estate and to the risk that we do not have sole control over the operations of these businesses. From time to time we may make additional investments in or acquire other entities that may subject us to similar risks. Investments in entities over which we do not have sole control, including joint ventures, present additional risks such as having differing objectives than our partners or the entities in which we invest, or becoming involved in disputes, or competing with those persons. In addition, we rely on the internal controls and financial reporting controls of these entities and their failure to maintain effectiveness or comply with applicable standards may adversely affect us. 17   We are subject to risks that affect the general retail environment. A substantial portion of our properties are in the retail shopping center real estate market and we have a significant investment in retailers such as Toys and J.C. Penney. This means that we are subject to factors that affect the retail environment generally, including the level of consumer spending and consumer confidence, the threat of terrorism and increasing competition from discount retailers, outlet malls, retail websites and catalog companies. These factors could adversely affect the financial condition of our retail tenants and the retailers in which we hold an investment and the willingness of retailers to lease space in our shopping centers, and in turn, adversely affect us. Our investment in Toys subjects us to risks that are different from our other lines of business and may result in increased seasonality and volatility in our reported earnings. Because Toys is a retailer, its operations subject us to the risks of a retail company that are different than those presented by our other lines of business. The business of Toys is highly seasonal. Historically, Toys fourth quarter net income accounts for more than 80% of its fiscal year net income. In addition, our fiscal year ends on December 31 whereas, as is common for retailers, Toys’ fiscal year ends on the Saturday nearest to January 31. Therefore, we record our pro rata share of Toys’ net earnings on a one-quarter lag basis. For example, our financial results for the year ended December 31, 2012 include Toys’ financial results for its first, second and third quarters ended October 29, 2012, as well as Toys’ fourth quarter results of 2011. Because of the seasonality of Toys, our reported quarterly net income shows increased volatility. We may also, in the future and from time to time, invest in other businesses that may report financial results that are more volatile than our historical financial results. We depend upon our anchor tenants to attract shoppers. We own several regional malls and other shopping centers that are typically anchored by well-known department stores and other tenants who generate shopping traffic at the mall or shopping center. The value of our properties would be adversely affected if tenants or anchors failed to meet their contractual obligations, sought concessions in order to continue operations or ceased their operations, including as a result of bankruptcy. If the sales of stores operating in our properties were to decline significantly due to economic conditions, closing of anchors or for other reasons, tenants may be unable to pay their minimum rents or expense recovery charges. In the event of a default by a tenant or anchor, we may experience delays and costs in enforcing our rights as landlord. Our decision to dispose of real estate assets would change the holding period assumption in our valuation analyses, which could result in material impairment losses and adversely affect our financial results. We evaluate real estate assets for impairment based on the projected cash flow of the asset over our anticipated holding period. If we change our intended holding period, due to our intention to sell or otherwise dispose of an asset, then under accounting principles generally accepted in the United States of America, we must reevaluate whether that asset is impaired. Depending on the carrying value of the property at the time we change our intention and the amount that we estimate we would receive on disposal, we may record an impairment loss that would adversely affect our financial results. This loss could be material to our results of operations in the period that it is recognized. We invest in mortgage loans and subordinated or mezzanine debt of certain entities that have significant real estate assets. We invest, and may in the future invest, in mortgage loans and subordinated or mezzanine debt of certain entities that have significant real estate assets. These investments are either secured by the real property or by pledges of the equity interests of the entities owning the underlying real estate. If a borrower defaults on debt to us or on debt senior to us, or declares bankruptcy, we may not be able to recover some or all of our investment. In addition, there may be significant delays and costs associated with the process of foreclosing on collateral securing or supporting these investments. The value of the assets securing or supporting our investments could deteriorate over time due to factors beyond our control, including acts or omissions by owners, changes in business, economic or market conditions, or foreclosure. Such deteriorations in value may result in the recognition of impairment losses and/or valuation allowances on our statements of income. As of December 31, 2012, our investments in mortgage and mezzanine debt securities have an aggregate carrying amount of $225,359,000. 18   We evaluate the collectibility of both interest and principal of each of our loans whenever events or changes in circumstances indicate such amounts may not be recoverable. A loan is impaired when it is probable that we will be unable to collect all amounts due according to the existing contractual terms. When a loan is impaired, the amount of the loss accrual is calculated by comparing the carrying amount of the investment to the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, to the value of the collateral if the loan is collateral dependent. There can be no assurance that our estimates of collectible amounts will not change over time or that they will be representative of the amounts we will actually collect, including amounts we would collect if we chose to sell these investments before their maturity. If we collect less than our estimates, we will record impairment losses which could be material. We invest in marketable equity securities. The value of these investments may decline as a result of operating performance or economic or market conditions. We invest in marketable equity securities of publicly-traded companies, such as J.C. Penney. As of December 31, 2012, our marketable securities have an aggregate carrying amount of $398,188,000, at market. Significant declines in the value of these investments due to, among other reasons, operating performance or economic or market conditions, may result in the recognition of impairment losses which could be material. OUR ORGANIZATIONAL AND FINANCIAL STRUCTURE GIVES RISE TO OPERATIONAL AND FINANCIAL RISKS. We may not be able to obtain capital to make investments. We depend primarily on external financing to fund the growth of our business. This is because one of the requirements of the Internal Revenue Code of 1986, as amended, for a REIT is that it distributes 90% of its taxable income, excluding net capital gains, to its shareholders. There is a separate requirement to distribute net capital gains or pay a corporate level tax in lieu thereof. Our access to debt or equity financing depends on the willingness of third parties to lend or make equity investments and on conditions in the capital markets generally. Although we believe that we will be able to finance any investments we may wish to make in the foreseeable future, there can be no assurance that new financing will be available or available on acceptable terms. For information about our available sources of funds, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and the notes to the consolidated financial statements in this Annual Report on Form 10-K. Vornado Realty Trust (“Vornado”) depends on dividends and distributions from its direct and indirect subsidiaries. The creditors and preferred security holders of these subsidiaries are entitled to amounts payable to them by the subsidiaries before the subsidiaries may pay any dividends or distributions to Vornado. Substantially all of Vornado’s assets are held through its Operating Partnership that holds substantially all of its properties and assets through subsidiaries. The Operating Partnership’s cash flow is dependent on cash distributions to it by its subsidiaries, and in turn, substantially all of Vornado’s cash flow is dependent on cash distributions to it by the Operating Partnership. The creditors of each of Vornado’s direct and indirect subsidiaries are entitled to payment of that subsidiary’s obligations to them, when due and payable, before distributions may be made by that subsidiary to its equity holders. Thus, the Operating Partnership’s ability to make distributions to holders of its units depends on its subsidiaries’ ability first to satisfy their obligations to their creditors and then to make distributions to the Operating Partnership. Likewise, Vornado’s ability to pay dividends to holders of common and preferred shares depends on the Operating Partnership’s ability first to satisfy its obligations to its creditors and make distributions payable to holders of preferred units and then to make distributions to Vornado. Furthermore, the holders of preferred units of the Operating Partnership are entitled to receive preferred distributions before payment of distributions to holders of Class A units of the Operating Partnership, including Vornado. Thus, Vornado’s ability to pay cash dividends to its shareholders and satisfy its debt obligations depends on the Operating Partnership’s ability first to satisfy its obligations to its creditors and make distributions to holders of its preferred units and then to holders of its Class A units, including Vornado. As of December 31, 2012, there were four series of preferred units of the Operating Partnership not held by Vornado with a total liquidation value of $101,095,000. In addition, Vornado’s participation in any distribution of the assets of any of its direct or indirect subsidiaries upon the liquidation, reorganization or insolvency, is only after the claims of the creditors, including trade creditors and preferred security holders, are satisfied. 19   We have outstanding debt, and the amount of debt and its cost may increase and refinancing may not be available on acceptable terms. As of December 31, 2012, we had approximately $14.7 billion of total debt outstanding, including our pro rata share of debt of partially owned entities, and excluding $25.4 billion for our pro rata share of LNR’s liabilities related to its consolidated CMBS and CDO trusts, which are non-recourse to LNR and its equity holders, including us. Our ratio of total debt to total enterprise value was approximately 46%. When we say “enterprise value” in the preceding sentence, we mean market equity value of our common and preferred securities plus total debt outstanding, including our pro rata share of debt of partially owned entities, and excluding LNR’s liabilities related to its consolidated CMBS and CDO trusts. In the future, we may incur additional debt to finance acquisitions or property developments and thus increase our ratio of total debt to total enterprise value. If our level of indebtedness increases, there may be an increased risk of a credit rating downgrade or a default on our obligations that could adversely affect our financial condition and results of operations. In addition, in a rising interest rate environment, the cost of existing variable rate debt and any new debt or other market rate security or instrument may increase. Furthermore, we may not be able to refinance existing indebtedness in sufficient amounts or on acceptable terms. Covenants in our debt instruments could adversely affect our financial condition and our acquisitions and development activities. The mortgages on our properties contain customary covenants such as those that limit our ability, without the prior consent of the lender, to further mortgage the applicable property or to discontinue insurance coverage. Our unsecured credit facilities, unsecured debt securities and other loans that we may obtain in the future contain, or may contain, customary restrictions, requirements and other limitations on our ability to incur indebtedness, including covenants that limit our ability to incur debt based upon the level of our ratio of total debt to total assets, our ratio of secured debt to total assets, our ratio of EBITDA to interest expense, and fixed charges, and that require us to maintain a certain level of unencumbered assets to unsecured debt. Our ability to borrow is subject to compliance with these and other covenants. In addition, failure to comply with our covenants could cause a default under the applicable debt instrument, and we may then be required to repay such debt with capital from other sources. Under those circumstances, other sources of capital may not be available to us, or may be available only on unattractive terms. We rely on debt financing, including borrowings under our unsecured credit facilities, issuances of unsecured debt securities and debt secured by individual properties, to finance acquisitions and development activities and for working capital. If we are unable to obtain debt financing from these or other sources, or refinance existing indebtedness upon maturity, our financial condition and results of operations would likely be adversely affected. If we breach covenants in our debt agreements, the lenders can declare a default and, if the debt is secured, can take possession of the property securing the defaulted loan. Vornado may fail to qualify or remain qualified as a REIT and may be required to pay income taxes at corporate rates. Although we believe that we will remain organized and will continue to operate so as to qualify as a REIT for federal income tax purposes, we may fail to remain qualified in this way. Qualification as a REIT for federal income tax purposes is governed by highly technical and complex provisions of the Internal Revenue Code for which there are only limited judicial or administrative interpretations. Our qualification as a REIT also depends on various facts and circumstances that are not entirely within our control. In addition, legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws with respect to the requirements for qualification as a REIT or the federal income tax consequences of qualifying as a REIT. If, with respect to any taxable year, we fail to maintain our qualification as a REIT and do not qualify under statutory relief provisions, we could not deduct distributions to shareholders in computing our taxable income and would have to pay federal income tax on our taxable income at regular corporate rates. The federal income tax payable would include any applicable alternative minimum tax. If we had to pay federal income tax, the amount of money available to distribute to shareholders and pay our indebtedness would be reduced for the year or years involved, and we would no longer be required to make distributions to shareholders. In addition, we would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost, unless we were entitled to relief under the relevant statutory provisions. Although we currently intend to operate in a manner designed to allow us to qualify as a REIT, future economic, market, legal, tax or other considerations may cause us to revoke the REIT election or fail to qualify as a REIT. 20   We face possible adverse changes in tax laws, which may result in an increase in our tax liability. From time to time changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability. The shortfall in tax revenues for states and municipalities in recent years may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional taxes on our assets or income. These increased tax costs could adversely affect our financial condition and results of operations and the amount of cash available for payment of dividends. Loss of our key personnel could harm our operations and adversely affect the value of our common shares. We are dependent on the efforts of Steven Roth, the Chairman of the Board of Trustees of Vornado, and Michael D. Fascitelli, the President and Chief Executive Officer of Vornado. While we believe that we could find replacements for these and other key personnel, the loss of their services could harm our operations and adversely affect the value of our common shares. VORNADO’S CHARTER DOCUMENTS AND APPLICABLE LAW MAY HINDER ANY ATTEMPT TO ACQUIRE US. Our Amended and Restated Declaration of Trust sets limits on the ownership of our shares. Generally, for Vornado to maintain its qualification as a REIT under the Internal Revenue Code, not more than 50% in value of the outstanding shares of beneficial interest of Vornado may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of Vornado’s taxable year. The Internal Revenue Code defines “individuals” for purposes of the requirement described in the preceding sentence to include some types of entities. Under Vornado’s Amended and Restated Declaration of Trust, as amended, no person may own more than 6.7% of the outstanding common shares of any class, or 9.9% of the outstanding preferred shares of any class, with some exceptions for persons who held common shares in excess of the 6.7% limit before Vornado adopted the limit and other persons approved by Vornado’s Board of Trustees. These restrictions on transferability and ownership may delay, deter or prevent a change in control of Vornado or other transaction that might involve a premium price or otherwise be in the best interest of the shareholders. We refer to Vornado’s Amended and Restated Declaration of Trust, as amended, as the “declaration of trust.” Vornado has a classified Board of Trustees and that may reduce the likelihood of certain takeover transactions. Vornado’s Board of Trustees is divided into three classes of trustees. Trustees of each class are chosen for three-year staggered terms. Staggered terms of trustees may reduce the possibility of a tender offer or an attempt to change control of Vornado, even though a tender offer or change in control might be in the best interest of Vornado’s shareholders. We may issue additional shares in a manner that could adversely affect the likelihood of certain takeover transactions. Vornado’s declaration of trust authorizes the Board of Trustees to:     cause Vornado to issue additional authorized but unissued common shares or preferred shares; classify or reclassify, in one or more series, any unissued preferred shares; set the preferences, rights and other terms of any classified or reclassified shares that Vornado issues; and increase, without shareholder approval, the number of shares of beneficial interest that Vornado may issue. The Board of Trustees could establish a series of preferred shares whose terms could delay, deter or prevent a change in control of Vornado or other transaction that might involve a premium price or otherwise be in the best interest of Vornado’s shareholders, although the Board of Trustees does not now intend to establish a series of preferred shares of this kind. Vornado’s declaration of trust and bylaws contain other provisions that may delay, deter or prevent a change in control of Vornado or other transaction that might involve a premium price or otherwise be in the best interest of our shareholders. 21   The Maryland General Corporation Law contains provisions that may reduce the likelihood of certain takeover transactions. Under the Maryland General Corporation Law, as amended, which we refer to as the “MGCL,” as applicable to REITs, certain “business combinations,” including certain mergers, consolidations, share exchanges and asset transfers and certain issuances and reclassifications of equity securities, between a Maryland REIT and any person who beneficially owns ten percent or more of the voting power of the trust’s shares or an affiliate or an associate, as defined in the MGCL, of the trust who, at any time within the two- year period before the date in question, was the beneficial owner of ten percent or more of the voting power of the then outstanding voting shares of beneficial interest of the trust, which we refer to as an “interested shareholder,” or an affiliate of the interested shareholder, are prohibited for five years after the most recent date on which the interested shareholder becomes an interested shareholder. After that five-year period, any business combination of these kinds must be recommended by the board of trustees of the trust and approved by the affirmative vote of at least (a) 80% of the votes entitled to be cast by holders of outstanding voting shares of beneficial interest of the trust and (b) two-thirds of the votes entitled to be cast by holders of voting shares of beneficial interest of the trust other than shares held by the interested shareholder with whom, or with whose affiliate, the business combination is to be effected or held by an affiliate or associate of the interested shareholder. These supermajority voting requirements do not apply if the trust’s common shareholders receive a minimum price, as defined in the MGCL, for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for its common shares. The provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by the board of trustees of the applicable trust before the interested shareholder becomes an interested shareholder, and a person is not an interested shareholder if the board of trustees approved in advance the transaction by which the person otherwise would have become an interested shareholder. In approving a transaction, the Board may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the Board. Vornado’s Board has adopted a resolution exempting any business combination between Vornado and any trustee or officer of Vornado or its affiliates. As a result, any trustee or officer of Vornado or its affiliates may be able to enter into business combinations with Vornado that may not be in the best interest of Vornado’s shareholders. With respect to business combinations with other persons, the business combination provisions of the MGCL may have the effect of delaying, deferring or preventing a change in control of Vornado or other transaction that might involve a premium price or otherwise be in the best interest of the shareholders. The business combination statute may discourage others from trying to acquire control of Vornado and increase the difficulty of consummating any offer. We may change our policies without obtaining the approval of our shareholders. Our operating and financial policies, including our policies with respect to acquisitions of real estate or other companies, growth, operations, indebtedness, capitalization and dividends, are exclusively determined by our Board of Trustees. Accordingly, our shareholders do not control these policies. OUR OWNERSHIP STRUCTURE AND RELATED-PARTY TRANSACTIONS MAY GIVE RISE TO CONFLICTS OF INTEREST. Steven Roth and Interstate Properties may exercise substantial influence over us. They and some of our other trustees and officers have interests or positions in other entities that may compete with us. As of December 31, 2012, Interstate Properties, a New Jersey general partnership, and its partners owned an aggregate of approximately 6.5% of the common shares of Vornado and 26.3% of the common stock of Alexander’s, which is described below. Steven Roth, David Mandelbaum and Russell B. Wight, Jr. are the three partners of Interstate Properties. Mr. Roth is the Chairman of the Board of Vornado, the managing general partner of Interstate Properties and the Chairman of the Board and Chief Executive Officer of Alexander’s. Messrs. Wight and Mandelbaum are trustees of Vornado and also directors of Alexander’s. Because of these overlapping interests, Mr. Roth and Interstate Properties and its partners may have substantial influence over Vornado and on the outcome of any matters submitted to Vornado’s shareholders for approval. In addition, certain decisions concerning our operations or financial structure may present conflicts of interest among Messrs. Roth, Mandelbaum and Wight and Interstate Properties and our other equity or debt holders. In addition, Mr. Roth, Interstate Properties and its partners, and Alexander’s currently and may in the future engage in a wide variety of activities in the real estate business which may result in conflicts of interest with respect to matters affecting us, such as which of these entities or persons, if any, may take advantage of potential business opportunities, the business focus of these entities, the types of properties and geographic locations in which these entities make investments, potential competition between business activities conducted, or sought to be conducted, competition for properties and tenants, possible corporate transactions such as acquisitions and other strategic decisions affecting the future of these entities. 22   We currently manage and lease the real estate assets of Interstate Properties under a management agreement for which we receive an annual fee equal to 4% of base rent and percentage rent. The management agreement has a one-year term and is automatically renewable unless terminated by either of the parties on 60 days’ notice at the end of the term. Because of the relationship among Vornado, Interstate Properties and Messrs. Roth, Mandelbaum and Wight, as described above, the terms of the management agreement and any future agreements between us and Interstate Properties may not be comparable to those we could have negotiated with an unaffiliated third party. There may be conflicts of interest between Alexander’s and us. As of December 31, 2012, we owned 32.4% of the outstanding common stock of Alexander’s. Alexander’s is a REIT that has six properties, which are located in the greater New York metropolitan area. In addition to the 2.1% that they indirectly own through Vornado, Interstate Properties, which is described above, and its partners owned 26.3% of the outstanding common stock of Alexander’s as of December 31, 2012. Mr. Roth is the Chairman of the Board of Vornado, the managing general partner of Interstate Properties, and the Chairman of the Board and Chief Executive Officer of Alexander’s. Messrs. Wight and Mandelbaum are trustees of Vornado and also directors of Alexander’s and general partners of Interstate Properties. Michael D. Fascitelli is the President and Chief Executive Officer of Vornado and the President of Alexander’s and Dr. Richard West is a trustee of Vornado and a director of Alexander’s. In addition, Joseph Macnow, our Executive Vice President and Chief Financial Officer, holds the same position with Alexander’s. Alexander’s common stock is listed on the New York Stock Exchange under the symbol “ALX.” We manage, develop and lease Alexander’s properties under management and development agreements and leasing agreements under which we receive annual fees from Alexander’s. These agreements have a one-year term expiring in March of each year and are all automatically renewable. Because Vornado and Alexander’s share common senior management and because certain of the trustees of Vornado constitute a majority of the directors of Alexander’s, the terms of the foregoing agreements and any future agreements between us and Alexander’s may not be comparable to those we could have negotiated with an unaffiliated third party. For a description of Interstate Properties’ ownership of Vornado and Alexander’s, see “Steven Roth and Interstate Properties may exercise substantial influence over us. They and some of our other trustees and officers have interests or positions in other entities that may compete with us” above. 23   THE NUMBER OF SHARES OF VORNADO REALTY TRUST AND THE MARKET FOR THOSE SHARES GIVE RISE TO VARIOUS RISKS. The trading price of our common shares has been volatile and may fluctuate. The trading price of our common shares has been volatile and may continue to fluctuate widely as a result of a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations have in the past and may in the future adversely affect the market price of our common shares. Among the factors that could affect the price of our common shares are:                 our financial condition and performance; the financial condition of our tenants, including the extent of tenant bankruptcies or defaults; actual or anticipated quarterly fluctuations in our operating results and financial condition; our dividend policy; the reputation of REITs and real estate investments generally and the attractiveness of REIT equity securities in comparison to other equity securities, including securities issued by other real estate companies, and fixed income securities; uncertainty and volatility in the equity and credit markets; changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs; failure to meet analysts’ revenue or earnings estimates; speculation in the press or investment community; strategic actions by us or our competitors, such as acquisitions or restructurings; the extent of institutional investor interest in us; the extent of short-selling of our common shares and the shares of our competitors; fluctuations in the stock price and operating results of our competitors; general financial and economic market conditions and, in particular, developments related to market conditions for REITs and other real estate related companies; domestic and international economic factors unrelated to our performance; and all other risk factors addressed elsewhere in this Annual Report on the Form 10-K. A significant decline in our stock price could result in substantial losses for shareholders. Vornado has many shares available for future sale, which could hurt the market price of its shares. The interests of our current shareholders could be diluted if we issue additional equity securities. As of December 31, 2012, we had authorized but unissued, 63,265,289 common shares of beneficial interest, $.04 par value and 58,766,023 preferred shares of beneficial interest, no par value; of which 20,705,537 common shares are reserved for issuance upon redemption of Class A Operating Partnership units, convertible securities and employee stock options and 11,200,000 preferred shares are reserved for issuance upon redemption of preferred Operating Partnership units. Any shares not reserved may be issued from time to time in public or private offerings or in connection with acquisitions. In addition, common and preferred shares reserved may be sold upon issuance in the public market after registration under the Securities Act or under Rule 144 under the Securities Act or other available exemptions from registration. We cannot predict the effect that future sales of our common and preferred shares or Operating Partnership Class A and preferred units will have on the market prices of our outstanding shares. Increased interest rates may hurt the value of our common and preferred shares. We believe that investors consider the distribution rate on REIT shares, expressed as a percentage of the price of the shares, relative to interest rates as an important factor in deciding whether to buy or sell the shares. If interest rates go up, prospective purchasers of REIT shares may expect a higher distribution rate. Higher interest rates would likely increase our borrowing costs and might decrease funds available for distribution. Thus, higher interest rates could cause the market price of our common and preferred shares to decline. 24   ITEM 1B. UNRESOLVED STAFF COMMENTS There are no unresolved comments from the staff of the Securities Exchange Commission as of the date of this Annual Report on Form 10-K. ITEM 2. PROPERTIES We operate in five business segments: New York, Washington, DC, Retail Properties, Merchandise Mart and Toys “R” Us. The following pages provide details of our real estate properties. 25   ITEM 2. PROPERTIES - Continued % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet Total Property In Service Under Development or Not Available for Lease Encumbrances (in thousands) 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 93.8 % $ 99.6 % 94.4 % 98.4 % 53.1 % 97.0 % 100.0 % 96.1 % 99.9 % 55.30 120.38 62.29 49.88 172.76 53.70 55.84 152.94 57.35 2,233,000 269,000 2,502,000 2,233,000 269,000 2,502,000 1,560,000 50,000 1,610,000 1,560,000 50,000 1,610,000 1,082,000 17,000 1,099,000 1,082,000 17,000 1,099,000 100.0 % 88.4 % 49.90 836,000 836,000 100.0 % 96.1 % 115.09 256,000 256,000 - - - - - - - - - - - $ - 425,000 330,000 Major Tenants BMG Columbia House, Cisco, MWB Leasing, Parsons Brinkerhoff, United Health Care, United States Customs Department, URS Corporation Group Consulting Bank of America, Footaction, Kmart Corporation LMW Associates, EMC, Forest Electric, IBI, Madison Square Garden, McGraw-Hill Companies, Inc. Chase Manhattan Bank Macy's, Madison Square Garden, Rainbow Media Holdings PNC Bank National Association 223,242 Draftfcb 101,758 JCPenney, Aeropostale, Express, Victoria's Secret Property NEW YORK: Penn Plaza: One Penn Plaza (ground leased through 2098) Two Penn Plaza Eleven Penn Plaza -Office -Retail -Office -Retail -Office -Retail 100 West 33rd Street Manhattan Mall -Office -Retail 330 West 34th Street (ground leased through 2148 - 34.8% ownership interest in the land) -Office -Retail 435 Seventh Avenue -Retail 7 West 34th Street 484 Eighth Avenue 431 Seventh Avenue 488 Eighth Avenue Total Penn Plaza -Retail -Retail -Retail -Retail 100.0 % 100.0 % 100.0 % 100.0 % - 100.0 % 33.11 - 33.11 622,000 13,000 635,000 377,000 - 377,000 245,000 13,000 258,000 50,150 City of New York 100.0 % 100.0 % 240.18 43,000 43,000 100.0 % 100.0 % 203.75 21,000 21,000 100.0 % 80.6 % 69.09 16,000 16,000 100.0 % 100.0 % 54.33 10,000 10,000 100.0 % 100.0 % 63.93 6,000 6,000 - - - - - 98,000 Hennes & Mauritz - Express - T.G.I. Friday's - - 7,034,000 6,776,000 258,000 1,228,150 26       ITEM 2. PROPERTIES - Continued Property NEW YORK (Continued): Midtown East: 909 Third Avenue (ground leased through 2063) % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet Total Property In Service Under Development or Not Available for Lease Encumbrances (in thousands) Major Tenants J.P. Morgan Securities Inc., CMGRP Inc., Forest Laboratories, Geller & Company, Morrison Cohen LLP, Robeco USA Inc., United States Post Office, -Office 100.0 % 98.5 % $ 55.59 (2) 1,343,000 1,343,000 - $ 199,198 The Procter & Gamble Distributing LLC. 150 East 58th Street -Office -Retail 715 Lexington (ground leased through 2041) -Retail 968 Third Avenue -Retail Total Midtown East Midtown West: 888 Seventh Avenue (ground leased through 2067) 1740 Broadway 57th Street 825 Seventh Avenue -Office -Retail -Office -Retail -Office -Retail -Office -Retail Total Midtown West Park Avenue: 280 Park Avenue 350 Park Avenue -Office -Retail -Office -Retail 100.0 % 100.0 % 100.0 % 96.7 % 100.0 % 96.8 % 62.51 168.76 62.90 535,000 2,000 537,000 535,000 2,000 537,000 100.0 % 100.0 % 221.85 23,000 23,000 50.0 % 100.0 % 209.66 6,000 6,000 1,909,000 1,909,000 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 50.0 % 50.0 % 50.0 % 50.0 % 100.0 % 49.5 % 49.5 % 49.5 % 100.0 % 100.0 % 100.0 % 96.3 % 100.0 % 96.4 % 100.0 % 100.0 % 100.0 % 100.0 % 79.8 % 94.3 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 96.0 % 100.0 % 96.1 % 81.58 100.37 81.90 64.01 31.50 62.98 55.78 52.88 54.96 45.44 234.47 49.91 86.59 127.11 87.19 83.59 183.90 86.59 860,000 15,000 875,000 583,000 19,000 602,000 135,000 53,000 188,000 165,000 4,000 169,000 860,000 15,000 875,000 583,000 19,000 602,000 135,000 53,000 188,000 165,000 4,000 169,000 1,834,000 1,834,000 1,198,000 18,000 1,216,000 550,000 17,000 567,000 668,000 12,000 680,000 550,000 17,000 567,000 - - - - - - - - - - - - - - - - - - - 530,000 6,000 536,000 - - - Castle Harlan, Tournesol Realty LLC. (Peter Marino), Various showroom tenants - - New York & Company, Zales - Capital One Financial Corporation 199,198 318,554 New Line Realty, Soros Fund, TPG-Axon Capital, Vornado Executive Headquarters Redeye Grill L.P. Davis & Gilbert, Limited Brands Brasserie Cognac, Citibank - Various 20,434 19,554 358,542 738,228 300,000 Young & Rubicam Lindy's Cohen & Steers Inc., Credit Suisse (USA) Inc., General Electric Capital Corp., Investcorp International Inc. Scottrade Inc. Kissinger Associates Inc., Ziff Brothers Investment Inc., MFA Financial Inc., M&T Bank Fidelity Investment, AT&T Wireless, Valley National Bank Total Park Avenue 1,783,000 1,247,000 536,000 1,038,228 27       ITEM 2. PROPERTIES - Continued % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet Total Property In Service Under Development or Not Available for Lease Encumbrances (in thousands) Property NEW YORK (Continued): Grand Central: 90 Park Avenue -Office -Retail 330 Madison Avenue -Office -Retail -Retail 510 Fifth Avenue Total Grand Central Madison/Fifth: 640 Fifth Avenue -Office -Retail 666 Fifth Avenue -Office (Office Condo) -Retail (Office Condo) -Retail (Retail Condo) 595 Madison Avenue 689 Fifth Avenue -Office -Retail -Office -Retail Total Madison/Fifth United Nations: 866 United Nations Plaza -Office -Retail $ - Major Tenants Alston & Bird, Amster, Rothstein & Ebenstein, Capital One, First Manhattan Consulting Citibank Acordia Northeast Inc., Artio Global Management, Dean Witter Reynolds Inc., GPFT Holdco LLC, HSBC Bank AFS, Jones Lang LaSalle Inc. Ann Taylor Retail Inc., Citibank 150,000 31,253 Joe Fresh 181,253 ROC Capital Management LP, Citibank, Fidelity Investments, Janus Capital Group Inc., GSL Enterprises Inc., Scout Capital Management, Legg Mason Investment Counsel Citibank, Hennes & Mauritz Citibank, Fulbright & Jaworski, Integrated Holding Group, Vinson & Elkins LLP HSBC Bank USA Uniqlo, Hollister, Swatch Beauvais Carpets, Levin Capital Strategies LP, Cosmetech Mably Int'l LLC. Coach, Prada Yamaha Artist Services Inc. MAC Cosmetics, Massimo Dutti Fross Zelnick, Mission of Japan, The United Nations, Mission of Finland Citibank - 1,109,700 - - 1,109,700 44,978 100.0 % 100.0 % 96.6 % $ 100.0 % 96.7 % 62.71 85.48 63.35 891,000 26,000 917,000 891,000 26,000 917,000 25.0 % 25.0 % 25.0 % 92.9 % 98.4 % 93.2 % 62.04 141.09 65.21 790,000 33,000 823,000 790,000 33,000 823,000 100.0 % 91.0 % 128.57 64,000 64,000 1,804,000 1,804,000 100.0 % 100.0 % 100.0 % 49.5 % 49.5 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 85.3 % 88.2 % 100.0 % 86.5 % 93.4 % 100.0 % 94.0 % 75.5 % 100.0 % 80.0 % 77.49 238.12 108.23 73.76 164.45 344.36 96.87 67.97 441.53 102.77 73.68 594.07 169.84 262,000 62,000 324,000 262,000 62,000 324,000 1,362,000 52,000 113,000 (3) 1,527,000 1,362,000 52,000 113,000 1,527,000 292,000 30,000 322,000 75,000 17,000 92,000 292,000 30,000 322,000 75,000 17,000 92,000 2,265,000 2,265,000 100.0 % 100.0 % 100.0 % 98.5 % 96.9 % 98.5 % 53.29 79.85 53.73 354,000 6,000 360,000 354,000 6,000 360,000 28 - - - - - - - - - - - - - - - - - - - - - - - - -       ITEM 2. PROPERTIES - Continued % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet Total Property In Service Under Development or Not Available for Lease Encumbrances (in thousands) Major Tenants Property NEW YORK (Continued): Midtown South: 770 Broadway -Office -Retail One Park Avenue -Office -Retail 4 Union Square South -Retail 692 Broadway -Retail Total Midtown South Rockefeller Center: 1290 Avenue of the Americas -Office -Retail 608 Fifth Avenue (ground leased through 2026) -Office -Retail Total Rockefeller Center Wall Street/Downtown: 20 Broad Street (ground leased through 2081) -Office 40 Fulton Street -Office -Retail Total Wall Street/Downtown Times Square: 1540 Broadway 100.0 % 100.0 % 100.0 % 30.3 % 30.3 % 30.3 % 100.0 % $ 100.0 % 100.0 % 94.9 % 90.3 % 94.5 % 58.24 56.04 57.91 43.51 57.69 44.70 943,000 166,000 1,109,000 943,000 166,000 1,109,000 861,000 79,000 940,000 861,000 79,000 940,000 100.0 % 100.0 % 79.35 206,000 206,000 100.0 % 100.0 % 46.50 35,000 35,000 2,290,000 2,290,000 70.0 % 70.0 % 70.0 % 100.0 % 100.0 % 100.0 % 95.0 % 88.2 % 94.8 % 71.34 111.72 72.59 2,037,000 65,000 2,102,000 2,037,000 65,000 2,102,000 80.5 % 94.0 % 85.4 % 52.50 178.08 83.64 91,000 30,000 121,000 91,000 30,000 121,000 2,223,000 2,223,000 100.0 % 99.3 % 52.12 472,000 472,000 100.0 % 100.0 % 100.0 % 96.3 % 100.0 % 96.5 % 36.06 28.46 35.82 244,000 8,000 252,000 244,000 8,000 252,000 724,000 724,000 - - - - - - - - - - - - - - - - - - - - - - AOL, J. Crew, Structure Tone, Nielsen Company (US) Inc. Anne Taylor Retail Inc., Bank of America, Kmart Corporation Coty Inc., New York University, Public Service Mutual Insurance Bank of Baroda, Citibank, Equinox One Park Avenue Inc. $ 353,000 250,000 120,000 Burlington Coat Factory, Whole Foods Market, DSW, Forever 21 - Equinox 723,000 AXA Equitable Life Insurance, Bank of New York Mellon, Broadpoint Gleacher Securities Group, Bryan Cave LLP, Microsoft Corporation, Morrison & Foerster LLP, Warner Music Group, Cushman & Wakefield, Fitzpatrick, Cella, Harper & Scinto, Columbia University Duane Reade, JPMorgan Chase Bank, Sovereign Bank 950,000 Lacoste - 950,000 - New York Stock Exchange Graphnet Inc., Market News International Inc., Sapient Corp. Duane Reade - - Forever 21, Planet Hollywood, Disney - MAC Cosmetics -Retail 100.0 % 98.1 % 147.46 160,000 160,000 1535 Broadway (Marriott Marquis - retail and signage) -Retail Total Times Square 100.0 % - - 64,000 - 224,000 160,000 64,000 64,000 - - 29       ITEM 2. PROPERTIES - Continued % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet Total Property In Service Under Development or Not Available for Lease Encumbrances (in thousands) Major Tenants 100.0 % 100.0 % $ 126.93 85,000 85,000 - $ - Top Shop, Madewell, J. Crew 100.0 % 93.8 % 89.60 48,000 48,000 100.0 % 100.0 % 99.02 7,000 7,000 100.0 % 100.0 % 155.34 7,000 7,000 147,000 147,000 100.0 % 100.0 % 492.12 18,000 18,000 100.0 % 100.0 % 416.52 8,000 8,000 100.0 % 100.0 % 492.68 11,000 11,000 - - - - - - - - Sigrid Olsen - - Sandro - 80,000 Gucci, Chloe, Cartier - Anne Fontaine - Dennis Basso, Nespresso USA, J. Crew 100.0 % - - 25,000 - 62,000 37,000 25,000 25,000 - 80,000 100.0 % 85.7 % 23.35 128,000 128,000 100.0 % 100.0 % 53.05 42,000 42,000 - - - Vornado's Administrative Headquarters - Nike, Barneys Property NEW YORK (Continued): Soho: 478-486 Broadway -Retail 155 Spring Street 148 Spring Street 150 Spring Street -Retail -Retail -Retail Total Soho Upper East Side: 828-850 Madison Avenue -Retail 677-679 Madison Avenue -Retail 40 East 66th Street 1131 Third Avenue -Retail -Retail Total Upper East Side New Jersey: Paramus Washington D.C.: 3040M Street -Office -Retail New York Office: Total 94.6% $ 60.29 20,504,000 19,729,000 Vornado's Ownership Interest 95.9% $ 60.17 17,259,000 16,751,000 New York Retail: Total 96.7% $ 182.92 2,325,000 2,217,000 Vornado's Ownership Interest 96.8% $ 147.28 2,162,000 2,057,000 30 775,000 508,000 108,000 105,000 $ $ $ $ 5,482,038 4,143,072 431,011 431,011       % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet Total Property In Service Under Development or Not Available for Lease Encumbrances (in thousands) Major Tenants ITEM 2. PROPERTIES - Continued Property NEW YORK (Continued): ALEXANDER'S, INC.: New York: 731 Lexington Avenue, Manhattan -Office -Retail 32.4 % 32.4 % 100.0 % $ 100.0 % 100.0 % 93.02 164.35 104.74 885,000 174,000 1,059,000 885,000 174,000 1,059,000 Rego Park I, Queens (4.8 acres) 32.4 % 100.0 % 36.36 343,000 343,000 Rego Park II (adjacent to Rego Park I), Queens (6.6 acres) Flushing, Queens (4) (1.0 acre) New Jersey: Paramus, New Jersey (30.3 acres ground leased to IKEA through 2041) Property to be Developed: Rego Park III (adjacent to Rego Park II), Queens, NY (3.4 acres) Total Alexander's Hotel Pennsylvania: -Hotel (1700 Keys) Residential: 50/70W 93rd Street (327 units) 32.4 % 32.4 % 96.8 % 100.0 % 40.02 15.74 610,000 610,000 167,000 167,000 32.4 % 100.0 % 32.4 % - - - - - - - 99.1 % 68.66 2,179,000 2,179,000 100.0 % - 49.9 % 95.1 % - - 1,400,000 1,400,000 284,000 284,000 Independence Plaza, Tribeca (1,328 units) -Residential -Retail 58.8 % 58.8 % 97.3 % 100.0 % - 70.21 1,190,000 54,000 1,244,000 1,190,000 54,000 1,244,000 1,528,000 1,528,000 Total Residential New York Segment: Total 95.3% $ 68.73 27,936,000 27,053,000 Vornado's Ownership Interest 96.2% $ 69.70 22,400,000 21,787,000 (1) Weighted Average Annual Rent PSF excludes ground rent, storage rent and garages. (2) Excludes US Post Office leased through 2038 (including five five-year renewal options) for which the annual escalated rent is $9.90 PSF. (3) 75,000 square feet is leased from the office condo. (4) Leased by Alexander's through January 2037. 31 - - - - - - - - - - - - - - - $ 327,425 Bloomberg 320,000 Hennes & Mauritz, The Home Depot, The Container Store 647,425 78,246 Sears, Burlington Coat Factory, Bed Bath & Beyond, Marshalls 272,245 Century 21, Costco, Kohl's, TJ Maxx, Toys "R" Us - New World Mall LLC 68,000 IKEA (ground lessee) - 1,065,916 - 45,825 334,225 380,050 883,000 613,000 $ $ 7,359,015 4,804,438       ITEM 2. PROPERTIES - Continued Property WASHINGTON, DC: Crystal City: 2011-2451 Crystal Drive - 5 buildings % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet Total Property In Service Under Development or Not Available for Lease Encumbrances (in thousands) Major Tenants 100.0 % 85.0 % $ 42.65 2,313,000 2,313,000 - $ 270,922 General Services Administration, Lockheed Martin, Conservation International, Smithsonian Institution, Natl. Consumer Coop. Bank, Council on Foundations, Vornado / Charles E. Smith Headquarters, KBR, General Dynamics, Scitor Corp., Food Marketing Institute, DRS Technologies S. Clark Street / 12th Street - 5 buildings 100.0 % 74.9 % 42.40 1,527,000 1,527,000 - 87,221 General Services Administration, SAIC, Inc., Boeing, L-3 Communications, The Int'l Justice Mission 100.0 % 91.5 % 41.18 1,484,000 1,259,000 225,000 117,390 General Services Administration, Alion Science & Technologies, Booz Allen, Arete Associates, Battelle Memorial Institute 100.0 % 95.5 % 39.30 870,000 507,000 363,000 - General Services Administration, 100.0 % 98.6 % 33.16 529,000 529,000 - Lockheed Martin - General Services Administration, Public Broadcasting Service 100.0 % 100.0 % 39.57 309,000 84,000 225,000 - General Services Administration 100.0 % 100.0 % 100.0 % 100.0 % 72.0 % 60.8 % 94.5 % 35.94 31.52 45.74 162,000 162,000 81,000 57,000 81,000 57,000 - - - - National Crime Prevention, Institute for Psychology - Various - Various 85.5 % 40.81 7,332,000 6,519,000 813,000 475,533 1550-1750 Crystal Drive / 241-251 18th Street - 4 buildings 1800, 1851 and 1901 South Bell Street - 3 buildings 2100 / 2200 Crystal Drive - 2 buildings 223 23rd Street / 2221 South Clark Street - 2 buildings 2001 Jefferson Davis Highway Crystal City Shops at 2100 Crystal Drive Retail Total Crystal City Central Business District: Universal Buildings 1825-1875 Connecticut Avenue, NW - 2 buildings Warner Building - 1299 Pennsylvania Avenue, NW 100.0 % 90.8 % 43.39 682,000 682,000 55.0 % 64.5 % 61.25 612,000 612,000 2101 L Street, NW 100.0 % 97.7 % 61.71 380,000 380,000 1750 Pennsylvania Avenue, NW 1150 17th Street, NW Bowen Building - 875 15th Street, NW 1101 17th Street, NW 1730 M Street, NW 100.0 % 100.0 % 100.0 % 55.0 % 100.0 % 85.4 % 85.9 % 96.7 % 86.5 % 86.0 % 46.89 46.06 64.83 45.85 44.84 277,000 277,000 240,000 240,000 231,000 231,000 215,000 215,000 203,000 203,000 32 - - - - - - - - 93,226 Family Health International 292,700 Baker Botts LLP, General Electric, Cooley LLP 150,000 Greenberg Traurig, LLP, US Green Building Council, American Insurance Association, RTKL Associates, Cassidy & Turley - General Services Administration, UN Foundation, AOL 28,728 American Enterprise Institute 115,022 Paul, Hastings, Janofsky & Walker LLP, Millennium Challenge Corporation 31,000 AFSCME 14,853 General Services Administration       % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet Total Property In Service Under Development or Not Available for Lease Encumbrances (in thousands) Major Tenants 100.0 % 97.5 % $ 40.78 91,000 91,000 - $ - Aptima, Inc., Nelnet Corporation 2.5 % 5.0 % 100.0 % - - 1,058,000 - 1,058,000 * - 98.4 % 76.4 % 59.60 79.21 380,000 380,000 128,000 128,000 - - - Sidley Austin LLP, UBS - Bloomberg 87.0 % 52.61 4,497,000 3,439,000 1,058,000 725,529 100.0 % 50.2 % 34.13 2,125,000 2,125,000 100.0 % 100.0 % 32.80 518,000 518,000 100.0 % 60.0 % 33.69 2,643,000 2,643,000 100.0 % 90.8 % 41.93 635,000 635,000 46.2 % 79.0 % 36.93 733,000 733,000 86.7 % 40.24 1,368,000 1,368,000 - - - - - - 564,901 General Services Administration, SAIC, Inc., Analytic Services Northrop Grumman, Axiom Resource Management, Booz Allen, Jacer Corporation, Intellidyne, Inc. 140,056 General Services Administration 704,957 47,353 Arlington County, General Services Administration, AMC Theaters - General Services Administration, Corporate Executive Board 47,353 100.0 %` 90.7 % 29.96 418,000 399,000 19,000 * - L-3 Communications, Allworld Language Consultants, ITEM 2. PROPERTIES - Continued Property WASHINGTON, DC (Continued): 1726 M Street, NW Waterfront Station 1501 K Street, NW 1399 New York Avenue, NW Total Central Business District I-395 Corridor: Skyline Place - 7 buildings One Skyline Tower Total I-395 Corridor Rosslyn / Ballston: 2200 / 2300 Clarendon Blvd (Courthouse Plaza) - 2 buildings (ground leased through 2062) Rosslyn Plaza - Office - 4 buildings Total Rosslyn / Ballston Reston: Commerce Executive - 3 buildings Rockville/Bethesda: Democracy Plaza One (ground leased through 2084) Tysons Corner: Fairfax Square - 3 buildings Pentagon City: Fashion Centre Mall Washington Tower Total Pentagon City 100.0 % 86.8 % 31.36 216,000 216,000 20.0 % 82.2 % 38.68 533,000 533,000 7.5 % 7.5 % 99.2 % 100.0 % 40.21 45.18 819,000 819,000 170,000 170,000 99.3 % 41.06 989,000 989,000 - - - - - Total Washington, DC office properties 82.2 % $ 42.13 17,996,000 16,106,000 Vornado's Ownership Interest 81.2 % $ 41.57 14,495,000 13,637,000 1,890,000 858,000 $ $ 33 BT North America - National Institutes of Health 70,127 Dean & Company, Womble Carlyle 410,000 Macy's, Nordstrom 40,000 The Rand Corporation 450,000 2,473,499 1,855,482       ITEM 2. PROPERTIES - Continued % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet Total Property In Service Under Development or Not Available for Lease Encumbrances (in thousands) Major Tenants Rosslyn Plaza - 2 buildings (196 units) 43.7 % 97.8 % Property WASHINGTON, DC (Continued): Residential: For rent residential: Riverhouse - 3 buildings (1,670 units) West End 25 (283 units) 220 20th Street (265 units) Total Residential Other: Crystal City Hotel Warehouses - 3 buildings Other - 3 buildings Total Other 100.0 % 100.0 % 100.0 % 98.0 % $ 97.5 % 97.4 % 97.9 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % - - - - - - - - 1,802,000 1,802,000 271,000 271,000 273,000 273,000 253,000 253,000 2,599,000 2,599,000 266,000 266,000 214,000 160,000 11,000 9,000 100.0 % 491,000 435,000 - - - - - - 54,000 * 2,000 * 56,000 $ 259,546 101,671 73,939 - 435,156 - - - - Total Washington, DC Properties Vornado's Ownership Interest 84.8 % $ 42.13 21,086,000 19,140,000 1,946,000 84.1 % $ 41.57 17,444,000 16,529,000 915,000 $ $ 2,908,655 2,290,639 * We do not capitalize interest or real estate taxes on this space. (1) Weighted Average Annual Rent PSF excludes ground rent, storage rent and garages. 34       ITEM 2. PROPERTIES - Continued % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet In Service Under Development Total Property Owned by Company Owned By Tenant or Not Available for Lease Encumbrances (in thousands) Major Tenants 100.0 % 100.0 % $ 29.60 717,000 29,000 287,000 401,000 $ - J. C. Penney, Dick's Sporting Goods (lease not commenced) 100.0 % 100.0 % 24.20 410,000 204,000 206,000 100.0 % 100.0 % 19.01 271,000 177,000 94,000 - - 75,000 Wal-Mart, BJ's Wholesale Club 25,217 (2) The Home Depot, Bed Bath & Beyond, Marshalls 100.0 % 100.0 % 26.80 305,000 21,000 149,000 135,000 - Wal-Mart Union (Route 22 and Morris Avenue) 100.0 % 99.4 % 24.97 276,000 113,000 163,000 100.0 % 94.2 % 17.74 279,000 276,000 3,000 100.0 % 72.5 % 22.61 275,000 269,000 6,000 - - - 32,525 (2) Kohl's, ShopRite, Marshalls 32,916 (2) Lowe's, Toys "R" Us 41,283 (2) The Home Depot 100.0 % 100.0 % 34.15 269,000 26,000 167,000 76,000 - Lowe's, REI 100.0 % 96.8 % 17.83 267,000 261,000 6,000 100.0 % 96.3 % 13.72 263,000 64,000 199,000 100.0 % 100.0 % 21.79 236,000 66,000 170,000 East Brunswick (325 - 333 Route 18 South) 100.0 % 100.0 % 16.15 232,000 222,000 10,000 Union (2445 Springfield Avenue) 100.0 % 100.0 % 17.85 232,000 232,000 - 100.0 % 95.9 % 13.93 231,000 179,000 52,000 100.0 % 83.9 % 22.29 227,000 87,000 140,000 100.0 % 100.0 % 17.72 219,000 7,000 - 212,000 - Property RETAIL PROPERTIES: STRIP SHOPPING CENTERS: New Jersey: Wayne Town Center, Wayne (ground leased through 2064) North Bergen (Tonnelle Avenue) Totowa Garfield Bricktown Hackensack Bergen Town Center - East, Paramus East Hanover (240 Route 10 West) Cherry Hill Jersey City Middletown Woodbridge North Plainfield (ground leased through 2060) Marlton Manalapan East Rutherford - - - - - - - 29,010 (2) The Home Depot, Dick's Sporting Goods, Marshalls 14,115 (2) Wal-Mart, Toys "R" Us 20,642 (2) Lowe's, P.C. Richard & Son 25,328 (2) Kohl's, Dick's Sporting Goods, P.C. Richard & Son, T.J. Maxx 29,010 (2) The Home Depot 17,685 (2) Kohl's, Stop & Shop 21,033 (2) Wal-Mart - - - - 17,574 (2) Kohl's (3), ShopRite, PetSmart 21,423 (2) Best Buy, Bed Bath & Beyond, Babies "R" Us 13,836 (2) Lowe's 11,995 (2) Lowe's, LA Fitness (lease not commenced) 96,000 * - ShopRite - - 21,758 (2) Kohl's, ShopRite 13,389 (2) ShopRite, T.J. Maxx 128,000 * - - - - 11,548 (2) National Wholesale Liquidators 15,342 (2) BJ's Wholesale Club 10,879 (2) The Home Depot, PetSmart 100.0 % 100.0 % 13.33 213,000 209,000 100.0 % 100.0 % 15.98 208,000 206,000 4,000 2,000 100.0 % 100.0 % 34.22 197,000 42,000 155,000 East Brunswick (339-341 Route 18 South) 100.0 % 100.0 % - 196,000 33,000 163,000 Bordentown Morris Plains Dover Delran 100.0 % 80.4 % 7.25 179,000 83,000 100.0 % 97.2 % 20.59 177,000 176,000 100.0 % 88.1 % 11.96 173,000 167,000 100.0 % 7.2 % - 171,000 40,000 Lodi (Route 17 North) 100.0 % 100.0 % 11.24 171,000 171,000 - 1,000 6,000 3,000 - Watchung Lawnside 100.0 % 93.9 % 23.74 170,000 54,000 116,000 100.0 % 100.0 % 14.11 145,000 142,000 3,000 35       ITEM 2. PROPERTIES - Continued % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet In Service Under Development Total Property Owned by Company Owned By Tenant or Not Available for Lease Encumbrances (in thousands) Major Tenants Property RETAIL PROPERTIES (Continued): Hazlet 100.0 % 100.0 % $ 2.64 123,000 123,000 - Kearny 100.0 % 43.5 % 16.11 104,000 91,000 13,000 Lodi (Washington Street) 100.0 % 64.2 % Carlstadt (ground leased through 2050) 100.0 % 90.7 % East Hanover (200 Route 10 West) 100.0 % 86.0 % Paramus (ground leased through 2033) 100.0 % 100.0 % North Bergen (Kennedy Boulevard) 100.0 % 100.0 % South Plainfield (ground leased through 2039) 100.0 % 85.9 % Englewood 100.0 % 79.7 % East Hanover (280 Route 10 West) 100.0 % 94.0 % 100.0 % 100.0 % 23.99 22.42 23.27 42.23 31.20 21.45 26.09 32.00 23.34 85,000 85,000 78,000 78,000 76,000 76,000 63,000 63,000 - - - - 62,000 6,000 56,000 56,000 56,000 41,000 41,000 26,000 26,000 18,000 18,000 - - - - - - - - - - - - - - - $ - Stop & Shop - Marshalls 8,940 Rite Aid - Stop & Shop 9,930 (2) Loehmann's - 24 Hour Fitness 5,188 (2) Waldbaum's 5,216 (2) Staples 11,924 New York Sports Club 4,631 (2) REI 2,678 (2) Whole Foods Market 7,441,000 4,219,000 2,174,000 1,048,000 550,015 Montclair Total New Jersey New York: Poughkeepsie Bronx (Bruckner Boulevard) Buffalo (Amherst) Huntington Rochester Mt. Kisco 100.0 % 85.6 % 8.62 517,000 517,000 - 100.0 % 93.0 % 21.30 501,000 387,000 114,000 100.0 % 85.6 % 8.23 296,000 227,000 69,000 100.0 % 97.9 % 14.09 209,000 209,000 - 100.0 % 100.0 % - 205,000 - 205,000 100.0 % 100.0 % 22.08 189,000 72,000 117,000 Freeport (437 East Sunrise Highway) 100.0 % 100.0 % 18.61 173,000 173,000 Staten Island Albany (Menands) New Hyde Park (ground and building leased through 2029) Inwood 100.0 % 94.2 % 21.47 165,000 165,000 100.0 % 74.0 % 9.00 140,000 140,000 100.0 % 100.0 % 18.73 101,000 101,000 100.0 % 97.9 % 21.00 100,000 100,000 - - - - - 36 - - - - - - - - - - - - Kmart, Burlington Coat Factory, ShopRite, Hobby Lobby, Christmas Tree Shops, Bob's Discount Furniture - Kmart, Toys "R" Us, Key Food - BJ's Wholesale Club (lease not commenced), T.J. Maxx, Toys "R" Us 16,960 (2) Kmart, Marshalls, Old Navy 4,463 (2) Wal-Mart 28,637 Target, A&P 21,758 (2) The Home Depot, Staples 16,939 Western Beef - - Bank of America Stop & Shop - Stop & Shop       ITEM 2. PROPERTIES - Continued Property RETAIL PROPERTIES (Continued): North Syracuse (ground and building leased through 2014) % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet In Service Total Property Owned by Company Owned By Tenant Under Development or Not Available for Lease Encumbrances (in thousands) Major Tenants 100.0 % 100.0 % $ - 98,000 - 98,000 - $ - Wal-Mart West Babylon 100.0 % 83.9 % Bronx (1750-1780 Gun Hill Road) 100.0 % 78.7 % 100.0 % 100.0 % 100.0 % 100.0 % 17.19 34.77 37.24 21.45 79,000 79,000 77,000 77,000 56,000 56,000 47,000 47,000 100.0 % 100.0 % 20.46 46,000 46,000 100.0 % 100.0 % 20.28 44,000 44,000 100.0 % 100.0 % 27.83 16,000 16,000 3,059,000 2,456,000 603,000 100.0 % 93.1 % 14.76 627,000 (3) 270,000 357,000 (3) 100.0 % 83.3 % 13.33 329,000 (3) 204,000 125,000 (3) 100.0 % 100.0 % 4.70 228,000 58,000 170,000 100.0 % 98.9 % 100.0 % 100.0 % 100.0 % 95.3 % 100.0 % 100.0 % 11.49 11.09 7.07 8.69 185,000 177,000 8,000 169,000 147,000 22,000 167,000 164,000 3,000 110,000 110,000 100.0 % 100.0 % 25.75 102,000 100.0 % 100.0 % 6.53 81,000 10,000 41,000 100.0 % 100.0 % 18.26 47,000 47,000 - 92,000 - - - - - - - - - - - - - - - - - - - - - - - - - - Best Market - ALDI, Planet Fitness, T.G.I. Friday's - New York Sports Club, Devry - PetSmart - Best Buy - Bob's Discount Furniture - Party City 88,757 30,517 (2) Wal-Mart (3), ShopRite, Burlington Coat Factory, T.J. Maxx, Dick's Sporting Goods 20,201 Target (3), Babies "R" Us, Ross Dress for Less 5,495 (2) Lowe's, Weis Markets 15,147 (2) Kohl's, Ross Dress for Less, Staples 10,879 (2) Giant Food (3), A.C. Moore, PetSmart 5,691 (2) Giant Food, Petco 5,300 (2) Ashley Furniture 6,974 (2) Wal-Mart 40,000 * - Ollie's Bargain Outlet - - PetSmart Queens Commack (ground and building leased through 2021) Dewitt (ground leased through 2041) Freeport (240 West Sunrise Highway) (ground and building leased through 2040) Oceanside Total New York Pennsylvania: Allentown Wilkes-Barre Lancaster Bensalem Broomall Bethlehem York Glenolden Wilkes-Barre (ground and building leased through 2014) Springfield (ground and building leased through 2025) Total Pennsylvania 2,045,000 1,228,000 777,000 40,000 100,204 37       ITEM 2. PROPERTIES - Continued % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet In Service Under Development Total Property Owned by Company Owned By Tenant or Not Available for Lease Encumbrances (in thousands) Major Tenants Beverly Connection, Los Angeles 100.0 % 90.1 % 35.45 335,000 335,000 Pasadena (ground leased through 2077) 100.0 % 86.5 % 27.32 131,000 131,000 100.0 % 94.5 % $ 29.71 647,000 (3) 492,000 155,000 (3) Walnut Creek (1149 South Main Street) 100.0 % 100.0 % Property RETAIL PROPERTIES (Continued): California: San Jose San Francisco (2675 Geary Street) (ground and building leased through 2053) Signal Hill Vallejo (ground leased through 2043) Walnut Creek (Mt. Diablo) Total California Massachusetts: Chicopee Springfield Milford (ground and building leased through 2019) Cambridge (ground and building leased through 2033) Total Massachusetts Maryland: Baltimore (Towson) Annapolis (ground and building leased through 2042) Rockville Wheaton (ground leased through 2060) Total Maryland - - - - - - - 100.0 % 100.0 % 50.34 55,000 55,000 100.0 % 100.0 % 100.0 % 100.0 % 95.0 % 100.0 % 24.08 17.51 45.11 70.00 45,000 45,000 45,000 45,000 29,000 29,000 7,000 7,000 1,294,000 1,139,000 155,000 100.0 % 100.0 % - 224,000 - 224,000 100.0 % 97.8 % 16.39 182,000 33,000 149,000 100.0 % 100.0 % 8.01 83,000 83,000 100.0 % 100.0 % 21.31 48,000 48,000 - - 537,000 164,000 373,000 100.0 % 97.8 % 15.57 155,000 155,000 100.0 % 100.0 % 8.99 128,000 128,000 100.0 % 84.4 % 100.0 % 100.0 % 23.13 14.94 94,000 66,000 94,000 66,000 443,000 443,000 - - - - - 38 - - - - - - - - - - - - - - - - - - - $ 104,856 Target (3), The Home Depot, Toys "R" Us, Best Buy - - - - - Target, Marshalls, Old Navy, Nordstrom Rack, Ross Dress for Less T.J. Maxx, Trader Joe's Best Buy Best Buy Best Buy - Barnes & Noble - Anthropologie 104,856 8,452 (2) Wal-Mart 5,830 (2) Wal-Mart - Kohl's - PetSmart 14,282 15,900 (2) Shoppers Food Warehouse, h.h.gregg, Staples, Home Goods, Golf Galaxy - The Home Depot - - Regal Cinemas Best Buy 15,900       % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet In Service Under Development Total Property Owned by Company Owned By Tenant or Not Available for Lease Encumbrances (in thousands) Major Tenants ITEM 2. PROPERTIES - Continued Property RETAIL PROPERTIES (Continued): Connecticut: Newington Waterbury Total Connecticut Florida Tampa (Hyde Park Village) Michigan: Roseville Battle Creek Midland (ground leased through 2043) Total Michigan Virginia: Norfolk (ground and building leased through 2069) Tyson's Corner (ground and building leased through 2035) Total Virginia Illinois: Lansing Arlington Heights (ground and building leased through 2043) Chicago (ground and building leased through 2051) Total Illinois Texas: San Antonio (ground and building leased through 2041) 100.0 % 100.0 % $ 100.0 % 100.0 % 14.45 15.02 188,000 43,000 145,000 148,000 143,000 5,000 336,000 186,000 150,000 75.0 % 75.9 % 20.28 264,000 264,000 100.0 % 100.0 % 5.43 119,000 119,000 100.0 % 100.0 % - 83.6 % - 8.97 47,000 31,000 47,000 31,000 197,000 197,000 100.0 % 100.0 % 6.44 114,000 114,000 100.0 % 100.0 % 39.13 38,000 38,000 152,000 152,000 100.0 % 100.0 % 100.0 % 100.0 % 10.00 9.00 47,000 46,000 47,000 46,000 100.0 % 100.0 % 12.03 41,000 41,000 100.0 % 100.0 % 10.63 43,000 43,000 134,000 134,000 Texarkana (ground leased through 2013) 100.0 % 100.0 % 4.39 31,000 31,000 Total Texas Ohio: Springdale (ground and building leased through 2046) Tennessee: Antioch 100.0 % - - 47,000 47,000 74,000 74,000 100.0 % 100.0 % 7.66 45,000 45,000 39 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ 11,437 (2) Wal-Mart, Staples 14,226 (2) ShopRite 25,663 19,126 Pottery Barn, CineBistro, Brooks Brothers, Williams Sonoma, Lifestyle Family Fitness JCPenney PetSmart - - - - - BJ's Wholesale Club - Best Buy - - - Forman Mills RVI - Best Buy - - Best Buy - Home Zone - - - Best Buy       % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet In Service Under Development Total Property Owned by Company Owned By Tenant or Not Available for Lease Encumbrances (in thousands) Major Tenants ITEM 2. PROPERTIES - Continued Property RETAIL PROPERTIES (Continued): South Carolina: Charleston (ground leased through 2063) Wisconsin: Fond Du Lac (ground leased through 2073) New Hampshire: Salem (ground leased through 2102) Kentucky: Owensboro (ground and building leased through 2046) Iowa: Dubuque (ground leased through 2043) CALIFORNIA SUPERMARKETS Colton (1904 North Rancho Avenue) 100.0 % 100.0 % $ 15.42 45,000 45,000 100.0 % 100.0 % 7.83 43,000 43,000 - - 100.0 % 100.0 % - 37,000 - 37,000 100.0 % 100.0 % 7.66 32,000 32,000 100.0 % 100.0 % 9.90 31,000 31,000 100.0 % 100.0 % San Bernadino (1522 East Highland Avenue) 100.0 % 100.0 % Riverside (5571 Mission Boulevard) 100.0 % 100.0 % Mojave (ground leased through 2079) 100.0 % 100.0 % Corona (ground leased through 2079) 100.0 % 100.0 % Yucaipa Barstow Moreno Valley San Bernadino (648 West 4th Street) Desert Hot Springs Rialto Total California Supermarkets Total Strip Shopping Centers Vornado's Ownership Interest 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % - 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 4.44 7.23 4.97 6.55 7.76 4.13 7.15 - 6.74 5.61 5.74 73,000 40,000 39,000 34,000 33,000 31,000 30,000 30,000 30,000 29,000 29,000 73,000 40,000 39,000 34,000 33,000 31,000 30,000 30,000 30,000 29,000 29,000 398,000 398,000 - $ - Best Buy - - - - - - - - - - - - - - - - - PetSmart - Babies "R" Us - Best Buy - PetSmart Stater Brothers Stater Brothers Stater Brothers Stater Brothers Stater Brothers Stater Brothers Stater Brothers Stater Brothers Stater Brothers Stater Brothers - - - - - - - - - - - - - - - - - - - - - - - - - - 93.5 % $ 17.40 16,654,000 11,297,000 4,269,000 93.6 % $ 17.39 16,072,000 11,231,000 3,753,000 1,088,000 1,088,000 $ $ 918,803 914,022 40       ITEM 2. PROPERTIES - Continued Property RETAIL PROPERTIES (Continued): REGIONAL MALLS: Monmouth Mall, Eatontown, NJ   % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet In Service Under Development Total Property Owned by Company Owned By Tenant or Not Available for Lease Encumbrances (in thousands) Major Tenants 50.0 % 92.9 % $ 36.01 (5) 1,462,000 (4) 850,000 612,000 (4) - $ 171,796 Macy's (4), JCPenney (4), Lord & Taylor, Boscov's, Loews Theatre, Barnes & Noble Springfield Mall, Springfield, VA 97.5 % 100.0 % 15.73 (5) 1,408,000 (4) 294,000 31.38 (5) 1,136,000 (4) 760,000 390,000 (4) 376,000 (4) 724,000 - Macy's, JCPenney (4), Target (4) - 85,180 Macy's, IKEA, Target (4), National Amusement Broadway Mall, Hicksville, NY Bergen Town Center - West, Paramus, NJ 100.0 % 100.0 % 88.6 % 98.9 % 47.53 (5) 948,000 897,000 31,000 20,000 282,312 Target, Century 21, Whole Foods Market, Marshalls, Nordstrom Rack, Saks Off 5th, Bloomingdale's Outlet, Nike Factory Store, Old Navy, Neiman Marcus Last Call Studio, Blink Fitness Montehiedra, Puerto Rico 100.0 % 89.1 % 41.27 (5) 540,000 540,000 - Las Catalinas, Puerto Rico 100.0 % 87.6 % 58.54 (5) 494,000 (4) 355,000 139,000 (4) Total Regional Malls Vornado's Ownership Interest Total Retail Space Vornado's Ownership Interest 92.8 % $ 40.94 5,988,000 3,696,000 1,548,000 92.7 % $ 41.86 4,334,000 3,264,000 344,000 93.4 % 93.4 % 22,642,000 14,993,000 5,817,000 1,832,000 20,406,000 14,495,000 4,097,000 1,814,000 - - 744,000 726,000 120,000 The Home Depot, Kmart, Marshalls, Caribbean Theatres, Tiendas Capri 54,101 Kmart, Sears (4) $ $ $ $ 713,389 627,491 1,632,192 1,541,513 * We do not capitalize interest or real estate taxes on this space. (1) Weighted Average Annual Rent PSF excludes ground rent, storage rent and garages. (2) These encumbrances are cross-collateralized under a blanket mortgage in the amount of $633,180 as of December 31, 2012. (3) The lease for these former Bradlees locations is guaranteed by Stop & Shop. (4) Includes square footage of anchors who own the land and building. (5) Weighted Average Annual Rent PSF shown is for mall tenants only. 41               ITEM 2. PROPERTIES - Continued Property MERCHANDISE MART: Illinois: Merchandise Mart, Chicago % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet Total Property In Service Under Development or Not Available for Lease Encumbrances (in thousands) Major Tenants 100.0 % 95.2 % $ 30.45 3,553,000 3,553,000 - $ 550,000 Motorola Mobility / Google (lease not commenced), American Intercontinental University (AIU), Baker, Knapp & Tubbs, Royal Bank of Canada, CCC Information Services, Ogilvy Group (WPP), Chicago Teachers Union, Publicis Groupe, Office of the Special Deputy Receiver, Holly Hunt Ltd., Razorfish, TNDP, Merchandise Mart Headquarters, Steelcase, Chicago School of Professional Psychology Other Total Illinois New York 7 West 34th Street 50.0 % 100.0 % 33.01 19,000 19,000 95.2 % 30.47 3,572,000 3,572,000 100.0 % 70.4 % 37.70 419,000 419,000 Total Merchandise Mart Vornado's Ownership Interest 92.6 % $ 31.22 3,991,000 3,991,000 92.6 % $ 31.22 3,982,000 3,982,000 - - - - - 23,730 573,730 - Kurt Adler $ $ 573,730 561,865 (1) Weighted Average Annual Rent PSF excludes ground rent, storage rent and garages. 42       ITEM 2. PROPERTIES - Continued Property 555 CALIFORNIA STREET: 555 California Street 315 Montgomery Street 345 Montgomery Street Total 555 California Street Vornado's Ownership Interest % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet Total Property In Service Under Development or Not Available for Lease Encumbrances (in thousands) 70.0 % 91.7 % $ 54.89 1,503,000 1,503,000 - $ 600,000 Major Tenants Bank of America, Dodge & Cox, Goldman Sachs & Co., Jones Day, Kirkland & Ellis LLP, Morgan Stanley & Co. Inc., McKinsey & Company Inc., UBS Financial Services 70.0 % 70.0 % 100.0 % 100.0 % 41.49 90.46 228,000 228,000 64,000 64,000 93.1 % $ 54.53 1,795,000 1,795,000 93.1 % $ 54.53 1,257,000 1,257,000 - - - - - - Bank of America Bank of America $ $ 600,000 420,000 (1) Weighted Average Annual Rent PSF excludes ground rent, storage rent and garages. 43       ITEM 2. PROPERTIES - Continued Property WAREHOUSES: NEW JERSEY East Hanover - Five Buildings Total Warehouses Vornado's Ownership Interest % Ownership % Occupancy Weighted Average Annual Rent PSF (1) Square Feet Total Property In Service Under Development or Not Available for Lease Encumbrances (in thousands) Major Tenants 100.0 % 55.9 % $ 4.34 942,000 942,000 55.9 % $ 55.9 % $ 4.34 4.34 942,000 942,000 942,000 942,000 - $ - - $ $ - Foremost Groups Inc., Fidelity Paper & Supply Inc., Consolidated Simon Distributors Inc., Givaudan Flavors Corp., Meyer Distributing Inc., Gardner Industries Inc. - - (1) Weighted Average Annual Rent PSF excludes ground rent, storage rent and garages. 44       ITEM 2. PROPERTIES - Continued Property VORNADO CAPITAL PARTNERS REAL ESTATE FUND: New York, NY: One Park Avenue - Office - Retail Lucida, 86th Street and Lexington Avenue (ground leased through 2082) - Retail - Residential 11 East 68th Street Retail Crowne Plaza Times Square - Hotel (795 Keys) - Retail - Office 501 Broadway Washington, DC: Fund Ownership % % Occupancy Weighted Average Annual Rent PSF (1) Square Feet Total Property In Service Under Development or Not Available for Lease Encumbrances (in thousands) Major Tenants 64.7 % 64.7 % 64.7 % 94.9 % $ 90.3 % 94.5 % 43.51 57.69 44.70 861,000 79,000 940,000 861,000 79,000 940,000 100.0 % 100.0 % 100.0 % 100.0 % 124.85 - 95,000 51,000 146,000 95,000 51,000 146,000 100.0 % 100.0 % 518.49 9,000 9,000 38.2 % 38.2 % 100.0 % 100.0 % 337.28 32.88 51.74 14,000 212,000 226,000 14,000 212,000 226,000 100.0 % - - 9,000 9,000 - - - - - - - - - - - Coty Inc., New York University, Public Service Mutual Insurance Bank of Baroda, Citibank, Equinox One Park Avenue Inc. $ 250,000 Barnes & Noble, Hennes & Mauritz, Sephora, Bank of America 100,000 27,790 Belstaff, Joseph Inc. American Management Association 255,750 20,000 Georgetown Park Retail Shopping Center 50.0 % 100.0 % 33.06 313,000 113,000 200,000 50,006 Hennes & Mauritz, J. Crew Washington Sports, Dean & Deluca, Anthropologie, Santa Monica, CA: 520 Broadway Culver City, CA: 800 Corporate Pointe Miami, FL: 1100 Lincoln Road 100.0 % 67.2 % 47.31 112,000 112,000 100.0 % 44.0 % 30.59 243,000 243,000 100.0 % 97.6 % 62.65 127,000 127,000 - - - Premier Office Centers LLC, Diversified Mercury Comm, 30,000 Four Media Company Meredith Corp., West Publishing Corp., Symantec Corp., - Syska Hennessy Group 66,000 Regal Cinema, Anthropologie, Banana Republic Total Real Estate Fund Vornado's Ownership Interest 72.6 % 18.1 % 84.6 % 84.6 % 2,125,000 1,925,000 374,000 349,000 200,000 25,000 $ $ 799,546 132,060 (1) Weighted Average Annual Rent PSF excludes ground rent, storage rent and garages. 45   NEW YORK As of December 31, 2012, our New York segment consisted of 65 properties aggregating 27.1 million square feet, of which we own 21.9 million square feet. The 21.9 million square feet is comprised of 16.8 million square feet of office space in 31 properties, 2.1 million square feet of retail space in 49 properties, four residential properties containing 1,655 units, the 1.4 million square foot Hotel Pennsylvania, and our interest in Alexander’s, Inc. (“Alexander’s”). The New York segment also includes 11 garages totaling 1.7 million square feet (5,159 spaces) which are managed by, or leased to, third parties. New York lease terms generally range from five to seven years for smaller tenants to as long as 20 years for major tenants, and may provide for extension options at market rates. Leases typically provide for periodic step-ups in rent over the term of the lease and pass through to tenants their share of increases in real estate taxes and operating expenses over a base year. Electricity is provided to tenants on a sub-metered basis or included in rent based on surveys and adjusted for subsequent utility rate increases. Leases also typically provide for free rent and tenant improvement allowances for all or a portion of the tenant’s initial construction costs of its premises. As of December 31, 2012, the occupancy rate for our New York segment was 96.2%. The statistics provided in the following sections include information on the office and retail space. Occupancy and weighted average annual rent per square foot: Office: Retail: As of December 31, 2012 2011 2010 2009 2008 Rentable Square Feet 16,751,000 16,598,000 15,348,000 15,331,000 15,266,000 Occupancy Rate 95.9 % 96.2 % 96.1 % 97.1 % 98.0 % As of December 31, 2012 2011 2010 2009 2008 Rentable Square Feet 2,057,000 2,000,000 1,924,000 1,820,000 1,787,000 Occupancy Rate 96.8 % 95.6 % 96.4 % 97.0 % 94.0 % $ Weighted Average Annual Rent Per Square Foot 60.17 58.70 56.14 55.54 55.00 $ Weighted Average Annual Rent Per Square Foot 147.28 110.17 106.52 101.53 100.84 46       NEW YORK – CONTINUED  2012 rental revenue by tenants’ industry: Industry Office: Financial Services Legal Services Communications Insurance Family Apparel Technology Publishing Real Estate Pharmaceutical Government Banking Engineering, Architect & Surveying Advertising / Marketing Not-for-Profit Health Services Other Retail: Family Apparel Department Stores Women's Apparel Luxury Retail Home Entertainment & Electronics Banking Discount Stores Restaurants Other Percentage 16 % 7 % 6 % 6 % 6 % 4 % 4 % 4 % 3 % 3 % 3 % 2 % 2 % 2 % 1 % 8 % 77 % 5 % 3 % 3 % 2 % 2 % 2 % 1 % 1 % 4 % 23 % Total 100 % Tenants accounting for 2% or more of revenues: Tenant AXA Equitable Life Insurance Macy’s Limited Brands Ziff Brothers Investments, Inc. McGraw-Hill Companies, Inc. Square Feet Leased 2012 Revenues 423,000 598,000 465,000 287,000 480,000 $ 35,039,000 31,816,000 26,052,000 24,176,000 24,155,000 Percentage of New York Revenues 2.9 % 2.6 % 2.2 % 2.0 % 2.0 % Percentage of Total Revenues 1.3 % 1.2 % 0.9 % 0.9 % 0.9 % 47         NEW YORK – CONTINUED  2012 Leasing Activity: Office: Location One Penn Plaza Two Penn Plaza 100 West 33rd Street 909 Third Avenue 350 Park Avenue 280 Park Avenue 150 East 58th Street 1290 Avenue of Americas 770 Broadway 888 Seventh Avenue 666 Fifth Avenue 866 United Nations Plaza One Park Avenue 330 Madison Avenue 40 Fulton Street 595 Madison Avenue 57th Street 90 Park Avenue 689 Fifth Avenue 20 Broad Street Total Location 4 Union Square South 1540 Broadway Manhattan Mall 692 Broadway One Penn Plaza 330 Madison Avenue 280 Park Avenue 150 East 58th Street 666 Fifth Avenue Two Penn Plaza 689 Fifth Avenue 155 Spring Street 350 Park Avenue Total Weighted Average Initial Rent Per Square Foot (1) Square Feet 371,000 232,000 225,000 224,000 132,000 126,000 83,000 83,000 80,000 76,000 64,000 53,000 53,000 37,000 25,000 24,000 21,000 15,000 15,000 11,000 1,950,000 Square Feet 93,000 32,000 23,000 17,000 9,000 4,000 4,000 3,000 3,000 1,000 1,000 1,000 1,000 192,000 $ 59.37 47.45 45.79 50.08 78.91 81.75 59.84 70.00 40.00 79.61 76.27 51.38 48.00 75.49 35.72 64.81 60.00 63.20 57.84 35.93 58.53 57.15 $ 65.33 93.31 94.53 58.58 150.73 308.46 239.97 337.74 170.66 479.00 2,700.00 376.45 152.70 114.21 Vornado's share 1,754,000 Retail: Weighted Average Initial Rent Per Square Foot (1) Vornado's share 185,000 110.71 (1) Represents the cash basis weighted average starting rents 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 leased, but are included in the GAAP basis straight-line rent per square foot (see "Overview - Leasing Activity" of Management's Discussion and Analysis of Financial Condition and Results of Operations). 48       NEW YORK – CONTINUED  Lease expirations as of December 31, 2012, assuming none of the tenants exercise renewal options: Year Office: Month to month 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Retail: Month to month 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 (1) Number of Square Feet of Expiring Leases Expiring Leases Percentage of New York Square Feet Weighted Average Annual Rent of Expiring Leases Total Per Square Foot 35 88 149 171 135 98 73 62 82 54 56 6 37 23 34 18 10 31 20 17 9 9 55,000 646,000 1,203,000 (1) 2,105,000 1,214,000 1,239,000 1,067,000 910,000 1,522,000 1,060,000 1,177,000 14,000 128,000 71,000 104,000 210,000 169,000 206,000 95,000 79,000 34,000 54,000 0.3 % 4.0 % 7.4 % 12.9 % 7.5 % 7.6 % 6.6 % 5.6 % 9.4 % 6.5 % 7.2 % 0.7 % 6.0 % 3.3 % 4.8 % 9.8 % 7.9 % 9.6 % 4.4 % 3.7 % 1.6 % 2.5 % $ 2,759,000 $ 33,411,000 75,086,000 115,079,000 71,848,000 71,850,000 71,529,000 56,035,000 85,580,000 64,268,000 72,365,000 $ 684,000 $ 14,003,000 14,196,000 22,887,000 19,427,000 9,211,000 37,389,000 20,448,000 8,355,000 6,595,000 6,387,000 50.16 51.72 62.42 54.67 59.18 57.99 67.04 61.58 56.23 60.63 61.48 48.86 109.40 199.94 220.07 92.51 54.50 181.50 215.24 105.76 193.97 118.28 Excludes 492,000 square feet at 909 Third Avenue leased to the U.S. Post Office through 2038 (including five 5-year renewal options) for which the annual escalated rent is $9.90 per square foot. Alexander’s As of December 31, 2012, we own 32.4% of the outstanding common stock of Alexander’s, which owns six properties in the greater New York metropolitan area aggregating 2.2 million square feet, including 731 Lexington Avenue, the 1.3 million square foot Bloomberg L.P. headquarters building. Alexander’s had $1.06 billion of outstanding debt at December 31, 2012, of which our pro rata share was $345 million, none of which is recourse to us. Hotel Pennsylvania We own the Hotel Pennsylvania which is located in New York City on Seventh Avenue opposite Madison Square Garden and consists of a hotel portion containing 1,000,000 square feet of hotel space with 1,700 rooms and a commercial portion containing 400,000 square feet of retail and office space. 2012 Year Ended December 31, 2010 2009 2011 2008 Hotel: Average occupancy rate Average daily rate Revenue per available room Commercial: Office space: 89.1 % 151.22 134.81 $ $ 89.1 % $ $ 150.91 134.43 $ $ 83.2 % 71.5 % 84.1 % 143.28 119.23 $ $ 133.20 95.18 $ $ 171.32 144.01 Average occupancy rate Weighted average annual rent per square foot $ 33.4 % 17.32 $ 33.4 % $ 13.49 33.4 % 7.52 $ 30.4 % 20.54 $ 30.4 % 18.78 Retail space: Average occupancy rate Weighted average annual rent per square foot $ 64.3 % 27.19 $ 63.0 % $ 29.01 62.3 % 31.42 $ 70.7 % 35.05 $ 69.5 % 41.75 49   WASHINGTON, DC As of December 31, 2012, our Washington, DC segment consisted of 73 properties aggregating 19.1 million square feet, of which we own 16.5 million square feet. The 16.5 million square feet is comprised of 13.6 million square feet of office space in 59 properties, seven residential properties containing 2,414 units, a hotel property, and 20.8 acres of undeveloped land. The Washington, DC segment also includes 56 garages totaling approximately 8.9 million square feet (29,611 spaces) which are managed by or leased to third parties. Washington, DC office lease terms generally range from five to seven years for smaller tenants to as long as 15 years for major tenants, and may provide for extension options at either pre-negotiated or market rates. Leases typically provide for periodic step-ups in rent over the term of the lease and pass through to tenants, the tenants’ share of increases in real estate taxes and certain property operating expenses over a base year. Periodic step-ups in rent are usually based upon either fixed percentage increases or the consumer price index. Leases also typically provide for free rent and tenant improvement allowances for all or a portion of the tenant’s initial construction costs of its premises. As of December 31, 2012, the occupancy rate for our Washington DC segment was 84.1% and 33.0% of the occupied space was leased to various agencies of the U.S. Government. The statistics provided in the following sections include information on the office and residential space. Occupancy and weighted average annual rent per square foot: Office: Residential: As of December 31, 2012 2011 2010 2009 2008 As of December 31, 2012 2011 2010 2009 2008 Rentable Square Feet 13,637,000 14,162,000 14,035,000 14,035,000 13,916,000 Number of Units 2,414 2,414 2,414 2,075 1,866 Occupancy Rate 81.2 % 89.3 % 94.8 % 94.9 % 95.1 % Average Occupancy Rate 97.8 % 97.1 % 93.8 % 87.5 % 87.2 % Weighted Average Annual Rent Per Square Foot 41.57 $ 40.80 39.65 38.46 37.12 Average Monthly Rent Per Unit 2,077 $ 1,992 1,752 1,805 1,503 2012 rental revenue by tenants’ industry: Industry U.S. Government Government Contractors Membership Organizations Legal Services Business Services Manufacturing Management Consulting Services State and Local Government Real Estate Food Health Services Computer and Data Processing Communication Education Television Broadcasting Other 50 Percentage 33 % 19 % 6 % 4 % 4 % 3 % 3 % 2 % 2 % 2 % 2 % 2 % 2 % 1 % 1 % 14 % 100 %           WASHINGTON, DC – CONTINUED  Tenants accounting for 2% or more of revenues: Tenant U.S. Government Family Health International Boeing Lockheed Martin 2012 Leasing Activity: Square Feet Leased 3,763,000 456,000 377,000 347,000 $ 2012 Revenues 165,076,000 18,444,000 16,610,000 13,625,000 Percentage of Washington, DC Revenues 29.8 % 3.3 % 3.0 % 2.5 % Percentage of Total Revenues 6.0 % 0.7 % 0.6 % 0.5 % Weighted Average Initial Rent Per Square Foot (1) Location 2011-2451 Crystal Drive S. Clark Street / 12th Street Skyline Place / One Skyline Tower 1550-1750 Crystal Drive / 241-251 18th Street Democracy Plaza One Warner 1800, 1851 and 1901 South Bell Street 2200 / 2300 Clarendon Blvd (Courthouse Plaza) 1750 Pennsylvania Avenue, NW 2001 Jefferson Davis Highway and 223 23rd Street / 2221 South Clark Street Commerce Executive 1101 17th Street, NW 1726 M Street, NW 1730 M Street, NW 1150 17th Street, NW 2101 L Street, NW Universal Buildings (1825 - 1875 Connecticut Avenue, NW) 2100 / 2200 Crystal Drive (Crystal Plaza 3 & 4) Partially Owned Entities Total Vornado's share Square Feet 340,000 270,000 235,000 214,000 163,000 148,000 102,000 100,000 99,000 53,000 48,000 39,000 29,000 19,000 19,000 14,000 10,000 3,000 206,000 2,111,000 1,901,000 42.69 39.01 34.11 39.16 32.27 69.70 40.94 41.12 47.00 36.78 32.13 43.75 39.49 42.65 39.96 47.00 43.41 43.00 41.19 41.49 40.55 ____________________ (1) Represents the cash basis weighted average starting rents 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 leased, but are included in the GAAP basis straight-line rent per square foot (see "Overview - Leasing Activity" of Management's Discussion and Analysis of Financial Condition and Results of Operations). 51         WASHINGTON, DC – CONTINUED  Lease expirations as of December 31, 2012, assuming none of the tenants exercise renewal options: Year Month to month 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Number of Square Feet of Expiring Leases Expiring Leases 180,000 839,000 1,425,000 1,488,000 1,103,000 625,000 950,000 1,073,000 586,000 816,000 931,000 30 158 147 142 101 67 68 42 40 19 28 $ Percentage of Washington, DC Square Feet 1.7 % 8.1 % 13.7 % 14.3 % 10.6 % 6.0 % 9.2 % 10.3 % 5.6 % 7.9 % 9.0 % Weighted Average Annual Rent of Expiring Leases Total 6,073,000 $ 33,980,000 55,149,000 60,412,000 47,025,000 24,260,000 39,928,000 44,566,000 29,496,000 35,268,000 40,834,000 Per Square Foot 33.74 40.49 38.70 40.60 42.64 38.83 42.01 41.54 50.35 43.24 43.87 Base Realignment and Closure (“BRAC”) Our Washington, DC segment was and continues to be impacted by the BRAC statute, which requires the Department of Defense (“DOD”) to relocate from 2,395,000 square feet in our buildings in the Northern Virginia area to government owned military bases. The table below summarizes the effects of BRAC on our Washington, DC segment for square feet leased by the DOD. See page 80 for the impact on 2012 EBITDA and the estimated impact on 2013 EBITDA. Resolved: Relet as of December 31, 2012 Leases pending Taken out of service for redevelopment To Be Resolved: Vacated as of December 31, 2012 Expiring in: 2013 2014 2015 Rent Per Square Foot $ 39.76 45.00 Square Feet Total Crystal City Skyline Rosslyn 521,000 24,000 348,000 893,000 380,000 24,000 348,000 752,000 88,000 - - 88,000 53,000 - - 53,000 35.77 37.39 32.49 43.04 1,002,000 519,000 473,000 10,000 126,000 304,000 70,000 1,502,000 - 103,000 65,000 687,000 43,000 201,000 5,000 722,000 83,000 - - 93,000 Total square feet subject to BRAC 2,395,000 1,439,000 810,000 146,000 In the first quarter of 2012, we notified the lender that due to scheduled lease expirations resulting primarily from the effects of the BRAC statute, the Skyline properties had a 26% vacancy rate and rising (49.8% as of December 31, 2012) and, accordingly, cash flows are expected to decrease. As a result, our subsidiary that owns these properties does not have and is not expected to have for some time sufficient funds to pay all of its current obligations, including interest payments to the lender. Based on the projected vacancy and the significant amount of capital required to re-tenant these properties, at our request, the mortgage loan was transferred to the special servicer. In the second quarter of 2012, we entered into a forbearance agreement with the special servicer to apply cash flows of the property, before interest on the loan, towards the repayment of $4,000,000 of tenant improvements and leasing commissions we funded in connection with a new lease at these properties, which was repaid in the third quarter. The forbearance agreement was amended January 31, 2013, to extend its maturity through April 1, 2013 and provides for interest shortfalls to be deferred and added to the principal balance of the loan and not give rise to a loan default. As of December 31, 2012, the deferred interest amounted to $26,957,000. We continue to negotiate with the special servicer to restructure the terms of the loan. 52     RETAIL PROPERTIES As of December 31, 2012, our Retail Properties segment consisted of 120 retail properties, of which 114 are strip shopping centers and single tenant retail assets located primarily in the Northeast, Mid-Atlantic and California and six are regional malls located in New York, New Jersey, Virginia and San Juan, Puerto Rico. Our strip shopping centers and malls are generally located on major highways in mature, densely populated areas, and therefore attract consumers from a regional, rather than a neighborhood market place. Retail Properties’ lease terms generally range from five years or less in some instances for smaller tenants to as long as 25 years for major tenants. Leases generally provide for reimbursements of real estate taxes, insurance and common area maintenance charges (including roof and structure in strip shopping centers, unless it is the tenant’s direct responsibility), and percentage rents based on tenant sales volume. Percentage rents accounted for less than 1% of the Retail Properties total revenues during 2012. Strip Shopping Centers Our strip shopping centers contain an aggregate of 15.6 million square feet, of which we own 15.0 million square feet. These properties are substantially (approximately 70%) leased to large stores (over 20,000 square feet). Tenants include destination retailers such as discount department stores, supermarkets, home improvement stores, discount apparel stores and membership warehouse clubs. Tenants typically offer basic consumer necessities such as food, health and beauty aids, moderately priced clothing, building materials and home improvement supplies, and compete primarily on the basis of price and location. Regional Malls The Monmouth Mall in Eatontown, New Jersey, in which we own a 50% interest, contains 1.5 million square feet and is anchored by Macy’s, Lord & Taylor, JC Penney and Boscov’s, three of which own their stores aggregating 612,000 square feet. The Springfield Mall in Springfield, Virginia, contains 1.4 million square feet and is anchored by Macy’s, JC Penney and Target, two of which own their stores aggregating 390,000 square feet. We have commenced the renovation of the mall, which is expected to be substantially completed in 2014. The Broadway Mall in Hicksville, Long Island, New York contains 1.1 million square feet and is anchored by Macy’s, Ikea, National Amusement and Target, two of which owns its store aggregating 376,000 square feet. The Bergen Town Center in Paramus, New Jersey contains 948,000 square feet and is anchored by Century 21, Whole Foods Market and Target. The Montehiedra Mall in San Juan, Puerto Rico contains 540,000 square feet and is anchored by The Home Depot, Kmart and Marshalls. The Las Catalinas Mall in San Juan, Puerto Rico, contains 494,000 square feet and is anchored by Kmart and Sears, which owns its 139,000 square foot store. 53   RETAIL PROPERTIES – CONTINUED As of December 31, 2012, the occupancy rate for the Retail Properties segment was 93.4%. The statistics provided in the following sections includes information on the Strip Shopping Centers and Regional Malls. Occupancy and weighted average annual rent per square foot: Strip Shopping Centers: As of December 31, 2012 2011 2010 2009 2008 Rentable Square Feet 14,984,000 15,012,000 15,135,000 14,373,000 13,629,000 Occupancy Rate 93.6 % 93.3 % 92.6 % 92.4 % 93.4 % $ Weighted Average Annual Net Rent Per Square Foot 17.39 17.08 16.26 15.63 14.97 Regional Malls: As of December 31, 2012 2011 2010 2009 2008 Rentable Square Feet 3,608,000 3,800,000 3,653,000 3,607,000 3,426,000 Weighted Average Annual Net Rent Per Square Foot Mall and Anchor Tenants Occupancy Rate 92.7 % $ 92.7 % 92.8 % 92.9 % 94.7 % Mall Tenants 41.86 37.68 38.08 38.11 35.75 $ 22.46 21.98 22.77 21.72 21.25 54           RETAIL PROPERTIES – CONTINUED   2012 rental revenue by type of retailer Industry Discount Stores Supermarkets Home Improvement Restaurants Family Apparel Home Entertainment and Electronics Banking and Other Business Services Personal Services Home Furnishings Women's Apparel Sporting Goods, Toys and Hobbies Membership Warehouse Clubs Other Percentage 18 % 10 % 10 % 8 % 7 % 6 % 4 % 4 % 4 % 4 % 4 % 2 % 19 % 100 % Tenants accounting for 2% or more of revenues: Tenant The Home Depot Wal-Mart Stop & Shop / Koninklijke Ahold NV Best Buy Lowe's The TJX Companies, Inc. Kohl's Sears Holding Company (Kmart Corp. and Sears Corp.) Square Feet Leased 1,135,000 1,426,000 633,000 575,000 976,000 588,000 610,000 637,000 $ 2012 Revenues 23,037,000 17,143,000 15,868,000 13,567,000 12,666,000 11,285,000 8,589,000 8,084,000 Percentage of Retail Properties Revenues 5.8 % 4.4 % 4.0 % 3.4 % 3.2 % 2.9 % 2.2 % 2.1 % Percentage of Total Revenues 0.8 % 0.6 % 0.6 % 0.5 % 0.5 % 0.4 % 0.3 % 0.3 % 55         RETAIL PROPERTIES – CONTINUED   2012 Leasing Activity: Strip Shopping Centers: Location Lodi (Route 17 North), NJ Totowa, NJ Poughkeepsie, NY Inwood, NY Manalapan, NJ Pasadena, CA Tampa (Hyde Park Village), FL North Bergen (Kennedy Blvd), NJ West Babylon, NY Morris Plains, NJ Hackensack, NJ Charleston, SC South Plainfield , NJ Lodi (Washington Street), NJ Wilkes-Barre, PA Beverly Connection, Los Angeles, CA Barstow, CA Towson, MD Bricktown, NJ Dover, NJ Garfield, NJ Bethlehem, PA Huntington, NY Allentown, PA Union, NJ Queens, NY East Brunswick (325 - 333 Route 18 South), NJ Other Total Vornado's share Regional Malls: Location Monmouth Mall, Eatontown, NJ Broadway Mall, Hicksville, NY Montehiedra, Puerto Rico Bergen Town Center, Paramus, NJ Las Catalinas Mall, Puerto Rico Total Vornado's share Weighted Average Square Feet 171,000 114,000 81,000 66,000 64,000 61,000 57,000 56,000 47,000 46,000 46,000 45,000 35,000 31,000 31,000 30,000 30,000 26,000 13,000 12,000 25,000 23,000 17,000 17,000 12,000 12,000 10,000 98,000 1,276,000 1,276,000 Initial Rent Per Square Foot (1) $ 11.44 13.32 14.10 16.45 14.85 26.32 20.37 11.42 13.45 18.94 24.72 14.19 21.53 23.40 6.60 39.57 7.15 19.30 34.27 12.51 17.00 11.94 22.61 16.35 29.81 44.18 24.20 30.14 18.65 18.65 Weighted Average Initial Rent Per Square Foot (1) Square Feet 91,000 22,000 17,000 11,000 5,000 146,000 101,000 28.40 46.35 23.12 50.82 124.63 35.31 38.45 (1) Represents the cash basis weighted average starting rents 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 leased, but are included in the GAAP basis straight-line rent per square foot (see "Overview - Leasing Activity" of Management's Discussion and Analysis of Financial Condition and Results of Operations). 56       RETAIL PROPERTIES – CONTINUED   Lease expirations as of December 31, 2012, assuming none of the tenants exercise renewal options: Year Strip Shopping Centers: Month to month 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Regional Malls: Month to month 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Number of Square Feet of Expiring Leases Expiring Leases Percentage of Retail Properties Square Feet Weighted Average Annual Net Rent of Expiring Leases Total Per Square Foot 15 79 94 66 70 66 78 47 29 40 49 18 30 38 33 42 26 28 25 21 18 10 67,000 608,000 1,279,000 588,000 771,000 549,000 1,613,000 999,000 787,000 653,000 961,000 58,000 84,000 180,000 186,000 117,000 348,000 67,000 89,000 94,000 414,000 48,000 0.4 % 3.6 % 7.7 % 3.5 % 4.6 % 3.3 % 9.7 % 6.0 % 4.7 % 3.9 % 5.8 % 0.3 % 0.5 % 1.1 % 1.1 % 0.7 % 2.1 % 0.4 % 0.5 % 0.6 % 2.5 % 0.3 % $ $ 1,295,000 $ 9,834,000 15,590,000 12,473,000 11,516,000 9,252,000 24,907,000 18,518,000 10,095,000 11,271,000 12,071,000 1,981,000 $ 3,959,000 4,807,000 5,582,000 4,820,000 2,879,000 3,599,000 4,480,000 4,025,000 5,492,000 1,845,000 19.37 16.17 12.19 21.20 14.94 16.86 15.44 18.54 12.82 17.25 12.57 34.33 47.20 26.73 29.95 41.10 8.28 53.72 50.52 42.92 13.27 38.75 57   MERCHANDISE MART As of December 31, 2012, our Merchandise Mart segment consisted of the 3.5 million square foot Merchandise Mart in Chicago, 7 West 34th Street in New York City and 4 garages in Chicago totaling 558,000 square feet (1,681 spaces). In 2012, we sold four properties and the Canadian Trade Shows for an aggregate of $456,400,000, which resulted in a net gain aggregating $79,820,000. In July 2012, we leased 572,000 square feet at the Merchandise Mart to Motorola Mobility, owned by Google, as their Corporate headquarters for a 15-year term. In the first quarter of 2013, Motorola Mobility took possession of three floors aggregating 495,000 square feet and will take possession of the remaining space in the second quarter. As a result of this lease, the office component of the building was increased to approximately 50%. In 2014, 7 West 34th Street (currently a showroom building), will be converted to an office building and will be transferred to our New York segment. As a result of certain recent organizational changes and asset sales in 2012, the Merchandise Mart segment no longer meets the criteria for it to be a separate reportable segment; accordingly, effective January 1, 2013, it will be reclassified to our Other segment. In 2010, two of our wholly owned subsidiaries entered into agreements with Cuyahoga County, Ohio (the “County”) to develop and operate the Cleveland Medical Mart and Convention Center (the “Facility”), a 1,000,000 square foot showroom, trade show and conference center in Cleveland’s central business district. The County is funding the development of the Facility, using the proceeds it received from the issuance of general obligation bonds and other sources, up to the development budget of $418,000,000 and maintains effective control of the property. During the 17-year development and operating period, our subsidiaries will receive net settled payments of approximately $10,000,000 per year, which are net of a $36,000,000 annual obligation to the County. Our subsidiaries’ obligation has been pledged by the County to the bondholders, but is payable by our subsidiaries only to the extent that they first receive at least an equal payment from the County. Construction of the Facility is expected to be completed in 2013. As of December 31, 2012, $379,658,000 of the $418,000,000 development budget was expended. As of December 31, 2012, the occupancy rate for the Merchandise Mart segment was 92.6%. The statistics provided in the following sections include information on the office and showroom spaces. Square feet by location and use as of December 31, 2012: (Amounts in thousands) Showroom Total Office Total Permanent Temporary Trade Show Retail Chicago, Illinois: Merchandise Mart Other Total Chicago, Illinois New York, New York: 7 West 34th Street Total Merchandise Mart Properties 3,553 10 3,563 419 3,982 1,615 - 1,615 52 1,667 1,853 - 1,853 367 2,220 1,467 - 1,467 363 1,830 386 - 386 4 390 85 10 95 - 95 Merchandise Mart lease terms generally range from three to seven years for smaller tenants to as long as 15 years for major tenants. Leases typically provide for periodic step-ups in rent over the term of the lease and pass through to tenants their share of increases in real estate taxes and operating expenses over a base year. Electricity is provided to tenants on a sub-metered basis or included in rent and adjusted for subsequent utility rate increases. Leases also typically provide for tenant improvement allowances for all or a portion of the tenant’s initial construction of its premises. The showrooms provide manufacturers and wholesalers with permanent and temporary space in which to display products for buyers, specifiers and end users. The showrooms are also used for participating in trade shows for the contract furniture, casual furniture, gift, carpet, crafts, apparel and design industries. 58    MERCHANDISE MART – CONTINUED Occupancy and weighted average annual rent per square foot: Office: As of December 31, 2012 2011 2010 2009 2008 As of December 31, 2012 2011 2010 2009 2008 Rentable Square Feet 1,667,000 1,129,000 1,043,000 1,054,000 1,058,000 Rentable Square Feet 2,220,000 2,715,000 2,802,000 2,792,000 2,789,000 Occupancy Rate 90.0% 90.1% 90.9% 93.5% 94.2% Occupancy Rate 94.7% 89.8% 95.0% 93.9% 96.4% Weighted Average Annual Rent Per Square Foot 24.70 $ 24.18 23.50 21.84 21.91 Weighted Average Annual Rent Per Square Foot 33.76 $ 33.70 33.55 33.24 32.93 Showroom: 2012 rental revenues by tenants’ industry: Office: Industry Advertising and Marketing Business Services Education Insurance Banking Health Care Telecommunications Government Other Industry Contract Furnishing Residential Design Gift Casual Furniture Apparel Building Products Percentage 24 % 22 % 21 % 11 % 7 % 5 % 3 % 1 % 6 % 100 % Percentage 30 % 23 % 20 % 12 % 10 % 5 % 100 % Showroom: Tenants accounting for 2% or more of revenues: Tenant CCC Information Systems WPP Square Feet Leased 2012 Revenues 109,000 102,000 $ 3,141,000 2,826,000 Percentage of Merchandise Mart Revenues 2.4 % 2.1 % Percentage of Total Revenues 0.1 % 0.1 % 59       MERCHANDISE MART – CONTINUED   2012 Leasing Activity: In 2012, we leased 593,000 square feet of office space at a weighted average initial rent of $32.97 per square foot and 380,000 square feet of showroom space at an average initial rent of $38.67 per square foot. Lease expirations as of December 31, 2012, assuming none of the tenants exercise renewal options:  Weighted Average Annual Rent of Expiring Leases Total 40,000 $ 462,000 53,000 1,457,000 2,717,000 - 3,873,000 - 4,145,000 5,430,000 3,315,000 Per Square Foot 20.86 24.44 27.05 31.88 28.35 - 28.81 - 32.39 28.24 27.48 Weighted Average Annual Rent of Expiring Leases Total 1,591,000 $ 9,234,000 7,392,000 7,534,000 7,591,000 12,088,000 6,785,000 3,706,000 2,531,000 3,535,000 1,959,000 Per Square Foot 40.86 42.47 40.81 38.02 38.00 38.31 37.66 42.83 44.78 37.10 37.86 Office: Year Month to month 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Showroom: Year Month to month 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Number of Square Feet of Expiring Leases Expiring Leases 2,000 19,000 2,000 46,000 96,000 - 134,000 - 128,000 192,000 121,000 2 9 2 5 3 - 3 - 2 3 2 Number of Square Feet of Expiring Leases Expiring Leases 39,000 217,000 181,000 198,000 200,000 316,000 180,000 87,000 57,000 95,000 52,000 11 84 72 100 43 56 25 21 15 13 7 $ $ Percentage of Merchandise Mart Office Square Feet 0.1% 1.3% 0.1% 3.0% 6.4% - 9.0% - 8.5% 12.8% 8.0% Percentage of Merchandise Mart Showroom Square Feet 1.9% 10.3% 8.6% 9.4% 9.5% 15.0% 8.6% 4.1% 2.7% 4.5% 2.5% 60     TOYS “R” US, INC. (“TOYS”) As of December 31, 2012 we own a 32.6% interest in Toys, a worldwide specialty retailer of toys and baby products, which has a significant real estate component. Toys had $5.7 billion of outstanding debt at October 27, 2012, of which our pro rata share was $1.9 billion, none of which is recourse to us. The following table sets forth the total number of stores operated by Toys as of December 31, 2012: Total Owned Building Owned on Leased Ground 288 78 366 224 26 250 875 651 1,526 155 1,681 Leased 363 547 910 Domestic International Total Owned and Leased Franchised Stores Total OTHER INVESTMENTS 555 California Street As of December 31, 2012, we own a 70% controlling interest in a three-building office complex containing 1.8 million square feet, known as the Bank of America Center, located at California and Montgomery Streets in San Francisco’s financial district (“555 California Street”). 555 California Street is encumbered by a $600,000,000 mortgage loan that bears interest at a fixed rate of 5.10% and matures in September 2021. 555 California Street lease terms generally range from five to seven years for smaller tenants to as long as 15 years for major tenants, and may provide for extension options at market rates. Leases typically provide for periodic step-ups in rent over the term of the lease and pass through to tenants their share of increases in real estate taxes and operating expenses over a base year. Leases also typically provide for tenant improvement allowances for all or a portion of the tenant’s initial construction costs of its premises. Occupancy and weighted average annual rent per square foot as of December 31, 2012: As of December 31, 2012 2011 2010 2009 2008 Rentable Square Feet 1,257,000 1,257,000 1,257,000 1,256,000 1,252,000 Occupancy Rate 93.1% 93.1% 93.0% 94.8% 94.0% Weighted Average Annual Rent Per Square Foot 54.53 $ 54.40 55.97 57.25 57.98 2012 rental revenue by tenants’ industry: Industry Finance Banking Legal Services Other Percentage 42 % 41 % 15 % 2 % 100 % 61         OTHER INVESTMENTS – CONTINUED 555 California Street - continued Tenants accounting for 2% or more of revenues: Tenant Bank of America UBS Financial Services Morgan Stanley & Company, Inc. Kirkland & Ellis LLP Goldman Sachs & Co. Dodge & Cox McKinsey & Company Inc. Jones Day KKR Financial LLC Sidley Austin LLP Square Feet Leased 2012 Revenues 650,000 $ 106,000 121,000 125,000 90,000 62,000 54,000 81,000 51,000 48,000 34,840,000 6,960,000 6,668,000 6,125,000 4,762,000 3,907,000 3,907,000 3,366,000 3,119,000 1,952,000 Percentage of 555 California Street's Revenues 37.2 % 7.4 % 7.1 % 6.5 % 5.1 % 4.2 % 4.2 % 3.6 % 3.3 % 2.1 % Percentage of Total Revenues 1.3 % 0.3 % 0.2 % 0.2 % 0.2 % 0.1 % 0.1 % 0.1 % 0.1 % 0.1 % Lexington Realty Trust (“Lexington”) As of December 31, 2012, we own 10.5% of the outstanding common shares of Lexington, which has interests in 220 properties, encompassing approximately 42.1 million square feet across 42 states, generally net-leased to major corporations. Lexington had approximately $2.0 billion of outstanding debt at December 31, 2012, of which our pro rata share was $209 million, none of which is recourse to us. Vornado Capital Partners Real Estate Fund (the “Fund”) As of December 31, 2012, the Fund has nine investments with an aggregate fair value of approximately $600,786,000, or $67,642,000 in excess of its cost, and has remaining unfunded commitments of $217,676,000, of which our share is $54,419,000. 62   ITEM 3. 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, including the matter referred to below, is not expected to have a material adverse effect on our financial position, results of operations or cash flows. In 2003, Stop & Shop filed an action against us in the New York Supreme Court, claiming that we had no right to reallocate and therefore continue to collect $5,000,000 ($6,000,000 beginning February 1, 2012) of annual rent from Stop & Shop pursuant to a Master Agreement and Guaranty, because of the expiration of the leases to which the annual rent was previously allocated. Stop & Shop asserted that an order of the Bankruptcy Court for the Southern District of New York, as modified on appeal by the District Court, froze our right to reallocate and effectively terminated our right to collect the annual rent from Stop & Shop. We asserted a counterclaim seeking a judgment for all of the unpaid annual rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the annual rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect. A trial was held in November 2010. On November 7, 2011, the Court determined that we had a continuing right to allocate the annual rent to unexpired leases covered by the Master Agreement and Guaranty, and directed entry of a judgment in our favor ordering Stop & Shop to pay us the unpaid annual rent accrued through February 28, 2011 in the amount of $37,422,000, a portion of the annual rent due from March 1, 2011 through the date of judgment, interest, and attorneys’ fees. On December 16, 2011, a money judgment based on the Court’s decision was entered in our favor in the amount of $56,597,000 (including interest and costs). Stop & Shop appealed the Court’s decision and the judgment and posted a bond to secure payment of the judgment. On January 12, 2012, we commenced a new action against Stop & Shop seeking recovery of $2,500,000 of annual rent not included in the money judgment, plus additional annual rent as it accrues. At December 31, 2012, we had a $47,900,000 receivable from Stop & Shop, which is included as a component of “tenant and other receivables” on our consolidated balance sheet. On February 6, 2013, we received $124,000,000 pursuant to a settlement agreement with Stop & Shop. The settlement terminates our right to receive $6,000,000 of additional annual rent under the 1992 agreement, for a period potentially through 2031. As a result of this settlement, we collected the aforementioned $47,900,000 receivable and will recognize approximately $59,000,000 of net income in the first quarter of 2013. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 63   PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Vornado’s common shares are traded on the New York Stock Exchange under the symbol “VNO.” Quarterly high and low sales prices of the common shares and dividends paid per common share for the years ended December 31, 2012 and 2011 were as follows: Year Ended December 31, 2012 Quarter High Low Dividends High Year Ended December 31, 2011 Low Dividends 1st 2nd 3rd 4th $ $ 86.21 88.50 86.56 82.50 $ 75.17 78.56 79.50 72.64 0.69 0.69 0.69 1.69 (1) $ $ $ 93.53 98.42 98.77 84.30 82.12 86.85 72.85 68.39 0.69 0.69 0.69 0.69 (1) Comprised of a regular quarterly dividend of $0.69 per share and a special long-term capital gain dividend of $1.00 per share. On January 17, 2013, we increased our quarterly common dividend to $0.73 per share (a new indicated annual rate of $2.92 per share). As of February 1, 2013, there were 1,206 holders of record of our common shares. Recent Sales of Unregistered Securities During the fourth quarter of 2012, we issued 46,047 common shares upon the redemption of Class A units of the Operating Partnership held by persons who received units, in private placements in earlier periods, in exchange for their interests in limited partnerships that owned real estate. The common shares were issued without registration under the Securities Act of 1933 in reliance on Section 4 (2) of that Act. Information relating to compensation plans under which our equity securities are authorized for issuance is set forth under Part III, Item 12 of this Annual Report on Form 10-K and such information is incorporated by reference herein. Recent Purchases of Equity Securities None 64   Performance Graph The following graph is a comparison of the five-year cumulative return of our common shares, the Standard & Poor’s 500 Index (the “S&P 500 Index”) and the National Association of Real Estate Investment Trusts’ (“NAREIT”) All Equity Index, a peer group index. The graph assumes that $100 was invested on December 31, 2007 in our common shares, the S&P 500 Index and the NAREIT All Equity Index and that all dividends were reinvested without the payment of any commissions. There can be no assurance that the performance of our shares will continue in line with the same or similar trends depicted in the graph below. 2007 2008 2009 2010 2011 2012 Vornado Realty Trust S&P 500 Index The NAREIT All Equity Index $ 100 $ 100 100 72 $ 63 62 89 $ 80 80 110 $ 92 102 105 $ 94 110 114 109 132 65   ITEM 6. SELECTED FINANCIAL DATA  (Amounts in thousands, except per share amounts) Operating Data: Revenues: Property rentals Tenant expense reimbursements Cleveland Medical Mart development project Fee and other income Total revenues Expenses: Operating Depreciation and amortization General and administrative Cleveland Medical Mart development project Impairment losses, acquisition related costs and tenant buy-outs Total expenses Operating income Income applicable to Toys "R" Us Income (loss) from partially owned entities Income (loss) from Real Estate Fund Interest and other investment (loss) income, net Interest and debt expense Net gain (loss) on extinguishment of debt Net gain on disposition of wholly owned and partially owned assets Income (loss) before income taxes Income tax (expense) benefit Income from continuing operations Income from discontinued operations Net income Less net (income) loss attributable to noncontrolling interests in: Consolidated subsidiaries Operating Partnership Preferred unit distributions of the Operating Partnership Net income attributable to Vornado Preferred share dividends Discount on preferred share and unit redemptions Net income attributable to common shareholders Per Share Data: Income (loss) from continuing operations, net - basic Income (loss) from continuing operations, net - diluted Net income per common share - basic Net income per common share - diluted Dividends per common share $ $ 2012 Year Ended December 31, 2010 2011 2009 2008 $ 2,085,582 301,092 235,234 144,549 2,766,457 $ 2,114,255 314,752 154,080 149,749 2,732,836 $ 2,093,475 $ 2,006,207 $ 1,978,454 307,909 - 123,823 2,410,186 317,777 - 146,955 2,558,207 312,689 - 154,590 2,473,486 1,021,719 517,811 201,894 226,619 120,786 2,088,829 677,628 14,859 408,267 63,936 (260,945) (500,361) - 13,347 416,731 (8,132) 408,599 285,942 694,541 (32,018) (35,327) (9,936) 617,260 (76,937) 8,948 549,271 1.50 1.49 2.95 2.94 3.76 (1) 995,586 524,550 208,008 145,824 35,299 1,909,267 823,569 48,540 70,072 22,886 148,784 (526,175) - 15,134 602,810 (23,925) 578,885 161,115 740,000 (21,786) (41,059) (14,853) 662,302 (65,531) 5,000 601,771 2.44 2.42 3.26 3.23 2.76 $ $ 983,424 494,898 211,399 - 109,458 1,799,179 759,028 71,624 20,869 (303) 235,267 (539,370) 94,789 81,432 723,336 (22,137) 701,199 6,832 708,031 954,754 492,505 227,715 - 71,863 1,746,837 726,649 92,300 (21,471) - (116,436) (597,105) (25,915) 5,641 63,663 (20,134) 43,529 84,921 128,450 (4,920) (44,033) (11,195) 647,883 (55,534) 4,382 596,731 $ 2,839 (5,834) (19,286) 106,169 (57,076) - 49,093 $ 931,455 492,208 191,599 - 81,447 1,696,709 713,477 2,380 (160,620) - (3,017) (591,419) 9,820 7,757 (21,622) 205,616 183,994 227,451 411,445 3,263 (33,327) (22,084) 359,297 (57,091) - 302,206 3.24 $ 3.21 3.27 3.24 2.60 (0.16) $ (0.16) 0.28 0.28 3.20 0.63 0.61 1.96 1.91 3.65 $ $ Balance Sheet Data: Total assets Real estate, at cost Accumulated depreciation Debt Total equity $ 21,965,975 18,495,359 (3,097,074) 11,296,190 7,904,144 $ 20,446,487 16,703,757 (2,894,374) 10,076,607 7,508,447 (1) Includes a special long-term capital gain dividend of $1.00 per share. 66 $ 20,517,471 $ 20,185,472 $ 21,418,048 16,195,706 (2,212,111) 11,596,585 6,214,652 16,344,244 (2,228,425) 10,103,428 6,649,406 16,454,967 (2,530,945) 10,349,457 6,830,405       (Amounts in thousands) Other Data: Funds From Operations ("FFO")(1): Net income attributable to Vornado Depreciation and amortization of real property Net gains on sale of real estate Real estate impairment losses Proportionate share of adjustments to equity in net income of Toys, to arrive at FFO: Depreciation and amortization of real property Net gains on sale of real estate Real estate impairment losses Income tax effect of above adjustments Proportionate share of adjustments to equity in net income of partially owned entities, excluding Toys, to arrive at FFO: Depreciation and amortization of real property Net gains on sale of real estate Real estate impairment losses Noncontrolling interests' share of above adjustments FFO Preferred share dividends Discount on preferred share and unit redemptions FFO attributable to common shareholders Convertible preferred share dividends Interest on 3.88% exchangeable senior debentures FFO attributable to common shareholders plus assumed conversions(1) 2012 Year Ended December 31, 2010 2011 2009 2008 $ 617,260 $ 504,407 (245,799) 129,964 662,302 $ 530,113 (51,623) 28,799 647,883 $ 505,806 (57,248) 97,500 106,169 $ 508,572 (45,282) 23,203 359,297 509,367 (57,523) - 68,483 - 9,824 (27,493) 70,883 (491) - (24,634) 70,174 - - (24,561) 65,358 (164) - (22,819) 66,435 (719) - (23,223) 86,197 (241,602) 1,849 (16,649) 886,441 (76,937) 8,948 818,452 113 - 99,992 (9,276) - (40,957) 1,265,108 (65,531) 5,000 1,204,577 124 26,272 78,151 (5,784) 11,481 (46,794) 1,276,608 (55,534) 4,382 1,225,456 160 25,917 75,200 (1,188) - (47,022) 662,027 (57,076) - 604,951 170 - 49,513 (8,759) - (49,683) 844,705 (57,091) - 787,614 189 25,261 $ 818,565 $ 1,230,973 $ 1,251,533 $ 605,121 $ 813,064 ________________________________ (1) 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 gain from sales of depreciated real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets, extraordinary items and other specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flows as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. 67     ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Overview - Leasing activity Critical Accounting Policies Net Income and EBITDA by Segment for the Years Ended December 31, 2012, 2011 and 2010 Results of Operations: Years Ended December 31, 2012 and 2011 Years Ended December 31, 2011 and 2010 Supplemental Information: Net Income and EBITDA by Segment for the Three Months Ended December 31, 2012 and 2011 Three Months Ended December 31, 2012 Compared to December 31, 2011 Three Months Ended December 31, 2012 Compared to September 30, 2012 Related Party Transactions Liquidity and Capital Resources Financing Activities and Contractual Obligations Certain Future Cash Requirements Cash Flows for the Year Ended December 31, 2012 Cash Flows for the Year Ended December 31, 2011 Cash Flows for the Year Ended December 31, 2010 Funds From Operations for the Three Months and Years Ended December 31, 2012 and 2011 Page Number 69 77 81 84 90 97 103 108 109 110 111 111 115 118 120 122 124 68   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”). Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors. Vornado is the sole general partner of, and owned approximately 94.0% of the common limited partnership interest in the Operating Partnership at December 31, 2012. All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership. We own and operate office and retail properties (our “core” operations) with large concentrations in the New York City metropolitan area and in the Washington, DC / Northern Virginia area. In addition, we have a 32.6% interest in Toys “R” Us, Inc. (“Toys”) which has a significant real estate component, a 32.4% interest in Alexander’s, Inc. (NYSE: ALX) (“Alexander’s”), which has six properties in the greater New York metropolitan area, as well as interests in other real estate and related investments. Our business objective is to maximize shareholder value, which we measure by the total return provided to our shareholders. Below is a table comparing our performance to the Morgan Stanley REIT Index (“RMS”) and the SNL REIT Index (“SNL”) for the following periods ended December 31, 2012:  One-year Three-year Five-year Ten-year Vornado 9.2% 28.2% 9.6% 228.5% Total Return(1) RMS 17.8% 64.5% 31.2% 199.1% SNL 20.2% 67.9% 37.3% 218.5% (1) Past performance is not necessarily indicative of future performance. We intend to achieve our business objective by continuing to pursue our investment philosophy and executing our operating strategies through:  Maintaining a superior team of operating and investment professionals and an entrepreneurial spirit;  Investing in properties in select markets, such as New York City and Washington, DC, where we believe there is a high likelihood of capital appreciation; Investing in retail properties in select under-stored locations such as the New York City metropolitan area;  Acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents;   Developing and redeveloping existing properties to increase returns and maximize value; and  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 possible 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 property owners and developers, some of which may be willing to accept lower returns on their investments than we are. Principal factors of competition include 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 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 and population trends. See “Risk Factors” in Item 1A for additional information regarding these factors. 69             Overview - continued Year Ended December 31, 2012 Financial Results Summary Net income attributable to common shareholders for the year ended December 31, 2012 was $549,271,000, or $2.94 per diluted share, compared to $601,771,000, or $3.23 per diluted share for the year ended December 31, 2011. Net income for the years ended December 31, 2012 and 2011 includes $487,401,000 and $61,390,000, respectively, of net gains on sale of real estate, and $141,637,000 and $28,799,000, respectively, of real estate impairment losses. In addition, the years ended December 31, 2012 and 2011 include certain items that affect comparability which are listed in the table below. The aggregate of net gains on sale of real estate, real estate impairment losses and the items in the table below, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders by $164,907,000, or $0.88 per diluted share for the year ended December 31, 2012 and $287,678,000, or $1.55 per diluted share for the year ended December 31, 2011. Funds from operations attributable to common shareholders plus assumed conversions (“FFO”) for the year ended December 31, 2012 was $818,565,000, or $4.39 per diluted share, compared to $1,230,973,000, or $6.42 per diluted share for the prior year. FFO for the years ended December 31, 2012 and 2011 includes certain items that affect comparability which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO by $145,560,000, or $0.78 per diluted share for the year ended December 31, 2012, and increased FFO by $291,700,000, or $1.52 per diluted share for the year ended December 31, 2011. (Amounts in thousands) Items that affect comparability income (expense): Non-cash impairment loss on J.C. Penney owned shares (Loss) income from the mark-to-market of J.C. Penney derivative position Non-cash impairment loss on investment in Toys FFO attributable to discontinued operations, including our share of discontinued operations of Alexander's Accelerated amortization of discount on investment in subordinated debt of Independence Plaza 1290 Avenue of the Americas and 555 California Street priority return and income tax benefit After-tax net gain on sale of Canadian Trade Shows Net gain resulting from Lexington Realty Trust's stock issuance Net gain on extinguishment of debt Mezzanine loan loss reversal and gain on disposition Recognition of disputed receivable from Stop & Shop Other, net Noncontrolling interests' share of above adjustments Items that affect comparability, net For the Year Ended December 31, 2012 2011 $ $ (224,937) (75,815) (40,000) 68,501 60,396 25,260 19,657 14,116 - - - (2,339) (155,161) 9,601 (145,560) $ $ - 12,984 - 91,938 - - - 9,760 83,907 82,744 23,521 6,440 311,294 (19,594) 291,700 The percentage increase (decrease) in GAAP basis and cash basis same store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of our operating segments for the year ended December 31, 2012 over the year ended December 31, 2011 is summarized below. Same Store EBITDA: December 31, 2012 vs. December 31, 2011 GAAP basis Cash basis New York Washington, DC Retail Properties Merchandise Mart 2.0%(1) 2.0%(1) (8.6%) (9.8%) 1.2% 1.3% 4.5% 0.7% (1) Excluding the Hotel Pennsylvania, same store increased by 2.2% and 2.3% on a GAAP and Cash basis, respectively. 70             Overview - continued Quarter Ended December 31, 2012 Financial Results Summary Net income attributable to common shareholders for the quarter ended December 31, 2012 was $62,633,000, or $0.33 per diluted share, compared to $69,508,000, or $0.37 per diluted share for the quarter ended December 31, 2011. Net income for the quarters ended December 31, 2012 and 2011 includes $281,549,000 and $1,916,000, respectively, of net gains on sale of real estate, and $117,883,000 and $28,799,000, respectively, of real estate impairment losses. In addition, the quarters ended December 31, 2012 and 2011 include certain other items that affect comparability which are listed in the table below. The aggregate of net gains on sale of real estate, real estate impairment losses and the items in the table below, net of amounts attributable to noncontrolling interests, decreased net income attributable to common shareholders by $18,670,000, or $0.10 per diluted share for the quarter ended December 31, 2012 and increased net income attributable to common shareholders by $48,566,000, or $0.26 per diluted share for the quarter ended December 31, 2011. FFO for the quarter ended December 31, 2012 was $55,890,000, or $0.30 per diluted share, compared to $280,369,000, or $1.46 per diluted share for the prior year’s quarter. FFO for the quarters ended December 31, 2012 and 2011 include certain items that affect comparability which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO by $172,670,000, or $0.92 per diluted share for the quarter ended December 31, 2012, and increased FFO by $82,493,000, or $0.43 per diluted share for the quarter ended December 31, 2011. (Amounts in thousands) Items that affect comparability income (expense): Non-cash impairment loss on J.C. Penney owned shares (Loss) income from the mark-to-market of J.C. Penney derivative position Non-cash impairment loss on investment in Toys Accelerated amortization of discount on investment in subordinated debt of Independence Plaza 1290 Avenue of the Americas and 555 California Street priority return and income tax benefit Net gain resulting from Lexington Realty Trust's stock issuance FFO attributable to discontinued operations, including our share of discontinued operations of Alexander's Recognition of disputed receivable from Stop & Shop Other, net Noncontrolling interests' share of above adjustments Items that affect comparability, net For the Three Months Ended December 31, 2012 2011 $ $ (224,937) (22,472) (40,000) 60,396 25,260 14,116 12,736 - (8,825) (183,726) 11,056 (172,670) $ $ - 40,120 - - - - 25,398 23,521 (1,014) 88,025 (5,532) 82,493 The percentage increase (decrease) in GAAP basis and cash basis same store EBITDA of our operating segments for the quarter ended December 31, 2012 over the quarter ended December 31, 2011 and the trailing quarter ended September 30, 2012 are summarized below. Same Store EBITDA: December 31, 2012 vs. December 31, 2011 GAAP basis Cash basis December 31, 2012 vs. September 30, 2012 GAAP basis Cash basis New York Washington, DC Retail Properties Merchandise Mart 0.2%(1) 4.0%(1) 4.3%(2) 6.8%(2) (14.3%) (14.9%) (8.8%) (7.7%) (0.1%) (0.8%) 1.8% 1.4% 0.2% (5.7%) 14.0%(3) 6.6%(3) (1) Excluding the Hotel Pennsylvania, same store increased by 0.2% and 4.4% on a GAAP and Cash basis, respectively. (2) Excluding the Hotel Pennsylvania, same store increased by 2.5% and 4.8% on a GAAP and Cash basis, respectively. (3) Primarily from the timing of trade shows. Calculations of same store EBITDA, reconciliations of our net income to EBITDA and FFO and the reasons we consider these non-GAAP financial measures useful are provided in the following pages of Management’s Discussion and Analysis of the Financial Condition and Results of Operations. 71             Overview – continued VORNADO CAPITAL PARTNERS REAL ESTATE FUND (THE “FUND”) In February 2011, the Fund’s subscription period closed with an aggregate of $800,000,000 of capital commitments, of which we committed $200,000,000. We are the general partner and investment manager of the Fund, which has an eight-year term and a three- year investment period. During the investment period, which concludes in July 2013, the Fund is our exclusive investment vehicle for all investments that fit within its investment parameters, including debt, equity and other interests in real estate, and excluding (i) investments in vacant land and ground-up development; (ii) investments acquired by merger or primarily for our securities or properties; (iii) properties which can be combined with or relate to our existing properties; (iv) securities of commercial mortgage loan servicers and investments derived from any such investments; (v) non-controlling interests in equity and debt securities; and (vi) investments located outside of North America. The Fund’s 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. During 2012, the Fund made four investments (described below) aggregating $203,700,000. As of December 31, 2012, the Fund has nine investments with an aggregate fair value of $600,786,000, or $67,642,000 in excess of cost, and has remaining unfunded commitments of $217,676,000, of which our share was $54,419,000. 800 Corporate Pointe On November 30, 2012, the Fund acquired 800 Corporate Pointe, a 243,000 square foot office building and the accompanying six-level parking structure (1,964 spaces) located in Culver City, Los Angeles, California, for $95,700,000 in cash. 501 Broadway On August 20, 2012, the Fund acquired 501 Broadway, a 9,000 square foot retail property in New York for $31,000,000. The purchase price consisted of $11,000,000 in cash and a $20,000,000 mortgage loan. The three-year loan bears interest at LIBOR plus 2.75%, with a floor of 3.50%, and has two one-year extension options. 1100 Lincoln Road On July 2, 2012, the Fund acquired 1100 Lincoln Road, a 167,000 square foot retail property, the western anchor of the Lincoln Road Shopping District in Miami Beach, Florida, for $132,000,000. The purchase price consisted of $66,000,000 in cash and a $66,000,000 mortgage loan. The three-year loan bears interest at LIBOR plus 2.75% and has two one-year extension options. 520 Broadway On April 26, 2012, the Fund acquired 520 Broadway, a 112,000 square foot office building in Santa Monica, California for $61,000,000 in cash and subsequently placed a $30,000,000 mortgage loan on the property. The three-year loan bears interest at LIBOR plus 2.25% and has two one-year extension options. 72   Overview – continued 2012 Acquisitions and Investments Independence Plaza In 2011, we acquired a 51% interest in the subordinated debt of Independence Plaza, a three-building 1,328 unit residential complex in the Tribeca submarket of Manhattan which has 54,500 square feet of retail space and 550 parking spaces, for $45,000,000 and a warrant to purchase 25% of the equity for $1,000,000. On December 21, 2012, we acquired a 58.75% interest in the property as follows: (i) buying one of the equity partners’ 33.75% interest for $160,000,000, (ii) exercising our warrant for 25% of the equity and (iii) contributing the appreciated value of our interest in the subordinated debt as preferred equity. In connection therewith, we recognized income of $105,366,000, comprised of $60,396,000 from the accelerated amortization of the discount on the subordinated debt immediately preceding the conversion to preferred equity, and a $44,970,000 purchase price fair value adjustment upon exercising the warrant. The current transaction values the property at $844,800,000. The property is currently encumbered by a $334,225,000 mortgage. We expect to refinance the $334,225,000 mortgage in 2013, substantially decreasing our cash investment. We manage the retail space at the property and Stellar Management, our partner, manages the residential space. 666 Fifth Avenue - Retail On December 6, 2012, we acquired a retail condominium located at 666 Fifth Avenue at 53rd Street for $707,000,000 in cash. The property has 126 feet of frontage on Fifth Avenue and contains 114,000 square feet, 39,000 square feet in fee and 75,000 square feet by long-term lease from the 666 Fifth Avenue office condominium, which is 49.5% owned by us. Marriott Marquis Times Square - Retail and Signage On July 30, 2012, we entered into a lease with Host Hotels & Resorts, Inc. (NYSE: HST) (“Host”), under which we will redevelop the retail and signage components of the Marriott Marquis Times Square Hotel. The Marriott Marquis with over 1,900 rooms is one of the largest hotels in Manhattan. It is located in the heart of the bow-tie of Times Square and spans the entire block front from 45th Street to 46th Street on Broadway. The Marriott Marquis is directly across from our 1540 Broadway iconic retail property leased to Forever 21 and Disney flagship stores. We plan to spend over $140,000,000 to redevelop and substantially expand the existing retail space, including converting the below grade parking garage into retail, and creating six-story, 300 foot wide block front, dynamic LED signs. During the term of the lease we will pay fixed rent equal to the sum of $12,500,000, plus a portion of the property’s net cash flow after we receive a 5.2% preferred return on our invested capital. The lease contains put/call options which, if exercised, would lead to our ownership. Host can exercise the put option during defined periods following the conversion of the project to a condominium. We can exercise our call option under the same terms, at any time after the fifteenth year of the lease term. 73       Overview – continued 2012 Dispositions Merchandise Mart On December 31, 2012, we completed the sale of the Boston Design Center, a 554,000 square foot showroom building in Boston, Massachusetts, for $72,400,000 in cash, which resulted in a net gain of $5,252,000. On July 26, 2012, we completed the sale of the Washington Design Center, a 393,000 square foot showroom building in Washington, DC, and the Canadian Trade Shows, for an aggregate of $103,000,000 in cash. The sale of the Canadian Trade Shows resulted in an after-tax net gain of $19,657,000. On June 22, 2012, we completed the sale of L.A. Mart, a 784,000 square foot showroom building in Los Angeles, California for $53,000,000, of which $18,000,000 was cash and $35,000,000 was nine-month seller financing at 6.0%, which was paid on December 28, 2012. On January 6, 2012, we completed the sale of 350 West Mart Center, a 1.2 million square foot office building in Chicago, Illinois, for $228,000,000 in cash, which resulted in a net gain of $54,911,000. Washington, DC On November 7, 2012, we completed the sale of three office buildings (“Reston Executive”) located in suburban Fairfax County, Virginia, containing 494,000 square feet for $126,250,000, which resulted in a net gain of $36,746,000. On July 26, 2012, we completed the sale of 409 Third Street S.W., a 409,000 square foot office building in Washington, DC, for $200,000,000 in cash, which resulted in a net gain of $126,621,000. This building is contiguous to the Washington Design Center and was sold to the same purchaser. Retail Properties On February 13, 2013, we entered into an agreement to sell the Plant, a power strip shopping center in San Jose, California, for $203,000,000. The sale will result in net proceeds of approximately $93,000,000 after repaying the existing loan and closing costs, and a financial statement gain of approximately $33,000,000. The sale, which is subject to customary closing conditions, is expected to be completed by the second quarter of 2013. On January 24, 2013, we completed the sale of the Green Acres Mall located in Valley Stream, New York, for $500,000,000, which resulted in net proceeds of $185,000,000, after repaying the existing loan and closing costs. The financial statement gain of $205,000,000 will be recognized in the first quarter of 2013 and the tax gain of $304,000,000 has been deferred as part of a like-kind exchange. In 2012, we sold 12 non-core retail properties in separate transactions, for an aggregate of $157,000,000 in cash, which resulted in a net gain aggregating $22,266,000. In addition, we have entered into an agreement to sell a building on Market Street, Philadelphia, which is part of the Gallery at Market East for $60,000,000, which will result in a net gain of approximately $35,000,000. The sale, which is subject to customary closing conditions, is expected to be completed in the first quarter of 2013. Other On January 24, 2013, LNR Property LLC (“LNR”) entered into a definitive agreement to be sold. We own 26.2% of LNR and expect to receive net proceeds of approximately $241,000,000. The sale, which is subject to customary closing conditions, is expected to be completed in the second quarter of 2013. 74   Overview – continued 2012 Financing Activities  Secured Debt On November 16, 2012, we completed a $120,000,000 refinancing of 4 Union Square South, a 206,000 square foot Manhattan retail property. The seven-year loan bears interest at LIBOR plus 2.15% (2.36% at December 31, 2012) and amortizes based on a 30- year schedule beginning in the third year. We retained net proceeds of approximately $42,000,000, after repaying the existing loan and closing costs. On November 8, 2012, we completed a $950,000,000 refinancing of 1290 Avenue of the Americas (70% owned), a 2.1 million square foot Manhattan office building. The 10-year fixed rate interest-only loan bears interest at 3.34%. The partnership retained net proceeds of approximately $522,000,000, after repaying the existing loan and closing costs. On August 17, 2012, we completed a $98,000,000 refinancing of 435 Seventh Avenue, a 43,000 square foot retail property in Manhattan. The seven-year loan bears interest at LIBOR plus 2.25% (2.46% at December 31, 2012). We retained net proceeds of approximately $44,000,000, after repaying the existing loan and closing costs. On July 26, 2012, we completed a $150,000,000 refinancing of 2101 L Street, a 380,000 square foot office building located in Washington, DC. The 12-year fixed rate loan bears interest at 3.97% and amortizes based on a 30-year schedule beginning in the third year. On March 5, 2012, we completed a $325,000,000 refinancing of 100 West 33rd Street, a 1.1 million square foot property located on the entire Sixth Avenue block front between 32nd and 33rd Streets in Manhattan. The building contains the 257,000 square foot Manhattan Mall and 848,000 square feet of office space. The three-year loan bears interest at LIBOR plus 2.50% (2.71% at December 31, 2012) and has two one-year extension options. We retained net proceeds of approximately $87,000,000, after repaying the existing loan and closing costs. On January 9, 2012, we completed a $300,000,000 refinancing of 350 Park Avenue, a 559,000 square foot Manhattan office building. The five-year fixed rate loan bears interest at 3.75% and amortizes based on a 30-year schedule beginning in the third year. The proceeds of the new loan and $132,000,000 of existing cash were used to repay the existing loan and closing costs. Senior Unsecured Debt In April 2012, we redeemed all of the outstanding exchangeable and convertible senior debentures at par, for an aggregate of $510,215,000 in cash. 75   Overview – continued 2012 Financing Activities – continued Preferred Securities In July 2012 and January 2013, we sold an aggregate of $600,000,000 of cumulative redeemable preferred securities with a weighted average cost of 5.55%. The net proceeds aggregating $581,824,000 were used primarily to redeem outstanding cumulative redeemable preferred securities with an aggregate face amount of $517,500,000 and a weighted average cost of 6.82%. The details of these transactions are described below. On February 19, 2013, we redeemed all of the outstanding 6.75% Series F Cumulative Redeemable Preferred Shares and 6.75% Series H Cumulative Redeemable Preferred Shares at par, for an aggregate of $262,500,000 in cash, plus accrued and unpaid dividends through the date of redemption. On January 25, 2013, we sold 12,000,000 5.40% Series L Cumulative Redeemable Preferred Shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement. We retained aggregate net proceeds of $290,853,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to the Operating Partnership in exchange for 12,000,000 Series L Preferred Units (with economic terms that mirror those of the Series L Preferred Shares). Dividends on the Series L Preferred Shares are cumulative and payable quarterly in arrears. The Series L Preferred Shares are not convertible into, or exchangeable for, any of our properties or securities. On or after five years from the date of issuance (or sooner under limited circumstances), we may redeem the Series L Preferred Shares at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption. The Series L Preferred Shares have no maturity date and will remain outstanding indefinitely unless redeemed by us. On August 16, 2012, we redeemed all of the outstanding 7.0% Series E Cumulative Redeemable Preferred Shares at par, for an aggregate of $75,000,000 in cash, plus accrued and unpaid dividends through the date of redemption. On July 19, 2012, we redeemed all of the outstanding 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units with an aggregate face amount of $180,000,000 for $168,300,000 in cash, plus accrued and unpaid distributions through the date of redemption. On July 11, 2012, we sold 12,000,000 5.70% Series K Cumulative Redeemable Preferred Shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement. We retained aggregate net proceeds of $290,971,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to the Operating Partnership in exchange for 12,000,000 Series K Preferred Units (with economic terms that mirror those of the Series K Preferred Shares). Dividends on the Series K Preferred Shares are cumulative and payable quarterly in arrears. The Series K Preferred Shares are not convertible into, or exchangeable for, any of our properties or securities. On or after five years from the date of issuance (or sooner under limited circumstances), we may redeem the Series K Preferred Shares at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption. The Series K Preferred Shares have no maturity date and will remain outstanding indefinitely unless redeemed by us. 76   Overview - continued Leasing Activity The leasing activity presented below is based on leases signed during the period and is not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Tenant improvements and leasing commissions presented below are based on square feet leased during the period. Second generation relet space represents square footage that has not been vacant for more than nine months. The leasing activity for the New York segment excludes Alexander’s, the Hotel Pennsylvania and residential. (Square feet in thousands) New York Office Retail Washington, DC Office Retail Properties Malls Strips Merchandise Mart Office Showroom Quarter Ended December 31, 2012: Total square feet leased Our share of square feet leased Initial rent (1) Weighted average lease term (years) Second generation relet space: Square feet Cash basis: Initial rent (1) Prior escalated rent Percentage increase (decrease) GAAP basis: Straight-line rent (2) Prior straight-line rent Percentage increase (decrease) Tenant improvements and leasing commissions: Per square foot Per square foot per annum: Percentage of initial rent Year Ended December 31, 2012: Total square feet leased Our share of square feet leased Initial rent (1) Weighted average lease term (years) Second generation relet space: Square feet Cash basis: Initial rent (1) Prior escalated rent Percentage increase (decrease) GAAP basis: Straight-line rent (2) Prior straight-line rent Percentage increase Tenant improvements and leasing commissions: Per square foot Per square foot per annum: Percentage of initial rent 457 437 53.98 8.6 373 52.61 50.86 3.4% 51.46 48.62 5.8% 6 5 $ 308.52 9.2 3 $ 459.69 $ 295.56 55.5% $ 513.29 $ 283.01 81.4% 48.15 5.60 10.4% $ 188.84 20.60 $ 6.7% 1,950 1,754 57.15 9.3 1,405 57.88 55.31 4.6% 57.34 54.64 4.9% 192 185 $ 110.71 11.9 154 $ 110.21 88.47 $ 24.6% $ 115.97 89.52 $ 29.5% 54.45 5.85 10.2% $ $ 32.52 2.73 2.5% $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 482 404 41.46 7.2 246 39.34 40.38 (2.6%) 37.94 38.86 (2.4%) 26.90 3.74 9.0% 2,111 1,901 40.55 7.3 1,613 39.27 39.13 0.4% 38.96 37.67 3.4% 35.49 4.86 12.0% $ $ $ $ $ $ $ $ $ $ $ $ $ $ 322 322 20.46 $ 7.4 220 17.03 $ 16.04 $ 6.2% 17.16 $ 15.79 $ 8.7% 75 51 33.11 5.8 5 69.44 67.89 2.3% 71.83 65.06 10.4% 4.28 $ 0.58 $ 2.8% 27.38 4.72 14.3% 1,276 1,276 18.65 $ 8.2 941 15.98 $ 14.58 $ 9.6% 16.49 $ 13.69 $ 20.5% 146 101 38.45 5.3 17 64.85 60.78 6.7% 66.24 58.61 13.0% 7.48 $ 0.91 $ 4.9% 18.66 3.52 9.2% $ $ $ $ $ $ $ $ $ $ $ $ $ $ - - - - - - - -% - - -% - - - 593 593 32.97 14.7 20 32.24 24.88 29.6% 32.38 23.15 39.9% 96.41 6.56 (3) 19.9% 58 58 41.19 6.5 58 41.19 39.42 4.5% 43.00 33.41 28.7% 7.55 1.16 2.8% 380 380 38.67 6.0 380 38.67 39.04 (0.9%) 39.15 35.28 11.0% 10.49 1.75 4.5% $ $ $ $ $ $ $ $ $ $ $ $ $ $ See notes on the following page. 77       Overview - continued  Leasing Activity - continued (Square feet in thousands) Year Ended December 31, 2011: Total square feet leased Our share of square feet leased: Initial rent (1) Weighted average lease term (years) Second generation relet space: Square feet Cash basis: Initial rent (1) Prior escalated rent Percentage increase (decrease) GAAP basis: Straight-line rent(2) Prior straight-line rent Percentage increase Tenant improvements and leasing commissions: Per square foot Per square foot per annum: Percentage of initial rent $ $ $ $ $ $ $ New York Office Retail Washington, DC Office Retail Properties Malls Strips Merchandise Mart Office Showroom 3,211 2,432 55.37 $ 9.2 61 61 133.02 $ 10.1 1,735 1,557 41.35 $ 5.6 1,109 1,109 18.03 $ 9.1 239 207 33.82 $ 6.0 241 241 26.43 8.4 2,089 52 1,396 470 48 241 56.21 $ 47.66 $ 18.0% 145.98 $ 134.95 $ 8.2% 56.19 $ 47.47 $ 18.4% 150.78 $ 133.55 $ 12.9% 41.01 $ 38.77 $ 5.8% 16.25 $ 14.94 $ 8.8% 30.65 $ 27.79 $ 10.3% 26.43 26.51 (0.3%) 40.54 $ 37.47 $ 8.2% 16.46 $ 14.34 $ 14.8% 32.15 $ 27.26 $ 17.9% 26.90 23.25 15.7% 48.28 $ 5.25 $ 9.5% 40.00 $ 3.96 $ 3.0% 25.01 $ 4.47 $ 10.8% 5.67 $ 0.62 $ 3.4% 9.00 $ 1.50 $ 4.4% 64.78 7.71 29.2% 306 306 36.67 5.6 306 36.67 38.60 (5.0%) 35.58 35.04 1.5% 6.20 1.11 3.0% $ $ $ $ $ $ $ (1) Represents the cash basis weighted average starting rent per square foot, which is generally indicative of market rents. Most leases include free rent and periodic step-ups in rent which are not included in the initial cash basis rent per square foot but are included in the GAAP basis straight-line rent per square foot. (2) Represents the GAAP basis weighted average rent per square foot that is recognized over the term of the respective leases, and includes the effect of free rent and periodic step-ups in rent. (3) Includes $6.50 per square foot per annum of tenant improvements and leasing commissions in connection with the 572,000 square foot Motorola Mobility / Google lease. 78       Overview - continued  Square footage (in service) and Occupancy as of December 31, 2012: (Square feet in thousands) New York: Office Retail Alexander's Hotel Pennsylvania Residential (1,655 units) Washington, DC Office Residential (2,414 units) Hotel and Warehouses Retail Properties: Strip Shopping Centers Regional Malls Merchandise Mart: Office Showroom Other 555 California Street Primarily Warehouses Number of Properties 31 49 6 1 4 59 7 7 114 6 2 2 3 5 Square Feet (in service) Our Share Total Portfolio 19,729 2,217 2,179 1,400 1,528 27,053 16,106 2,599 435 19,140 15,566 5,244 20,810 1,771 2,220 3,991 1,795 971 2,766 73,760 16,751 2,057 706 1,400 873 21,787 13,637 2,457 435 16,529 14,984 3,608 18,592 1,762 2,220 3,982 1,257 971 2,228 63,118 Total square feet at December 31, 2012 Square footage (in service) and Occupancy as of December 31, 2011: Number of Properties Square Feet (in service) Our Share Total Portfolio (Square feet in thousands) New York: Office Retail Alexander's Hotel Pennsylvania Washington, DC Office Residential (2,414 units) Hotel and Warehouses Retail Properties: Strip Shopping Centers Regional Malls Merchandise Mart: Office Showroom Other 555 California Street Primarily Warehouses Total square feet at December 31, 2011 30 46 6 1 59 7 7 114 6 2 2 3 5 79 19,571 2,239 2,179 1,400 25,389 16,623 2,599 404 19,626 15,595 5,448 21,043 1,229 2,715 3,944 1,795 971 2,766 72,768 16,598 1,982 706 1,400 20,686 14,161 2,457 404 17,022 15,012 3,800 18,812 1,220 2,715 3,935 1,257 971 2,228 62,683 Occupancy % 95.9% 96.8% 99.1% 96.9% 96.2% 81.2% 97.9% 100.0% 84.1% 93.6% 92.7% 93.4% 90.0% 94.7% 92.6% 93.1% 55.9% Occupancy % 96.2% 95.6% 98.7% 96.2% 89.3% 96.6% 100.0% 90.6% 93.3% 92.7% 93.2% 90.1% 89.8% 89.9% 93.1% 45.3%           Overview - continued Washington, DC Segment As a result of the Base Realignment and Closure (“BRAC”) statute, we estimated that occupancy would decrease from 90% at December 31, 2011, to between 82% and 84% at December 31, 2012 and that 2012 EBITDA before discontinued operations and gains on sale of real estate would be lower than 2011 by approximately $55,000,000 to $65,000,000 (revised to $50,000,000 to $60,000,000 in the third quarter of 2012). At December 31, 2012, occupancy was 84.1% and 2012 EBITDA before discontinued operations and gains on sale of real estate was lower than 2011 by $54,900,000. We estimate that 2013 EBITDA will be between $5,000,000 and $15,000,000 lower than 2012 EBITDA. Of the 2,395,000 square feet subject to BRAC, 348,000 square feet has been taken out of service for redevelopment and 545,000 square feet has been leased or is pending. The table below summarizes the status of the BRAC space as of December 31, 2012. Resolved: Relet as of December 31, 2012 Leases pending Taken out of service for redevelopment To Be Resolved: Vacated as of December 31, 2012 Expiring in: 2013 2014 2015 Rent Per Square Foot Total Square Feet Crystal City Skyline Rosslyn $ 39.76 45.00 521,000 24,000 348,000 893,000 380,000 24,000 348,000 752,000 88,000 - - 88,000 53,000 - - 53,000 35.77 1,002,000 519,000 473,000 10,000 37.39 32.49 43.04 126,000 304,000 70,000 1,502,000 - 103,000 65,000 687,000 43,000 201,000 5,000 722,000 83,000 - - 93,000 Total square feet subject to BRAC 2,395,000 1,439,000 810,000 146,000 In the first quarter of 2012, we notified the lender that due to scheduled lease expirations resulting primarily from the effects of the BRAC statute, the Skyline properties had a 26% vacancy rate and rising (49.8% as of December 31, 2012) and, accordingly, cash flows are expected to decrease. As a result, our subsidiary that owns these properties does not have and is not expected to have for some time sufficient funds to pay all of its current obligations, including interest payments to the lender. Based on the projected vacancy and the significant amount of capital required to re-tenant these properties, at our request, the mortgage loan was transferred to the special servicer. In the second quarter of 2012, we entered into a forbearance agreement with the special servicer to apply cash flows of the property, before interest on the loan, towards the repayment of $4,000,000 of tenant improvements and leasing commissions we funded in connection with a new lease at these properties, which was repaid in the third quarter. The forbearance agreement was amended January 31, 2013, to extend its maturity through April 1, 2013 and provides for interest shortfalls to be deferred and added to the principal balance of the loan and not give rise to a loan default. As of December 31, 2012, the deferred interest amounted to $26,957,000. We continue to negotiate with the special servicer to restructure the terms of the loan. 80   Recently Issued Accounting Literature In May 2011, the Financial Accounting Standards Board (“FASB”) issued Update No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU No. 2011-04”). ASU No. 2011-04 provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”) and requires additional disclosures, including: (i) quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs, for Level 3 fair value measurements; (ii) fair value of financial instruments not measured at fair value but for which disclosure of fair value is required, based on their levels in the fair value hierarchy; and (iii) transfers between Level 1 and Level 2 of the fair value hierarchy. The adoption of this update on January 1, 2012 did not have a material impact on our consolidated financial statements, but resulted in additional fair value measurement disclosures (See Note 13 to the consolidated financial statements in this Annual Report on Form 10-K). Critical Accounting Policies In preparing the consolidated financial statements we have made estimates and assumptions that affect the reported amounts of 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. Set forth below is a summary of the accounting policies that we believe are critical to the preparation of our consolidated financial statements. The summary should be read in conjunction with the more complete discussion of our accounting policies included in Note 2 to the consolidated financial statements in this Annual Report on Form 10-K. Real Estate Real estate is carried at cost, net of accumulated depreciation and amortization. Maintenance and repairs are expensed as incurred. Depreciation requires an estimate by management of the useful life of each property and improvement as well as an allocation of the costs associated with a property to its various components. If we do not allocate these costs appropriately or incorrectly estimate the useful lives of our real estate, depreciation expense may be misstated. As real estate is undergoing development activities, all property operating expenses directly associated with and attributable to, the development and construction of a project, including interest expense, are capitalized to the cost of real property to the extent we believe such costs are recoverable through the value of the property. The capitalization period begins when development activities are underway and ends when the project is substantially complete. General and administrative costs are expensed as incurred. Upon the acquisition of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, identified intangibles such as acquired above and below-market leases and acquired in-place leases and tenant relationships) and acquired liabilities and we allocate purchase price based on these assessments. We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors, including historical operating results, known trends and market/economic conditions. Identified intangibles are recorded at their estimated fair value, separate and apart from goodwill. Identified intangibles that are determined to have finite lives are amortized over the period in which they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired. As of December 31, 2012 and 2011, the carrying amounts of real estate, net of accumulated depreciation, were $15.4 billion and $13.8 billion, respectively. As of December 31, 2012 and 2011, the carrying amounts of identified intangible assets (including acquired above-market leases, tenant relationships and acquired in-place leases) were $370,602,000 and $287,844,000, respectively, and the carrying amounts of identified intangible liabilities, a component of “deferred revenue” on our consolidated balance sheets, were $463,432,000 and $466,743,000, respectively. Our properties, including any related intangible assets, are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis. An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair value. Impairment analyses are based on our current plans, intended holding periods and available market information at the time the analyses are prepared. If our estimates of the projected future cash flows, anticipated holding periods, or market conditions change, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results. Plans to hold properties over longer periods decrease the likelihood of recording impairment losses. 81       Critical Accounting Policies – continued Partially Owned Entities We consolidate entities in which we have a controlling financial interest. In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider factors such as ownership interest, board representation, management representation, authority to make decisions, and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity (“VIE”) and we are the primary beneficiary. We are deemed to be the primary beneficiary of a VIE when we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. When the requirements for consolidation are not met, we account for investments under the equity method of accounting if we have the ability to exercise significant influence over the entity. Equity method investments are initially recorded at cost and subsequently adjusted for our share of net income or loss and cash contributions and distributions each period. Investments that do not qualify for consolidation or equity method accounting are accounted for on the cost method. Investments in partially owned entities are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is measured based on the excess of the carrying amount of an investment over its estimated fair value. Impairment analyses are based on current plans, intended holding periods and available information at the time the analyses are prepared. The ultimate realization of our investments in partially owned entities is dependent on a number of factors, including the performance of each investment and market conditions. If our estimates of the projected future cash flows, the nature of development activities for properties for which such activities are planned and the estimated fair value of the investment change based on market conditions or otherwise, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results. As of December 31, 2012 and 2011, the carrying amounts of investments in partially owned entities, including Toys “R” Us, was $1.704 billion and $1.740 billion, respectively. Mortgage and Mezzanine Loans Receivable We invest in mortgage and mezzanine loans of entities that have significant real estate assets. These investments are either secured by the real property or by pledges of the equity interests of the entities owning the underlying real estate. We record these investments at the stated principal amount net of any unamortized discount or premium. We accrete or amortize any discount or premium over the life of the related receivable utilizing the effective interest method or straight-line method, if the result is not materially different. We evaluate the collectability of both interest and principal of each of our loans whenever events or changes in circumstances indicate such amounts may not be recoverable. A loan is impaired when it is probable that we will be unable to collect all amounts due according to the existing contractual terms. When a loan is impaired, the amount of the loss accrual is calculated by comparing the carrying amount of the investment to the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, to the value of the collateral if the loan is collateral dependent. If our estimates of the collectability of both interest and principal or the fair value of our loans change based on market conditions or otherwise, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements. As of December 31, 2012 and 2011, the carrying amounts of mortgage and mezzanine loans receivable were $225,359,000 and $133,948,000, respectively. 82   Critical Accounting Policies – continued Allowance For Doubtful Accounts We periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts ($37,674,000 and $43,241,000 as of December 31, 2012 and 2011) for estimated losses resulting from the inability of tenants to make required payments under the lease agreements. We also maintain an allowance for receivables arising from the straight-lining of rents ($3,165,000 and $3,290,000 as of December 31, 2012 and 2011, respectively). This receivable arises from earnings recognized in excess of amounts currently due under the lease agreements. Management exercises judgment in establishing these allowances and considers payment history and current credit status in developing these estimates. These estimates may differ from actual results, which could be material to our consolidated financial statements. Revenue Recognition We have the following revenue sources and revenue recognition policies:  Base Rent — income arising from tenant leases. These rents are recognized over the non-cancelable term of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements under the leases. We commence rental revenue recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. In addition, in circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease.  Percentage Rent — income arising from retail tenant leases that is contingent upon tenant sales exceeding defined thresholds. These rents are recognized only after the contingency has been removed (i.e., when tenant sales thresholds have been achieved).  Hotel Revenue — income arising from the operation of the Hotel Pennsylvania which consists of rooms revenue, food and beverage revenue, and banquet revenue. Income is recognized when rooms are occupied. Food and beverage and banquet revenue are recognized when the services have been rendered.  Trade Shows Revenue — income arising from the operation of trade shows, including rentals of booths. This revenue is recognized when the trade shows have occurred.  Expense Reimbursements — revenue arising from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes of the respective property. This revenue is accrued in the same periods as the expenses are incurred.  Management, Leasing and Other Fees — income arising from contractual agreements with third parties or with partially owned entities. This revenue is recognized as the related services are performed under the respective agreements.  Cleveland Medical Mart — revenue arising from the development of the Cleveland Medical Mart. This revenue is recognized as the related services are performed under the respective agreements using the criteria set forth in ASC 605-25, Multiple Element Arrangements, as we are providing development, marketing, leasing, and other property management services. Before we recognize revenue, we assess, among other things, its collectibility. If our assessment of the collectibility of revenue changes, the impact on our consolidated financial statements could be material. Income Taxes We operate in a manner intended to enable us to continue to qualify as a Real Estate Investment Trust (“REIT”) under Sections 856-860 of the Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. We distribute to our shareholders 100% of our taxable income. Therefore, no provision for Federal income taxes is required. If we fail to distribute the required amount of income to our shareholders, or fail to meet other REIT requirements, we may fail to qualify as a REIT which may result in substantial adverse tax consequences. 83   Net Income and EBITDA by Segment for the Years Ended December 31, 2012, 2011 and 2010 Effective January 1, 2012, as a result of certain organizational and operational changes, we redefined the New York business segment to encompass all of our Manhattan assets by including the 1.0 million square feet in 21 freestanding Manhattan street retail assets (formerly in our Retail segment), and the Hotel Pennsylvania and our interest in Alexander’s, Inc. (formerly in our Other segment). Accordingly, we have reclassified the prior period segment financial results to conform to the current year presentation. See note (3) on page 87 for the elements of the New York segment’s EBITDA. Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the years ended December 31, 2012, 2011 and 2010. (Amounts in thousands) For the Year Ended December 31, 2012 Property rentals Straight-line rent adjustments Amortization of acquired below- market leases, net Total rentals Tenant expense reimbursements Cleveland Medical Mart development project Fee and other income: BMS cleaning fees Signage revenue Management and leasing fees Lease termination fees Other income Total revenues Operating expenses Depreciation and amortization General and administrative Cleveland Medical Mart development project Impairment losses, acquisition related costs and tenant buy-outs Total expenses Operating income (loss) Income applicable to Toys Income (loss) from partially owned entities Income from Real Estate Fund Interest and other investment (loss) income, net Interest and debt expense Net gain on disposition of wholly owned and partially owned assets Income (loss) before income taxes Income tax expense Income (loss) from continuing operations Income (loss) from discontinued operations Net income (loss) Less net (income) loss attributable to noncontrolling interests in: Consolidated subsidiaries Operating Partnership Preferred unit distributions of the Operating Partnership Net income (loss) attributable to Vornado Interest and debt expense(2) Depreciation and amortization(2) Income tax expense (benefit)(2) EBITDA(1) $ Total 1,962,545 68,844 New York Washington, DC Properties 276,190 $ 1,004,078 9,379 52,117 467,972 $ 5,727 $ Toys Other $ 125,018 $ 763 - $ - 89,287 858 Retail Merchandise Mart 54,193 2,085,582 301,092 31,552 1,087,747 160,133 2,043 475,742 40,742 14,902 300,471 88,545 - 125,781 4,343 235,234 - - - 235,234 67,584 20,892 21,867 2,361 31,845 2,766,457 1,021,719 517,811 201,894 94,965 20,892 5,639 1,136 4,472 1,374,984 602,883 226,653 30,053 - - 12,775 643 24,126 554,028 194,523 138,296 27,237 - - 3,131 74 1,778 393,999 141,732 76,835 23,654 - - 231 508 1,574 367,671 65,337 33,778 18,899 226,619 - - - 226,619 - - - - - - - - - - - - - - 120,786 2,088,829 677,628 14,859 408,267 63,936 - 859,589 515,395 - 207,773 - - 360,056 193,972 - (5,612) - 103,400 345,621 48,378 - 1,458 - (260,945) (500,361) 4,230 (147,132) 126 (115,574) 27 (62,923) 13,347 416,731 (8,132) - 580,266 (3,491) - 72,912 (1,650) 8,491 (4,569) - - 344,633 23,038 - 729 - - (31,393) - (7,626) (502) - - - 14,859 - - - - - 14,859 - 5,696 95,841 7,329 - (27,381) - 91 - (105) 75,775 17,244 42,249 102,051 - 17,386 178,930 (103,155) - 203,919 63,936 (265,328) (143,339) 4,856 (239,111) (2,489) 408,599 576,775 71,262 (4,569) (8,128) 14,859 (241,600) 285,942 694,541 (641) 576,134 167,766 239,028 42,926 38,357 75,144 67,016 - 14,859 747 (240,853) (32,018) (35,327) (9,936) 617,260 760,523 735,293 7,026 2,120,102 $ (2,138) - - 573,996 187,855 252,257 3,751 $ 1,017,859 (3) $ - - - 239,028 133,625 157,816 1,943 532,412 $ 1,812 - - 40,169 73,828 86,529 - - - - - - - 67,016 35,423 39,596 12,503 14,859 147,880 135,179 (16,629) 200,526 (4) $ 154,538 $ 281,289 $ (31,692) (35,327) (9,936) (317,808) 181,912 63,916 5,458 (66,522)(5) EBITDA for the New York, Washington, DC and Retail Properties segments above include income from discontinued operations and other gains and losses that affect comparability which are described in the “Overview,” aggregating $197,998, $176,935 and $(35,875), respectively. Excluding these items, EBITDA for the New York, Washington, DC and Retail Properties segments was $819,861, $355,477 and $236,401, respectively. ___________________________________________________________________________ See notes on page 87. 84   Net Income and EBITDA by Segment for the Years Ended December 31, 2012, 2011 and 2010 - continued (Amounts in thousands) For the Year Ended December 31, 2011 Property rentals Straight-line rent adjustments Amortization of acquired below- market leases, net Total rentals Tenant expense reimbursements Cleveland Medical Mart development project Fee and other income: BMS cleaning fees Signage revenue Management and leasing fees Lease termination fees Other income Total revenues Operating expenses Depreciation and amortization General and administrative Cleveland Medical Mart development project Impairment losses, acquisition related costs and tenant buy-outs Total expenses Operating income (loss) Income applicable to Toys Income (loss) from partially owned entities Income from Real Estate Fund Interest and other investment income (loss), net Interest and debt expense Net gain on disposition of wholly owned and partially owned assets Income (loss) before income taxes Income tax expense Income (loss) from continuing operations Income from discontinued operations Net income (loss) Less net (income) loss attributable to noncontrolling interests in: Consolidated subsidiaries Operating Partnership Preferred unit distributions of the Operating Partnership Net income (loss) attributable to Vornado Interest and debt expense(2) Depreciation and amortization(2) Income tax expense (benefit)(2) EBITDA(1) $ Total 2,012,292 39,858 New York Washington, DC Properties 274,386 $ 6,723 531,510 $ (2,569) 979,032 34,446 $ Toys Other $ 136,404 $ (1,284) - $ - 90,960 2,542 Retail Merchandise Mart 62,105 2,114,255 314,752 40,958 1,054,436 165,433 2,160 531,101 36,299 13,969 295,078 96,805 - 135,120 6,321 154,080 - - - 154,080 61,754 19,823 21,801 16,334 30,037 2,732,836 995,586 524,550 208,008 90,033 19,823 5,095 11,839 6,457 1,353,116 578,344 221,520 26,808 - - 12,361 3,794 19,762 603,317 188,744 154,142 26,369 - - 3,990 467 1,862 398,202 133,403 77,433 25,489 - - 342 234 2,218 298,315 77,492 28,804 28,040 145,824 - - - 145,824 - - - - - - - - - - - - - - 35,299 1,909,267 823,569 48,540 70,072 22,886 23,777 850,449 502,667 - 12,062 - - 369,255 234,062 - (6,381) - 369 236,694 161,508 - 2,700 - 148,784 (526,175) 4,245 (152,386) 199 (115,456) (32) (70,952) 15,134 602,810 (23,925) - 366,588 (2,084) - 112,424 (2,690) 4,278 97,502 (34) 5,228 285,388 12,927 - 455 - 1 (31,208) - (17,825) (1,572) - - - 48,540 - - - - - 48,540 - 5,018 98,520 9,894 - (28,279) - 13 - (262) 79,886 17,603 42,651 101,302 - 5,925 167,481 (87,595) - 61,236 22,886 144,371 (156,173) 10,856 (4,419) (17,545) 578,885 364,504 109,734 97,468 (19,397) 48,540 (21,964) 161,115 740,000 563 365,067 52,390 162,124 31,815 129,283 72,971 53,574 - 48,540 3,376 (18,588) (21,786) (41,059) (14,853) (10,042) - - - - - 237 - - - - - - - - 662,302 797,920 777,421 4,812 2,242,455 $ $ 355,025 181,740 247,630 2,170 786,565 (3) $ 162,124 134,270 181,560 3,123 481,077 $ 129,520 82,608 91,040 34 303,202 (4) $ 53,574 40,916 46,725 2,237 48,540 157,135 134,967 (1,132) 143,452 $ 339,510 $ (11,981) (41,059) (14,853) (86,481) 201,251 75,499 (1,620) 188,649 (5) EBITDA for the New York, Washington, DC and Retail Properties segments above include income from discontinued operations and other gains and losses that affect comparability which are described in the “Overview,” aggregating $(8,698), $70,743 and $73,275, respectively. Excluding these items, EBITDA for the New York, Washington, DC and Retail Properties segments was $795,263, $410,334 and $229,927, respectively. ____________________________________ See notes on page 87. 85   Net Income and EBITDA by Segment for the Years Ended December 31, 2012, 2011 and 2010 - continued (Amounts in thousands) For the Year Ended December 31, 2010 New York Washington, DC Properties 256,654 $ 9,401 536,947 $ 6,089 944,322 51,385 $ Retail Merchandise Mart Property rentals Straight-line rent adjustments Amortization of acquired below- market leases, net Total rentals Tenant expense reimbursements Fee and other income: BMS cleaning fees Signage revenue Management and leasing fees Lease termination fees Other income Total revenues Operating expenses Depreciation and amortization General and administrative Impairment losses, acquisition related costs and tenant buy-outs Total expenses Operating income (loss) Income applicable to Toys Income (loss) from partially owned entities (Loss) from Real Estate Fund Interest and other investment income, net Interest and debt expense Net gain (loss) on extinguishment of debt Net gain on disposition of wholly owned and partially owned assets Income (loss) before income taxes Income tax (expense) benefit Income (loss) from continuing operations Income (loss) from discontinued operations Net income (loss) Less net (income) loss attributable to noncontrolling interests in: Consolidated subsidiaries Operating Partnership Preferred unit distributions of the Operating Partnership Net income (loss) attributable to Vornado Interest and debt expense(2) Depreciation and amortization(2) Income tax (benefit) expense(2) EBITDA(1) $ Total 1,957,130 70,972 65,373 2,093,475 317,777 58,053 18,618 21,686 14,818 33,780 2,558,207 983,424 494,898 211,399 109,458 1,799,179 759,028 71,624 20,869 (303) 44,879 1,040,586 159,369 84,945 18,618 4,427 7,470 6,051 1,321,466 556,270 212,903 25,560 1,605 796,338 525,128 - 13,317 - 2,453 545,489 49,792 - - 15,934 1,148 20,594 632,957 202,569 136,391 25,454 - 364,414 268,543 - (564) - 12,384 278,439 93,032 - - 1,820 4,441 927 378,659 141,116 71,556 27,676 70,895 311,243 67,416 - 8,220 - 235,267 (539,370) 4,237 (145,406) 154 (125,272) 164 (63,265) 94,789 81,432 723,336 (22,137) - - 397,276 (2,167) - 105,571 54,742 197,603 (1,679) - 118,106 (37) Toys Other $ 132,120 $ 301 - $ - 87,087 3,796 - 132,421 5,274 - - 156 459 3,068 141,378 65,842 28,416 24,199 - 118,457 22,921 - (179) - 3 (31,208) - 765 (7,698) 29 - - - - - - - - - - - - - - - 71,624 - - - - - - 71,624 - 5,657 96,540 10,310 (26,892) - (651) 1,300 3,140 83,747 17,627 45,632 108,510 36,958 208,727 (124,980) - 75 (303) 230,709 (174,219) (10,782) 25,925 (53,575) (18,283) 701,199 395,109 195,924 118,069 (7,669) 71,624 (71,858) 6,832 708,031 168 395,277 4,143 200,067 19,061 137,130 (20,948) (28,617) - 71,624 4,408 (67,450) (4,920) (44,033) (11,195) (9,559) - - - - - (778) - - - - - - - - 5,417 (44,033) (11,195) 647,883 828,082 729,426 (23,036) 2,182,355 $ $ 385,718 158,249 218,766 1,311 764,044 (3) $ 200,067 136,174 159,283 2,027 497,551 $ 136,352 79,545 86,629 37 302,563 (4) $ (28,617) 61,379 51,064 232 71,624 177,272 131,284 (45,418) 84,058 $ 334,762 $ (117,261) 215,463 82,400 18,775 199,377 (5) EBITDA for the New York, Washington, DC and Retail Properties segments above include income from discontinued operations and other gains and losses that affect comparability which are described in the “Overview,” aggregating $1,881, $73,526 and $78,005, respectively. Excluding these items, EBITDA for the New York, Washington, DC and Retail Properties segments was $762,163, $424,025 and $224,558, respectively. ___________________________ See notes on the following page. 86   Net Income and EBITDA by Segment for the Years Ended December 31, 2012, 2011 and 2010 - continued Notes to preceding tabular information: (1) EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies. (2) Interest and debt expense, depreciation and amortization and income tax expense (benefit) in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities. (3) The elements of "New York" EBITDA are summarized below. For the Year Ended December 31, 2011 2012 (Amounts in thousands) Office(a) Retail(b) Alexander's(c) Hotel Pennsylvania Total New York (a) 2012 includes income of $6,958, primarily from a priority return on our investment in 1290 Avenue of the Americas. (b) 2011 includes a $23,777 expense for tenant buy-out costs. (c) 2012 includes income of $179,934 for our share of a net gain on sale of real estate. 568,518 189,484 231,402 28,455 1,017,859 539,734 163,033 53,663 30,135 786,565 510,187 180,225 49,869 23,763 764,044 2010 $ $ $ $ $ $ (4) The elements of "Retail Properties" EBITDA are summarized below. (Amounts in thousands) Strip shopping centers(a) Regional malls(b) Total Retail properties (a) For the Year Ended December 31, 2011 2012 2010 $ $ 172,708 27,818 200,526 $ $ 210,022 93,180 303,202 $ $ 180,323 122,240 302,563 Includes income from discontinued operations and other gains and losses that affect comparability, aggregating $515, $44,990 and $15,541, respectively. Excluding these items, EBITDA was $172,193, $165,032 and $164,782, respectively. Includes income from discontinued operations and other gains and losses that affect comparability, aggregating $(36,390), $28,285 and $62,464, respectively. Excluding these items, EBITDA was $64,208, $64,895 and $59,776, respectively. (b) 87           Net Income and EBITDA by Segment for the Years Ended December 31, 2012, 2011 and 2010 - continued Notes to preceding tabular information: (5) The elements of "other" EBITDA are summarized below. (Amounts in thousands) Our share of Real Estate Fund: Income before net realized/unrealized gains Net unrealized gains Net realized gains Carried interest Total LNR (acquired in July 2010) 555 California Street Lexington Realty Trust ("Lexington") Other investments Corporate general and administrative expenses(a) Investment income and other, net(a) Fee income from Alexander's (including a $6,423 sales commission in 2012) Non-cash impairment loss on J.C. Penney owned shares (Loss) income from the mark-to-market of J.C. Penney derivative position Purchase price fair value adjustment and accelerated amortization of discount on investment in subordinated debt of Independence Plaza Net gain resulting from Lexington's stock issuance and asset acquisition Impairment losses and acquisition related costs Verde Realty impairment loss Our share of impairment losses of partially owned entities Net gain on sale of residential condominiums Mezzanine loans loss reversal and net gain on disposition Net gain from Suffolk Downs' sale of a partial interest Real Estate Fund placement fees Net loss on extinguishment of debt Net income attributable to noncontrolling interests in the Operating Partnership Preferred unit distributions of the Operating Partnership For the Year Ended December 31, 2011 2012 2010 $ $ 4,926 13,840 - 5,838 24,604 79,520 46,167 32,595 29,266 212,152 (90,567) 35,397 13,748 (224,937) (75,815) 105,366 28,763 (17,386) (4,936) (4,318) 1,274 - - - - (35,327) (9,936) (66,522) $ $ 4,205 2,999 1,348 736 9,288 47,614 44,724 34,779 33,529 169,934 (85,922) 52,405 7,417 - 12,984 - 9,760 (5,925) - (13,794) 5,884 82,744 12,525 (3,451) - (41,059) (14,853) 188,649 $ $ 503 - - - 503 6,116 46,782 41,594 30,463 125,458 (90,343) 65,499 7,556 - 130,153 - 13,710 (36,958) - - 3,149 53,100 - (5,937) (10,782) (44,033) (11,195) 199,377 (a) The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets and offsetting liability. 88                           Net Income and EBITDA by Segment for the Years Ended December 31, 2012, 2011 and 2010 - continued EBITDA by Region Below is a summary of the percentages of EBITDA by geographic region (excluding discontinued operations and other gains and losses that affect comparability), from our New York, Washington, DC, Retail Properties and Merchandise Mart segments. For the Year Ended December 31, 2011 2012 2010 Region: New York City metropolitan area Washington, DC / Northern Virginia metropolitan area Chicago California Puerto Rico Other geographies 66% 25% 4% 2% 1% 2% 100% 64% 28% 3% 2% 2% 1% 100% 63% 30% 3% 1% 2% 1% 100% 89   Results of Operations – Year Ended December 31, 2012 Compared to December 31, 2011 Revenues Our revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below-market leases, net of above-market leases and fee income, were $2,766,457,000 in the year ended December 31, 2012, compared to $2,732,836,000 in the prior year, an increase of $33,621,000. Below are the details of the increase (decrease) by segment: (Amounts in thousands) Increase (decrease) due to: Property rentals: Acquisitions Development (out of service) Hotel Pennsylvania Trade Shows Amortization of acquired below-market leases, net Leasing activity (see page 77) $ Tenant expense reimbursements: Acquisitions/development Operations Cleveland Medical Mart development project Fee and other income: BMS cleaning fees Signage revenue Management and leasing fees Lease termination fees Other income Total New York Washington, DC Properties Mart Other Retail Merchandise $ 15,139 (29,707) 1,113 (4,460) (7,912) (2,846) (28,673) (12,076) (1,584) (13,660) $ 9,528 (5,339) 1,113 - (9,406) 37,415 33,311 (5,635) 335 (5,300) $ 5,611 (22,312) - - (117) (38,541) (55,359) 1,081 3,362 4,443 $ - (2,056) - - 933 6,516 5,393 (4,835) (3,425) (8,260) $ - - - (4,460) - (4,879) (9,339) - (1,978) (1,978) - - - - 678 (3,357) (2,679) (2,687) 122 (2,565) 81,154 (1) - - - 81,154 (1) - 5,830 1,069 66 (13,973) 1,808 (5,200) 4,932 1,069 544 (10,703) (1,985) (6,143) - - 414 (3,151) 4,364 1,627 - - (859) (393) (84) (1,336) - - (111) 274 (644) (481) 898 - 78 - 157 1,133 Total increase (decrease) in revenues $ 33,621 $ 21,868 $ (49,289) $ (4,203) $ 69,356 $ (4,111) (1) This increase in income is offset by an increase in development costs expensed in the period. See note (5) on page 91. 90       Results of Operations – Year Ended December 31, 2012 Compared to December 31, 2011 - continued Expenses Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $2,088,829,000 in the year ended December 31, 2012, compared to $1,909,267,000 in the prior year, an increase of $179,562,000. Below are the details of the increase (decrease) by segment: (Amounts in thousands) Increase (decrease) due to: Operating: Acquisitions Development (out of service) Non-reimbursable expenses, including bad-debt reserves Hotel Pennsylvania Trade Shows BMS expenses Operations Depreciation and amortization: Acquisitions/development Operations General and administrative: Mark-to-market of deferred compensation plan liability (1) Real Estate Fund placement fees Operations Total New York Washington, DC Properties Mart Other Retail Merchandise $ 7,422 (9,037) $ 6,617 (1,074) $ 3,492 (4,829) $ - (3,134) $ $ - - (2,687) - 7,745 2,594 (5,216) 5,139 17,486 26,133 (8,817) 2,078 (6,739) 5,151 (3,451) (7,814) (6,114) (3,347) 2,594 - 4,241 15,508 24,539 2,323 2,810 5,133 - - 3,245 3,245 2,662 - - - 4,454 5,779 15,060 (2) - - - (3,597) 8,329 (10,526) (3) (5,320) (15,846) (614) 16 (598) (6,630) - (5,216) - (309) (12,155) - 4,974 4,974 - - - 898 1,430 (359) - (402) (402) - - 868 868 - - - - (1,835) (1,835) - - (9,141) (4) (9,141) 5,151 (3,451) (951) 749 - 80,795 (5) - 103,031 (7) (5,228) 11,461 Cleveland Medical Mart development project Impairment losses, acquisition related costs and tenant buy-outs 80,795 (5) - 85,487 (23,777) (6) Total increase (decrease) in expenses $ 179,562 $ 9,140 $ (9,199) $ 108,927 $ 59,245 $ 11,449 (1) 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 (loss), net” on our consolidated statements of income. (2) Primarily from a $16,820 reversal of the Stop & Shop accounts receivable reserve in the prior year. (3) Primarily from depreciation expense on 1851 South Bell Street in the prior year, which was taken out of service for redevelopment. (4) Primarily from lower payroll costs due to a reduction in workforce. (5) This increase in expense is offset by the increase in development revenue in the period. See note (1) on page 90. (6) Represents the buy-out of below-market leases in the prior year. (7) Primarily from a non-cash impairment loss of $70,100 on the Broadway Mall. 91       Results of Operations – Year Ended December 31, 2012 Compared to December 31, 2011 - continued Income Applicable to Toys In the year ended December 31, 2012, we recognized net income of $14,859,000 from our investment in Toys, comprised of $45,267,000 for our 32.6% share of Toys’ net income and $9,592,000 of management fees, partially offset by a $40,000,000 non-cash impairment loss (see below). In the year ended December 31, 2011, we recognized net income of $48,540,000 from our investment in Toys, comprised of $39,592,000 for our 32.7% share of Toys’ net income and $8,948,000 of management fees. We account for Toys on the equity method, which means our investment is increased for our pro rata share of Toys undistributed net income. Since our acquisition in July 2005, the carrying amount of our investment has grown from $396,000,000 to $518,041,000 after we recognized our share of Toys third quarter net loss in our fourth quarter. We estimate that the fair value of our investment is approximately $478,000,000 at December 31, 2012. We have concluded that the $40,000,000 decline in the value of our investment is “other-than-temporary” based on, among other factors, compression of earnings multiples of comparable retailers and our inability to forecast a recovery in the near term. Accordingly, we recognized a non-cash impairment loss of $40,000,000 in the fourth quarter. We will continue to assess the recoverability of our investment each quarter. To the extent that the current facts don’t change, we would recognize a non-cash impairment loss equal to our share of Toys fourth quarter net income in our 2013 first quarter. In the first quarter of 2012, our share of Toys fourth quarter net income was approximately $114,000,000. 92   Results of Operations – Year Ended December 31, 2012 Compared to December 31, 2011 - continued Income from Partially Owned Entities Summarized below are the components of income (loss) from partially owned entities for the years ended December 31, 2012 and 2011. (Amounts in thousands) Equity in Net Income (Loss): Alexander's (1) Lexington (2) LNR (see page 74) (3) India real estate ventures (4) Partially owned office buildings: 280 Park Avenue (acquired in May 2011) Warner Building (5) 666 Fifth Avenue Office Condominium (acquired in December 2011) 330 Madison Avenue 1101 17th Street One Park Avenue (acquired in March 2011) West 57th Street Properties Rosslyn Plaza Fairfax Square Other partially owned office buildings Other investments: Independence Plaza Partnership (see page 73) (6) Verde Realty Operating Partnership (7) Monmouth Mall Downtown Crossing, Boston Other investments (8) Percentage Ownership at December 31, 2012 For the Year Ended December 31, 2012 2011 32.4% 10.5% 26.2% 4.0%-36.5% 49.5% 55.0% 49.5% 25.0% 55.0% 30.3% 50.0% 43.7%-50.4% 20.0% Various n/a n/a 50.0% 50.0% Various $ $ 218,391 28,740 66,270 (5,008) (11,510) (10,186) 7,009 3,609 2,576 1,123 1,014 822 (132) 1,905 111,865 (5,703) 1,429 (1,309) (2,638) 408,267 $ $ 32,430 8,351 58,786 (14,881) (18,079) (18,875) 198 2,126 2,740 (1,142) 876 2,193 (42) 7,735 2,457 1,661 2,556 (1,461) 2,443 70,072 (1) (2) (3) (4) (5) (6) (7) (8) 2012 includes $186,357 of income comprised of (i) a $179,934 net gain and (ii) $6,423 of commissions, in connection with the sale of real estate. 2012 and 2011 include $28,763 and $9,760, respectively, of net gains resulting primarily from Lexington's stock issuances. 2011 includes $27,377 of income comprised of (i) a $12,380 income tax benefit, (ii) an $8,977 tax settlement gain and (iii) $6,020 of net gains from asset sales. 2011 includes $13,794 for our share of an impairment loss. 2011 includes $9,022 for our share of expense, primarily for straight-line reserves and the write-off of tenant improvements in connection with a tenant's bankruptcy. 2012 includes $105,366 of income comprised of (i) $60,396 from the accelerated amortization of discount on investment in subordinated debt of the property and (ii) a $44,970 purchase price fair value adjustment from the exercise of a warrant to acquire 25% of the equity interest in the property. 2012 includes a $4,936 impairment loss on our equity investment, which was sold in the third quarter. 2011 includes a $12,525 net gain from Suffolk Downs' sale of a partial interest. 93   Results of Operations – Year Ended December 31, 2012 Compared to December 31, 2011 - continued Income from Real Estate Fund Below are the components of the income from our Real Estate Fund for the year ended December 31, 2012 and 2011. (Amounts in thousands) Operating income Net realized gain Net unrealized gains Income from Real Estate Fund Less (income) attributable to noncontrolling interests Income from Real Estate Fund attributable to Vornado (1) For the Year Ended December 31, 2012 2011 $ $ 8,575 - 55,361 63,936 (39,332) 24,604 $ $ 5,500 5,391 11,995 22,886 (13,598) 9,288 ___________________________________ (1) Excludes management, leasing and development fees of $2,780 and $2,695 for the years ended December 31, 2012 and 2011, respectively, which are included as a component of "fee and other income" on our consolidated statements of income. Interest and Other Investment (Loss) Income, net Interest and other investment (loss) income, net (comprised of impairment losses on marketable equity securities, the mark-to- market of derivative positions in marketable equity securities, interest income on mortgage and mezzanine loans receivable, other interest income and dividend income) was a loss of $260,945,000 in the year ended December 31, 2012, compared to income of $148,784,000 in the prior year, a decrease in income of $409,729,000. This decrease resulted from: (Amounts in thousands) Non-cash impairment loss on J.C. Penney owned shares in 2012 J.C. Penney derivative position ($75,815 mark-to-market loss in 2012, compared to a $12,984 mark-to-market gain in 2011) Mezzanine loan loss reversal and net gain on disposition in 2011 Lower dividends and interest on marketable securities Increase 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) Other, net $ (224,937) (88,799) (82,744) (17,608) 5,151 (792) (409,729) $ Interest and Debt Expense Interest and debt expense was $500,361,000 in the year ended December 31, 2012, compared to $526,175,000 in the prior year, a decrease of $25,814,000. This decrease was primarily due to (i) $27,077,000 from the redemption of our exchangeable and convertible senior debentures in April 2012 and November 2011, respectively, (ii) $15,604,000 of higher capitalized interest and (iii) $12,082,000 from the refinancing of 350 Park Avenue in January 2012 (of which $7,274,000 was due to a lower rate and $4,808,000 was due to a lower outstanding loan balance), partially offset by (iv) $18,833,000 from the issuance of $400,000,000 of senior unsecured notes in November 2011, (v) $6,093,000 from the refinancing of 100 West 33rd Street in March 2012 and (vi) $4,715,000 from borrowings under our revolving credit facilities. Net Gain on Disposition of Wholly Owned and Partially Owned Assets Net gain on disposition of wholly owned and partially owned assets was $13,347,000 in the year ended December 31, 2012, compared to $15,134,000, in the prior year and resulted primarily from the sale of a land parcel in 2012 and sales of marketable securities and residential condominiums in 2012 and 2011. Income Tax Expense Income tax expense was $8,132,000 in the year ended December 31, 2012, compared to $23,925,000 in the prior year, a decrease of $15,793,000. This decrease resulted primarily from the reversal of a $12,038,000 tax liability in the current year, upon liquidation of a taxable REIT subsidiary that was formed in connection with the acquisition of our 555 California Street property. 94   Results of Operations – Year Ended December 31, 2012 Compared to December 31, 2011 - continued Income from Discontinued Operations We have reclassified the revenues and expenses of the properties that were sold and that are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all the periods presented in the accompanying financial statements. The table below sets forth the combined results of assets related to discontinued operations for the years ended December 31, 2012 and 2011. (Amounts in thousands) Total revenues Total expenses Net gains on sale of real estate Gain on sale of Canadian Trade Shows, net of $11,448 of income taxes Impairment losses Net gain on extinguishment of High Point debt Income from discontinued operations For the Year Ended December 31, 2012 2011 $ $ 147,404 102,479 44,925 245,799 19,657 (24,439) - 285,942 $ $ 230,314 175,930 54,384 51,623 - (28,799) 83,907 161,115 Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries Net income attributable to noncontrolling interests in consolidated subsidiaries was $32,018,000 in the year ended December 31, 2012, compared to $21,786,000 in the prior year, an increase of $10,232,000. This increase resulted primarily from a $25,734,000 increase in income allocated to the noncontrolling interests of our Real Estate Fund, partially offset by a $13,222,000 priority return on our investment in 1290 Avenue of the Americas and 555 California Street. Net Income Attributable to Noncontrolling Interests in the Operating Partnership Net income attributable to noncontrolling interests in the Operating Partnership was $35,327,000 in the year ended December 31, 2012, compared to $41,059,000 in the prior year, a decrease of $5,732,000. This decrease resulted primarily from lower net income subject to allocation to unitholders. Preferred Unit Distributions of the Operating Partnership Preferred unit distributions of the Operating Partnership were $9,936,000 in the year ended December 31, 2012, compared to $14,853,000 in the year ended December 31, 2011, a decrease of $4,917,000. This decrease resulted primarily from the redemption of the 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units in July 2012. Preferred Share Dividends Preferred share dividends were $76,937,000 in the year ended December 31, 2012, compared to $65,531,000 in the prior year, an increase of $11,406,000. This increase resulted from the issuance of $246,000,000 of 6.875% Series J cumulative redeemable preferred shares in April 2011 and $300,000,000 of 5.70% Series K cumulative redeemable preferred shares in July 2012, partially offset by the redemption of $75,000,000 of 7.0% Series E cumulative redeemable preferred shares in August 2012. Discount on Preferred Share and Unit Redemptions Discount on preferred share and unit redemptions were $8,948,000 in the year ended December 31, 2012 and resulted primarily from the redemption of all of the 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units, compared to a $5,000,000 discount in the prior year, which resulted from the redemption of the Series D-11 cumulative redeemable preferred units. 95   Results of Operations – Year Ended December 31, 2012 Compared to December 31, 2011 - 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 present same store EBITDA on both a GAAP basis and a cash basis, which excludes income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash adjustments. We present these non-GAAP measures because we use them 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 the same store EBITDA results on a GAAP and cash basis for each of our segments for the year ended December 31, 2012, compared to the year ended December 31, 2011. (Amounts in thousands) EBITDA for the year ended December 31, 2012 Add-back: non-property level overhead expenses included above Less: EBITDA from acquisitions, dispositions and other non-operating income or expenses GAAP basis same store EBITDA for the year ended December 31, 2012 Less: Adjustments for straight-line rents, amortization of below-market leases, net and other non-cash adjustments Cash basis same store EBITDA for the year ended December 31, 2012 EBITDA for the year ended December 31, 2011 Add-back: non-property level overhead expenses included above Less: EBITDA from acquisitions, dispositions and other non-operating income or expenses GAAP basis same store EBITDA for the year ended December 31, 2011 Less: Adjustments for straight-line rents, amortization of below-market leases, net and other non-cash adjustments Cash basis same store EBITDA for the year ended December 31, 2011 Increase (decrease) in GAAP basis same store EBITDA for the year ended December 31, 2012 over the year ended December 31, 2011 Increase (decrease) in Cash basis same store EBITDA for the year ended December 31, 2012 over the year ended December 31, 2011 $ $ $ $ $ $ New York 1,017,859 Washington, DC 532,412 $ Retail Properties Merchandise Mart $ 200,526 $ 154,538 30,053 27,237 23,654 18,899 (243,481) (183,889) 33,082 (93,679) 804,431 375,760 257,262 (94,560) (5,573) (15,676) 709,871 786,565 $ $ 370,187 $ 241,586 481,077 $ 303,202 $ $ 79,758 (1,655) 78,103 143,452 26,808 26,369 25,489 28,040 (24,533) (96,519) (74,505) (95,187) 788,840 410,927 254,186 (93,053) (357) (15,685) 76,305 1,284 695,787 $ 410,570 $ 238,501 $ 77,589 15,591 $ (35,167) $ 3,076 $ 3,453 14,084 $ (40,383) $ 3,085 $ 514 % increase (decrease) in GAAP basis same store EBITDA % increase (decrease) in Cash basis same store EBITDA 2.0% 2.0% (8.6%) (9.8%) 1.2% 1.3% 4.5% 0.7% 96   Results of Operations – Year Ended December 31, 2011 Compared to December 31, 2010 Revenues Our revenues, which consist of property rentals, tenant expense reimbursements, hotel revenues, trade shows revenues, amortization of acquired below-market leases, net of above-market leases and fee income, were $2,732,836,000 in the year ended December 31, 2011, compared to $2,558,207,000 in the year ended December 31, 2010, an increase of $174,629,000. Below are the details of the increase (decrease) by segment: (Amounts in thousands) Increase (decrease) due to: Property rentals: Acquisitions, sale of partial interests and other Development (out of service) Hotel Pennsylvania Trade Shows Amortization of acquired below-market leases, net Leasing activity (see page 77) $ Tenant expense reimbursements: Acquisitions/development, sale of partial interests and other Operations Total New York Washington, DC Properties Mart Other Retail Merchandise $ (10,242) 5,513 10,006 3,062 (3,268) 15,709 20,780 (5,094) 2,069 (3,025) $ (1,608) - 10,006 - (3,921) 9,373 13,850 5,658 406 6,064 (26,936) (1) $ 6,100 - - (293) 6,741 (14,388) 13,458 (2) $ (587) - - 1,585 2,183 16,639 (12,999) (1) (494) (13,493) 2,573 (2) 1,200 3,773 $ - - - 3,062 - (363) 2,699 - 1,047 1,047 4,844 - - - (639) (2,225) 1,980 (326) (90) (416) Cleveland Medical Mart development project 154,080 (3) - Fee and other income: BMS cleaning fees Signage revenue Management and leasing fees Lease termination fees Other 3,701 1,205 115 1,516 (3,743) 2,794 5,088 1,205 668 4,369 406 11,736 - - - (3,573) (5) 2,646 (832) (1,759) - 154,080 (3) - - - 2,170 (3,974) 935 (869) - - 186 (225) (850) (889) (1,387) (4) - 664 (1,300) (3,402) (5,425) Total increase (decrease) in revenues $ 174,629 $ 31,650 $ (29,640) $ 19,543 $ 156,937 $ (3,861) (1) Primarily from the deconsolidation of the Warner Building and 1101 17th Street resulting from the sale of a partial interest. (2) Primarily from the consolidation of the San Jose Strip Shopping Center upon acquisition of the remaining 55% interest we did not previously own. (3) This income is offset by $145,824 of development cost expensed in the period. See note (7) on page 98. (4) Primarily from the elimination of inter-company fees from operating segments upon consolidation. (5) Primarily from leasing fees in the prior year in connection with our management of a development project. 97       Results of Operations – Year Ended December 31, 2011 Compared to December 31, 2010 - continued Expenses Our expenses, which consist primarily of operating, depreciation and amortization and general and administrative expenses, were $1,909,267,000 in the year ended December 31, 2011, compared to $1,799,179,000 in the year ended December 31, 2010, an increase of $110,088,000. Below are the details of the increase (decrease) by segment: Total New York Washington, DC Properties Mart Other Retail Merchandise $ $ (374) 1,006 $ 2,341 - (14,123) (1) $ (248) 11,734 (2) $ 1,254 $ - - (326) - (Amounts in thousands) Increase (decrease) due to: Operating: Acquisitions, sale of partial interests and other Development projects placed into service Non-reimbursable expenses, including bad-debt reserves Hotel Pennsylvania Trade Shows BMS expenses Operations Depreciation and amortization: Acquisitions/development, sale of partial interests and other Operations General and administrative: Mark-to-market of deferred compensation plan liability (5) Real Estate Fund placement fees Operations (16,498) 3,330 (316) 3,262 21,752 12,162 (4,466) 34,118 29,652 (6,391) (3,031) 6,031 (3,391) 3,412 3,330 - 6,349 6,642 22,074 786 7,831 8,617 - - 1,248 1,248 Cleveland Medical Mart development project Impairment losses, acquisition related costs and tenant buy-outs 145,824 (7) - (74,159) 22,172 (8) (2,133) - - - 2,679 (13,825) (24,338) (3) - - - 3,637 (7,713) 6,561 - (316) - 5,405 11,650 (10,261) (1) 28,012 (4) 17,751 5,009 (2) 868 5,877 - 388 388 - - (3,087) 3,389 (24) - (2,981) (2,981) - - 915 915 - - - - (2,187) (2,187) - - 3,841 (6) 3,841 (6,391) (3,031) 2,214 (7,208) - 145,824 (7) - (70,526) (9) 5,228 (31,033) (10) Total increase (decrease) in expenses $ 110,088 $ 54,111 $ 4,841 $ (74,549) $ 166,931 $ (41,246) (1) Primarily from the deconsolidation of the Warner Building and 1101 17th Street resulting from the sale of a partial interest. (2) Primarily from the consolidation of the San Jose Strip Shopping Center upon acquisition of the remaining 55% interest we did not previously own. Includes a $16,820 reversal for the Stop & Shop accounts receivable reserve. Includes $25,000 of depreciation expense on 1851 South Bell Street, which was taken out of service for redevelopment. (3) (4) (5) The decrease in expense is entirely offset by a corresponding decrease in the income from the mark-to-market of the deferred compensation plan assets, a component of "interest and investment (loss) income, net on our consolidated statements of income. (6) Includes $4,226 of restructuring costs. (7) This expense is entirely offset by development revenue in the year. See note (3) on page 97. (8) (9) Primarily from the buy-out of below market leases. Primarily from a $64,500 non-cash impairment loss on the Springfield Mall in 2010. (10) Primarily from $30,013 of impairment losses on condominium units held for sale in 2010. 98       Results of Operations – Year Ended December 31, 2011 Compared to December 31, 2010 - continued Income Applicable to Toys In the year ended December 31, 2011, we recognized net income of $48,540,000 from our investment in Toys, comprised of $39,592,000 for our 32.7% share of Toys’ net income and $8,948,000 of management fees. In the year ended December 31, 2010, we recognized net income of $71,624,000 from our investment in Toys, comprised of $61,819,000 for our 32.7% share of Toys’ net income and $9,805,000 of management fees. Income from Partially Owned Entities Summarized below are the components of income (loss) from partially owned entities for the years ended December 31, 2011 and 2010. (Amounts in thousands) Equity in Net Income (Loss): Alexander's Lexington (1) LNR (2) India real estate ventures (3) Partially owned office buildings: 280 Park Avenue (acquired in May 2011) Warner Building (4) 666 Fifth Avenue Office Condominium (acquired in December 2011) 330 Madison Avenue 1101 17th Street One Park Avenue (acquired in March 2011) West 57th Street Properties (5) Rosslyn Plaza Fairfax Square Other partially owned office buildings Other equity method investments: Verde Realty Operating Partnership Independence Plaza Partnership (acquired in June 2011) Monmouth Mall Downtown Crossing, Boston Other investments (6) Percentage Ownership at December 31, 2011 For the Year Ended December 31, 2011 2010 32.4% 12.0% 26.2% 4.0%-36.5% 49.5% 55.0% 49.5% 25.0% 55.0% 30.3% 50.0% 43.7%-50.4% 20.0% Various 8.3% 51.0% 50.0% 50.0% Various $ $ 32,430 8,351 58,786 (14,881) (18,079) (18,875) 198 2,126 2,740 (1,142) 876 2,193 (42) 7,735 1,661 2,457 2,556 (1,461) 2,443 70,072 $ $ 27,615 11,018 1,973 2,581 - (344) - 2,059 416 - (10,990) (2,419) (28) 2,405 (537) - 1,952 (1,155) (13,677) 20,869 (1) (2) (3) (4) (5) (6) Includes net gains of $9,760 and $13,710 in 2011 and 2010, respectively, resulting from Lexington's stock issuances. 2011 includes $27,377 of income comprised of (i) a $12,380 income tax benefit, (ii) an $8,977 tax settlement gain and (iii) $6,020 of net gains from asset sales. 2011 includes $13,794 for our share of an impairment loss. 2011 includes $9,022 for our share of expense, primarily for straight-line rent reserves and the write-off of tenant-improvements in connection with a tenant's bankruptcy. 2010 includes $11,481 of impairment losses. 2011 includes a $12,525 net gain from Suffolk Downs' sale of a partial interest. 99       Results of Operations – Year Ended December 31, 2011 Compared to December 31, 2010 - continued Income (loss) from Real Estate Fund Below are the components of the income from our Real Estate Fund for the year ended December 31, 2011 and 2010. (Amounts in thousands) Operating income (loss) Net realized gain Net unrealized gains Income (loss) from Real Estate Fund Less (income) loss attributable to noncontrolling interests Income from Real Estate Fund attributable to Vornado (1) For the Year Ended December 31, 2011 2010 $ $ 5,500 5,391 11,995 22,886 (13,598) 9,288 $ $ (303) - - (303) 806 503 ___________________________________ (1) Excludes management, leasing and development fees of $2,695 and $248 for the years ended December 31, 2011 and 2010, respectively, which are included as a component of "fee and other income" on our consolidated statements of income. Interest and Other Investment (Loss) Income, net Interest and other investment income, net was $148,784,000 in the year ended December 31, 2011, compared to $235,267,000 in the year ended December 31, 2010, a decrease of $86,483,000. This decrease resulted from: (Amounts in thousands) J.C. Penney derivative position (mark-to-market gain of $12,984 in 2011, compared to $130,153 in 2010) Mezzanine loans ($82,744 loss reversal and net gain on disposition in 2011, compared to $53,100 loss reversal in 2010) Decrease in value of investments in the deferred compensation plan (offset by a corresponding decrease in the liability for plan assets in general and administrative expenses) Other, net Interest and Debt Expense $ (117,169) 29,644 (6,391) 7,433 (86,483) $ Interest and debt expense was $526,175,000 in the year ended December 31, 2011, compared to $539,370,000 in the year ended December 31, 2010, a decrease of $13,195,000. This decrease was primarily due to savings of (i) $22,865,000 applicable to the repurchase and retirement of convertible senior debentures and repayment of senior unsecured notes, (ii) $18,157,000 from the repayment of the Springfield Mall mortgage at a discount in December 2010 and (iii) $14,856,000 from the deconsolidation of the Warner Building resulting from the sale of a 45% interest in October 2010, partially offset by (iv) $17,204,000 from the issuance of $660,000,000 of cross-collateralized debt secured by 40 of our strip shopping centers in August 2010, (v) $14,777,000 from the financing of 2121 Crystal Drive and Two Penn Plaza in the first quarter of 2011, (vi) $5,057,000 from the issuance of $500,000,000 of senior unsecured notes in March 2010 and (vii) $3,854,000 from the consolidation of the San Jose Shopping Center resulting from the October 2010 acquisition of the 55% interest we did not previously own. Net Gain on Extinguishment of Debt In the year ended December 31, 2010, we recognized a $94,789,000 net gain on the extinguishment of debt, primarily from our acquisition of the mortgage loan secured by the Springfield Mall. Net Gain on Disposition of Wholly Owned and Partially Owned Assets In the year ended December 31, 2011, we recognized a $15,134,000 net gain on disposition of wholly owned and partially owned assets (primarily from the sale of residential condominiums and marketable securities), compared to a $81,432,000 net gain in the year ended December 31, 2010 (primarily from the sale of a 45% interest in the Warner Building and sales of marketable securities). 100   Results of Operations – Year Ended December 31, 2011 Compared to December 31, 2010 - continued Income Tax Expense Income tax expense was $23,925,000 in the year ended December 31, 2011, compared to $22,137,000 in the year ended December 31, 2010 an increase of $1,788,000. This increase resulted primarily from higher 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 years ended December 31, 2011 and 2010. (Amounts in thousands) Total revenues Total expenses Net gain on extinguishment of High Point debt Net gains on sale of real estate Impairment losses and litigation loss accrual Income from discontinued operations For the Year Ended December 31, 2011 2010 $ $ 230,314 175,930 54,384 83,907 51,623 (28,799) 161,115 $ $ 267,008 227,626 39,382 - 2,506 (35,056) 6,832 Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries Net income attributable to noncontrolling interests in consolidated subsidiaries was $21,786,000 in the year ended December 31, 2011, compared to $4,920,000 in the year ended December 31, 2010, an increase of $16,866,000. This resulted primarily from a $14,404,000 increase in income allocated to the noncontrolling interests of our Real Estate Fund. Net Income Attributable to Noncontrolling Interests in the Operating Partnership Net income attributable to noncontrolling interests in the Operating Partnership was $41,059,000 in the year ended December 31, 2011, compared to $44,033,000 in the year ended December 31, 2010, a decrease of $2,974,000. Preferred Unit Distributions of the Operating Partnership Preferred unit distributions of the Operating Partnership were $14,853,000 in the year ended December 31, 2011, compared to $11,195,000 in the year ended December 31, 2010, an increase of $3,658,000. Preferred Share Dividends Preferred share dividends were $65,531,000 in the year ended December 31, 2011, compared to $55,534,000 in the year ended December 31, 2010, an increase of $9,997,000. This increase resulted from the issuance of $246,000,000 of 6.875% Series J cumulative redeemable preferred shares in 2011, partially offset by the redemption of $40,000,000 7.0% Series D-10 cumulative redeemable preferred shares in 2010. Discount on Preferred Share and Unit Redemptions In the year ended December 31, 2011, we recognized a $5,000,000 discount from the redemption of 1,000,000 Series D-11 cumulative redeemable preferred units with a par value of $25.00 per unit, for an aggregate of $20,000,000 in cash, compared to a $4,382,000 discount in the year ended December 31, 2010 from the redemption of 1,600,000 Series D-10 cumulative redeemable preferred shares with a par value of $25.00 per share, for an aggregate of $35,618,000. 101   Results of Operations – Year Ended December 31, 2011 Compared to December 31, 2010 - continued Same Store EBITDA Below are the same store EBITDA results on a GAAP and cash basis for each of our segments for the year ended December 31, 2011, compared to the year ended December 31, 2010. $ $ $ (Amounts in thousands) EBITDA for the year ended December 31, 2011 Add-back: non-property level overhead expenses included above Less: EBITDA from acquisitions, dispositions and other non-operating income or expenses GAAP basis same store EBITDA for the year ended December 31, 2011 Less: Adjustments for straight-line rents, amortization of below-market leases, net and other non-cash adjustments Cash basis same store EBITDA for the year ended December 31, 2011 EBITDA for the year ended December 31, 2010 Add-back: non-property level overhead expenses included above Less: EBITDA from acquisitions, dispositions and other non-operating income or expenses GAAP basis same store EBITDA for the year ended December 31, 2010 Less: Adjustments for straight-line rents, amortization of below-market leases, net and other non-cash adjustments Cash basis same store EBITDA for the year ended New York Washington, DC 481,077 $ 786,565 Retail Properties Merchandise Mart $ 303,202 $ 143,452 26,808 26,369 25,489 28,040 (25,330) (49,502) (45,324) (72,601) 788,043 457,944 283,367 (93,241) 694,802 764,044 (274) (15,862) $ $ 457,670 497,551 $ $ 267,505 302,563 $ $ 25,560 25,454 27,676 98,891 2,642 101,533 84,058 24,199 (14,955) (69,278) (52,195) (9,866) 774,649 453,727 278,044 98,391 (105,013) (4,005) (16,301) (307) December 31, 2010 $ 669,636 $ 449,722 $ 261,743 $ 98,084 Increase in GAAP basis same store EBITDA for the year ended December 31, 2011 over the year ended December 31, 2010 Increase in Cash basis same store EBITDA for the year ended December 31, 2011 over the year ended December 31, 2010 $ $ 13,394 $ 4,217 $ 5,323 $ 500 25,166 $ 7,948 $ 5,762 $ 3,449 % increase in GAAP basis same store EBITDA % increase in Cash basis same store EBITDA 1.7% 3.8% 0.9% 1.8% 1.9% 2.2% 0.5% 3.5% 102   Supplemental Information Net Income and EBITDA by Segment for the Three Months Ended December 31, 2012 and 2011 Effective January 1, 2012, as a result of certain organizational and operational changes, we redefined the New York business segment to encompass all of our Manhattan assets by including the 1.0 million square feet in 21 freestanding Manhattan street retail assets (formerly in our Retail segment), and the Hotel Pennsylvania and our interest in Alexander’s, Inc. (formerly in our Other segment). Accordingly, we have reclassified the prior period segment financial results to conform to the current year presentation. See note (3) on page 105 for the elements of the New York segment’s EBITDA. Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended December 31, 2012 and 2011. (Amounts in thousands) For the Three Months Ended December 31, 2012 Property rentals Straight-line rent adjustments Amortization of acquired below- market leases, net Total rentals Tenant expense reimbursements Cleveland Medical Mart development project Fee and other income: BMS cleaning fees Signage revenue Management and leasing fees Lease termination fees Other income Total revenues Operating expenses Depreciation and amortization General and administrative Cleveland Medical Mart development project Impairment losses, acquisition related costs and tenant buy-outs Total expenses Operating income (loss) (Loss) applicable to Toys Income (loss) from partially owned entities Income from Real Estate Fund Interest and other investment (loss) income, net Interest and debt expense Net gain on disposition of wholly owned and partially owned assets Income (loss) before income taxes Income tax benefit (expense) Income (loss) from continuing operations Income (loss) from discontinued operations Net income (loss) Less net (income) loss attributable to noncontrolling interests in: Consolidated subsidiaries Operating Partnership Preferred unit distributions of the Operating Partnership Net income (loss) attributable to Vornado Interest and debt expense(2) Depreciation and amortization(2) Income tax (benefit) expense(2) EBITDA(1) Total $ 503,820 13,681 14,668 532,169 75,734 51,220 18,147 6,640 5,333 1,189 7,222 697,654 263,160 131,128 51,316 49,492 116,472 611,568 86,086 (73,837) 354,776 26,364 (237,961) (122,674) 8,491 41,245 9,187 New York Washington, DC Properties 70,272 $ 2,120 111,513 $ 1,345 268,491 9,783 $ Retail Merchandise Mart 7,776 286,050 41,272 - 24,489 6,640 1,602 802 1,023 361,878 154,973 58,262 8,073 - - 221,308 140,570 - 187,428 - 1,064 (37,767) - 291,295 (1,011) 506 113,364 10,271 4,957 77,349 22,559 - - - - 2,993 387 5,280 132,295 50,600 30,901 7,388 - - 491 - 417 100,816 35,232 19,545 4,851 - - - 88,889 43,406 - (1,041) - 29 (30,166) - 12,228 (373) 103,400 163,028 (62,212) - 418 - 3 (13,131) 8,491 (66,431) - Toys Other $ 31,038 $ 183 - $ - 22,506 250 - 31,221 641 51,220 - - 43 - 353 83,478 16,219 12,205 4,586 49,492 - 82,502 976 - 169 - - (7,926) - (6,781) (845) - - - - - - - - - - - - - - - - - (73,837) - - - - - (73,837) - 1,429 24,185 991 - (6,342) - 204 - 149 19,187 6,136 10,215 26,418 - 13,072 55,841 (36,654) - 167,802 26,364 (239,057) (33,684) - (115,229) 11,416 50,432 290,284 11,855 (66,431) (7,626) (73,837) (103,813) 41,461 91,893 (1) 290,283 36,787 48,642 8,286 (58,145) 6,272 (1,354) - (73,837) (9,883) (113,696) (1,090) (3,882) (786) 86,135 193,258 182,499 (43,050) 418,842 $ 5,128 - - - - - 1,504 - - - - - - - - (7,722) (3,882) (786) 295,411 47,561 63,777 1,074 407,823 (3) $ $ 48,642 34,139 34,829 411 118,021 $ (56,641) 15,789 20,778 - (20,074)(4) $ (1,354) 8,931 12,630 845 (73,837) 44,492 34,808 (34,611) 21,052 $ (29,148) $ (126,086) 42,346 15,677 (10,769) (78,832)(5) EBITDA for the New York, Washington, DC and Retail Properties segments above include income from discontinued operations and other gains and losses that affect comparability which are described in the “Overview,” aggregating $189,571, $37,348 and $(82,967), respectively. Excluding these items, EBITDA for the New York, Washington, DC and Retail Properties segments was $218,252, $80,673 and $62,893, respectively. __________________________ See notes on page 105. 103   Supplemental Information – continued Net Income and EBITDA by Segment for the Three Months Ended December 31, 2012 and 2011 - continued (Amounts in thousands) For the Three Months Ended December 31, 2011 New York Washington, DC Properties 69,043 $ 1,989 130,601 $ (431) 251,146 11,810 $ Retail Merchandise Mart Property rentals Straight-line rent adjustments Amortization of acquired below- market leases, net Total rentals Tenant expense reimbursements Cleveland Medical Mart development project Fee and other income: BMS cleaning fees Signage revenue Management and leasing fees Lease termination fees Other income Total revenues Operating expenses Depreciation and amortization General and administrative Cleveland Medical Mart development project Impairment losses, acquisition related costs and tenant buy-outs Total expenses Operating income (loss) (Loss) applicable to Toys Income (loss) from partially owned entities (Loss) from Real Estate Fund Interest and other investment income (loss), net Interest and debt expense Net gain on disposition of wholly owned and partially owned assets Income (loss) before income taxes Income tax expense Income (loss) from continuing operations (Loss) income from discontinued operations Net income (loss) Less net (income) loss attributable to noncontrolling interests in: Consolidated subsidiaries Operating Partnership Preferred unit distributions of the Operating Partnership Net income (loss) attributable to Vornado Interest and debt expense(2) Depreciation and amortization(2) Income tax (benefit) expense(2) EBITDA(1) Total $ 503,824 13,598 12,979 530,401 75,745 45,877 15,275 5,077 5,141 3,856 8,587 689,959 226,885 150,903 53,940 44,187 12,844 488,759 201,200 (32,254) 15,037 (2,605) 53,698 (131,583) 7,159 110,652 (5,377) 7,785 270,741 39,512 - 23,120 5,077 1,535 2,663 3,066 345,714 142,825 56,489 6,399 - 7,219 212,932 132,782 - (1,258) - 1,076 (38,005) - 94,595 (447) 563 130,733 9,057 2,972 74,004 23,817 - - - - 2,732 781 4,446 147,749 46,533 57,202 6,873 - - 922 178 690 99,611 18,504 19,019 5,443 - - - 110,608 37,141 - (343) - 334 43,300 56,311 - 1,479 - 80 (29,485) (33) (17,528) - 7,393 (635) 4,278 44,507 (29) Toys Other $ 30,032 $ (23) - $ - 23,002 253 - 30,009 1,333 45,877 - - (6) 234 427 77,874 15,411 7,885 5,672 44,187 2,188 75,343 2,531 - 163 - - (7,866) - (5,172) (49) - - - - - - - - - - - - - - - - - (32,254) - - - - - (32,254) - 1,659 24,914 2,026 - (7,845) - (42) - (42) 19,011 3,612 10,308 29,553 - 3,103 46,576 (27,565) - 14,996 (2,605) 52,575 (38,699) 2,881 1,583 (4,217) 105,275 94,148 6,758 44,478 (5,221) (32,254) (2,634) (8,288) 96,987 165 94,313 1,116 7,874 6,948 51,426 (17,467) (22,688) - (32,254) 950 (1,684) (1,143) (4,674) (3,874) 87,296 198,252 215,683 (37,323) 463,908 $ (3,227) - - - - - 41 - - - - - - - - 91,086 49,492 66,019 526 207,123 (3) $ $ 7,874 34,253 63,270 743 106,140 $ 51,467 20,464 22,746 29 94,706 (4) $ (22,688) 8,891 12,093 26 (1,678) $ (32,254) 35,589 33,105 (31,046) 5,394 $ 2,043 (4,674) (3,874) (8,189) 49,563 18,450 (7,601) 52,223 (5) EBITDA for the New York, Washington, DC and Retail Properties segments above include income from discontinued operations and other gains and losses that affect comparability which are described in the “Overview,” aggregating $(3,724), $5,526 and $33,037, respectively. Excluding these items, EBITDA for the New York, Washington, DC and Retail Properties segments was $210,847, $100,614 and $61,669, respectively. __________________________ See notes on the following page. 104   Supplemental Information – continued Net Income and EBITDA by Segment for the Three Months Ended December 31, 2012 and 2011 - continued Notes to preceding tabular information: (1) EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies. (2) Interest and debt expense, depreciation and amortization and income tax (benefit) expense in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities. (3) The elements of "New York" EBITDA are summarized below. For the Three Months Ended December 31, 2012 (Amounts in thousands) Office(a) 141,325 Retail(b) 40,414 Alexander's(c) 13,631 Hotel Pennsylvania 11,753 Total New York 207,123 (a) 2012 includes income of $7,599 from a priority return on our investment in 1290 Avenue of the Americas. (b) 2011 includes a $7,219 expense for tenant buy-out costs (c) 2012 includes income of $179,934 for our share of a net gain on sale of real estate. 151,613 52,576 191,925 11,709 407,823 2011 $ $ $ $ (4) The elements of "Retail Properties" EBITDA are summarized below. (Amounts in thousands) Strip shopping centers(a) Regional malls(b) Total Retail properties (a) For the Three Months Ended December 31, 2012 2011 $ $ 24,154 (44,228) (20,074) $ $ 68,269 26,437 94,706 Includes income from discontinued operations and other gains and losses that affect comparability, aggregating $(21,520) and $25,281, respectively. Excluding these items, EBITDA was $45,674 and $42,988, respectively. (b) Includes income from discontinued operations and other gains and losses that affect comparability, aggregating $(61,447) and $7,756, respectively. Excluding these items, EBITDA was $17,219 and $18,681, respectively. 105   Supplemental Information – continued Net Income and EBITDA by Segment for the Three Months Ended December 31, 2012 and 2011 - continued Notes to preceding tabular information: (5) The elements of "other" EBITDA from continuing operations are summarized below. (Amounts in thousands) Our share of Real Estate Fund: Income before net realized/unrealized gains Net unrealized gain (loss) Net realized gain Carried interest Total LNR 555 California Street Lexington Other investments Corporate general and administrative expenses(a) Investment income and other, net(a) Fee income from Alexander's (including a $6,423 sales commission in 2012) Non-cash impairment loss on J.C. Penney owned shares (Loss) income from the mark-to-market of J.C. Penney derivative position Purchase price fair value adjustment and accelerated amortization of discount on investment in subordinated debt of Independence Plaza Net gain resulting from Lexington's stock issuance and asset acquisition Impairment losses and acquisition related costs Our share of impairment losses of partially owned entities Net gain from Suffolk Downs' sale of a partial interest Net income attributable to noncontrolling interests in the Operating Partnership Preferred unit distributions of the Operating Partnership For the Three Months Ended December 31, 2012 2011 $ $ 764 5,456 - 5,838 12,058 33,514 14,761 7,815 (2,678) 65,470 (23,627) 6,532 8,131 (224,937) (22,472) 105,366 28,763 (13,072) (4,318) - (3,882) (786) (78,832) $ $ 1,655 (1,803) 577 (929) (500) 9,045 12,116 6,809 3,518 30,988 (22,958) 15,121 1,872 - 40,120 - - (3,103) (13,794) 12,525 (4,674) (3,874) 52,223 (a) The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets and offsetting liability. 106   Supplemental Information – continued Net Income and EBITDA by Segment for the Three Months Ended December 31, 2012 and 2011 - continued EBITDA by Region Below is a summary of the percentages of EBITDA by geographic region (excluding discontinued operations and other gains and losses that affect comparability), from our New York, Washington, DC, Retail Properties and Merchandise Mart segments. Region: New York City metropolitan area Washington, DC / Northern Virginia metropolitan area Chicago California Puerto Rico Other geographies For the Three Months Ended December 31, 2012 2011 69% 22% 4% 2% 1% 2% 100% 66% 26% 3% 2% 1% 2% 100% 107   Supplemental Information – continued Three Months Ended December 31, 2012 Compared to December 31, 2011 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 present same store EBITDA on both a GAAP basis and a cash basis, which excludes income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash adjustments. We present these non-GAAP measures because we use them 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 the same store EBITDA results on a GAAP and cash basis for each of our segments for the three months ended December 31, 2012, compared to the three months ended December 31, 2011. New York Washington, DC 118,021 $ 407,823 Retail Properties Merchandise Mart $ (20,074) $ 21,052 4,586 (6,894) 18,744 (1,075) 17,669 (1,678) 5,672 14,716 18,710 24 (Amounts in thousands) EBITDA for the three months ended December 31, 2012 Add-back: non-property level overhead expenses included above Less: EBITDA from acquisitions, dispositions and other non-operating income or expenses GAAP basis same store EBITDA for the three months ended December 31, 2012 Less: Adjustments for straight-line rents, amortization of below-market leases, net and other non-cash adjustments Cash basis same store EBITDA for the three months ended December 31, 2012 EBITDA for the three months ended December 31, 2011 Add-back: non-property level overhead expenses $ $ $ 8,073 7,388 4,851 (205,738) (39,787) 80,891 210,158 85,622 65,668 (705) (4,161) (19,668) 190,490 207,123 $ $ 84,917 106,140 $ $ $ $ 61,507 94,706 5,443 included above 6,399 6,873 Less: EBITDA from acquisitions, dispositions and other non-operating income or expenses GAAP basis same store EBITDA for the three months ended December 31, 2011 Less: Adjustments for straight-line rents, amortization of below-market leases, net and other non-cash adjustments Cash basis same store EBITDA for the three months (3,801) (13,146) (34,388) 209,721 99,867 65,761 (26,637) (66) (3,768) ended December 31, 2011 $ 183,084 $ 99,801 $ 61,993 $ 18,734 Increase (decrease) increase in GAAP basis same store EBITDA for the three months ended December 31, 2012 over the three months ended December 31, 2011 Increase (decrease) in Cash basis same store EBITDA for the three months ended December 31, 2012 over the three months ended December 31, 2011 $ $ 437 $ (14,245) $ (93) $ 34 7,406 $ (14,884) $ (486) $ (1,065) % increase (decrease) in GAAP basis same store EBITDA % increase (decrease) in Cash basis same store EBITDA 0.2% 4.0% (14.3%) (14.9%) (0.1%) (0.8%) 0.2% (5.7%) 108   Supplemental Information – continued Three Months Ended December 31, 2012 Compared to September 30, 2012 Below are the same store EBITDA results on a GAAP and cash basis for each of our segments for the three months ended December 31, 2012, compared to the three months ended September 30, 2012. (Amounts in thousands) EBITDA for the three months ended December 31, 2012 Add-back: non-property level overhead expenses included above Less: EBITDA from acquisitions, dispositions and other non-operating income or expenses GAAP basis same store EBITDA for the three months ended December 31, 2012 Less: Adjustments for straight-line rents, amortization of below-market leases, net and other non-cash adjustments Cash basis same store EBITDA for the three months ended December 31, 2012 EBITDA for the three months ended September 30, 2012(1) Add-back: non-property level overhead expenses included above Less: EBITDA from acquisitions, dispositions and other non-operating income or expenses GAAP basis same store EBITDA for the three months ended September 30, 2012 Less: Adjustments for straight-line rents, amortization of below-market leases, net and other non-cash adjustments Cash basis same store EBITDA for the three months ended September 30, 2012 Increase (decrease) in GAAP basis same store EBITDA for the three months ended December 31, 2012 over the three months ended September 30, 2012 Increase (decrease) in Cash basis same store EBITDA for the three months ended December 31, 2012 over the three months ended September 30, 2012 New York Washington, DC Retail Properties Merchandise Mart $ 407,823 $ 118,021 $ (20,074) $ 21,052 8,073 7,388 4,851 (202,180) (38,604) 80,891 213,716 (23,066) 190,650 206,663 $ $ 86,805 (775) 86,030 217,567 $ $ 6,739 6,668 65,668 (4,161) 61,507 73,505 6,103 $ $ 4,586 (6,285) 19,353 (1,075) 18,278 44,942 4,120 (8,565) (129,014) (15,117) (32,087) 204,837 (26,331) 95,221 (2,020) 64,491 (3,833) 16,975 171 178,506 $ 93,201 $ 60,658 $ 17,146 8,879 $ (8,416) $ 1,177 $ 2,378 12,144 $ (7,171) $ 849 $ 1,132 $ $ $ $ $ % increase (decrease) in GAAP basis same store EBITDA % increase (decrease) in Cash basis same store EBITDA 4.3% 6.8% (8.8%) (7.7%) 1.8% 1.4% 14.0% 6.6% (1) Below is the reconciliation of net income to EBITDA for the three months ended September 30, 2012. (Amounts in thousands) Net income attributable to Vornado for the three months ended September 30, 2012 Interest and debt expense Depreciation and amortization Income tax expense (benefit) EBITDA for the three months ended September 30, 2012 New York Washington, DC Retail Properties Merchandise Mart $ $ 96,064 46,823 62,905 871 206,663 $ $ 149,241 33,280 35,071 (25) 217,567 $ $ 34,661 17,499 21,345 - 73,505 $ $ 19,083 8,916 7,662 9,281 44,942 109   Related Party Transactions Alexander’s We own 32.4% of Alexander’s. Steven Roth, the Chairman of our Board, and Michael D. Fascitelli, our President and Chief Executive Officer, are officers and directors of Alexander’s. We provide various services to Alexander’s in accordance with management, development and leasing agreements. These agreements are described in Note 6 - Investments in Partially Owned Entities to our consolidated financial statements in this Annual Report on Form 10-K. Interstate Properties (“Interstate”) Interstate is a general partnership in which Mr. Roth is the managing general partner. David Mandelbaum and Russell B. Wight, Jr., Trustees of Vornado and Directors of Alexander’s, are Interstate’s two other partners. As of December 31, 2012, Interstate and its partners beneficially owned an aggregate of approximately 6.5% of the common shares of beneficial interest of Vornado and 26.3% of Alexander’s common stock. We manage and lease the real estate assets of Interstate pursuant to a management agreement for which we receive an annual fee equal to 4% of annual base rent and percentage rent. The management agreement has a term of one year and is automatically renewable unless terminated by either of the parties on 60 days’ notice at the end of the term. We believe, based upon comparable fees charged by other real estate companies, that the management agreement terms are fair to us. Other On March 8, 2012, Mr. Roth repaid his $13,122,500 outstanding loan from the Company. 110   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 and 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 (excluding Fund acquisitions) may require funding from borrowings and/or equity offerings. Our Real Estate Fund has aggregate unfunded equity commitments of $217,676,000 for acquisitions, including $54,419,000 from us. We may from time to time purchase or retire outstanding debt 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. Dividends On January 17, 2013, we increased our quarterly common dividend to $0.73 per share (a new indicated annual rate of $2.92 per share). This dividend, if continued for all of 2013, would require us to pay out approximately $545,000,000 of cash for common share dividends. In addition, during 2013, we expect to pay approximately $81,500,000 of cash dividends on outstanding preferred shares and approximately $36,000,000 of cash distributions to unitholders of the Operating Partnership. Financing Activities and Contractual Obligations We have an effective shelf registration for the offering of our equity and debt securities that is not limited in amount due to our status as a “well-known seasoned issuer.” Our revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provides for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our 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 December 31, 2012, we are in compliance with all of the financial covenants required by our revolving credit facilities. As of December 31, 2012, we had $960,319,000 of cash and cash equivalents and $1,307,193,000 of borrowing capacity under our revolving credit facilities, net of outstanding borrowings of $1,170,000,000 and letters of credit of $22,807,000. A summary of our consolidated debt as of December 31, 2012 and 2011 is presented below. (Amounts in thousands) Consolidated debt: Variable rate Fixed rate 2012 2011 December 31, Balance $ $ 3,167,181 8,129,009 11,296,190 Weighted Average Interest Rate 1.93% 5.18% 4.27% December 31, Balance $ $ 1,881,948 8,194,659 10,076,607 Weighted Average Interest Rate 2.35% 5.55% 4.95% During 2013 and 2014, $1,069,682,000 and $240,001,000, respectively, of our outstanding debt matures. We may refinance maturing debt as it comes due or choose to repay it using cash and cash equivalents or our revolving credit facilities. We may also refinance or prepay other outstanding debt depending 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. 111         Liquidity and Capital Resources – continued Financing Activities and Contractual Obligations – continued Below is a schedule of our contractual obligations and commitments at December 31, 2012. (Amounts in thousands)  Contractual cash obligations (principal and interest(1)): Notes and mortgages payable Operating leases Senior unsecured notes due 2039 (PINES) Revolving credit facilities Senior unsecured notes due 2022 Senior unsecured notes due 2015 Capital lease obligations Purchase obligations, primarily construction commitments Total contractual cash obligations Commitments: Capital commitments to partially owned entities Standby letters of credit Total commitments Less than Total 1 Year 1 – 3 Years 3 – 5 Years Thereafter $ 10,775,483 $ 1,519,315 $ 1,495,932 $ 3,377,676 $ 4,382,560 1,229,169 1,247,894 - 480,833 - 359,792 - $ 16,632,450 $ 1,862,164 $ 2,286,644 $ 4,783,394 $ 7,700,248 75,022 72,450 1,193,146 40,000 - 25,000 100 1,429,110 1,429,019 1,251,178 580,833 547,813 422,292 196,722 83,395 72,450 40,716 40,000 526,563 25,000 2,588 41,524 36,225 17,316 20,000 21,250 12,500 194,034 $ $ 163,130 $ 22,807 185,937 $ 101,199 $ 22,327 123,526 $ 61,931 $ 480 62,411 $ - $ - - $ - - - ________________________ (1) Interest on variable rate debt is computed using rates in effect at December 31, 2012. Details of 2012 financing activities are provided in the “Overview” of Management’s Discussion and Analysis of Financial Conditions and Results of Operations. Details of 2011 financing activities are discussed below. Senior Unsecured Debt On November 30, 2011, we completed a public offering of $400,000,000 aggregate principal amount of 5.0%, ten-year senior unsecured notes and retained net proceeds of approximately $395,584,000. The notes were sold at 99.546% of their face amount to yield 5.057%. In 2011, we renewed both of our unsecured revolving credit facilities aggregating $2,500,000,000. The first facility, which was renewed in June 2011, bears interest on drawn amounts at LIBOR plus 1.35% and has a 0.30% facility fee (drawn or undrawn). The second facility, which was renewed in November 2011, bears interest on drawn amounts at LIBOR plus 1.25% and has a 0.25% facility fee (drawn or undrawn). The LIBOR spread and facility fee on both facilities are based on our credit ratings. Both facilities mature in four years and have one-year extension options. 112     Liquidity and Capital Resources – continued Financing Activities and Contractual Obligations – continued Secured Debt On December 28, 2011, we completed a $330,000,000 refinancing of Eleven Penn Plaza, a 1.1 million square foot Manhattan office building. The seven-year loan bears interest at LIBOR plus 2.35% and amortizes based on a 30-year schedule beginning in the fourth year. We retained net proceeds of approximately $126,000,000, after repaying the existing loan and closing costs. On September 1, 2011, we completed a $600,000,000 refinancing of 555 California Street, a three-building office complex aggregating 1.8 million square feet in San Francisco’s financial district, known as the Bank of America Center, in which we own a 70% controlling interest. The 10-year fixed rate loan bears interest at 5.10% and amortizes based on a 30-year schedule beginning in the fourth year. The proceeds of the new loan and $45,000,000 of existing cash were used to repay the existing loan and closing costs. On May 11, 2011, we repaid the outstanding balance of the construction loan on West End 25, and closed on a $101,671,000 mortgage at a fixed rate of 4.88%. The loan has a 10-year term and amortizes based on a 30-year schedule beginning in the sixth year. On February 11, 2011, we completed a $425,000,000 refinancing of Two Penn Plaza, a 1.6 million square foot Manhattan office building. The seven-year loan bears interest at LIBOR plus 2.00%, which was swapped for the term of the loan to a fixed rate of 5.13%. The loan amortizes based on a 30-year schedule beginning in the fourth year. We retained net proceeds of approximately $139,000,000, after repaying the existing loan and closing costs. On February 10, 2011, we completed a $150,000,000 financing of 2121 Crystal Drive, a 506,000 square foot office building located in Crystal City, Arlington, Virginia. The 12-year fixed rate loan bears interest at 5.51% and amortizes based on a 30-year schedule beginning in the third year. This property was previously unencumbered. On January 18, 2011, we repaid the outstanding balance of the construction loan on 220 20th Street and closed on a $76,100,000 mortgage at a fixed rate of 4.61%. The loan has a seven-year term and amortizes based on a 30-year schedule. On January 10, 2011, we completed a $75,000,000 financing of North Bergen (Tonnelle Avenue), a 410,000 square foot strip shopping center. The seven-year fixed rate loan bears interest rate at 4.59% and amortizes based on a 25-year schedule beginning in the sixth year. This property was previously unencumbered. On January 6, 2011, we completed a $60,000,000 financing of land under a portion of the Borgata Hotel and Casino complex. The 10-year fixed rate loan bears interest at 5.14% and amortizes based on a 30-year schedule beginning in the third year. Preferred Securities On April 20, 2011, we sold 7,000,000 6.875% Series J Cumulative Redeemable Preferred Shares at a price of $25.00 per share, in an underwritten public offering pursuant to an effective registration statement. On April 21, 2011, the underwriters exercised their option to purchase an additional 1,050,000 shares to cover over-allotments. On May 5, 2011 and August 5, 2011 we sold an additional 800,000 and 1,000,000 shares, respectively, at a price of $25.00 per share. We retained aggregate net proceeds of $238,842,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to the Operating Partnership in exchange for 9,850,000 Series J Preferred Units (with economic terms that mirror those of the Series J Preferred Shares). 113   Liquidity and Capital Resources – continued Acquisitions and Investments Details of 2012 acquisitions and investments are provided in the “Overview” of Management’s Discussion and Analysis of Financial Conditions and Results of Operations. Details of 2011 acquisitions and investments are discussed below. 1399 New York Avenue (the “Executive Tower”) On December 23, 2011, we acquired the 97.5% interest that we did not already own in the Executive Tower, an 11-story, 128,000 square foot Class A office building located in the Washington, CBD East End submarket close to the White House, for $104,000,000 in cash. 666 Fifth Avenue Office On December 16, 2011, we formed a joint venture with an affiliate of the Kushner Companies to recapitalize the office portion of 666 Fifth Avenue, a 39-story, 1.4 million square foot Class A office building in Manhattan, located on the full block front of Fifth Avenue between 52nd and 53rd Street. We acquired a 49.5% interest in the property from the Kushner Companies, the current owner. In connection therewith, the existing $1,215,000,000 mortgage loan was modified by LNR, the special servicer, into a $1,100,000,000 A-Note and a $115,000,000 B-Note and extended to February 2019; and a portion of the current pay interest was deferred to the B- Note. We and the Kushner Companies have committed to lend the joint venture an aggregate of $110,000,000 (of which our share is $80,000,000) for tenant improvements and working capital for the property, which is senior to the $115,000,000 B-Note. In addition, we have provided the A-Note holders a limited recourse and cooperation guarantee of up to $75,000,000 if an event of default occurs and is ongoing. Independence Plaza On June 17, 2011, a joint venture in which we are a 51% partner invested $55,000,000 in cash (of which we contributed $35,000,000) to acquire a face amount of $150,000,000 of mezzanine loans and a $35,000,000 participation in a senior loan on Independence Plaza, a three-building 1,328 unit residential complex in the Tribeca submarket of Manhattan. 280 Park Avenue Joint Venture On March 16, 2011, we formed a 50/50 joint venture with SL Green Realty Corp to own the mezzanine debt of 280 Park Avenue, a 1.2 million square foot office building located between 48th and 49th Streets in Manhattan (the “Property”). We contributed our mezzanine loan with a face amount of $73,750,000 and they contributed their mezzanine loans with a face amount of $326,250,000 to the joint venture. We equalized our interest in the joint venture by paying our partner $111,250,000 in cash and assuming $15,000,000 of their debt. On May 17, 2011, as part of the recapitalization of the Property, the joint venture contributed its debt position for 99% of the common equity of a new joint venture which owns the Property. The new joint venture’s investment is subordinate to $710,000,000 of third party debt. 114   Liquidity and Capital Resources – continued Certain Future Cash Requirements Capital Expenditures The following table summarizes anticipated 2013 capital expenditures. (Amounts in millions, except square foot data) Expenditures to maintain assets Tenant improvements Leasing commissions Total capital expenditures and leasing $ Total New York Washington, DC Properties Mart Other (2) Retail Merchandise 112.0 $ 108.0 36.0 60.0 $ 43.0 21.0 28.0 $ 41.0 10.0 4.0 $ 9.0 3.0 12.0 $ 10.0 1.0 8.0 5.0 1.0 commissions $ 256.0 $ 124.0 $ 79.0 $ 16.0 $ 23.0 $ 14.0 Square feet budgeted to be leased (in thousands) Weighted average lease term (years) Tenant improvements and leasing commissions: Per square foot Per square foot per annum 900 10 1,250 7 800 6 250 6 $ $ 71.00 (1) $ 7.10 (1) $ 41.00 $ 5.86 $ 15.00 $ 2.50 $ 44.00 7.33 (1) Comprised of tenant improvements and leasing commissions of $65.00 per square foot ($6.50 per square foot per annum) and $100.00 per square foot ($10.00 per square foot per annum) for the office and retail components of our New York segment, respectively. (2) Primarily 555 California Street and Warehouses. The table above excludes anticipated capital expenditures of each of our partially owned non-consolidated subsidiaries, as these entities fund their capital expenditures without additional equity contributions from us. Development and Redevelopment Expenditures In 2012, we commenced the re-tenanting and repositioning of 280 Park Avenue (50% owned), and the renovation of the 1.4 million square foot Springfield Mall, both of which are expected to be substantially completed in 2014. We budgeted approximately $285,000,000 for these projects, of which $31,000,000 was expended in 2012 and $132,000,000 is expected to be expended in 2013 and the balance is expected to be expended in 2014. During 2012, we completed the demolition of the existing residential building down to the second-level, at 220 Central Park South. In addition, we continued lobby renovations at several of our office buildings in New York and Washington, as well as the re- tenanting and repositioning of a number of our strip shopping centers. We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including the Hotel Pennsylvania and in Washington, including 1900 Crystal Drive, Rosslyn and Pentagon City. There can be no assurance that any of our development or redevelopment projects will commence, or if commenced, be completed on schedule or within budget. 115     Liquidity and Capital Resources – continued Insurance We maintain general liability insurance with limits of $300,000,000 per occurrence and all risk property and rental value insurance with limits of $2.0 billion per occurrence, including coverage for terrorist acts, with sub-limits for certain perils such as floods. Our California properties have earthquake insurance with coverage of $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $180,000,000 annual aggregate. Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to 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 nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Program Reauthorization Act. 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. Coverage for NBCR losses is up to $2.0 billion per occurrence, for which PPIC is responsible for a deductible of $3,200,000 and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss. We are ultimately responsible for any loss borne by PPIC. We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, we cannot anticipate what coverage will be available on commercially reasonable terms in future policy years. Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured notes and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our ability to finance our properties and expand our portfolio. Other Commitments and Contingencies 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 December 31, 2012, the aggregate dollar amount of these guarantees and master leases is approximately $310,249,000. At December 31, 2012, $22,807,000 of letters of credit were outstanding under one of our revolving credit facilities. Our credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our 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. Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us. Two of our wholly owned subsidiaries that are contracted to develop and operate the Cleveland Medical Mart and Convention Center, in Cleveland, Ohio, are required to fund $11,500,000, primarily for tenant improvements, and they are responsible for operating expenses and are entitled to the net operating income, if any, upon the completion of development and the commencement of operations. As of December 31, 2012, our subsidiaries have funded $1,100,000 of the commitment. As of December 31, 2012, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $163,130,000. 116   Liquidity and Capital Resources – continued Litigation 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, including the matter referred to below, is not expected to have a material adverse effect on our financial position, results of operations or cash flows. In 2003, Stop & Shop filed an action against us in the New York Supreme Court, claiming that we had no right to reallocate and therefore continue to collect $5,000,000 ($6,000,000 beginning February 1, 2012) of annual rent from Stop & Shop pursuant to a Master Agreement and Guaranty, because of the expiration of the leases to which the annual rent was previously allocated. Stop & Shop asserted that an order of the Bankruptcy Court for the Southern District of New York, as modified on appeal by the District Court, froze our right to reallocate and effectively terminated our right to collect the annual rent from Stop & Shop. We asserted a counterclaim seeking a judgment for all of the unpaid annual rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the annual rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect. A trial was held in November 2010. On November 7, 2011, the Court determined that we had a continuing right to allocate the annual rent to unexpired leases covered by the Master Agreement and Guaranty, and directed entry of a judgment in our favor ordering Stop & Shop to pay us the unpaid annual rent accrued through February 28, 2011 in the amount of $37,422,000, a portion of the annual rent due from March 1, 2011 through the date of judgment, interest, and attorneys’ fees. On December 16, 2011, a money judgment based on the Court’s decision was entered in our favor in the amount of $56,597,000 (including interest and costs). Stop & Shop appealed the Court’s decision and the judgment and posted a bond to secure payment of the judgment. On January 12, 2012, we commenced a new action against Stop & Shop seeking recovery of $2,500,000 of annual rent not included in the money judgment, plus additional annual rent as it accrues. At December 31, 2012, we had a $47,900,000 receivable from Stop & Shop, which is included as a component of “tenant and other receivables” on our consolidated balance sheet. On February 6, 2013, we received $124,000,000 pursuant to a settlement agreement with Stop & Shop. The settlement terminates our right to receive $6,000,000 of additional annual rent under the 1992 agreement, for a period potentially through 2031. As a result of this settlement, we collected the aforementioned $47,900,000 receivable and will recognize approximately $59,000,000 of net income in the first quarter of 2013. 117     Liquidity and Capital Resources – continued Cash Flows for the Year Ended December 31, 2012 Our cash and cash equivalents were $960,319,000 at December 31, 2012, a $353,766,000 increase over the balance at December 31, 2011. Our consolidated outstanding debt was $11,296,190,000 at December 31, 2012, a $1,219,583,000 increase over the balance at December 31, 2011. As of December 31, 2012 and December 31, 2011, $1,170,000,000 and $138,000,000, respectively, was outstanding under our revolving credit facilities. During 2013 and 2014, $1,069,682,000 and $240,001,000 of our outstanding debt matures, respectively. We may refinance this maturing debt as it comes due or choose to repay it. Cash flows provided by operating activities of $825,049,000 was comprised of (i) net income of $694,541,000, (ii) distributions of income from partially owned entities of $226,172,000, (iii) return of capital from Real Estate Fund investments of $63,762,000, and (iv) $151,954,000 of non-cash adjustments, which include depreciation and amortization expense, impairment loss on J.C. Penney owned shares, the effect of straight-lining of rental income, equity in net income of partially owned entities and net gains on sale of real estate, partially offset by (v) the net change in operating assets and liabilities of $311,380,000, including $262,537,000 related to Real Estate Fund investments. Net cash used in investing activities of $642,262,000 was comprised of (i) $673,684,000 of acquisitions of real estate and other, (ii) $205,652,000 of additions to real estate, (iii) $191,330,000 for the funding of the J.C. Penney derivative collateral, (iv) $156,873,000 of development costs and construction in progress, (v) $134,994,000 of investments in partially owned entities, (vi) $94,094,000 investments in mortgage and mezzanine loans receivable and other, and (vii) $75,138,000 of changes in restricted cash, partially offset by (viii) $445,683,000 of proceeds from sales of real estate and related investments, (ix) $144,502,000 of capital distributions from partially owned entities, (x) $134,950,000 from the return of the J.C. Penney derivative collateral, (xi) $60,258,000 of proceeds from the sale of marketable securities, (xii) $52,504,000 of proceeds from the sale of the Canadian Trade Shows, (xiii) $38,483,000 of proceeds from repayments of mezzanine loans receivable and other, and (xiv) $13,123,000 of proceeds from the repayment of loan to officer. Net cash provided by financing activities of $170,979,000 was comprised of (i) $3,593,000,000 of proceeds from borrowings, (ii) $290,971,000 of proceeds from the issuance of preferred shares, (iii) $213,132,000 of contributions from noncontrolling interests in consolidated subsidiaries, and (iv) $11,853,000 of proceeds from exercise of employee share options, partially offset by (v) $2,747,694,000 for the repayments of borrowings, (vi) $699,318,000 of dividends paid on common shares, (vii) $243,300,000 for purchases of outstanding preferred units and shares, (viii) $104,448,000 of distributions to noncontrolling interests, (ix) $73,976,000 of dividends paid on preferred shares, (x) $39,073,000 of debt issuance and other costs, and (xi) $30,168,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings. 118   Liquidity and Capital Resources - continued Capital Expenditures in the Year Ended December 31, 2012 Capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions. Recurring capital improvements 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 in the year ended December 31, 2012. (Amounts in thousands) Expenditures to maintain assets Tenant improvements Leasing commissions Non-recurring capital expenditures Total capital expenditures and leasing commissions (accrual basis) Adjustments to reconcile to cash basis: Expenditures in the current year applicable to prior periods Expenditures to be made in future periods for the current period Total capital expenditures and leasing commissions (cash basis) Tenant improvements and leasing commissions: Per square foot per annum Percentage of initial rent $ $ $ Total New York Washington, DC 69,912 $ 177,743 57,961 6,902 27,434 $ 71,572 27,573 5,822 Retail Properties 4,676 9,052 2,368 - 20,582 $ 50,384 13,151 - Merchandise Mart Other $ $ 10,635 46,316 14,774 - 6,585 419 95 1,080 312,518 132,401 84,117 16,096 71,725 8,179 105,350 41,975 24,370 10,353 21,867 6,785 (170,744) (76,283) (43,600) (7,754) (42,688) (419) 247,124 $ 98,093 $ 64,887 $ 18,695 4.44 $ 5.48 $ 10.6% 8.8% 4.86 $ 12.0% 1.04 5.2% $ $ $ $ 50,904 5.56 (1) 15.8% 14,545 - - (1) Includes $6.50 per square foot per annum of tenant improvements and leasing commissions in connection with the 572,000 square foot Motorola Mobility / Google lease. Development and Redevelopment Expenditures in the Year Ended December 31, 2012 Development and redevelopment expenditures consist of all hard and soft costs associated with the development or redevelopment of a property, including tenant improvements, leasing commissions, capitalized interest and operating costs until the property is substantially completed and ready for its intended use. Below is a summary of development and redevelopment expenditures incurred in the year ended December 31, 2012. (Amounts in thousands) Springfield Mall 1290 Avenue of the Americas Crystal Square 5 220 Central Park South Bergen Town Center 510 Fifth Avenue Marriott Marquis Times Square - retail and signage 1851 South Bell Street (1900 Crystal Drive) Amherst, New York Other $ $ Merchandise Mart $ $ - $ - - - - - - - - 167 167 $ Other - - - 12,191 - - - - - 75 12,266 Total New York Washington, DC 18,278 $ 16,778 15,039 12,191 11,404 10,206 - $ 16,778 - - - 10,206 Retail Properties 18,278 - - - 11,404 - - $ - 15,039 - - - 9,092 6,243 5,585 52,057 156,873 $ 9,092 - - 15,484 51,560 $ - 6,243 - 18,052 39,334 $ - - 5,585 18,279 53,546 119   Liquidity and Capital Resources – continued Cash Flows for the Year Ended December 31, 2011 Our cash and cash equivalents were $606,553,000 at December 31, 2011, a $84,236,000 decrease over the balance at December 31, 2010. Our consolidated outstanding debt was $10,076,607,000 at December 31, 2011, a $272,850,000 decrease from the balance at December 31, 2010. Cash flows provided by operating activities of $702,499,000 was comprised of (i) net income of $740,000,000, (ii) distributions of income from partially owned entities of $93,635,000, and (iii) $151,745,000 of non-cash adjustments, including depreciation and amortization expense, the effect of straight-lining of rental income, equity in net income of partially owned entities, income from the mark-to-market of derivative positions in marketable equity securities, impairment losses and tenant buy-out costs, net realized and unrealized gains on Real Estate Fund assets and net gain on early extinguishment of debt, partially offset by (iv) the net change in operating assets and liabilities of $282,881,000, of which $184,841,000 relates to Real Estate Fund investments. Net cash used in investing activities of $164,761,000 was comprised of (i) $571,922,000 of investments in partially owned entities, (ii) $165,680,000 of additions to real estate, (iii) $98,979,000 of investments in mortgage and mezzanine loans receivable and other, (iv) $93,066,000 of development costs and construction in progress, (v) $90,858,000 of acquisitions of real estate and other, and (vi) $43,850,000 for the funding of collateral for the J.C. Penney derivative, partially offset by (vii) $318,966,000 of capital distributions from partially owned entities, (viii) $187,294,000 of proceeds from sales and repayments of mortgage and mezzanine loans receivable and other, (ix) $140,186,000 of proceeds from sales of real estate and related investments, (x) changes in restricted cash of $126,380,000, (xi) $70,418,000 of proceeds from sales of marketable securities, and (xii) $56,350,000 from the return of derivative collateral. Net cash used in financing activities of $621,974,000 was comprised of (i) $3,740,327,000 for the repayments of borrowings, (ii) $508,745,000 of dividends paid on common shares, (iii) $116,510,000 of distributions to noncontrolling interests, (iv) $61,464,000 of dividends paid on preferred shares, (v) $47,395,000 of debt issuance and other costs, (vi) $28,000,000 for the purchase of outstanding preferred units and shares, and (vii) $964,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings, partially offset by (viii) $3,412,897,000 of proceeds from borrowings, (ix) $238,842,000 of proceeds from the issuance of Series J preferred shares, (x) $204,185,000 of contributions from noncontrolling interests, and (xi) $25,507,000 of proceeds received from exercise of employee share options. 120   Liquidity and Capital Resources – continued Capital Expenditures in the Year Ended December 31, 2011 (Amounts in thousands) Expenditures to maintain assets Tenant improvements Leasing commissions Non-recurring capital expenditures Total capital expenditures and leasing commissions (accrual basis) Adjustments to reconcile to cash basis: Expenditures in the current year applicable to prior periods Expenditures to be made in future periods for the current period Total capital expenditures and leasing Total New York Washington, DC Retail Properties Merchandise Mart Other $ 58,463 $ 138,076 43,613 19,442 22,698 $ 76,493 28,072 17,157 18,939 $ 33,803 9,114 - 6,448 $ 6,515 2,114 - 5,918 $ 15,221 2,794 - 4,460 6,044 1,519 2,285 259,594 144,420 61,856 15,077 23,933 14,308 90,799 43,392 13,517 9,705 15,256 8,929 (146,062) (79,941) (33,530) (7,058) (14,185) (11,348) commissions (cash basis) $ 204,331 $ 107,871 $ 41,843 $ 17,724 $ 25,004 $ 11,889 Tenant improvements and leasing commissions: $ Per square foot per annum Percentage of initial rent 3.81 $ 9.1% 5.21 $ 9.1% 4.47 $ 10.8% 0.71 $ 3.3% 3.95 $ 12.3% - - Development and Redevelopment Expenditures in the Year Ended December 31, 2011 (Amounts in thousands) Bergen Town Center 510 Fifth Avenue Other Total New York Washington, DC Retail Properties Merchandise Mart Other $ $ 23,748 $ 8,833 48,903 81,484 $ - $ 8,833 6,627 15,460 $ - $ - 20,496 20,496 $ 23,748 $ - 18,580 42,328 $ - $ - 898 898 $ - - 2,302 2,302 121   Liquidity and Capital Resources – continued Cash Flow for the Year Ended December 31, 2010 Our cash and cash equivalents were $690,789,000 at December 31, 2010, a $155,310,000 increase over the balance at December 31, 2009. Our consolidated outstanding debt was $10,349,457,000 at December 31, 2010, a $246,029,000 increase from the balance at December 31, 2009. Cash flows provided by operating activities of $771,086,000 was comprised of (i) net income of $708,031,000, (ii) $129,491,000 of non-cash adjustments, including depreciation and amortization expense, the effect of straight-lining of rental income, equity in net income of partially owned entities, income from the mark-to-market of derivative positions in marketable equity securities, litigation loss accrual and impairment losses, net gain on early extinguishment of debt, (iii) distributions of income from partially owned entities of $61,037,000, (iv) interest received on repayment on mezzanine loan of $40,467,000, partially offset by (v) the net change in operating assets and liabilities of $167,940,000, of which $144,423,000 relates to Real Estate Fund investments. Net cash used in investing activities of $520,361,000 was comprised of (i) purchases of marketable equity securities, including J.C. Penney Company, Inc. common shares, of $491,596,000, (ii) acquisitions of real estate of $173,413,000, (iii) investments in partially owned entities of $165,170,000, (iv) development and redevelopment expenditures of $156,775,000, (v) additions to real estate of $144,794,000, (vi) investments in mortgage and mezzanine loans receivable and other of $85,336,000, and (vii) $12,500,000 for the funding of collateral for the J.C. Penney derivative, partially offset by (viii) proceeds from the sale of marketable securities of $280,462,000, (ix) restricted cash of $138,586,000, (x) proceeds from sales of real estate and related investments of $127,736,000, (xi) proceeds received from repayment of mortgage and mezzanine loans receivable of $70,762,000, (xii) distributions of capital from investments in partially owned entities of $51,677,000, and (xiii) proceeds from maturing short-term investments of $40,000,000. Net cash used in financing activities of $95,415,000 was comprised of (i) repayments of borrowing, including the purchase of our senior unsecured notes, of $2,004,718,000, (ii) dividends paid on common shares of $474,299,000 (iii) purchases of outstanding preferred units of $78,954,000, (iv) dividends paid on preferred shares of $55,669,000, (v) distributions to noncontrolling interests of $53,842,000, (vi) repurchase of shares related to stock compensation agreements and related tax withholdings of $25,660,000, (vii) debt issuance costs of $14,980,000 partially offset by (viii) proceeds from borrowings of $2,481,883,000, (ix) contributions from noncontrolling interests of $103,831,000 and (x) proceeds received from exercise of employee share options of $26,993,000. 122   Liquidity and Capital Resources – continued Capital Expenditures in the Year Ended December 31, 2010 (Amounts in thousands) Expenditures to maintain assets Tenant improvements Leasing commissions Non-recurring capital expenditures Total capital expenditures and leasing commissions (accrual basis) Adjustments to reconcile to cash basis: Expenditures in the current year applicable to prior periods Expenditures to be made in future periods for the current period Total capital expenditures and leasing Total New York Washington, DC Retail Properties Merchandise Mart Other $ 53,051 $ 116,939 30,351 5,381 21,511 $ 51,137 16,070 3,192 17,532 $ 17,464 6,044 - 3,799 $ 9,077 1,470 795 6,099 $ 31,742 4,761 - 4,110 7,519 2,006 1,394 205,722 91,910 41,040 15,141 42,602 15,029 64,216 37,161 13,296 4,617 4,825 4,317 (87,289) (36,332) (13,989) (10,077) (20,580) (6,311) commissions (cash basis) $ 182,649 $ 92,739 $ 40,347 $ 9,681 $ 26,847 $ 13,035 Tenant improvements and leasing commissions: $ Per square foot per annum Percentage of initial rent 3.73 $ 10.0% 6.60 $ 12.7% 2.92 $ 7.6% 1.28 $ 5.7% 4.01 $ 11.5% - - Development and Redevelopment Expenditures in the Year Ended December 31, 2010 (Amounts in thousands) 220 Central Park South Bergen Town Center Residential condominiums West End 25 1540 Broadway Green Acres Mall Other Total New York Washington, DC Retail Properties Merchandise Mart Other $ $ 46,769 $ 18,783 15,600 9,997 8,091 7,679 49,856 156,775 $ - $ - - - 8,091 - 12,054 20,145 $ - $ - - 9,997 - - 16,592 26,589 $ - $ 18,783 - - - 7,679 17,899 44,361 $ - $ - - - - - 2,667 2,667 $ 46,769 - 15,600 - - - 644 63,013 123   Funds From Operations (“FFO”) FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciated real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets, extraordinary items and other specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flows as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. FFO attributable to common shareholders plus assumed conversions was $818,565,000, or $4.39 per diluted share for the year ended December 31, 2012, compared to $1,230,973,000, or $6.42 per diluted share for the year ended December 31, 2011. FFO attributable to common shareholders plus assumed conversions was $55,890,000, or $0.30 per diluted share for the three months ended December 31, 2012, compared to $280,369,000, or $1.46 per diluted share for the three months ended December 31, 2011. Details of certain items that affect comparability are discussed in the financial results summary of our “Overview.” (Amounts in thousands, except per share amounts) Reconciliation of our net income to FFO: Net income attributable to Vornado Depreciation and amortization of real property Net gains on sale of real estate Real estate impairment losses Proportionate share of adjustments to equity in net income of Toys, to arrive at FFO: Depreciation and amortization of real property Net gains on sale of real estate Real estate impairment losses Income tax effect of above adjustments Proportionate share of adjustments to equity in net income of partially owned entities, excluding Toys, to arrive at FFO: Depreciation and amortization of real property Net gains on sale of real estate Real estate impairment losses Noncontrolling interests' share of above adjustments FFO Preferred share dividends Discount on preferred share and unit redemptions FFO attributable to common shareholders Interest on 3.88% exchangeable senior debentures Convertible preferred share dividends FFO attributable to common shareholders plus assumed conversions Reconciliation of Weighted Average Shares Weighted average common shares outstanding Effect of dilutive securities: Employee stock options and restricted share awards Convertible preferred shares 3.88% exchangeable senior debentures Denominator for FFO per diluted share For The Year Ended December 31, 2012 2011 For The Three Months Ended December 31, 2011 2012 $ 617,260 504,407 $ (245,799) 129,964 $ 662,302 530,113 (51,623) 28,799 $ 86,135 125,069 (41,998) 116,453 87,296 152,655 - 28,799 68,483 - 9,824 (27,493) 86,197 (241,602) 1,849 (16,649) 886,441 (76,937) 8,948 818,452 - 113 818,565 $ 70,883 (491) - (24,634) 99,992 (9,276) - (40,957) 1,265,108 (65,531) 5,000 1,204,577 26,272 124 1,230,973 $ 17,777 - 1,430 (6,728) 20,387 (239,551) - 418 79,392 (20,750) (2,752) 55,890 - - 55,890 $ 18,039 - - (6,314) 26,699 (1,916) - (13,733) 291,525 (17,788) - 273,737 6,602 30 280,369 $ 185,810 184,308 186,267 184,571 670 50 - 186,530 1,658 55 5,736 191,757 599 - - 186,866 1,392 52 5,736 191,751 FFO attributable to common shareholders plus assumed conversions per diluted share $ 4.39 $ 6.42 $ 0.30 $ 1.46 124   ITEM 7A. 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) Consolidated debt: Variable rate Fixed rate Prorata share of debt of non- consolidated entities (non-recourse): Variable rate – excluding Toys Variable rate – Toys Fixed rate (including $1,148,407 and $1,270,029 of Toys debt in 2012 and 2011) Redeemable noncontrolling interests’ share of above Total change in annual net income Per share-diluted $ $ $ $ December 31, Balance 3,167,181 8,129,009 11,296,190 2012 Weighted Average Interest Rate 1.93% 5.18% 4.27% 2011 Effect of 1% Change In Base Rates December 31, Balance $ 31,672 $ - 31,672 $ 1,881,948 8,194,659 10,076,607 Weighted Average Interest Rate 2.35% 5.55% 4.95% 264,531 703,922 3,030,476 (1) 3,998,929 2.88% 5.69% 7.04% 6.53% 2,645 $ 7,039 284,372 706,301 - 9,684 $ 3,208,472 4,199,145 2.85% 4.83% 6.96% 6.32% $ $ (2,564) 38,792 0.21 (1) Excludes $25.4 billion for our 26.2% pro rata share of LNR's liabilities related to consolidated CMBS and CDO trusts which are non-recourse to LNR and its equity holders, including us. 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 December 31, 2012, we have one interest rate cap with a principal amount of $60,000,000 and a weighted average interest rate of 2.36%. This cap is based on a notional amount of $60,000,000 and caps LIBOR at a rate of 7.00%. In addition, we have one interest rate swap on a $425,000,000 mortgage loan that swapped the rate from LIBOR plus 2.00% (2.21% at December 31, 2012) to a fixed rate of 5.13% for the remaining six-year term of the loan. 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 December 31, 2012, the estimated fair value of our consolidated debt was $11,433,000,000. Derivative Instruments We have, and may in the future enter into, derivative positions that do not qualify for hedge accounting treatment, including our economic interest in J.C. Penney common shares. Because these derivatives do not qualify for hedge accounting treatment, the gains or losses resulting from their mark-to-market at the end of each reporting period are recognized as an increase or decrease in “interest and other investment income (loss), net” on our consolidated statements of income. In addition, we are, and may in the future be, subject to additional expense based on the notional amount of the derivative positions and a specified spread over LIBOR. Because the market value of these instruments can vary significantly between periods, we may experience significant fluctuations in the amount of our investment income or expense in any given period. In the years ended December 31, 2012 and 2011, we recognized a loss of $75,815,000 and income of $12,984,000, respectively, from derivative instruments. 125     ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 31, 2012 and 2011 Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010 Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010 Consolidated Statements of Changes in Equity for the years ended December 31, 2012, 2011 and 2010 Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010 Notes to Consolidated Financial Statements Page Number 127 128 129 130 131 134 136 126       REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Trustees Vornado Realty Trust New York, New York We have audited the accompanying consolidated balance sheets of Vornado Realty Trust (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2012. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Vornado Realty Trust at December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2013 expressed an unqualified opinion on the Company’s internal control over financial reporting. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey February 26, 2013 127   PART I. FINANCIAL INFORMATION Item 1. Financial Statements VORNADO REALTY TRUST CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share amounts) ASSETS Real estate, at cost: Land Buildings and improvements Development costs and construction in progress Leasehold improvements and equipment Total Less accumulated depreciation and amortization Real estate, net Cash and cash equivalents Restricted cash Marketable securities Tenant and other receivables, net of allowance for doubtful accounts of $37,674 and $43,241 Investments in partially owned entities Investment in Toys "R" Us Real Estate Fund investments Mortgage and mezzanine loans receivable Receivable arising from the straight-lining of rents, net of allowance of $3,165 and $3,290 Deferred leasing and financing costs, net of accumulated amortization of $225,163 and $237,730 Identified intangible assets, net of accumulated amortization of $356,379 and $343,318 Assets related to discontinued operations Due from officers Other assets LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY Mortgages payable Senior unsecured notes Revolving credit facility debt Exchangeable senior debentures Convertible senior debentures Accounts payable and accrued expenses Deferred revenue Deferred compensation plan Deferred tax liabilities Liabilities related to discontinued operations Other liabilities Total liabilities Commitments and contingencies Redeemable noncontrolling interests: Class A units - 11,215,682 and 12,160,771 units outstanding Series D cumulative redeemable preferred units - 1,800,001 and 9,000,001 units outstanding Total redeemable noncontrolling interests Vornado shareholders' equity: Preferred shares of beneficial interest: no par value per share; authorized 110,000,000 shares; issued and outstanding 51,184,609 and 42,186,709 shares Common shares of beneficial interest: $.04 par value per share; authorized 250,000,000 shares; issued and outstanding 186,734,711 and 185,080,020 shares Additional capital Earnings less than distributions Accumulated other comprehensive (loss) income Total Vornado shareholders' equity Noncontrolling interests in consolidated subsidiaries Total equity See notes to the consolidated financial statements. 128 December 31, 2012 December 31, 2011 $ $ $ $ $ $ 4,553,978 12,895,355 920,662 125,364 18,495,359 (3,097,074) 15,398,285 960,319 183,256 398,188 195,718 1,226,256 478,041 600,786 225,359 765,518 408,092 370,602 374,476 - 381,079 21,965,975 8,768,182 1,358,008 1,170,000 - - 484,746 498,510 105,200 15,305 315,448 402,280 13,117,679 898,152 46,000 944,152 4,399,419 12,062,001 116,126 126,211 16,703,757 (2,894,374) 13,809,383 606,553 98,068 741,321 171,798 1,233,650 506,809 346,650 133,948 702,360 364,753 287,844 1,049,643 13,127 380,580 20,446,487 8,072,880 1,357,661 138,000 497,898 10,168 423,512 515,816 95,457 13,315 506,960 145,696 11,777,363 934,677 226,000 1,160,677 1,240,278 1,021,660 7,440 7,195,438 (1,573,275) (18,946) 6,850,935 1,053,209 7,904,144 7,373 7,127,258 (1,401,704) 73,729 6,828,316 680,131 7,508,447 $ 21,965,975 $ 20,446,487   VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per share amounts) REVENUES: Property rentals Tenant expense reimbursements Cleveland Medical Mart development project Fee and other income Total revenues EXPENSES: Operating Depreciation and amortization General and administrative Cleveland Medical Mart development project Impairment losses, acquisition related costs and tenant buy-outs Total expenses Operating income Income applicable to Toys "R" Us Income from partially owned entities Income (loss) from Real Estate Fund Interest and other investment (loss) income, net Interest and debt expense Net gain on extinguishment of debt Net gain on disposition of wholly owned and partially owned assets Income before income taxes Income tax expense Income from continuing operations Income from discontinued operations Net income Less net income attributable to noncontrolling interests in: Consolidated subsidiaries Operating Partnership Preferred unit distributions of the Operating Partnership Net income attributable to Vornado Preferred share dividends Discount on preferred share and unit redemptions NET INCOME attributable to common shareholders INCOME PER COMMON SHARE - BASIC: Income from continuing operations, net Income from discontinued operations, net Net income per common share Weighted average shares outstanding INCOME PER COMMON SHARE - DILUTED: Income from continuing operations, net Income from discontinued operations, net Net income per common share Weighted average shares outstanding 2012 Year Ended December 31, 2011 2010 $ $ $ $ $ $ 2,085,582 301,092 235,234 144,549 2,766,457 1,021,719 517,811 201,894 226,619 120,786 2,088,829 677,628 14,859 408,267 63,936 (260,945) (500,361) - 13,347 416,731 (8,132) 408,599 285,942 694,541 (32,018) (35,327) (9,936) 617,260 (76,937) 8,948 549,271 1.50 1.45 2.95 185,810 1.49 1.45 2.94 $ $ 2,114,255 314,752 154,080 149,749 2,732,836 995,586 524,550 208,008 145,824 35,299 1,909,267 823,569 48,540 70,072 22,886 148,784 (526,175) - 15,134 602,810 (23,925) 578,885 161,115 740,000 (21,786) (41,059) (14,853) 662,302 (65,531) 5,000 601,771 2.44 0.82 3.26 184,308 2.42 0.81 3.23 $ $ $ $ $ $ $ $ $ $ 2,093,475 317,777 - 146,955 2,558,207 983,424 494,898 211,399 - 109,458 1,799,179 759,028 71,624 20,869 (303) 235,267 (539,370) 94,789 81,432 723,336 (22,137) 701,199 6,832 708,031 (4,920) (44,033) (11,195) 647,883 (55,534) 4,382 596,731 3.24 0.03 3.27 182,340 3.21 0.03 3.24 186,530 186,021 184,159 See notes to consolidated financial statements. 129 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  (Amounts in thousands) Net income Other comprehensive (loss) income: Change in unrealized net (loss) gain on securities available-for-sale Amounts reclassified from accumulated other comprehensive income: Non-cash impairment loss on J.C. Penney owned shares Gain on sale of securities available-for-sale Pro rata share of other comprehensive (loss) income of nonconsolidated subsidiaries Change in value of interest rate swap Other Comprehensive income Less comprehensive income attributable to noncontrolling interests Comprehensive income attributable to Vornado 2012 Year Ended December 31, 2011 2010 $ 694,541 $ 740,000 $ 708,031 (283,649) 41,657 55,891 224,937 (3,582) (31,758) (5,659) 329 595,159 (70,574) 524,585 $ - (5,020) 12,859 (43,704) (5,245) 740,547 (77,969) 662,578 $ - (22,604) 11,853 - (136) 753,035 (63,343) 689,692 $ See notes to consolidated financial statements. 130 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY  Preferred Shares Common Shares Shares 181,214 $ Amount Additional Capital Earnings Less Than Distributions Accumulated Other Comprehensive Income (Loss) Non- controlling Interests (Amounts in thousands) Balance, December 31, 2009 Net income Dividends on common shares Dividends on preferred shares Redemption of preferred shares Common shares issued: Upon redemption of Class A units, at redemption value Under Omnibus share plan Under dividend reinvestment plan Contributions: Real Estate Fund Other Conversion of Series A preferred shares to common shares Deferred compensation shares and options Change in unrealized net gain on securities available-for-sale Gain on sale of securities available-for-sale Pro rata share of other comprehensive income of nonconsolidated subsidiaries Adjustments to carry redeemable Class A units at redemption value Other Balance, December 31, 2010 Shares Amount 33,952 $ 823,686 - - - (39,982) - - - (1,600) - - - - - - - - - - (12) (616) - - - - - - - - - - - - 32,340 $ 783,088 - - - - 1,548 812 22 - - 18 48 - - - - - 183,662 $ 7,218 $ - - - - 62 33 1 - - 1 2 - - - - - 7,317 $ 6,961,007 $ - - - - 126,702 25,290 1,656 - - 615 9,345 - - - (191,826) (61) (1,577,591) $ 647,883 (474,299) (55,669) 4,382 - (25,584) - - - - - - - - - 2 6,932,728 $ (1,480,876) $ 406,637 $ 4,920 - - - - - - 93,583 8,783 - - - 28,449 $ - - - - - - - - - - - 55,891 (22,604) Total Equity 6,649,406 652,803 (474,299) (55,669) (35,600) 126,764 (261) 1,657 93,583 8,783 - 9,347 55,891 (22,604) 11,853 - 11,853 - (136) 73,453 $ - 772 514,695 $ (191,826) 577 6,830,405 See notes to consolidated financial statements. 131     VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED  Preferred Shares Common Shares Shares 183,662 $ Amount Additional Capital Earnings Less Than Distributions Accumulated Other Comprehensive Income (Loss) Non- controlling Interests (Amounts in thousands) Balance, December 31, 2010 Net income Dividends on common shares Dividends on preferred shares Issuance of Series J preferred shares Common shares issued: Upon redemption of Class A units, at redemption value Under Omnibus share plan Under dividend reinvestment plan Contributions: Real Estate Fund Other Distributions: Real Estate Fund Other Conversion of Series A preferred shares to common shares Deferred compensation shares and options Change in unrealized net gain on securities available-for-sale Gain on sale of securities available-for-sale Pro rata share of other comprehensive income of nonconsolidated subsidiaries Change in value of interest rate swap Adjustments to carry redeemable Class A units at redemption value Redeemable noncontrolling interests' share of above adjustments Other Balance, December 31, 2011 Shares Amount 32,340 $ 783,088 - - - 238,842 - - - 9,850 - - - - - - - - - - - - - - (3) (165) - - - - - - - - - - - - - - - (105) 42,187 $ 1,021,660 - - - - 798 590 21 - - - - 5 4 - - - - - - - 185,080 $ 7,317 $ - - - - 6,932,728 $ - - - - (1,480,876) $ 662,302 (508,745) (65,694) - 32 23 1 64,798 23,705 1,771 - (13,289) - - - - - - - - - - - - - - - - 165 - - - - - 10,608 (523) - - - - 98,092 - - - - - 41,657 (5,020) 12,859 (43,704) - 73,453 $ - - - - - - - - - - - - - Total Equity 6,830,405 684,088 (508,745) (65,694) 238,842 64,830 10,439 1,772 203,407 778 (49,422) (15,604) - 10,085 41,657 (5,020) 12,859 (43,704) 98,092 514,695 $ 21,786 - - - - - - 203,407 778 (49,422) (15,604) - - - - - - - - - 7,373 $ - (4,609) 7,127,258 $ - 5,121 (1,401,704) $ (271) (5,245) 73,729 $ - 4,491 680,131 $ (271) (347) 7,508,447 See notes to consolidated financial statements. 132     VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED  Preferred Shares Common Shares Shares 185,080 $ Amount (Amounts in thousands) Balance, December 31, 2011 Net income Dividends on common shares Dividends on preferred shares Issuance of Series K preferred shares Redemption of Series E preferred shares Common shares issued: Upon redemption of Class A units, at redemption value Under Omnibus share plan Under dividend reinvestment plan Upon acquisition of real estate Contributions: Real Estate Fund Other Distributions: Real Estate Fund Other Conversion of Series A preferred shares to common shares Deferred compensation shares and options Change in unrealized net loss on securities available-for-sale Impairment loss on J.C. Penney owned shares Gain on sale of securities available-for-sale Pro rata share of other comprehensive loss of nonconsolidated subsidiaries Change in value of interest rate swap Adjustments to carry redeemable Class A units at redemption value Redeemable noncontrolling interests' share of above adjustments Discount on redemption of preferred shares and units Consolidation of partially owned entity Other Balance, December 31, 2012 Shares Amount 42,187 $ 1,021,660 - - - 290,971 - - - 12,000 (3,000) (72,248) - - - - - - - - - - - - - - - - (2) (105) - - - - - - - - - - - - - - - - - - - - - - 51,185 $ 1,240,278 Additional Capital Earnings Less Than Distributions Accumulated Other Comprehensive Income (Loss) Non- controlling Interests 7,373 $ - - - - - 45 18 1 3 - - - - - - - - - - - - - - - - 7,440 $ 7,127,258 $ - - - - - 89,717 9,521 2,306 5,121 - - - - 105 (1,401,704) $ 617,260 (699,318) (76,937) - - - (16,389) - - - - - - - 13,527 (473) - - - - - (52,117) - - - - 7,195,438 $ - - - - - - - 8,948 - (4,662) (1,573,275) $ 73,729 $ - - - - - - - - - - - - - - - (283,649) 224,937 (3,582) (31,758) (5,659) - 6,707 - - 329 680,131 $ 32,018 - - - - - - - - 195,029 18,103 (48,138) (59) - - - - - - - - - - 176,132 (7) (18,946) $ 1,053,209 $ Total Equity 7,508,447 649,278 (699,318) (76,937) 290,971 (72,248) 89,762 (6,850) 2,307 5,124 195,029 18,103 (48,138) (59) - 13,054 (283,649) 224,937 (3,582) (31,758) (5,659) (52,117) 6,707 8,948 176,132 (4,340) 7,904,144 - - - - - 1,121 434 29 64 - - - - 3 4 - - - - - - - - - - 186,735 $ See notes to consolidated financial statements. 133 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Cash Flows from Operating Activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (including amortization of deferred financing costs) Equity in net income of partially owned entities, including Toys “R” Us Net gains on sale of real estate Distributions of income from partially owned entities Non-cash impairment loss on J.C. Penney owned shares Impairment losses, tenant buy-outs and litigation loss accrual Loss (income) from the mark-to-market of J.C. Penney derivative position Straight-lining of rental income Return of capital from Real Estate Fund investments Net realized and unrealized gains on Real Estate Fund assets Amortization of below-market leases, net Other non-cash adjustments Gain on sale of Canadian Trade Shows Net gain on disposition of wholly owned and partially owned assets Net gain on extinguishment of debt Mezzanine loans loss reversal and net gain on disposition Recognition of disputed account receivable from Stop & Shop Interest received on repayment of mezzanine loan Changes in operating assets and liabilities: Real Estate Fund investments Tenant and other receivables, net Prepaid assets Other assets Accounts payable and accrued expenses Other liabilities Net cash provided by operating activities Cash Flows from Investing Activities: Acquisitions of real estate and other Proceeds from sales of real estate and related investments Additions to real estate Funding of J.C. Penney derivative collateral Return of J.C. Penney derivative collateral Development costs and construction in progress Distributions of capital from partially owned entities Investments in partially owned entities Investments in mortgage and mezzanine loans receivable and other Restricted cash Proceeds from sales of, and return of investment in, marketable securities Proceeds from the sale of Canadian Trade Shows Proceeds from sales and repayments of mortgage and mezzanine loans receivable and other Proceeds from the repayment of loan to officer Loan to officer Purchases of marketable securities including J.C. Penney common shares and other Proceeds from maturing short-term investments Net cash used in investing activities Year Ended December 31, 2011 2012 2010 $ 694,541 $ 740,000 $ 708,031 557,888 (423,126) (245,799) 226,172 224,937 133,977 75,815 (69,648) 63,762 (55,361) (54,359) 52,082 (31,105) (13,347) - - - - (262,537) (23,271) (10,549) (46,573) 21,595 9,955 825,049 (673,684) 445,683 (205,652) (191,330) 134,950 (156,873) 144,502 (134,994) (94,094) (75,138) 60,258 52,504 38,483 13,123 - - - (642,262) 580,990 (118,612) (51,623) 93,635 - 58,173 (12,984) (45,788) - (17,386) (63,044) 27,325 - (15,134) (83,907) (82,744) (23,521) - (184,841) 8,869 (7,779) (89,186) (28,699) 18,755 702,499 (90,858) 140,186 (165,680) (43,850) 56,350 (93,066) 318,966 (571,922) (98,979) 126,380 70,418 - 187,294 13,123 (13,123) - - (164,761) 556,312 (92,493) (2,506) 61,037 - 137,367 (130,153) (76,926) - - (66,202) 36,352 - (81,432) (97,728) (53,100) - 40,467 (144,423) 2,019 6,321 (68,305) 2,645 33,803 771,086 (173,413) 127,736 (144,794) (12,500) - (156,775) 51,677 (165,170) (85,336) 138,586 280,462 - 70,762 - - (491,596) 40,000 (520,361) See notes to consolidated financial statements. 134     VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED  (Amounts in thousands) Cash Flows from Financing Activities: Proceeds from borrowings Repayments of borrowings Dividends paid on common shares Proceeds from the issuance of preferred shares Purchases of outstanding preferred units and shares Contributions from noncontrolling interests Distributions to noncontrolling interests Dividends paid on preferred shares Debt issuance and other costs Repurchase of shares related to stock compensation agreements and related tax withholdings Proceeds received from exercise of employee share options Acquisition of convertible senior debentures and senior unsecured notes Net cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Disclosure of Cash Flow Information: Cash payments for interest (net of amounts capitalized of $16,801, $1,197 and $864) Cash payments for income taxes Non-Cash Investing and Financing Activities: Adjustments to carry redeemable Class A units at redemption value Contribution of mezzanine loan receivable to joint venture Write-off of fully depreciated assets Common shares issued upon redemption of Class A units at redemption value Change in unrealized net gain on securities available-for-sale Like-kind exchange of real estate: Acquisitions Dispositions Financing assumed in acquisitions Financing transferred in dispositions L.A. Mart seller financing Marriott Marquis Times Square - retail and signage capital lease: Asset (included in development costs and construction in progress) Liability (included in other liabilities) Increase in assets and liabilities resulting from the consolidation of partially owned entities: Real estate, net Notes and mortgages payable Decrease in assets and liabilities resulting from the deconsolidation of discontinued operations and/or investments that were previously consolidated: Real estate, net Notes and mortgages payable $ $ $ $ $ Year Ended December 31, 2011 2012 2010 3,593,000 $ (2,747,694) (699,318) 290,971 (243,300) 213,132 (104,448) (73,976) (39,073) 3,412,897 $ (3,740,327) (508,745) 238,842 (28,000) 204,185 (116,510) (61,464) (47,395) 2,481,883 (1,564,143) (474,299) - (78,954) 103,831 (53,842) (55,669) (14,980) (30,168) 11,853 - 170,979 353,766 606,553 960,319 $ (964) 25,507 - (621,974) (84,236) 690,789 606,553 $ (25,660) 26,993 (440,575) (95,415) 155,310 535,479 690,789 491,869 $ 531,174 $ 549,327 21,709 $ 26,187 $ 23,960 (52,117) $ - (177,367) 89,762 (283,649) 230,913 (230,913) - (163,144) 35,000 240,000 (240,000) 342,919 334,225 98,092 $ 73,750 (72,279) 64,830 41,657 (191,826) - (63,007) 126,764 55,891 21,999 (45,625) - - - - - - - - - 102,616 - - - - 102,804 57,563 - - (145,333) (232,502) (401,857) (316,490) See notes to consolidated financial statements. 135 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Business 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”). Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors. Vornado is the sole general partner of, and owned approximately 94.0% of the common limited partnership interest in the Operating Partnership at December 31, 2012. All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership. As of December 31, 2012, we own all or portions of: New York:   19.7 million square feet of Manhattan office space in 31 properties and four residential properties containing 1,655 units; 2.2 million square feet of Manhattan street retail space in 49 properties;  The 1,700 room Hotel Pennsylvania located on Seventh Avenue at 33rd Street in the heart of the Penn Plaza district;  A 32.4% interest in Alexander’s, Inc. (NYSE: ALX), which owns six properties in the greater New York metropolitan area, including 731 Lexington Avenue, the 1.3 million square foot Bloomberg, L.P. headquarters building; Washington, DC:  73 properties aggregating 19.1 million square feet, including 59 office properties aggregating 16.1 million square feet and seven residential properties containing 2,414 units; Retail Properties:  114 strip shopping centers and single tenant retail assets aggregating 15.6 million square feet, primarily in the northeast states and California;  Six regional malls aggregating 5.2 million square feet, located in the northeast / mid-Atlantic states and Puerto Rico; Other Real Estate and Related Investments:  The 3.5 million square foot Merchandise Mart in Chicago;  A 70% controlling interest in 555 California Street, a three-building office complex in San Francisco’s financial district aggregating 1.8 million square feet, known as the Bank of America Center;  A 25.0% interest in Vornado Capital Partners, our $800 million real estate fund. We are the general partner and investment manager of the fund;  A 32.6% interest in Toys “R” Us, Inc.;  A 10.7% interest in J.C. Penney Company, Inc. (NYSE: JCP); and  Other real estate and related investments and mortgage and mezzanine loans on real estate. 136 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Basis of Presentation and Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of Vornado and the Operating Partnership. All inter- company amounts have been eliminated. We account for unconsolidated partially owned entities under the equity method of accounting, when we have the ability to exercise significant influence over the entity. Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require 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. Recently Issued Accounting Literature In May 2011, the Financial Accounting Standards Board (“FASB”) issued Update No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU No. 2011-04”). ASU No. 2011-04 provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”) and requires additional disclosures, including: (i) quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs, for Level 3 fair value measurements; (ii) fair value of financial instruments not measured at fair value but for which disclosure of fair value is required, based on their levels in the fair value hierarchy; and (iii) transfers between Level 1 and Level 2 of the fair value hierarchy. The adoption of this update on January 1, 2012 did not have a material impact on our consolidated financial statements, but resulted in additional fair value measurement disclosures (See Note 13 - Fair Value Measurements). Significant Accounting Policies Real Estate: Real estate is carried at cost, net of accumulated depreciation and amortization. Betterments, major renewals and certain costs directly related to the improvement and leasing of real estate are capitalized. Maintenance and repairs are expensed as incurred. For redevelopment of existing operating properties, the net book value of the existing property under redevelopment plus the cost for the construction and improvements incurred in connection with the redevelopment are capitalized to the extent the capitalized costs of the property do not exceed the estimated fair value of the redeveloped property when complete. If the cost of the redeveloped property, including the undepreciated net book value of the property carried forward, exceeds the estimated fair value of redeveloped property, the excess is charged to expense. Depreciation is provided on a straight-line basis over estimated useful lives which range from 7 to 40 years. Tenant allowances are amortized on a straight-line basis over the lives of the related leases, which approximate the useful lives of the assets. Additions to real estate include interest expense capitalized during construction of $16,801,000 and $1,197,000 for the years ended December 31, 2012 and 2011, respectively. Upon the acquisition of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, identified intangibles, such as acquired above and below-market leases and acquired in-place leases and tenant relationships) and acquired liabilities and we allocate the purchase price based on these assessments. We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known trends, and market/economic conditions. We record acquired intangible assets (including acquired above-market leases, tenant relationships and acquired in-place leases) and acquired intangible liabilities (including below–market leases) at their estimated fair value separate and apart from goodwill. We amortize identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired. 137 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Basis of Presentation and Significant Accounting Policies - continued Our properties, including any related intangible assets, are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis. An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair value. Impairment analyses are based on our current plans, intended holding periods and available market information at the time the analyses are prepared. If our estimates of the projected future cash flows, anticipated holding periods, or market conditions change, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results. Plans to hold properties over longer periods decrease the likelihood of recording impairment losses. The table below summarizes the impairment losses, acquisition related costs and tenant buy-outs in the years ended December 31, 2012, 2011 and 2010. (Amounts in thousands) Impairment losses: Real estate assets Development projects Condominium units held for sale (see page 140) Acquisition related costs and tenant buy-outs For the Year Ended December 31, 2011 2010 2012 $ $ 107,000 $ - 2,538 11,248 120,786 $ - $ 3,040 - 32,259 35,299 $ 72,500 - 30,013 6,945 109,458 Partially Owned Entities: We consolidate entities in which we have a controlling financial interest. In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider factors such as ownership interest, board representation, management representation, authority to make decisions, and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity (“VIE”) and we are the primary beneficiary. We are deemed to be the primary beneficiary of a VIE when we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. We generally do not control a partially owned entity if the entity is not considered a VIE and the approval of all of the partners/members is contractually required with respect to major decisions, such as operating and capital budgets, the sale, exchange or other disposition of real property, the hiring of a chief executive officer, the commencement, compromise or settlement of any lawsuit, legal proceeding or arbitration or the placement of new or additional financing secured by assets of the venture. We account for investments under the equity method when the requirements for consolidation are not met, and we have significant influence over the operations of the investee. Equity method investments are initially recorded at cost and subsequently adjusted for our share of net income or loss and cash contributions and distributions each period. Investments that do not qualify for consolidation or equity method accounting are accounted for on the cost method. Investments in partially owned entities are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is measured based on the excess of the carrying amount of an investment over its estimated fair value. Impairment analyses are based on current plans, intended holding periods and available information at the time the analyses are prepared. In the years ended December 31, 2012, 2011 and 2010, we recognized non-cash impairment losses on investments in partially owned entities, excluding Toys, aggregating $4,936,000, $13,794,000 and $11,481,000, respectively. 138         VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Basis of Presentation and Significant Accounting Policies – continued Mortgage and Mezzanine Loans Receivable: We invest in mortgage and mezzanine loans of entities that have significant real estate assets. These investments are either secured by the real property or by pledges of the equity interests of the entities owning the underlying real estate. We record these investments at the stated principal amount net of any unamortized discount or premium. We accrete or amortize any discount or premium over the life of the related receivable utilizing the effective interest method or straight- line method, if the result is not materially different. We evaluate the collectibility of both interest and principal of each of our loans whenever events or changes in circumstances indicate such amounts may not be recoverable. A loan is impaired when it is probable that we will be unable to collect all amounts due according to the existing contractual terms. When a loan is impaired, the amount of the loss accrual is calculated by comparing the carrying amount of the investment to the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, to the value of the collateral if the loan is collateral dependent. Interest on impaired loans is recognized when received in cash. Cash and Cash Equivalents: Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less and are carried at cost, which approximates fair value due to their short-term maturities. The majority of our cash and cash equivalents consists of (i) deposits at major commercial banks, which may at times exceed the Federal Deposit Insurance Corporation limit, (ii) United States Treasury Bills, and (iii) Certificate of Deposits placed through an Account Registry Service (“CDARS”). To date, we have not experienced any losses on our invested cash. Restricted Cash: Restricted cash consists of security deposits, 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. Allowance for Doubtful Accounts: We periodically evaluate the collectibility of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under the lease agreements. We also maintain an allowance for receivables arising from the straight-lining of rents. This receivable arises from earnings recognized in excess of amounts currently due under the lease agreements. Management exercises judgment in establishing these allowances and considers payment history and current credit status in developing these estimates. As of December 31, 2012 and 2011, we had $37,674,000 and $43,241,000, respectively, in allowances for doubtful accounts. In addition, as of December 31, 2012 and 2011, we had $3,165,000 and $3,290,000, respectively, in allowances for receivables arising from the straight-lining of rents. Deferred Charges: Direct financing costs are deferred and amortized over the terms of the related agreements as a component of interest expense. Direct costs related to successful leasing activities are capitalized and amortized on a straight line basis over the lives of the related leases. All other deferred charges are amortized on a straight line basis, which approximates the effective interest rate method, in accordance with the terms of the agreements to which they relate. Stock-Based Compensation: Stock-based compensation consists of awards to certain employees and officers and consists of stock options, restricted stock, restricted Operating Partnership units and out-performance plan awards. We account for all stock- based compensation in accordance with ASC 718, Compensation – Stock Compensation. 139         VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Basis of Presentation and Significant Accounting Policies – continued Revenue Recognition: We have the following revenue sources and revenue recognition policies: • Base Rent — income arising from tenant leases. These rents are recognized over the non-cancelable term of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements under the leases. We commence rental revenue recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. In addition, in circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease. • Percentage Rent — income arising from retail tenant leases that is contingent upon tenant sales exceeding defined thresholds. These rents are recognized only after the contingency has been removed (i.e., when tenant sales thresholds have been achieved). • Hotel Revenue — income arising from the operation of the Hotel Pennsylvania which consists of rooms revenue, food and beverage revenue, and banquet revenue. Income is recognized when rooms are occupied. Food and beverage and banquet revenue is recognized when the services have been rendered. • Trade Shows Revenue — income arising from the operation of trade shows, including rentals of booths. This revenue is recognized when the trade shows have occurred. • Expense Reimbursements — revenue arising from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes of the respective property. This revenue is accrued in the same periods as the expenses are incurred. • Management, Leasing and Other Fees — income arising from contractual agreements with third parties or with partially owned entities. This revenue is recognized as the related services are performed under the respective agreements. • Cleveland Medical Mart — revenue arising from the development of the Cleveland Medical Mart. This revenue is recognized as the related services are performed under the respective agreements using the criteria set forth in ASC 605-25, Multiple Element Arrangements, as we are providing development, marketing, leasing, and other property management services. Condominium Units Held For Sale: Condominium units held for sale are carried at the lower of cost or fair value less costs to sell and are included in “other assets” on our consolidated balance sheet. As of December 31, 2012 and 2011, the carrying amount of these units were $53,737,000 and $60,785,000, respectively, and consist of substantially completed units at Granite Park in Pasadena and The Bryant in Boston. Revenue from condominium unit sales is recognized upon closing of the sale (the “completed contract method”), as all conditions for full profit recognition have been met at that time. We use the relative sales value method to allocate costs to individual condominium units. Net gains on sales of condominiums units are included in “net gain on disposition of wholly owned and partially owned assets” on our consolidated statements of income and were $1,274,000, $5,884,000 and $3,149,000 in the years ended December 31, 2012, 2011 and 2010, respectively. Impairment losses on condominium units are included in “impairment losses, acquisition related costs and tenant buy-outs” on our consolidated statements of income and were $2,538,000, $0 and $30,013,000 in the years ended December 31, 2012, 2011 and 2010, respectively. 140     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Basis of Presentation and Significant Accounting Policies – continued Derivative Instruments and Hedging Activities: ASC 815, Derivatives and Hedging, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As of December 31, 2012 and 2011, our derivative instruments consisted primarily of a portion of our investment in J.C. Penney common shares (see Note 5 – Marketable Securities and Derivative Instruments), an interest rate cap and an interest rate swap. We record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (loss) (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. We assess the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings. Income Per Share: Basic income per share is computed based on weighted average shares outstanding. Diluted income per share considers the effect of all potentially dilutive share equivalents, including outstanding employee stock options, restricted shares and convertible or redeemable securities. Income Taxes: We operate in a manner intended to enable us to continue to qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. We distribute to shareholders 100% of taxable income and therefore, no provision for Federal income taxes is required. Dividends distributed for the year ended December 31, 2012, were characterized, for federal income tax income tax purposes, as 62.7% ordinary income and 37.3% long term capital gain. Dividend distributions for the year ended December 31, 2011, were characterized, for Federal income tax purposes, as 93.2% ordinary income and 6.8% long-term capital gain. Dividend distributions for the year ended December 31, 2010 were characterized, for Federal income tax purposes, as 95.9% ordinary income, 2.8% long-term capital gain and 1.3% return of capital. We have elected to treat certain consolidated subsidiaries, and may in the future elect to treat newly formed subsidiaries, as taxable REIT subsidiaries pursuant to an amendment to the Internal Revenue Code that became effective January 1, 2001. Taxable REIT subsidiaries may participate in non-real estate related activities and/or perform non-customary services for tenants and are subject to Federal and State income tax at regular corporate tax rates. Our taxable REIT subsidiaries had a combined current income tax expense of approximately $20,336,000 and $26,645,000 at December 31, 2012 and 2011, respectively, and have immaterial differences between the financial reporting and tax basis of assets and liabilities. The following table reconciles net income attributable to common shareholders to estimated taxable income for the years ended December 31, 2012, 2011 and 2010. (Amounts in thousands) Net income attributable to common shareholders Book to tax differences (unaudited): Depreciation and amortization Impairment losses on marketable equity securities Straight-line rent adjustments Earnings of partially owned entities Stock options Sale of real estate Derivatives Mortgage and mezzanine loans receivable Other, net Estimable taxable income For the Year Ended December 31, 2011 2010 2012 $ 549,271 $ 601,771 $ 596,731 205,155 211,328 (64,679) (60,049) (28,701) (123,905) 71,228 - 17,080 776,728 $ 225,802 - (38,800) (96,178) (27,697) (18,766) (12,160) (82,512) (6,223) 545,237 $ 216,473 - (70,606) (62,315) (48,399) 12,899 (121,120) (104,727) 48,915 467,851 $ The net basis of our assets and liabilities for tax reporting purposes is approximately $3.8 billion lower than its amount reported in our consolidated financial statements. 141       VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Acquisitions Independence Plaza In 2011, we acquired a 51% interest in the subordinated debt of Independence Plaza, a three-building 1,328 unit residential complex in the Tribeca submarket of Manhattan which has 54,500 square feet of retail space and 550 parking spaces, for $45,000,000 and a warrant to purchase 25% of the equity for $1,000,000. On December 21, 2012, we acquired a 58.75% interest in the property as follows: (i) buying one of the equity partners’ 33.75% interest for $160,000,000, (ii) exercising our warrant for 25% of the equity and (iii) contributing the appreciated value of our interest in the subordinated debt as preferred equity. In connection therewith, we recognized income of $105,366,000, comprised of $60,396,000 from the accelerated amortization of the discount on the subordinated debt immediately preceding the conversion to preferred equity, and a $44,970,000 purchase price fair value adjustment upon exercising the warrant. The current transaction values the property at $844,800,000. The property is currently encumbered by a $334,225,000 mortgage. We expect to refinance the $334,225,000 mortgage in 2013, substantially decreasing our cash investment. We manage the retail space at the property and Stellar Management, our partner, manages the residential space. We consolidate the accounts of this entity from the date of acquisition as it is a VIE, and we are deemed to be the primary beneficiary. We are currently in the process of analyzing the fair value of the acquired leases; accordingly, our purchase price allocation is preliminary and subject to change. 666 Fifth Avenue - Retail On December 6, 2012, we acquired a retail condominium located at 666 Fifth Avenue at 53rd Street for $707,000,000. The property has 126 feet of frontage on Fifth Avenue and contains 114,000 square feet, 39,000 square feet in fee and 75,000 square feet by long-term lease from the 666 Fifth Avenue office condominium, which is 49.5% owned by us. We consolidate the accounts of the property into our consolidated financial statements from the date of acquisition. We are currently in the process of analyzing the fair value of the acquired leases; accordingly, our purchase price allocation is preliminary and subject to change. Disclosure of the Company’s unaudited proforma information for the current and prior reporting periods as though the above acquisitions of Independence Plaza and 666 Fifth Avenue – Retail had occurred at the beginning of the prior annual reporting period is not considered practicable, as the Company does not have, and is unable to obtain, certain information required for such disclosure. Marriott Marquis Times Square – Retail and Signage On July 30, 2012, we entered into a lease with Host Hotels & Resorts, Inc. (NYSE: HST) (“Host”), under which we will redevelop the retail and signage components of the Marriott Marquis Times Square Hotel. The Marriott Marquis with over 1,900 rooms is one of the largest hotels in Manhattan. It is located in the heart of the bow-tie of Times Square and spans the entire block front from 45th Street to 46th Street on Broadway. The Marriott Marquis is directly across from our 1540 Broadway iconic retail property leased to Forever 21 and Disney flagship stores. We plan to spend over $140,000,000 to redevelop and substantially expand the existing retail space, including converting the below grade parking garage into retail, and creating six-story, 300 foot wide block front, dynamic LED signs. During the term of the lease we will pay fixed rent equal to the sum of $12,500,000, plus a portion of the property’s net cash flow after we receive a 5.2% preferred return on our invested capital. The lease contains put/call options which, if exercised, would lead to our ownership. Host can exercise the put option during defined periods following the conversion of the project to a condominium. We can exercise our call option under the same terms, at any time after the fifteenth year of the lease term. We are accounting for this lease as a “capital lease” and have recorded a $240,000,000 capital lease asset and liability, which are included as a component of “development costs and construction in progress” and “other liabilities,” respectively, on our consolidated balance sheet. Although we have commenced paying the annual rent, there will be no income statement activity until the redevelopment is substantially complete. 142 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. Vornado Capital Partners Real Estate Fund (the “Fund”) In February 2011, the Fund’s subscription period closed with an aggregate of $800,000,000 of capital commitments, of which we committed $200,000,000. We are the general partner and investment manager of the Fund, which has an eight-year term and a three- year investment period. During the investment period, which concludes in July 2013, the Fund is our exclusive investment vehicle for all investments that fit within its investment parameters, including debt, equity and other interests in real estate, and excluding (i) investments in vacant land and ground-up development; (ii) investments acquired by merger or primarily for our securities or properties; (iii) properties which can be combined with or relate to our existing properties; (iv) securities of commercial mortgage loan servicers and investments derived from any such investments; (v) non-controlling interests in equity and debt securities; and (vi) investments located outside of North America. The Fund’s 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. During 2012, the Fund made the following investments: 800 Corporate Pointe On November 30, 2012, the Fund acquired 800 Corporate Pointe, a 243,000 square foot office building and the accompanying six-level parking structure (1,964 spaces) located in Culver City, Los Angeles, California, for $95,700,000 in cash. 501 Broadway On August 20, 2012, the Fund acquired 501 Broadway, a 9,000 square foot retail property in New York for $31,000,000. The purchase price consisted of $11,000,000 in cash and a $20,000,000 mortgage loan. The three-year loan bears interest at LIBOR plus 2.75%, with a floor of 3.50%, and has two one-year extension options. 1100 Lincoln Road On July 2, 2012, the Fund acquired 1100 Lincoln Road, a 167,000 square foot retail property, the western anchor of the Lincoln Road Shopping District in Miami Beach, Florida, for $132,000,000. The purchase price consisted of $66,000,000 in cash and a $66,000,000 mortgage loan. The three-year loan bears interest at LIBOR plus 2.75% and has two one-year extension options. 520 Broadway On April 26, 2012, the Fund acquired 520 Broadway, a 112,000 square foot office building in Santa Monica, California for $61,000,000 in cash and subsequently placed a $30,000,000 mortgage loan on the property. The three-year loan bears interest at LIBOR plus 2.25% and has two one-year extension options. 143 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. Vornado Capital Partners Real Estate Fund (the “Fund”) – continued At December 31, 2012, the Fund had nine investments with an aggregate fair value of $600,786,000, or $67,642,000 in excess of cost, and has remaining unfunded commitments of $217,676,000, of which our share was $54,419,000. At December 31, 2011, the Fund had five investments with an aggregate fair value of $346,650,000. Below is a summary of income (loss) from the Fund for the years ended December 31, 2012, 2011 and 2010. (Amounts in thousands) For the Year Ended December 31, 2011 2010 2012 Operating income (loss) Net realized gains Net unrealized gains Income (loss) from Real Estate Fund Less (income) loss attributable to noncontrolling interests Income from Real Estate Fund attributable to Vornado (1) $ $ 8,575 $ - 55,361 63,936 (39,332) 24,604 $ 5,500 $ 5,391 11,995 22,886 (13,598) 9,288 $ (303) - - (303) 806 503 (1) Excludes $2,780, $2,695 and $248 of management, leasing and development fees in the years ended December 31, 2012, 2011 and 2010, respectively, which are included as a component of "fee and other income" on our consolidated statements of income. 5. Marketable Securities and Derivative Instruments Our portfolio of marketable securities is comprised of equity securities that are classified as available-for-sale. Available-for-sale securities are presented on our consolidated balance sheets at fair value. Unrealized gains and losses resulting from the mark-to- market of these securities are included in “other comprehensive (loss) income.” Realized gains and losses are recognized in earnings only upon the sale of the securities and are recorded based on the weighted average cost of such securities. During 2012, 2011 and 2010 we sold certain marketable securities for aggregate proceeds of $58,718,000, $69,559,000, and $281,486,000, respectively resulting in net gains of $3,582,000, $5,020,000, and $22,604,000, respectively, which are included as a component of “net gain on disposition of wholly owned and partially owned assets” on our consolidated statements of income. We evaluate our portfolio of marketable securities for impairment each reporting period. For each of the securities in our portfolio with unrealized losses, we review the underlying cause of the decline in value and the estimated recovery period, as well as the severity and duration of the decline. In our evaluation, we consider our ability and intent to hold these investments for a reasonable period of time sufficient for us to recover our cost basis. We also evaluate the near-term prospects for each of these investments in relation to the severity and duration of the decline. In the year ended December 31, 2012, we recognized a $224,937,000 impairment loss on our investment in J.C. Penney (see below). No impairment losses were recognized in the years ended December 31, 2011 and 2010. 144 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Marketable Securities and Derivative Instruments - continued Investment in J.C. Penney Company, Inc. (“J.C. Penney”) (NYSE: JCP) We own 23,400,000 J.C. Penney common shares, or 10.7% of its outstanding common shares. Below are the details of our investment. We own 18,584,010 common shares at an average economic cost of $25.76 per share, or $478,691,000 in the aggregate. Of these shares, 15,500,000 were acquired through the exercise of a call option in November 2010. Upon the exercise of the call option, we recognized $112,537,000 of income, which increased the GAAP cost of these shares to $591,228,000. As of December 31, 2012, based on J.C. Penney’s December 31, 2012 closing share price of $19.71 per share, these shares have an aggregate fair value of $366,291,000, or $224,937,000 below our GAAP basis. We have concluded that our investment in J.C. Penney is “other-than- temporarily” impaired and have recorded a $224,937,000 impairment loss in the fourth quarter. Our conclusion was based on the severity of the decline in the stock price and our inability to forecast a recovery in the near term. We also own an economic interest in 4,815,990 J.C. Penney common shares through a forward contract at a weighted average strike price of $29.10 per share, or $140,138,000 in the aggregate. The forward contract was amended on October 8, 2012, such that, among other things, the contract may be settled, at our election, in cash or common shares, in whole or in part, at any time prior to October 9, 2014, or any anniversary thereof, or in the event we were to receive a credit downgrade. The forward contract strike price increases at an annual rate of LIBOR plus 95 basis points during the first two years of the contract and LIBOR plus 80 basis points thereafter. The contract is a derivative instrument that does not qualify for hedge accounting treatment. Gains and losses from the mark-to-market of the underlying common shares are recognized in “interest and other investment (loss) income, net” on our consolidated statements of income. In the year ended December 31, 2012, we recognized a loss of $75,815,000 from the mark-to- market of the underlying common shares. In the years ended December 31, 2011 and 2010, we recognized gains of $12,984,000 and $17,616,000, respectively, from the mark-to-market of the underlying common shares. We review our investment in J.C. Penney on a continuing basis. Depending on various factors, including, without limitation, J.C. Penney’s financial position and strategic direction, actions taken by its board, price levels of its common shares, other investment opportunities available to us, market conditions and general economic and industry conditions, we may take such actions with respect to J.C. Penney as we deem appropriate, including (i) purchasing additional common shares or other financial instruments related to J.C. Penney, (ii) selling some or all of our beneficial or economic holdings, or (iii) engaging in hedging or similar transactions. Below is a summary of our marketable securities portfolio as of December 31, 2012 and 2011. Equity securities: J.C. Penney Other Debt securities As of December 31, 2012 GAAP Cost Fair Value Maturity Unrealized Gain Maturity As of December 31, 2011 GAAP Cost Fair Value Unrealized Gain n/a n/a n/a $ 366,291 $ 31,897 - 366,291 $ 12,021 - $ 398,188 $ 378,312 $ - 19,876 - 19,876 $ n/a n/a 04/13 - 10/18 653,228 $ 30,568 57,525 $ 741,321 $ 591,069 $ 14,585 53,941 659,595 $ 62,159 15,983 3,584 81,726 145 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Investments in Partially Owned Entities The following is a summary of condensed combined financial information for all of our partially owned entities, including Toys “R” Us, Alexander’s, Inc., Lexington Realty Trust and LNR Property Corporation, as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010. (Amounts in thousands) Balance Sheet: Assets(1) Liabilities(1) Noncontrolling interests Equity Income Statement: Total revenue Net income(2) $ December 31, 2012 122,692,000 $ 117,064,000 88,000 5,540,000 2011 153,861,000 147,854,000 132,000 5,875,000 For the Year Ended December 31, 2011 15,321,000 $ 199,000 2012 15,119,000 $ 1,091,000 2010 14,962,000 63,000 $ (1) (2) 2012 and 2011 include $97 billion and $127 billion, respectively, of assets and liabilities of LNR related to consolidated CMBS and CDO trusts which are non-recourse to LNR and its equity holders, including us. 2012 includes a $600,000 net gain on sale of real estate. Toys “R” Us (“Toys”) As of December 31, 2012, we own 32.6% of Toys. The business of Toys is highly seasonal. Historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income. We account for our investment in Toys under the equity method and record our 32.6% share of Toys net income or loss on a one-quarter lag basis because Toys’ fiscal year ends on the Saturday nearest January 31, and our fiscal year ends on December 31. Since our acquisition in July 2005, the carrying amount of our investment has grown from $396,000,000 to $518,041,000 after we recognized our share of Toys third quarter net loss in our fourth quarter. We estimate that the fair value of our investment is approximately $478,000,000 at December 31, 2012. We have concluded that the $40,000,000 decline in the value of our investment is “other-than-temporary” based on, among other factors, compression of earnings multiples of comparable retailers and our inability to forecast a recovery in the near term. Accordingly, we recognized a non-cash impairment loss of $40,000,000 in the fourth quarter. We will continue to assess the recoverability of our investment each quarter. To the extent that the current facts don’t change, we would recognize a non-cash impairment loss equal to our share of Toys fourth quarter net income in our 2013 first quarter. Below is a summary of Toys’ latest available financial information on a purchase accounting basis: (Amounts in thousands) Balance Sheet: Assets Liabilities Noncontrolling interests Toys “R” Us, Inc. equity Balance as of October 27, 2012 October 29, 2011 $ 12,953,000 $ 11,190,000 44,000 1,719,000 13,221,000 11,530,000 - 1,691,000 For the Twelve Months Ended Income Statement: Total revenues Net income attributable to Toys October 27, 2012 13,698,000 $ 138,000 146 October 29, 2011 October 30, 2010 $ 13,956,000 $ 121,000 13,749,000 189,000     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Investments in Partially Owned Entities – continued Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX) As of December 31, 2012, we own 1,654,068 Alexander’s commons shares, or approximately 32.4% of Alexander’s common equity. We manage, lease and develop Alexander’s properties pursuant to the agreements described below which expire in March of each year and are automatically renewable. As of December 31, 2012, Alexander’s owed us an aggregate of $46,445,000 pursuant to such agreements. On November 28, 2012, Alexander’s completed the sale of its Kings Plaza Regional Shopping Center located in Brooklyn, New York, for $751,000,000. Upon completion of the sale, we recognized our share of the financial statement gain of $179,934,000. Alexander’s distributed the taxable gain to its stockholders in December 2012 as a special long-term capital gain dividend, of which our share was $201,796,000, and we in turn paid a $1.00 per Vornado share special long-term capital gain dividend to our common shareholders in December 2012. As of December 31, 2012 the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s, based on Alexander’s December 31, 2012 closing share price of $330.80, was $547,166,000, or $376,153,000 in excess of the carrying amount on our consolidated balance sheet. As of December 31, 2012, 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 $43,383,000. 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. Management and Development Agreements Effective December 1, 2012, as a result of the sale of the Kings Plaza Regional Shopping Center, the management and development agreement with Alexander’s was amended. Pursuant to the amended agreement, we receive an annual fee for managing Alexander’s and all of its properties equal to the sum of (i) $2,800,000, (ii) 2% of the gross income from the Rego Park II Shopping Center, (iii) $0.50 per square foot of the tenant-occupied office and retail space at 731 Lexington Avenue, and (iv) $264,000, escalating at 3% per annum, for managing the common area of 731 Lexington Avenue. In addition, we are entitled to a development fee of 6% of development costs, as defined. Leasing Agreements We provide Alexander’s with leasing services for a fee of 3% of rent for the first ten years of a lease term, 2% of rent for the eleventh through twentieth year of a lease term and 1% of rent for the twenty-first through thirtieth year of a lease term, subject to the payment of rents by Alexander’s tenants. In the event third-party real estate brokers are used, our fee increases by 1% and we are responsible for the fees to the third-parties. We are also entitled to a commission upon the sale of any of Alexander’s assets equal to 3% of gross proceeds, as defined, for asset sales less than $50,000,000, or 1% of gross proceeds, as defined, for asset sales of $50,000,000 or more. The total of these amounts is payable to us in annual installments in an amount not to exceed $4,000,000 with interest on the unpaid balance at one-year LIBOR plus 1.0% (2.13% at December 31, 2012). As a result of the sale of Kings Plaza, we earned a $6,423,000 sales commission, which is net of a third party broker fee. Other Agreements Building Maintenance Services (“BMS”), our wholly-owned subsidiary, supervises the cleaning, engineering and security services at Alexander’s 731 Lexington Avenue property for an annual fee of the costs for such services plus 6%. During the years ended December 31, 2012, 2011 and 2010, we recognized $2,934,000, $2,970,000 and $2,775,000 of income, respectively, under these agreements. 147 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Investments in Partially Owned Entities - continued Below is a summary of Alexander’s latest available financial information: (Amounts in thousands) Balance Sheet: Assets Liabilities Noncontrolling interests Stockholders' equity $ Balance as of December 31, 2011 2012 $ 1,482,000 1,150,000 - 332,000 1,771,000 1,408,000 4,000 359,000 Income Statement: Total revenues Net income attributable to Alexander’s (1) For the Year Ended December 31, 2011 2010 2012 $ 191,000 674,000 $ 185,000 $ 79,000 174,000 66,000 (1) 2012 includes a $600,000 net gain on sale of real estate. Lexington Realty Trust (“Lexington”) (NYSE: LXP) As of December 31, 2012, we own 18,468,969 Lexington common shares, or approximately 10.5% of Lexington’s common equity. We account for our investment in Lexington on the equity method because we believe we have the ability to exercise significant influence over Lexington’s operating and financial policies, based on, among other factors, our representation on Lexington’s Board of Trustees and the level of our ownership in Lexington as compared to other shareholders. We record our pro rata share of Lexington’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to the time that Lexington files its financial statements. Based on Lexington’s December 31, 2012 closing share price of $10.45, the market value (“fair value” pursuant to ASC 820) of our investment in Lexington was $193,001,000, or $117,459,000 in excess of the December 31, 2012 carrying amount on our consolidated balance sheet. As of December 31, 2012, the carrying amount of our investment in Lexington was less than our share of the equity in the net assets of Lexington by approximately $31,427,000. This basis difference resulted primarily from $107,882,000 of non-cash impairment charges recognized during 2008, partially offset by purchase accounting for our acquisition of an additional 8,000,000 common shares of Lexington in October 2008, of which the majority relates to our estimate of the fair values of Lexington’s real estate (land and buildings) as compared to the carrying amounts in Lexington’s consolidated financial statements. The basis difference related to the buildings is being amortized over their estimated useful lives as an adjustment to our equity in net income or loss of Lexington. This amortization is not material to our share of equity in Lexington’s net income or loss. The basis difference attributable to the land will be recognized upon disposition of our investment. Below is a summary of Lexington’s latest available financial information: (Amounts in thousands) Balance Sheet: Assets Liabilities Noncontrolling interests Shareholders’ equity Income Statement: Total revenues Net income (loss) attributable to Lexington $ Balance as of September 30, 2011 2012 3,386,000 $ 2,211,000 27,000 1,148,000 3,164,000 1,888,000 59,000 1,217,000 For the Twelve Months Ended September 30, 2011 2012 2010 $ 333,000 $ 196,000 315,000 $ (81,000) 330,000 (90,000) 148     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Investments in Partially Owned Entities – continued LNR Property Corporation (“LNR”) On January 24, 2013, LNR entered into a definitive agreement to be sold. We own 26.2% of LNR and expect to receive net proceeds of $241,000,000. The sale, which is subject to customary closing conditions, is expected to be completed in the second quarter of 2013. As of December 31, 2012, we own a 26.2% equity interest in LNR. We account for our investment in LNR under the equity method and record our 26.2% share of LNR’s net income or loss on a one-quarter lag basis because we file our consolidated financial statements on Form 10-K and 10-Q prior to receiving LNR’s consolidated financial statements. LNR consolidates certain commercial mortgage-backed securities (“CMBS”) and Collateralized Debt Obligation (“CDO”) trusts for which it is the primary beneficiary. The assets of these trusts (primarily commercial mortgage loans), which aggregate approximately $97 billion as of September 30, 2012, are the sole source of repayment of the related liabilities, which are non-recourse to LNR and its equity holders, including us. Changes in the fair value of these assets each period are offset by changes in the fair value of the related liabilities through LNR’s consolidated income statement. As of December 31, 2012, the carrying amount of our investment in LNR does not materially differ from our share of LNR’s equity. $ Balance as of September 30, 2011 2012 128,536,000 98,530,000 127,809,000 97,643,000 55,000 8,000 672,000 879,000 $ For the Twelve Months Ended For the Period July 29, 2010 to September 30, 2011 September 30, 2010 23,000 $ 8,000 208,000 224,000 $ Below is a summary of LNR’s latest available financial information: (Amounts in thousands) Balance Sheet: Assets Liabilities Noncontrolling interests LNR Property Corporation equity Income Statement: Total revenue Net income attributable to LNR For the Twelve Months Ended September 30, 2012 238,000 $ 266,000 149     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Investments in Partially Owned Entities - continued Below is a schedule of our investments in partially owned entities as of December 31, 2012 and 2011. (Amounts in thousands) Investments: Toys Alexander’s Lexington LNR India real estate ventures Partially owned office buildings: 280 Park Avenue Rosslyn Plaza West 57th Street properties One Park Avenue 666 Fifth Avenue Office Condominium 330 Madison Avenue Warner Building Fairfax Square 1101 17th Street Other partially owned office buildings Other investments: Downtown Crossing, Boston Monmouth Mall Verde Realty Operating Partnership(3) Independence Plaza Partnership(4) Other investments(5) ___________________________________ (1) 32.7% at December 31, 2011. Percentage Ownership at December 31, 2012 32.6 %(1) 32.4 % 10.5 %(2) 26.2 % As of December 31, 2012 478,041 171,013 2011 506,809 189,775 $ $ $ $ 75,542 57,402 224,724 174,408 4.0%-36.5% 95,516 80,499 49.5 % 43.7%-50.4% 50.0 % 30.3 % 49.5 % 25.0 % 55.0 % 20.0 % 55.0 % Various 50.0 % 50.0 % n/a n/a Various 197,516 62,627 57,033 50,509 35,527 30,277 8,775 5,368 - 9,315 184,516 53,333 58,529 47,568 23,655 20,353 2,715 6,343 20,407 11,547 48,122 7,205 - - 147,187 1,226,256 $ 46,691 7,536 59,801 48,511 140,061 1,233,650 $ (2) (3) (4) (5) 12.0% at December 31, 2011. In 2012, we converted our 2,015,151 units in Verde Realty Operating Partnership into 2,015,151 common shares of Verde Realty ("Verde"), which we sold for $13.85 per share, or $27,910 in the aggregate. Accordingly, we recognized a $4,936 impairment loss in the third quarter, based on the difference between the carrying amount of the investment and the cash received. We have reclassified the $25,000 of convertible senior debentures that we continue to own to "other assets" on our consolidated balance sheets. On December 21, 2012, we acquired a 58.75% interest in Independence Plaza and began to consolidate the accounts of the property into our consolidated financial statements from the date of acquisition (see page 142 for details). Includes interests in 85 10th Avenue, Farley Project, Suffolk Downs, Dune Capital L.P., Fashion Centre Mall and others. 150     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Investments in Partially Owned Entities – continued Below is a schedule of income from partially owned entities for the years ended December 31, 2012, 2011 and 2010. Percentage Ownership at December 31, 2012 32.6 % For the Year Ended December 31, 2011 2012 2010 (Amounts in thousands) Our Share of Net Income (Loss): Toys: Equity in net income before income taxes Income tax benefit Equity in net income Non-cash impairment loss (see page 146 for details) Management fees Alexander's: Equity in net income Management, leasing and development fees (1) Gain on sale of real estate Lexington: Equity in net (loss) Net gain resulting from Lexington's stock issuance and asset acquisition LNR (acquired in July 2010): Equity in net income Income tax benefit, assets sales and tax settlement gains India real estate ventures Equity in net (loss) Impairment loss Partially owned office buildings: Warner Building: Equity in net (loss) Straight-line reserves and write-off of tenant improvements 280 Park Avenue (acquired in May 2011) 666 Fifth Avenue Office Condominium (acquired in December 2011) 330 Madison Avenue 1101 17th Street One Park Avenue (acquired in March 2011) West 57th Street properties Rosslyn Plaza Fairfax Square Other partially owned office buildings Other investments: Independence Plaza Partnership (acquired in June 2011) (2) Verde Realty Operating Partnership (3) Monmouth Mall Downtown Crossing, Boston Other investments (4) 32.4 % 10.5 % 26.2 % 4.0%-36.5% 55.0 % 49.5 % 49.5 % 25.0 % 55.0 % 30.3 % 50.0 % 43.7%-50.4% 20.0 % Various n/a n/a 50.0 % 50.0 % Various $ $ $ 28,638 $ 16,629 45,267 (40,000) 9,592 14,859 $ 38,460 $ 1,132 39,592 - 8,948 48,540 $ 24,709 $ 13,748 179,934 218,391 25,013 $ 7,417 - 32,430 (23) 28,763 28,740 66,270 - 66,270 (5,008) - (5,008) (10,186) - (10,186) (11,510) 7,009 3,609 2,576 1,123 1,014 822 (132) 1,905 (3,770) 111,865 (5,703) 1,429 (1,309) (2,638) 103,644 408,267 $ $ (1,409) 9,760 8,351 31,409 27,377 58,786 (1,087) (13,794) (14,881) (9,853) (9,022) (18,875) (18,079) 198 2,126 2,740 (1,142) 876 2,193 (42) 7,735 (22,270) 2,457 1,661 2,556 (1,461) 2,443 7,656 16,401 45,418 61,819 - 9,805 71,624 20,059 7,556 - 27,615 (2,692) 13,710 11,018 1,973 - 1,973 2,581 - 2,581 (344) - (344) - - 2,059 416 - (10,990) (2,419) (28) 2,405 (8,901) - (537) 1,952 (1,155) (13,677) (13,417) ___________________________________ (1) (2) 2012 includes $6,423 of commissions in connection with the sale of real estate. 2012 includes $105,366 of income comprised of (i) $60,396 from the accelerated amortization of discount on investment in subordinated debt of the property and (ii) a $44,970 purchase price fair value adjustment from the exercise of a warrant to acquire 25% of the equity interest in the property (see page 142 for details). (3) (4) 2012 includes a $4,936 impairment loss (see note 3 on page 150). 2011 includes a $12,525 net gain from Suffolk Downs' sale of a partial interest. 151 70,072 $ 20,869 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Investments in Partially Owned Entities - continued Below is a summary of the debt of our partially owned entities as of December 31, 2012 and 2011, none of which is recourse to us. (Amounts in thousands) Toys: Notes, loans and mortgages payable Alexander's: Mortgages payable Lexington: Mortgages payable LNR: Mortgages payable Liabilities of consolidated CMBS and CDO trusts Partially owned office buildings: 666 Fifth Avenue Office Condominium mortgage payable 280 Park Avenue mortgage payable Warner Building mortgage payable One Park Avenue mortgage payable 330 Madison Avenue mortgage payable Fairfax Square mortgage payable 1101 17th Street mortgage payable West 57th Street properties mortgages payable Rosslyn Plaza mortgage payable Other India Real Estate Ventures: TCG Urban Infrastructure Holdings mortgages payable Other: Monmouth Mall mortgage payable Verde Realty Operating Partnership mortgages payable Other(3) (1) 32.7% at December 31, 2011. (2) 12.0% at December 31, 2011. Percentage Ownership at December 31, 2012 32.6 %(1) 32.4 % 10.5 %(2) 26.2 % Interest Rate at December 31, December 31, 100% of Partially Owned Entities’ Debt at December 31, 2011 2012 Maturity 2012 2013-2021 7.34 % $ 5,683,733 $ 6,047,521 2013-2018 3.87 % $ 1,065,916 $ 1,330,932 2015-2037 5.29 % $ 1,994,179 $ 1,712,750 2013-2031 n/a 4.62 % 5.40 % $ $ 309,787 $ 97,211,734 97,521,521 $ 353,504 127,348,336 127,701,840 49.5 % 02/19 6.76 % $ 1,109,700 $ 1,035,884 49.5 % 55.0 % 30.3 % 25.0 % 20.0 % 55.0 % 50.0 % 43.7%-50.4% Various 06/16 05/16 03/16 06/15 12/14 01/18 02/14 01/12 Various 6.65 % 6.26 % 5.00 % 1.71 % 7.00 % 1.46 % 4.94 % n/a 6.37 % $ 738,228 292,700 250,000 150,000 70,127 31,000 20,434 - 69,704 2,731,893 $ 737,678 292,700 250,000 150,000 70,974 - 21,864 56,680 70,230 2,686,010 25.0 % 2013-2022 13.22 % $ 236,579 $ 226,534 50.0 % 09/15 5.44 % $ 159,896 $ 162,153 n/a Various n/a Various n/a 5.02 % - 990,647 1,150,543 $ 340,378 992,872 1,495,403 $ (3) Includes interests in Suffolk Downs, Fashion Centre Mall and others. Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities, was $29,443,128,000 and $37,531,298,000 as of December 31, 2012 and 2011, respectively. Excluding our pro rata share of LNR’s liabilities related to consolidated CMBS and CDO trusts, which are non-recourse to LNR and its equity holders, including us, our pro rata share of partially owned entities debt was $3,998,929,000 and $4,199,145,000 at December 31, 2012 and 2011, respectively. 152     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. Mortgage and Mezzanine Loans Receivable On October 19, 2012, we acquired a 25% participation in a $475,000,000 first mortgage and mezzanine loan for the acquisition and redevelopment of a 10-story retail building at 701 Seventh Avenue in Times Square. The loan has an interest rate of LIBOR plus 10.2%, with a LIBOR floor of 1.0%. Of the $475,000,000, we have funded $93,750,000, representing our 25% share of the $375,000,000 that has been funded. $25,000,000, our 25% share of the remaining $100,000,000, will be funded during the development of the property. As of December 31, 2012 and 2011, the carrying amount of mortgage and mezzanine loans receivable was $225,359,000 and $133,948,000, respectively. These loans have a weighted average interest rate of 10.28% and maturities ranging from August 2014 to May 2016. 8. Discontinued Operations 2012 Activity: Merchandise Mart On January 6, 2012, we completed the sale of 350 West Mart Center, a 1.2 million square foot office building in Chicago, Illinois, for $228,000,000 in cash, which resulted in a net gain of $54,911,000. On June 22, 2012, we completed the sale of L.A. Mart, a 784,000 square foot showroom building in Los Angeles, California, for $53,000,000, of which $18,000,000 was cash and $35,000,000 was nine-month seller financing at 6.0%, which was paid on December 28, 2012. On July 26, 2012, we completed the sale of the Washington Design Center, a 393,000 square foot showroom building in Washington, DC and the Canadian Trade Shows, for an aggregate of $103,000,000 in cash. The sale of the Canadian Trade Shows resulted in an after-tax net gain of $19,657,000. On December 31, 2012, we completed the sale of the Boston Design Center, a 554,000 square foot showroom building in Boston, Massachusetts, for $72,400,000 in cash, which resulted in a net gain of $5,252,000. Washington, DC On July 26, 2012, we completed the sale of 409 Third Street S.W., a 409,000 square foot office building in Washington, DC, for $200,000,000 in cash, which resulted in a net gain of $126,621,000. This building is contiguous to the Washington Design Center and was sold to the same purchaser. On November 7, 2012, we completed the sale of three office buildings (“Reston Executive”) located in suburban Fairfax County, Virginia, containing 494,000 square feet for $126,250,000, which resulted in a net gain of $36,746,000. Retail Properties On February 13, 2013, we entered into an agreement to sell the Plant, a power strip shopping center in San Jose, California, for $203,000,000. The sale will result in net proceeds of approximately $93,000,000 after repaying the existing loan and closing costs, and a financial statement gain of approximately $33,000,000. The sale, which is subject to customary closing conditions, is expected to be completed by the second quarter of 2013. On January 24, 2013, we completed the sale of the Green Acres Mall located in Valley Stream, New York, for $500,000,000, which resulted in net proceeds of $185,000,000, after repaying the existing loan and closing costs. The financial statement gain of $205,000,000 will be recognized in the first quarter of 2013 and the tax gain of $304,000,000 has been deferred as part of a like-kind exchange. In 2012, we sold 12 non-core retail properties in separate transactions, for an aggregate of $157,000,000 in cash, which resulted in a net gain aggregating $22,266,000. In addition, we have entered into an agreement to sell a building on Market Street, Philadelphia, which is part of the Gallery at Market East for $60,000,000, which will result in a net gain of approximately $35,000,000. The sale, which is subject to customary closing conditions, is expected to be completed in the first quarter of 2013. 153   VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. Discontinued Operations- continued 2011 Activity: During 2011, we completed the disposition of the High Point Complex in North Carolina, which resulted in an $83,907,000 net gain on extinguishment of debt and sold three non-core retail properties and two office buildings in Washington, DC for an aggregate of $168,000,000 in cash, which resulted in a net gain aggregating $51,623,000. 2010 Activity: During 2010, we completed the disposition of the Cannery, a retail property in California, and sold the fee interest in land located in Arlington County, Virginia, known as Pentagon Row, to the tenants for an aggregate of $14,992,000 in cash. In accordance with the provisions of ASC 360, Property, Plant, and Equipment, we have reclassified the revenues and expenses of all the properties discussed above, as well as certain other properties that are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all of the periods presented in the accompanying financial statements. The net gains resulting from the sale of the properties below are included in “income from discontinued operations” on our consolidated statements of income. The tables below set forth the assets and liabilities related to discontinued operations at December 31, 2012 and 2011, and their combined results of operations for the years ended December 31, 2012, 2011 and 2010. Assets Related to Discontinued Operations as of December 31, Liabilities Related to Discontinued Operations as of December 31, 2012 2011 2012 2011 $ $ 340,977 - 7,759 25,740 374,476 $ $ $ $ 474,402 152,568 385,381 37,292 1,049,643 $ $ 315,448 - - - 315,448 $ $ 339,724 93,000 74,236 - 506,960 For the Year Ended December 31, 2011 2010 2012 147,404 102,479 44,925 245,799 19,657 (24,439) - 285,942 $ $ 230,314 175,930 54,384 51,623 - (28,799) 83,907 161,115 $ $ 267,008 227,626 39,382 2,506 - (35,056) - 6,832 (Amounts in thousands) Retail Washington, DC Merchandise Mart Other Total (Amounts in thousands) Total revenues Total expenses Net gains on sale of real estate Gain on sale of Canadian Trade Shows, net of $11,448 of income taxes Impairment losses and litigation loss accrual Net gain on extinguishment of High Point debt Income from discontinued operations 154 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. Identified Intangible Assets and Liabilities The following summarizes our identified intangible assets (primarily acquired above-market leases) and liabilities (primarily acquired below-market leases) as of December 31, 2012 and 2011. (Amounts in thousands) Identified intangible assets: Gross amount Accumulated amortization Net Identified intangible liabilities (included in deferred revenue): Gross amount Accumulated amortization Net Balance as of December 31, 2012 December 31, 2011 $ $ $ $ 726,981 (356,379) 370,602 805,811 (342,379) 463,432 $ $ $ $ 631,162 (343,318) 287,844 838,103 (371,360) 466,743 Amortization of acquired below-market leases, net of acquired above-market leases resulted in an increase to rental income of $54,193,000, $62,105,000 and $65,373,000 for the years ended December 31, 2012, 2011 and 2010, 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, 2013 is as follows: (Amounts in thousands) 2013 2014 2015 2016 2017 $ 45,098 39,304 36,533 34,088 28,610 Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $51,244,000, $54,126,000 and $56,949,000 for the years ended December 31, 2012, 2011 and 2010, 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, 2013 is as follows: (Amounts in thousands) 2013 2014 2015 2016 2017 $ 47,959 29,785 24,812 22,300 19,735 We are a tenant under ground leases at certain properties. Amortization of these acquired below-market leases, net of above- market leases resulted in an increase to rent expense of $1,712,000, $1,377,000 and $2,157,000 for the years ended December 31, 2012, 2011 and 2010, respectively. Estimated annual amortization of these below-market leases, net of above-market leases for each of the five succeeding years commencing January 1, 2013 is as follows: (Amounts in thousands) 2013 2014 2015 2016 2017 $ 2,933 2,918 2,918 2,918 2,918 155 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. Debt The following is a summary of our debt: (Amounts in thousands) Mortgages payable: Fixed rate: New York: 1290 Avenue of the Americas (70% owned)(2) Two Penn Plaza 770 Broadway 888 Seventh Avenue 350 Park Avenue(3) 909 Third Avenue 828-850 Madison Avenue Condominium - retail 510 5th Avenue - retail Washington, DC: Skyline Properties(4) River House Apartments 2101 L Street(5) 2121 Crystal Drive Bowen Building 1215 Clark Street, 200 12th Street and 251 18th Street West End 25 Universal Buildings 2011 Crystal Drive 1550 and 1750 Crystal Drive 220 20th Street 2231 Crystal Drive 1225 Clark Street 1235 Clark Street 1750 Pennsylvania Avenue Retail Properties: Cross-collateralized mortgages on 40 strip shopping centers Montehiedra Town Center Broadway Mall North Bergen (Tonnelle Avenue) Las Catalinas Mall Other Merchandise Mart: Merchandise Mart Other: 555 California Street (70% owned) Borgata Land Total fixed rate mortgages payable ___________________ See notes on page 158. Interest Rate at Balance at December 31, December 31, December 31, 2012 2011 2012 Maturity (1) 11/22 03/18 03/16 01/16 01/17 04/15 06/18 01/16 02/17 04/15 08/24 03/23 06/16 01/25 06/21 04/14 08/17 11/14 02/18 08/13 08/13 n/a n/a 09/20 07/16 07/13 01/18 11/13 3.34 % 5.13 % 5.65 % 5.71 % 3.75 % 5.64 % 5.29 % 5.60 % 5.74 % 5.43 % 3.97 % 5.51 % 6.14 % 7.09 % 4.88 % 6.50 % 7.30 % 7.08 % 4.61 % 7.08 % 7.08 % n/a n/a 4.23 % 6.04 % 5.30 % 4.59 % 6.97 % $ 950,000 $ 425,000 353,000 318,554 300,000 199,198 80,000 31,253 704,957 195,546 150,000 150,000 115,022 105,724 101,671 93,226 79,624 74,053 73,939 41,298 24,834 - - 573,180 120,000 85,180 75,000 54,101 86,641 413,111 425,000 353,000 318,554 430,000 203,217 80,000 31,732 678,000 195,546 - 150,000 115,022 108,423 101,671 98,239 80,486 76,624 75,037 43,819 26,211 51,309 44,330 585,398 120,000 87,750 75,000 55,912 95,541 06/14-05/36 5.12%-7.30% 12/16 5.57 % 550,000 550,000 09/21 02/21 5.10 % 5.14 % 5.07 % 600,000 60,000 6,771,001 $ 600,000 60,000 6,328,932 $ 156       VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. Debt - continued (Amounts in thousands) Mortgages payable: Variable rate: New York: Independence Plaza (58.75% owned) Eleven Penn Plaza 100 West 33rd Street - office and retail(6) 4 Union Square South - retail(7) 435 Seventh Avenue (8) 866 UN Plaza Washington, DC: River House Apartments 2200/2300 Clarendon Boulevard 1730 M and 1150 17th Street 2101 L Street (5) Retail Properties: Bergen Town Center San Jose Strip Center Cross-collateralized mortgages on 40 strip shopping centers (10) Beverly Connection Other Other: 220 Central Park South Total variable rate mortgages payable Total mortgages payable Senior unsecured notes: Senior unsecured notes due 2015 Senior unsecured notes due 2039 (11) Senior unsecured notes due 2022 Total senior unsecured notes Unsecured revolving credit facilities(12) $1.25 billion unsecured revolving credit facility ($22,807 reserved for outstanding letters of credit) $1.25 billion unsecured revolving credit facility Total unsecured revolving credit facilities 3.88% Exchangeable senior debentures(13) 2.85% Convertible senior debentures(13) ___________________________ See notes on the following page. Interest Rate at Balance at December 31, December 31, December 31, 2012 2012 2011 1.15 % 2.56 % 2.71 % 2.36 % 2.46 % 1.46 % 1.63 % 0.96 % 1.61 % n/a 1.71 % 4.25 % 2.36 % n/a 3.97 % 2.96 % 2.22 % 4.42 % 4.25 % 7.88 % 5.00 % 5.70 % 1.53 % 1.43 % 1.43 % n/a n/a $ 334,225 $ 330,000 325,000 120,000 98,000 44,978 64,000 47,353 43,581 - 282,312 104,856 60,000 - 19,126 - 330,000 232,000 75,000 51,353 44,978 64,000 53,344 43,581 150,000 283,590 112,476 60,000 100,000 19,876 123,750 1,997,181 8,768,182 $ 123,750 1,743,948 8,072,880 499,627 $ 460,000 398,381 1,358,008 $ 499,462 460,000 398,199 1,357,661 20,000 $ 1,150,000 1,170,000 $ - 138,000 138,000 - $ 497,898 - $ 10,168 $ $ $ $ $ $ $ Maturity (1) Spread over LIBOR 08/13 01/19 03/17 11/19 08/19 05/16 04/18 01/15 06/14 n/a 03/13 03/13 09/20 n/a 03/13 L+92 L+235 L+250 L+215 L+225 L+125 n/a (9) L+75 L+140 n/a L+150 L+400 L+136 (10) n/a L+375 10/13 L+275 04/15 10/39 01/22 06/16 11/16 L+135 L+125 n/a n/a 157       VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. Debt - continued Notes to preceding tabular information (Amounts in thousands): (1) Represents the extended maturity for certain loans in which we have the unilateral right, ability and intent to extend. (2) On November 8, 2012, we completed a $950,000 refinancing of this property. The 10-year fixed rate interest-only loan bears interest at 3.34%. The partnership retained net proceeds of approximately $522,000, after repaying the existing loan and closing costs. (3) On January 9, 2012, we completed a $300,000 refinancing of this property. The five-year fixed rate loan bears interest at 3.75% and amortizes based on a 30-year schedule beginning in the third year. The proceeds of the new loan and $132,000 of existing cash were used to repay the existing loan and closing costs. (4) In the first quarter of 2012, we notified the lender that due to scheduled lease expirations resulting primarily from the effects of the Base Realignment and Closure statute, the Skyline properties had a 26% vacancy rate and rising (49.8% as of December 31, 2012) and, accordingly, cash flows are expected to decrease. As a result, our subsidiary that owns these properties does not have and is not expected to have for some time sufficient funds to pay all of its current obligations, including interest payments to the lender. Based on the projected vacancy and the significant amount of capital required to re-tenant these properties, at our request, the mortgage loan was transferred to the special servicer. In the second quarter of 2012, we entered into a forbearance agreement with the special servicer to apply cash flows of the property, before interest on the loan, towards the repayment of $4,000 of tenant improvements and leasing commissions we funded in connection with a new lease at these properties, which was repaid in the third quarter. The forbearance agreement was amended January 31, 2013, to extend its maturity through April 1, 2013 and provides for interest shortfalls to be deferred and added to the principal balance of the loan and not give rise to a loan default. As of December 31, 2012, the deferred interest amounted to $26,957. We continue to negotiate with the special servicer to restructure the terms of the loan. (5) On July 26, 2012, we completed a $150,000 refinancing of this property. The 12-year fixed rate loan bears interest at 3.97% and amortizes based on a 30-year schedule beginning in the third year. (6) On March 5, 2012, we completed a $325,000 refinancing of this property. The three-year loan bears interest at LIBOR plus 2.50% and has two one-year extension options. We retained net proceeds of approximately $87,000, after repaying the existing loan and closing costs. (7) On November 16, 2012, we completed a $120,000 refinancing of this property. The seven-year loan bears interest at LIBOR plus 2.15% and amortizes based on a 30-year schedule beginning in the third year. We retained net proceeds of approximately $42,000, after repaying the existing loan and closing costs. (8) On August 17, 2012, we completed a $98,000 refinancing of this property. The seven-year loan bears interest at LIBOR plus 2.25%. We retained net proceeds of approximately $44,000, after repaying the existing loan and closing costs. (9) Interest at the Freddie Mac Reference Note Rate plus 1.53%. (10) LIBOR floor of 1.00%. (11) May be redeemed at our option in whole or in part beginning on October 1, 2014, at a price equal to the principal amount plus accrued interest. (12) Our unsecured revolving credit facilities that mature in June 2016 and November 2016 require us to pay facility fees (drawn or undrawn) of 0.30% and 0.25%, respectively. (13) In April 2012, we redeemed all of the outstanding exchangeable and convertible senior debentures at par, for an aggregate of $510,215 in cash. 158     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. Debt – continued The net carrying amount of properties collateralizing the mortgages payable amounted to $10.4 billion at December 31, 2012. As of December 31, 2012, the principal repayments required for the next five years and thereafter are as follows: (Amounts in thousands) Year Ending December 31, 2013 2014 2015 2016 2017 Thereafter $ Mortgages Payable $ 1,150,439 231,117 584,802 1,585,247 1,347,018 3,874,900 Senior Unsecured Debt and Revolving Credit Facilities - - 500,000 1,170,000 - 860,000 We may refinance our maturing debt as it comes due or choose to repay it. 11. Redeemable Noncontrolling Interests Redeemable noncontrolling interests on our consolidated balance sheets represent Operating Partnership units held by third parties and are comprised of Class A units and Series D-15 and D-16 cumulative redeemable preferred units. Class A units may be tendered for redemption to the Operating Partnership for cash; we, at our 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. Below are the details of Operating Partnership units held by third-parties that are included in “redeemable noncontrolling interests” as of December 31, 2012 and 2011. (Amounts in thousands, except units and per unit amounts) Balance as of December 31, Units Outstanding at December 31, Per Unit Preferred or Annual Liquidation Distribution Unit Series 2012 2011 2012 2011 Preference Rate Common: Class A Perpetual Preferred: (1) $ 898,152 $ 934,677 11,215,682 12,160,771 N/A $ 2.76 6.875% D-15 Cumulative Redeemable 5.00% D-16 Cumulative Redeemable 7.00% D-10 Cumulative Redeemable(2) 6.75% D-14 Cumulative Redeemable(2) $ $ 45,000 $ 1,000 - - 46,000 $ 45,000 1,000 80,000 100,000 226,000 1,800,000 1 - - 1,800,001 25.00 $ 1 $ 1,000,000.00 $ 25.00 $ 25.00 $ 1.71875 50,000.00 1.75 1.6875 1,800,000 $ 3,200,000 $ 4,000,000 $ 9,000,001 (1) Holders may tender units for redemption to the Operating Partnership for cash at their stated redemption amount; we, at our option, may assume that obligation and pay the holders either cash or Vornado preferred shares on a one-for-one basis. These units are redeemable at our option at any time. (2) On July 19, 2012, we redeemed all of the outstanding 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units with an aggregate face amount of $180,000 for $168,300 in cash, plus accrued and unpaid distributions through the date of redemption. 159 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. Redeemable Noncontrolling Interests - continued Redeemable noncontrolling interests on our consolidated balance sheets are recorded at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the value from period to period are charged to “additional capital” in our consolidated statements of changes in equity. Below is a table summarizing the activity of redeemable noncontrolling interests. (Amounts in thousands) Balance at December 31, 2010 Net income Distributions Conversion of Class A units into common shares, at redemption value Adjustment to carry redeemable Class A units at redemption value Redemption of Series D-11 redeemable units Other, net Balance at December 31, 2011 Net income Distributions Conversion of Class A units into common shares, at redemption value Adjustment to carry redeemable Class A units at redemption value Redemption of Series D-10 and Series D-14 redeemable units Other, net Balance at December 31, 2012 $ $ 1,327,974 55,912 (50,865) (64,830) (98,092) (28,000) 18,578 1,160,677 45,263 (54,315) (89,762) 52,117 (168,300) (1,528) 944,152 Redeemable noncontrolling interests exclude our Series G 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 $55,011,000 and $54,865,000 as of December 31, 2012 and 2011, respectively. 12. Shareholders’ Equity Common Shares As of December 31, 2012, there were 186,734,711 common shares outstanding. During 2012, we paid an aggregate of $699,318,000 of common dividends comprised of quarterly common dividends of $0.69 per share, and a special long-term capital gain dividend of $1.00 per share. On January 17, 2013, we increased our quarterly common dividend to $0.73 per share (a new indicated annual rate of $2.92 per share). 160     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. Shareholders’ Equity – continued Preferred Shares On July 11, 2012, we sold 12,000,000 5.70% Series K Cumulative Redeemable Preferred Shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement. We retained aggregate net proceeds of $290,971,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to the Operating Partnership in exchange for 12,000,000 Series K Preferred Units (with economic terms that mirror those of the Series K Preferred Shares). Dividends on the Series K Preferred Shares are cumulative and payable quarterly in arrears. The Series K Preferred Shares are not convertible into, or exchangeable for, any of our properties or securities. On or after five years from the date of issuance (or sooner under limited circumstances), we may redeem the Series K Preferred Shares at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption. The Series K Preferred Shares have no maturity date and will remain outstanding indefinitely unless redeemed by us. On August 16, 2012, we redeemed all of the outstanding 7.0% Series E Cumulative Redeemable Preferred Shares at par, for an aggregate of $75,000,000 in cash, plus accrued and unpaid dividends through the date of redemption. The following table sets forth the details of our preferred shares of beneficial interest as of December 31, 2012 and 2011. (Amounts in thousands, except share and per share amounts) Balance as of December 31, Shares Outstanding at December 31, Preferred Shares 2012 2011 2012 2011 Convertible Preferred: Per Share Annual Liquidation Dividend Rate(1) Preference 6.5% Series A: authorized 83,977 shares(2) $ 1,682 $ 1,787 34,609 36,709 $ 50.00 $ 3.25 Cumulative Redeemable: 6.75% Series F: authorized 6,000,000 shares(3) 6.625% Series G: authorized 8,000,000 shares(4) 6.75% Series H: authorized 4,500,000 shares(3) 6.625% Series I: authorized 10,800,000 shares(4) 6.875% Series J: authorized 9,850,000 shares(4) 5.70% Series K: authorized 12,000,000 shares(4) 7.0% Series E: authorized 3,000,000 shares(4) 144,720 144,720 193,135 193,135 108,549 108,549 262,379 262,379 238,842 238,842 - 290,971 72,248 - $ 1,240,278 $ 1,021,660 6,000,000 8,000,000 4,500,000 10,800,000 9,850,000 12,000,000 - 51,184,609 6,000,000 $ 8,000,000 $ 4,500,000 $ 10,800,000 $ 9,850,000 $ - $ 3,000,000 $ 42,186,709 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 1.6875 1.656 1.6875 1.656 1.71875 1.425 1.75 (1) Dividends on preferred shares are cumulative and are payable quarterly in arrears. (2) Redeemable at our option, under certain circumstances, at a redemption price plus accrued and unpaid dividends or, convertible at anytime at the option of the holder for 1.4334 common shares per Series A Preferred Share. (3) Redeemed on February 19, 2013 (See Note 25 - Subsequent Events). (4) Redeemable at our option at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption. Accumulated Other Comprehensive Income Accumulated other comprehensive (loss) income was $(18,946,000) and $73,729,000 as of December 31, 2012 and 2011, respectively, and primarily consists of (i) accumulated unrealized gains from the mark-to-market of marketable securities classified as available-for-sale, (ii) our pro rata share of other comprehensive income of non-consolidated subsidiaries and (iii) changes in the value of our interest rate swap. 161 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Fair Value Measurements ASC 820, Fair Value Measurement and Disclosures 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) derivative positions in marketable equity securities, (v) interest rate swaps and (vi) 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 at December 31, 2012 and 2011, respectively. (Amounts in thousands) Marketable securities Real Estate Fund investments (75% of which is attributable to noncontrolling interests) Deferred compensation plan assets (included in other assets) J.C. Penney derivative position (included in other assets)(1) Total assets Mandatorily redeemable instruments (included in other liabilities) Interest rate swap (included in other liabilities) Total liabilities Total As of December 31, 2012 Level 2 Level 1 Level 3 $ 398,188 $ 398,188 $ - $ - 600,786 105,200 11,165 1,115,339 55,011 50,070 105,081 $ $ $ $ $ $ - 42,569 - 440,757 55,011 - 55,011 $ $ $ - - 11,165 11,165 - 50,070 50,070 $ $ $ (1) Represents the cash deposited with the counterparty in excess of the mark-to-market loss on the derivative position. (Amounts in thousands) Marketable securities Real Estate Fund investments (75% of which is attributable to noncontrolling interests) Deferred compensation plan assets (included in other assets) J.C. Penney derivative position (included in other assets)(1) Total assets Mandatorily redeemable instruments (included in other liabilities) Interest rate swap (included in other liabilities) Total liabilities (1) Represents the mark-to-market gain on the derivative position. Total As of December 31, 2011 Level 2 Level 1 Level 3 $ 741,321 $ 741,321 $ - $ 346,650 95,457 30,600 1,214,028 54,865 41,114 95,979 $ $ $ $ $ $ - 39,236 - 780,557 54,865 - 54,865 $ $ $ - - 30,600 30,600 - 41,114 41,114 $ $ $ 346,650 56,221 - 402,871 - - - 162 600,786 62,631 - 663,417 - - - -     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Fair Value Measurements - continued Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued Real Estate Fund Investments At December 31, 2012, our Real Estate Fund had nine investments with an aggregate fair value of $600,786,000, or $67,642,000 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 1.6 to 6.2 years. Cash flows are derived from property rental revenue (base rents plus reimbursements) less operating expenses, real estate taxes and capital and other costs, plus projected sales proceeds in the year of exit. Property rental revenue is based on leases currently in place and our estimates for future leasing activity, which are based on current market rents for similar space plus a projected growth factor. Similarly, estimated operating expenses and real estate taxes are based on amounts incurred in the current period plus a projected growth factor for future periods. Anticipated sales proceeds at the end of an investment’s expected holding period are determined based on the net cash flow of the investment in the year of exit, divided by a terminal capitalization rate, less estimated selling costs. The fair value of each property is calculated by discounting the future cash flows (including the projected sales proceeds), using an appropriate discount rate and then reduced by the property’s outstanding debt, if any, to determine the fair value of the equity in each investment. Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates. These rates are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from original underwriting assumptions, industry publications and from the experience of our Acquisitions and Capital Markets departments. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these Fund investments at December 31, 2012. Unobservable Quantitative Input Discount rates Terminal capitalization rates Range 12.5% to 19.0% 5.3% to 6.3% Weighted Average (based on fair value of investments) 14.7% 5.8% 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 Fund investments that are classified as Level 3, for the years ended December 31, 2012 and 2011. (Amounts in thousands) Beginning balance Purchases Sales/Returns Realized gains Unrealized gains Other, net Ending balance Real Estate Fund Investments For The Year Ended December 31, 2012 2011 $ $ 346,650 262,251 (63,762) - 55,361 286 600,786 $ $ 144,423 248,803 (48,355) 5,391 11,995 (15,607) 346,650 163       VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 years ended December 31, 2012 and 2011. (Amounts in thousands) Beginning balance Purchases Sales Realized and unrealized gains Other, net Ending balance Deferred Compensation Plan Assets For The Year Ended December 31, 2012 2011 $ $ 56,221 9,951 (8,367) 4,703 123 62,631 $ $ 47,850 25,692 (18,801) 1,232 248 56,221 Fair Value Measurements on a Nonrecurring Basis Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist primarily of our investment in Toys “R” Us and real estate assets that have been written-down to estimated fair value during 2012 and 2011. See Note 2 – Basis of Presentation and Significant Accounting Policies for details of impairment losses recognized during 2012 and 2011. The fair values of these assets are determined using widely accepted valuation techniques, including (i) discounted cash flow analysis, which considers, among other things, leasing assumptions, growth rates, discount rates and terminal capitalization rates, (ii) income capitalization approach, which considers prevailing market capitalization rates, and (iii) comparable sales activity. Generally, we consider multiple valuation techniques when measuring fair values but in certain circumstances, a single valuation technique may be appropriate. The tables below aggregate the fair values of these assets by their levels in the fair value hierarchy. (Amounts in thousands) Investment in Toys"R" Us Real estate assets Condominium units (included in other assets) Total assets (Amounts in thousands) Real estate assets Total 478,041 $ 189,529 52,142 719,712 $ $ $ As of December 31, 2012 Level 2 Level 1 $ - - - $ Level 3 478,041 189,529 52,142 719,712 $ - - - $ Total As of December 31, 2011 Level 2 Level 1 Level 3 $ 62,033 $ - $ - $ 62,033 164           VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Fair Value Measurements – continued Financial Assets and Liabilities not Measured at Fair Value Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents (primarily U.S. Treasury Bills), mortgage and mezzanine loans receivable and our secured and unsecured debt. Estimates of the fair value of these instruments are determined by the standard practice of modeling the contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk adjusted interest rate, which is provided by a third-party specialist. For floating rate debt, we use forward rates derived from observable market yield curves to project the expected cash flows we would be required to make under the instrument. The fair value of cash equivalents is classified as Level 1 and the fair value of our mortgage and mezzanine loans receivable is classified as Level 3. The fair value of our secured and unsecured debt are classified as Level 2. The table below summarizes the carrying amounts and fair value of these financial instruments as of December 31, 2012 and 2011. (Amounts in thousands) Cash equivalents Mortgage and mezzanine loans receivable Debt: Mortgages payable Senior unsecured notes Revolving credit facility debt Exchangeable senior debentures Convertible senior debentures $ $ $ As of December 31, 2012 Fair Value Carrying Amount As of December 31, 2011 Fair Value Carrying Amount 543,000 $ 225,359 768,359 $ 543,000 $ 221,446 764,446 $ - $ 133,948 133,948 $ - 128,581 128,581 8,768,182 $ 1,358,008 1,170,000 - - 8,795,000 $ 1,468,000 1,170,000 - - 8,072,880 $ 1,357,661 138,000 497,898 10,168 10,076,607 $ 8,188,000 1,426,000 138,000 510,000 10,000 10,272,000 $ 11,296,190 $ 11,433,000 $ 14. Variable Interest Entities Consolidated Variable Interest Entities As of December 31, 2012, we have variable interests in Independence Plaza (comprised of our equity interest and our preferred equity interest), which we acquired in December 2012 (see Note 3 – Acquisitions). We are required to consolidate our interests in this entity because we are deemed to be the primary beneficiary and have the power to direct the activities of the entity that most significantly affect economic performance and the obligation to absorb losses and right to receive benefits that could potentially be significant to the entity. The table below summarizes the assets and liabilities of the entity. The liabilities are secured only by the assets of the entity, and are non-recourse to us. (Amounts in thousands) Total assets Total liabilities As of December 31, 2012 2011 $ $ 858,656 $ 344,820 $ - - Unconsolidated Variable Interest Entities As of December 31, 2012, we also have a variable interest in the Warner Building. We are not required to consolidate our interest in this entity because we are not deemed to be the primary beneficiary and the nature of our involvement in the activities of the entity does not give us power over decisions that significantly affect the entity’s economic performance. We account for our interest in the entity under the equity method of accounting (see Note 6 – Investments in Partially Owned Entities). As of December 31, 2012 and 2011, the carrying amount of our investment in this entity was $8,775,000 and $2,715,000, respectively, and our maximum exposure to loss is limited to our investment in the entity. 165 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. Stock-based Compensation Our Omnibus Share Plan (the “Plan”), which was approved in May 2010, provides the Compensation Committee of the Board (the “Committee”) the ability to grant incentive and non-qualified stock options, restricted stock, restricted Operating Partnership units and out- performance plan rewards to certain of our employees and officers. Under the Plan, awards may be granted up to a maximum of 6,000,000 shares, if all awards granted are Full Value Awards, as defined, and up to 12,000,000 shares, if all of the awards granted are Not Full Value Awards, as defined, plus shares in respect of awards forfeited after May 2010 that were issued pursuant to our 2002 Omnibus Share Plan. Full Value Awards are awards of securities, such as restricted shares, that, if all vesting requirements are met, do not require the payment of an exercise price or strike price to acquire the securities. Not Full Value Awards are awards of securities, such as options, that do require the payment of an exercise price or strike price. This means, for example, if the Committee were to award only restricted shares, it could award up to 6,000,000 restricted shares. On the other hand, if the Committee were to award only stock options, it could award options to purchase up to 12,000,000 shares (at the applicable exercise price). The Committee may also issue any combination of awards under the Plan, with reductions in availability of future awards made in accordance with the above limitations. As of December 31, 2012, we have approximately 5,136,000 shares available for future grants under the Plan, if all awards granted are Full Value Awards, as defined. On March 30, 2012, the Committee approved the 2012 formulaic annual incentive program for our senior executive management team. Under the program, our senior executive management team, including our Chairman and our President and Chief Executive Officer, will have the ability to earn annual incentive payments (cash or equity) if and only if we achieve comparable funds from operations (“Comparable FFO”) of at least 80% or more of the prior year Comparable FFO. Moreover, even if we achieve the stipulated Comparable FFO performance requirement, the Committee retains the right, consistent with best practices, to elect to make no payments under the program. Comparable FFO excludes the impact of certain non-recurring items such as income or loss from discontinued operations, the sale or mark-to-market of marketable securities or derivatives and early extinguishment of debt, restructuring costs and non-cash impairment losses, among others, and thus the Committee believes provides a better metric than total FFO for assessing management’s performance for the year. Aggregate incentive awards earned under the program are subject to a cap of 1.25% of Comparable FFO for the year, with individual award allocations determined by the Committee based on an assessment of individual and overall performance. In the years ended December 31, 2012, 2011 and 2010, we recognized an aggregate of $30,588,000, $28,853,000 and $34,614,000, respectively, of stock-based compensation expense, which is included as a component of “general and administrative” expenses on our consolidated statements of income. The details of the various components of our stock-based compensation are discussed below. Out-Performance Plans (“OPP Units”) On March 30, 2012, the Committee also approved the 2012 Out-Performance Plan, a multi-year, performance-based equity compensation plan (the “2012 OPP”). The aggregate notional amount of the 2012 OPP is $40,000,000. Under the 2012 OPP, participants, including our Chairman and our President and Chief Executive Officer, have the opportunity to earn compensation payable in the form of equity awards if and only if we outperform a predetermined total shareholder return (“TSR”) and/or outperform the market with respect to a relative TSR in any year during a three-year performance period. Specifically, awards under our 2012 OPP may be earned if we (i) achieve a TSR above that of the SNL US REIT Index (the “Index”) over a one-year, two-year or three-year performance period (the “Relative Component”), and/or (ii) achieve a TSR level greater than 7% per annum, or 21% over the three-year performance period (the “Absolute Component”). To the extent awards would be earned under the Absolute Component of the 2012 OPP but we underperform the Index, such awards would be reduced (and potentially fully negated) based on the degree to which we underperform the Index. In certain circumstances, in the event we outperform the Index but awards would not otherwise be earned under the Absolute Component, awards may still be earned under the Relative Component. To the extent awards would otherwise be earned under the Relative Component but we fail to achieve at least a 6% per annum absolute TSR level, such awards would be reduced based on our absolute TSR performance, with no awards being earned in the event our TSR during the applicable measurement period is 0% or negative, irrespective of the degree to which we may outperform the Index. If the designated performance objectives are achieved, OPP Units are also subject to time-based vesting requirements. Dividends on awards issued accrue during the performance period and are paid to participants if and only if awards are ultimately earned based on the achievement of the designated performance objectives. Awards earned under the 2012 OPP vest 33% in year three, 33% in year four and 34% in year five. The fair value of the 2012 OPP on the date of grant, as adjusted for estimated forfeitures, was $12,250,000, and is being amortized into expense over a five-year period from the date of grant, using a graded vesting attribution model. In the years ended December 31, 2012, 2011 and 2010, we recognized $2,826,000, $740,000 and $5,062,000, respectively, of compensation expense related to OPP Units. As of December 31, 2012, there was $9,435,000 of total unrecognized compensation cost related to OPP Units, which will be recognized over a weighted-average period of 2.2 years. Distributions paid on unvested OPP Units are charged to “net income attributable to noncontrolling interests in the Operating Partnership” on our consolidated statements of income and amounted to $8,000, $32,000 and $815,000 in 2012, 2011 and 2010, respectively. 166     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. Stock-based Compensation - continued Stock Options Stock options are granted at an exercise price equal to the average of the high and low market price of our common shares on the NYSE on the date of grant, generally vest over four years and expire 10 years from the date of grant. Compensation expense related to stock option awards is recognized on a straight-line basis over the vesting period. In the years ended December 31, 2012, 2011 and 2010, we recognized $8,638,000, $8,794,000 and $7,916,000, respectively, of compensation expense related to stock options that vested during each year. As of December 31, 2012, there was $12,300,000 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 1.4 years. Below is a summary of our stock option activity for the year ended December 31, 2012. Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at January 1, 2012 Granted Exercised Cancelled or expired Outstanding at December 31, 2012 Shares 4,514,341 $ 47,720 (1,120,193) (81,796) 3,360,072 $ Options vested and expected to vest at December 31, 2012 Options exercisable at December 31, 2012 3,353,953 $ 1,970,247 $ 60.96 82.86 42.34 74.39 67.16 67.16 68.02 6.1 $ 56,414,000 6.1 $ 56,313,000 5.4 $ 32,914,000 The fair value of each option grant is estimated on the date of grant using an option-pricing model with the following weighted- average assumptions for grants in the years ended December 31, 2012, 2011 and 2010. Expected volatility Expected life Risk free interest rate Expected dividend yield 2012 36.00 % 5.0 years 1.05 % 4.30 % December 31, 2011 35.00 % 7.1 years 2.90 % 4.40 % 2010 35.00 % 7.9 years 3.60 % 4.90 % The weighted average grant date fair value of options granted during the years ended December 31, 2012, 2011 and 2010 was $17.50, $21.42 and $16.96, respectively. Cash received from option exercises for the years ended December 31, 2012, 2011 and 2010 was $9,546,000, $23,736,000 and $25,338,000, respectively. The total intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010 was $40,887,000, $39,348,000 and $60,923,000, respectively. 167             VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. Stock-based Compensation - continued Restricted Stock Restricted stock awards are granted at the average of the high and low market price of our common shares on the NYSE on the date of grant and generally vest over four years. Compensation expense related to restricted stock awards is recognized on a straight- line basis over the vesting period. In the years ended December 31, 2012, 2011 and 2010, we recognized $1,604,000, $1,814,000 and $1,432,000, respectively, of compensation expense related to restricted stock awards that vested during each year. As of December 31, 2012, there was $2,823,000 of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.6 years. Dividends paid on unvested restricted stock are charged directly to retained earnings and amounted to $200,000, $185,000 and $115,000 for the years ended December 31, 2012, 2011 and 2010, respectively. Below is a summary of our restricted stock activity under the Plan for the year ended December 31, 2012.  Unvested Shares Unvested at January 1, 2012 Granted Vested Cancelled or expired Unvested at December 31, 2012 Weighted-Average Grant-Date Fair Value Shares 61,228 $ 11,060 (22,297) (1,971) 48,020 79.28 83.96 83.61 72.97 78.61 Restricted stock awards granted in 2012, 2011 and 2010 had a fair value of $929,000, $1,042,000 and $3,922,000, respectively. The fair value of restricted stock that vested during the years ended December 31, 2012, 2011 and 2010 was $1,864,000, $2,031,000 and $2,186,000, respectively. Restricted Operating Partnership Units (“OP Units”) OP Units are granted at the average of the high and low market price of our common shares on the NYSE on the date of grant, vest ratably over four years and are subject to a taxable book-up event, as defined. Compensation expense related to OP Units is recognized ratably over the vesting period using a graded vesting attribution model. In the years ended December 31, 2012, 2011 and 2010, we recognized $17,520,000, $17,505,000 and $20,204,000, respectively, of compensation expense related to OP Units that vested during each year. As of December 31, 2012, there was $16,853,000 of total remaining unrecognized compensation cost related to unvested OP Units, which is expected to be recognized over a weighted-average period of 1.5 years. Distributions paid on unvested OP Units are charged to “net income attributable to noncontrolling interests in the Operating Partnership” on our consolidated statements of income and amounted to $3,203,000, $2,567,000 and $2,285,000 in 2012, 2011 and 2010, respectively. Below is a summary of restricted OP unit activity under the Plan for the year ended December 31, 2012. Unvested Units Unvested at January 1, 2012 Granted Vested Cancelled or expired Unvested at December 31, 2012 Weighted-Average Grant-Date Fair Value Units 699,659 $ 209,663 (235,245) (33,407) 640,670 65.29 78.52 63.82 75.93 69.61 OP Units granted in 2012, 2011 and 2010 had a fair value of $16,464,000, $18,727,000 and $31,437,000, respectively. The fair value of OP Units that vested during the years ended December 31, 2012, 2011 and 2010 was $15,014,000, $10,260,000 and $14,087,000, respectively. 168               VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. Fee and Other Income The following table sets forth the details of our fee and other income: (Amounts in thousands) BMS cleaning fees Signage revenue Management and leasing fees Lease termination fees Other income 2012 For the Year Ended December 31, 2011 2010 $ $ 67,584 20,892 21,867 2,361 31,845 144,549 $ $ 61,754 19,823 21,801 16,334 30,037 149,749 $ $ 58,053 18,618 21,686 14,818 33,780 146,955 Management and leasing fees include management fees from Interstate Properties, a related party, of $794,000, $787,000, and $815,000 for the years ended December 31, 2012, 2011, and 2010, respectively. The above table excludes fee income from partially owned entities, which is typically included in “income from partially owned entities” (see Note 6 – Investments in Partially Owned Entities). 17. Interest and Other Investment (Loss) Income, Net The following table sets forth the details of our interest and other investment (loss) income: (Amounts in thousands) Non-cash impairment loss on J.C. Penney owned shares (Loss) income from the mark-to-market of J.C. Penney derivative position Interest on mortgage and mezzanine loans Dividends and interest on marketable securities Mark-to-market of investments in our deferred compensation plan (1) Mezzanine loans loss reversal and net gain on disposition Other, net $ $ 2012 (224,937) $ (75,815) 13,861 11,979 6,809 - 7,158 (260,945) $ - 12,984 14,023 29,587 1,658 82,744 7,788 148,784 $ $ - 130,153 10,319 25,772 8,049 53,100 7,874 235,267 For the Year Ended December 31, 2011 2010 __________________________ (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. 18. Interest and Debt Expense The following table sets forth the details of our interest and debt expense. (Amounts in thousands) Interest expense Amortization of deferred financing costs Capitalized interest 169 For the Year Ended December 31, 2011 2012 2010 $ $ 493,067 $ 24,095 (16,801) 500,361 $ 507,387 19,985 (1,197) 526,175 $ $ 523,905 16,329 (864) 539,370       VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. Income Per Share The following table provides a reconciliation of both net income and the number of common shares used in the computation of (i) basic income per common share - which utilizes 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 and restricted stock and exchangeable senior debentures in 2011 and 2010. (Amounts in thousands, except per share amounts) Numerator: Income from continuing operations, net of income attributable to noncontrolling interests Income from discontinued operations, net of income attributable to noncontrolling interests Net income attributable to Vornado Preferred share dividends Discount on preferred share and unit redemptions Net income attributable to common shareholders Earnings allocated to unvested participating securities Numerator for basic income per share Impact of assumed conversions: Convertible preferred share dividends Numerator for diluted income per share Denominator: Denominator for basic income per share – weighted average shares Effect of dilutive securities (1): Employee stock options and restricted share awards Convertible preferred shares Denominator for diluted income per share – weighted average shares and assumed conversions INCOME PER COMMON SHARE – BASIC: Income from continuing operations, net Income from discontinued operations, net Net income per common share INCOME PER COMMON SHARE – DILUTED: Income from continuing operations, net Income from discontinued operations, net Net income per common share Year Ended December 31, 2011 2012 2010 $ 347,392 $ 511,478 $ 641,520 269,868 617,260 (76,937) 8,948 549,271 (202) 549,069 150,824 662,302 (65,531) 5,000 601,771 (221) 601,550 6,363 647,883 (55,534) 4,382 596,731 (120) 596,611 113 549,182 $ 124 601,674 $ 160 596,771 $ 185,810 184,308 182,340 670 50 1,658 55 1,748 71 186,530 186,021 184,159 $ $ $ $ 1.50 1.45 2.95 1.49 1.45 2.94 $ $ $ $ 2.44 0.82 3.26 2.42 0.81 3.23 $ $ $ $ 3.24 0.03 3.27 3.21 0.03 3.24 (1) The effect of dilutive securities in the years ended December 31, 2012, 2011 and 2010 excludes an aggregate of 14,400, 18,896 and 19,684 weighted average common share equivalents, respectively, as their effect was anti-dilutive. 170 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. Leases As lessor: We lease space to tenants under operating leases. Most of the leases provide for the payment of fixed base rentals payable monthly in advance. Office building leases generally require the tenants to reimburse us for operating costs and real estate taxes above their base year costs. Shopping center leases provide for pass-through to tenants the tenant’s share of real estate taxes, insurance and maintenance. Shopping center leases also provide for the payment by the lessee of additional rent based on a percentage of the tenants’ sales. As of December 31, 2012, future base rental revenue under non-cancelable operating leases, excluding rents for leases with an original term of less than one year and rents resulting from the exercise of renewal options, are as follows: (Amounts in thousands) Year Ending December 31: 2013 2014 2015 2016 2017 Thereafter $ 1,842,355 1,738,439 1,578,559 1,400,020 1,249,904 6,134,903 These amounts do not include percentage rentals based on tenants’ sales. These percentage rents approximated $8,466,000, $7,995,000 and $7,339,000, for the years ended December 31, 2012, 2011 and 2010, respectively. None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2012, 2011 and 2010. Former Bradlees Locations Pursuant to a Master Agreement and Guaranty, dated May 1, 1992, we were due $5,000,000 of annual rent from Stop & Shop which was allocated to certain Bradlees former locations. On December 31, 2002, prior to the expiration of the leases to which the additional rent was allocated, we reallocated this rent to other former Bradlees leases also guaranteed by Stop & Shop. Stop & Shop contested our right to reallocate the rent. On November 7, 2011, the Court determined that we had a continuing right to allocate the annual rent to unexpired leases covered by the Master Agreement and Guaranty and directed entry of a judgment in our favor ordering Stop & Shop to pay us the unpaid annual rent. At December 31, 2012, we had a $47,900,000 receivable from Stop and Shop, which is included as a component of “tenant and other receivables” on our consolidated balance sheet. On February 6, 2013, we received $124,000,000 pursuant to a settlement agreement with Stop & Shop (see Note 22 – Commitments and Contingencies – Litigation). 171   VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. Leases - continued As lessee: We are a tenant under operating leases for certain properties. These leases have terms that expire during the next thirty years. Future minimum lease payments under operating leases at December 31, 2012 are as follows: (Amounts in thousands) Year Ending December 31: 2013 2014 2015 2016 2017 Thereafter $ 41,524 42,321 41,074 37,054 37,968 1,229,169 Rent expense was $43,528,000, $35,436,000 and $34,611,000 for the years ended December 31, 2012, 2011 and 2010, respectively. We are also a lessee under a capital lease under which we will redevelop the retail and signage components of the Marriot Marquis Times Square Hotel. The lease has put/call options, which if exercised would lead to our ownership. Capitalized leases are recorded at the present value of future minimum lease payments or the fair market value of the property. Capitalized leases are depreciated on a straight-line basis over the estimated life of the asset or life of the related lease. Depreciation expense on capital leases is included in “depreciation and amortization” on our consolidated statements of income. As of December 31, 2012, future minimum lease payments under this capital lease are as follows: (Amounts in thousands) Year Ending December 31: 2013 2014 2015 2016 2017 Thereafter Total minimum obligations Interest portion Present value of net minimum payments $ $ 12,500 12,500 12,500 12,500 12,500 359,792 422,292 (182,292) 240,000 At December 31, 2012, the carrying amount of the property leased under the capital lease was $249,285,000, which is included as a component of “development costs and construction in progress” on our consolidated balance sheet and present value of net minimum payments of $240,000,000 is included in “other liabilities” on our consolidated balance sheet. 172     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 21. Multiemployer Benefit Plans Our subsidiaries make contributions to certain multiemployer defined benefit plans (“Multiemployer Pension Plans”) and health plans (“Multiemployer Health Plans”) for our union represented employees, pursuant to the respective collective bargaining agreements. Multiemployer Pension Plans Multiemployer Pension Plans differ from single-employer pension plans in that (i) contributions to multiemployer plans may be used to provide benefits to employees of other participating employers and (ii) if other participating employers fail to make their contributions, each of our participating subsidiaries may be required to bear its then pro rata share of unfunded obligations. If a participating subsidiary withdraws from a plan in which it participates, it may be subject to a withdrawal liability. As of December 31, 2012, our subsidiaries’ participation in these plans were not significant to our consolidated financial statements. In the years ended December 31, 2012, 2011 and 2010, our subsidiaries contributed $10,683,000, $10,168,000 and $9,629,000, respectively, towards Multiemployer Pension Plans, which is included as a component of “operating” expenses on our consolidated statements of income. Our subsidiaries’ contributions did not represent more than 5% of total employer contributions in any of these plans for the years ended December 31, 2012, 2011 and 2010. Multiemployer Health Plans Multiemployer Health Plans in which our subsidiaries participate provide health benefits to eligible active and retired employees. In the years ended December 31, 2012, 2011 and 2010, our subsidiaries contributed $26,759,000, $23,847,000 and $21,664,000, respectively, towards these plans, which is included as a component of “operating” expenses on our consolidated statements of income. 22. Commitments and Contingencies Insurance We maintain general liability insurance with limits of $300,000,000 per occurrence and all risk property and rental value insurance with limits of $2.0 billion per occurrence, including coverage for terrorist acts, with sub-limits for certain perils such as floods. Our California properties have earthquake insurance with coverage of $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $180,000,000 annual aggregate. Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to 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 nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by Terrorism Risk Insurance Program Reauthorization Act. 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. Coverage for NBCR losses is up to $2.0 billion per occurrence, for which PPIC is responsible for a deductible of $3,200,000 and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss. We are ultimately responsible for any loss borne by PPIC. We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, we cannot anticipate what coverage will be available on commercially reasonable terms in future policy years. Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured notes and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our ability to finance our properties and expand our portfolio. 173 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 22. Commitments and Contingencies – continued Other Commitments and Contingencies 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 December 31, 2012, the aggregate dollar amount of these guarantees and master leases is approximately $310,249,000. At December 31, 2012, $22,807,000 of letters of credit were outstanding under one of our revolving credit facilities. Our credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our 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. Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us. Two of our wholly owned subsidiaries that are contracted to develop and operate the Cleveland Medical Mart and Convention Center, in Cleveland, Ohio, are required to fund $11,500,000, primarily for tenant improvements, and they are responsible for operating expenses and are entitled to the net operating income, if any, upon the completion of development and the commencement of operations. As of December 31, 2012, our subsidiaries have funded $1,100,000 of the commitment. As of December 31, 2012, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $163,130,000. Litigation 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, including the matter referred to below, is not expected to have a material adverse effect on our financial position, results of operations or cash flows. In 2003, Stop & Shop filed an action against us in the New York Supreme Court, claiming that we had no right to reallocate and therefore continue to collect $5,000,000 ($6,000,000 beginning February 1, 2012) of annual rent from Stop & Shop pursuant to a Master Agreement and Guaranty, because of the expiration of the leases to which the annual rent was previously allocated. Stop & Shop asserted that an order of the Bankruptcy Court for the Southern District of New York, as modified on appeal by the District Court, froze our right to reallocate and effectively terminated our right to collect the annual rent from Stop & Shop. We asserted a counterclaim seeking a judgment for all of the unpaid annual rent accruing through the date of the judgment and a declaration that Stop & Shop will continue to be liable for the annual rent as long as any of the leases subject to the Master Agreement and Guaranty remain in effect. A trial was held in November 2010. On November 7, 2011, the Court determined that we had a continuing right to allocate the annual rent to unexpired leases covered by the Master Agreement and Guaranty, and directed entry of a judgment in our favor ordering Stop & Shop to pay us the unpaid annual rent accrued through February 28, 2011 in the amount of $37,422,000, a portion of the annual rent due from March 1, 2011 through the date of judgment, interest, and attorneys’ fees. On December 16, 2011, a money judgment based on the Court’s decision was entered in our favor in the amount of $56,597,000 (including interest and costs). Stop & Shop appealed the Court’s decision and the judgment and posted a bond to secure payment of the judgment. On January 12, 2012, we commenced a new action against Stop & Shop seeking recovery of $2,500,000 of annual rent not included in the money judgment, plus additional annual rent as it accrues. At December 31, 2012, we had a $47,900,000 receivable from Stop & Shop, which is included as a component of “tenant and other receivables” on our consolidated balance sheet. On February 6, 2013, we received $124,000,000 pursuant to a settlement agreement with Stop & Shop. The settlement terminates our right to receive $6,000,000 of additional annual rent under the 1992 agreement, for a period potentially through 2031. As a result of this settlement, we collected the aforementioned $47,900,000 receivable and will recognize approximately $59,000,000 of net income in the first quarter of 2013. 174 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. Related Party Transactions Alexander’s We own 32.4% of Alexander’s. Steven Roth, the Chairman of our Board, and Michael D. Fascitelli, our President and Chief Executive Officer, are officers and directors of Alexander’s. We provide various services to Alexander’s in accordance with management, development and leasing agreements. These agreements are described in Note 6 - Investments in Partially Owned Entities. Interstate Properties (“Interstate”) Interstate is a general partnership in which Mr. Roth is the managing general partner. David Mandelbaum and Russell B. Wight, Jr., Trustees of Vornado and Directors of Alexander’s, are Interstate’s two other partners. As of December 31, 2012, Interstate and its partners beneficially owned an aggregate of approximately 6.5% of the common shares of beneficial interest of Vornado and 26.3% of Alexander’s common stock. We manage and lease the real estate assets of Interstate pursuant to a management agreement for which we receive an annual fee equal to 4% of annual base rent and percentage rent. The management agreement has a term of one year and is automatically renewable unless terminated by either of the parties on 60 days’ notice at the end of the term. We believe, based upon comparable fees charged by other real estate companies, that the management agreement terms are fair to us. We earned $794,000, $787,000, and $815,000 of management fees under the agreement for the years ended December 31, 2012, 2011 and 2010. Other On March 8, 2012, Mr. Roth repaid his $13,122,500 outstanding loan from the Company. 24. Summary of Quarterly Results (Unaudited) The following summary represents the results of operations for each quarter in 2012 and 2011: (Amounts in thousands, except per share amounts) 2012 Revenues Net Income Attributable to Common Shareholders (1) Net Income Per Common Share (2) Basic Diluted December 31 September 30 June 30 March 31 2011 December 31 September 30 June 30 March 31 $ $ 697,654 $ 710,538 683,985 674,280 689,959 $ 689,190 679,084 674,603 62,633 $ 232,393 20,510 233,735 69,508 $ 41,135 91,913 399,215 0.34 $ 1.25 0.11 1.26 0.38 $ 0.22 0.50 2.17 0.33 1.24 0.11 1.25 0.37 0.22 0.49 2.12 _______________________________ (1) Fluctuations among quarters resulted primarily from non-cash impairment losses, mark-to-market of derivative instruments, net gains on sale of real estate and from seasonality of business operations. (2) The total for the year may differ from the sum of the quarters as a result of weighting. 175     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 25. Subsequent Events On February 19, 2013, we redeemed all of the outstanding 6.75% Series F Cumulative Redeemable Preferred Shares and 6.75% Series H Cumulative Redeemable Preferred Shares at par, for an aggregate of $262,500,000 in cash, plus accrued and unpaid dividends through the date of redemption. On January 25, 2013, we sold 12,000,000 5.40% Series L Cumulative Redeemable Preferred Shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement. We retained aggregate net proceeds of $290,853,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to the Operating Partnership in exchange for 12,000,000 Series L Preferred Units (with economic terms that mirror those of the Series L Preferred Shares). Dividends on the Series L Preferred Shares are cumulative and payable quarterly in arrears. The Series L Preferred Shares are not convertible into, or exchangeable for, any of our properties or securities. On or after five years from the date of issuance (or sooner under limited circumstances), we may redeem the Series L Preferred Shares at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption. The Series L Preferred Shares have no maturity date and will remain outstanding indefinitely unless redeemed by us. 176 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 26. Segment Information Effective January 1, 2012, as a result of certain organizational and operational changes, we redefined the New York business segment to encompass all of our Manhattan assets by including the 1.0 million square feet in 21 freestanding Manhattan street retail assets (formerly in our Retail segment), and the Hotel Pennsylvania and our interest in Alexander’s, Inc. (formerly in our Other segment). Accordingly, we have reclassified the prior period segment financial results to conform to the current year presentation. See note (4) on page 180 for the elements of the New York segment’s EBITDA. (Amounts in thousands) For the Year Ended December 31, 2012 Property rentals Straight-line rent adjustments Amortization of acquired below- market leases, net Total rentals Tenant expense reimbursements Cleveland Medical Mart development project Fee and other income: BMS cleaning fees Signage revenue Management and leasing fees Lease termination fees Other income Total revenues Operating expenses Depreciation and amortization General and administrative Cleveland Medical Mart development project Impairment losses, acquisition related costs and tenant buy-outs Total expenses Operating income (loss) Income applicable to Toys Income (loss) from partially owned entities Income from Real Estate Fund Interest and other investment (loss) income, net Interest and debt expense Net gain on disposition of wholly owned and partially owned assets Income (loss) before income taxes Income tax expense Income (loss) from continuing operations Income (loss) from discontinued operations Net income (loss) Less net (income) loss attributable to noncontrolling interests in: Consolidated subsidiaries Operating Partnership Preferred unit distributions of the Operating Partnership Net income (loss) attributable to Vornado Interest and debt expense(2) Depreciation and amortization(2) Income tax expense (benefit)(2) EBITDA(1) Balance Sheet Data: Real estate at cost Investments in partially owned entities Total assets See notes on page 180. $ Total 1,962,545 68,844 New York Washington, DC Properties 276,190 $ 1,004,078 9,379 52,117 467,972 $ 5,727 $ Toys Other $ 125,018 $ 763 - $ - 89,287 858 Retail Merchandise Mart 54,193 2,085,582 301,092 31,552 1,087,747 160,133 2,043 475,742 40,742 14,902 300,471 88,545 - 125,781 4,343 235,234 - - - 235,234 67,584 20,892 21,867 2,361 31,845 2,766,457 1,021,719 517,811 201,894 94,965 20,892 5,639 1,136 4,472 1,374,984 602,883 226,653 30,053 - - 12,775 643 24,126 554,028 194,523 138,296 27,237 - - 3,131 74 1,778 393,999 141,732 76,835 23,654 - - 231 508 1,574 367,671 65,337 33,778 18,899 226,619 - - - 226,619 - - - - - - - - - - - - - - 120,786 2,088,829 677,628 14,859 408,267 63,936 - 859,589 515,395 - 207,773 - - 360,056 193,972 - (5,612) - 103,400 345,621 48,378 - 1,458 - (260,945) (500,361) 4,230 (147,132) 126 (115,574) 27 (62,923) 13,347 416,731 (8,132) - 580,266 (3,491) - 72,912 (1,650) 8,491 (4,569) - - 344,633 23,038 - 729 - - (31,393) - (7,626) (502) - - - 14,859 - - - - - 14,859 - 5,696 95,841 7,329 - (27,381) - 91 - (105) 75,775 17,244 42,249 102,051 - 17,386 178,930 (103,155) - 203,919 63,936 (265,328) (143,339) 4,856 (239,111) (2,489) 408,599 576,775 71,262 (4,569) (8,128) 14,859 (241,600) 285,942 694,541 (641) 576,134 167,766 239,028 42,926 38,357 75,144 67,016 - 14,859 747 (240,853) (32,018) (35,327) (9,936) 617,260 760,523 735,293 7,026 2,120,102 $ (2,138) - - 573,996 187,855 252,257 3,751 $ 1,017,859 (3) $ - - - 239,028 133,625 157,816 1,943 532,412 $ 1,812 - - 40,169 73,828 86,529 - - - - - - - 67,016 35,423 39,596 12,503 14,859 147,880 135,179 (16,629) 200,526 (4) $ 154,538 $ 281,289 $ (31,692) (35,327) (9,936) (317,808) 181,912 63,916 5,458 (66,522)(5) $ 18,495,359 1,704,297 21,965,975 $ 8,915,981 576,336 9,116,364 $ 4,171,879 $ 3,009,816 7,083 3,589,633 95,670 4,196,694 $ 772,372 $ 3,567 1,246,975 - $ 1,625,311 543,600 3,338,268 478,041 478,041 177     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 26. Segment Information – continued (Amounts in thousands) For the Year Ended December 31, 2011 Property rentals Straight-line rent adjustments Amortization of acquired below- market leases, net Total rentals Tenant expense reimbursements Cleveland Medical Mart development project Fee and other income: BMS cleaning fees Signage revenue Management and leasing fees Lease termination fees Other income Total revenues Operating expenses Depreciation and amortization General and administrative Cleveland Medical Mart development project Impairment losses, acquisition related costs and tenant buy-outs Total expenses Operating income (loss) Income applicable to Toys Income (loss) from partially owned entities Income from Real Estate Fund Interest and other investment income (loss), net Interest and debt expense Net gain on disposition of wholly owned and partially owned assets Income (loss) before income taxes Income tax expense Income (loss) from continuing operations Income from discontinued operations Net income (loss) Less net (income) loss attributable to noncontrolling interests in: Consolidated subsidiaries Operating Partnership Preferred unit distributions of the Operating Partnership Net income (loss) attributable to Vornado Interest and debt expense(2) Depreciation and amortization(2) Income tax expense (benefit)(2) EBITDA(1) Balance Sheet Data: Real estate at cost Investments in partially owned entities Total assets See notes on page 180. $ Total 2,012,292 39,858 New York Washington, DC Properties 274,386 $ 6,723 531,510 $ (2,569) 979,032 34,446 $ Toys Other $ 136,404 $ (1,284) - $ - 90,960 2,542 Retail Merchandise Mart 62,105 2,114,255 314,752 40,958 1,054,436 165,433 2,160 531,101 36,299 13,969 295,078 96,805 - 135,120 6,321 154,080 - - - 154,080 61,754 19,823 21,801 16,334 30,037 2,732,836 995,586 524,550 208,008 90,033 19,823 5,095 11,839 6,457 1,353,116 578,344 221,520 26,808 - - 12,361 3,794 19,762 603,317 188,744 154,142 26,369 - - 3,990 467 1,862 398,202 133,403 77,433 25,489 - - 342 234 2,218 298,315 77,492 28,804 28,040 145,824 - - - 145,824 - - - - - - - - - - - - - - 35,299 1,909,267 823,569 48,540 70,072 22,886 23,777 850,449 502,667 - 12,062 - - 369,255 234,062 - (6,381) - 369 236,694 161,508 - 2,700 - 148,784 (526,175) 4,245 (152,386) 199 (115,456) (32) (70,952) 15,134 602,810 (23,925) - 366,588 (2,084) - 112,424 (2,690) 4,278 97,502 (34) 5,228 285,388 12,927 - 455 - 1 (31,208) - (17,825) (1,572) - - - 48,540 - - - - - 48,540 - 5,018 98,520 9,894 - (28,279) - 13 - (262) 79,886 17,603 42,651 101,302 - 5,925 167,481 (87,595) - 61,236 22,886 144,371 (156,173) 10,856 (4,419) (17,545) 578,885 364,504 109,734 97,468 (19,397) 48,540 (21,964) 161,115 740,000 563 365,067 52,390 162,124 31,815 129,283 72,971 53,574 - 48,540 3,376 (18,588) (21,786) (41,059) (14,853) (10,042) - - - - - 237 - - - - - - - - 662,302 797,920 777,421 4,812 2,242,455 $ $ 355,025 181,740 247,630 2,170 786,565 (3) $ 162,124 134,270 181,560 3,123 481,077 $ 129,520 82,608 91,040 34 303,202 (4) $ 53,574 40,916 46,725 2,237 48,540 157,135 134,967 (1,132) 143,452 $ 339,510 $ (11,981) (41,059) (14,853) (86,481) 201,251 75,499 (1,620) 188,649 (5) $ 16,703,757 1,740,459 20,446,487 $ 7,070,026 536,393 7,130,240 $ 4,176,894 $ 3,102,983 7,747 3,748,303 113,536 4,150,140 $ 746,498 $ 3,589 1,226,084 - $ 1,607,356 572,385 3,684,911 506,809 506,809 178     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 26. Segment Information – continued (Amounts in thousands) For the Year Ended December 31, 2010 New York Washington, DC Properties 256,654 $ 9,401 536,947 $ 6,089 944,322 51,385 $ Retail Merchandise Mart Property rentals Straight-line rent adjustments Amortization of acquired below- market leases, net Total rentals Tenant expense reimbursements Fee and other income: BMS cleaning fees Signage revenue Management and leasing fees Lease termination fees Other income Total revenues Operating expenses Depreciation and amortization General and administrative Impairment losses, acquisition related costs and tenant buy-outs Total expenses Operating income (loss) Income applicable to Toys Income (loss) from partially owned entities (Loss) from Real Estate Fund Interest and other investment income, net Interest and debt expense Net gain (loss) on extinguishment of debt Net gain on disposition of wholly owned and partially owned assets Income (loss) before income taxes Income tax (expense) benefit Income (loss) from continuing operations Income (loss) from discontinued operations Net income (loss) Less net (income) loss attributable to noncontrolling interests in: Consolidated subsidiaries Operating Partnership Preferred unit distributions of the Operating Partnership Net income (loss) attributable to Vornado Interest and debt expense(2) Depreciation and amortization(2) Income tax (benefit) expense(2) EBITDA(1) Balance Sheet Data: Real estate at cost Investments in partially owned entities Total assets See notes on the following page. $ Total 1,957,130 70,972 65,373 2,093,475 317,777 58,053 18,618 21,686 14,818 33,780 2,558,207 983,424 494,898 211,399 109,458 1,799,179 759,028 71,624 20,869 (303) 44,879 1,040,586 159,369 84,945 18,618 4,427 7,470 6,051 1,321,466 556,270 212,903 25,560 1,605 796,338 525,128 - 13,317 - 2,453 545,489 49,792 - - 15,934 1,148 20,594 632,957 202,569 136,391 25,454 - 364,414 268,543 - (564) - 12,384 278,439 93,032 - - 1,820 4,441 927 378,659 141,116 71,556 27,676 70,895 311,243 67,416 - 8,220 - 235,267 (539,370) 4,237 (145,406) 154 (125,272) 164 (63,265) 94,789 81,432 723,336 (22,137) - - 397,276 (2,167) - 105,571 54,742 197,603 (1,679) - 118,106 (37) Toys Other $ 132,120 $ 301 - $ - 87,087 3,796 - 132,421 5,274 - - 156 459 3,068 141,378 65,842 28,416 24,199 - 118,457 22,921 - (179) - 3 (31,208) - 765 (7,698) 29 - - - - - - - - - - - - - - - 71,624 - - - - - - 71,624 - 5,657 96,540 10,310 (26,892) - (651) 1,300 3,140 83,747 17,627 45,632 108,510 36,958 208,727 (124,980) - 75 (303) 230,709 (174,219) (10,782) 25,925 (53,575) (18,283) 701,199 395,109 195,924 118,069 (7,669) 71,624 (71,858) 6,832 708,031 168 395,277 4,143 200,067 19,061 137,130 (20,948) (28,617) - 71,624 4,408 (67,450) (4,920) (44,033) (11,195) (9,559) - - - - - (778) - - - - - - - - 5,417 (44,033) (11,195) 647,883 828,082 729,426 (23,036) 2,182,355 $ $ 385,718 158,249 218,766 1,311 764,044 (3) $ 200,067 136,174 159,283 2,027 497,551 $ 136,352 79,545 86,629 37 302,563 (4) $ (28,617) 61,379 51,064 232 71,624 177,272 131,284 (45,418) 84,058 $ 334,762 $ (117,261) 215,463 82,400 18,775 199,377 (5) $ 16,454,967 1,375,006 20,517,471 $ 6,999,784 273,536 6,611,632 $ 4,040,491 $ 3,076,114 6,251 3,591,244 149,295 3,872,209 $ 741,188 $ 4,183 1,435,714 - $ 1,597,390 494,407 4,559,338 447,334 447,334 179     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 26. Segment Information - continued  Notes to preceding tabular information: (1) EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a supplemental measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies. (2) Interest and debt expense, depreciation and amortization and income tax expense (benefit) in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities. (3) The elements of "New York" EBITDA are summarized below. (Amounts in thousands) Office Retail Alexander's Hotel Pennsylvania Total New York For the Year Ended December 31, 2011 2012 2010 $ $ 568,518 189,484 231,402 28,455 1,017,859 $ $ 539,734 163,033 53,663 30,135 786,565 $ $ 510,187 180,225 49,869 23,763 764,044 (4) The elements of "Retail Properties" EBITDA are summarized below. (Amounts in thousands) Strip shopping centers Regional malls Total Retail properties For the Year Ended December 31, 2011 2012 2010 $ $ 172,708 27,818 200,526 $ $ 210,022 93,180 303,202 $ $ 180,323 122,240 302,563 180     VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 26. Segment Information - continued  Notes to preceding tabular information: (5) The elements of "other" EBITDA from continuing operations are summarized below. (Amounts in thousands) Our share of Real Estate Fund: Income before net realized/unrealized gains Net unrealized gains Net realized gains Carried interest Total LNR (acquired in July 2010) 555 California Street Lexington Other investments Corporate general and administrative expenses(a) Investment income and other, net(a) Fee income from Alexander's (including a $6,423 sales commission in 2012) Non-cash impairment loss on J.C. Penney owned shares (Loss) income from the mark-to-market of J.C. Penney derivative position Purchase price fair value adjustment and accelerated amortization of discount on investment in subordinated debt of Independence Plaza Net gain resulting from Lexington's stock issuance and asset acquisition Acquisition related costs and impairment losses Verde Realty impairment loss Our share of impairment losses of partially owned entities Net gain on sale of residential condominiums Mezzanine loans loss reversal and net gain on disposition Net gain from Suffolk Downs' sale of a partial interest Real Estate Fund placement fees Net loss on extinguishment of debt Net income attributable to noncontrolling interests in the Operating Partnership Preferred unit distributions of the Operating Partnership For the Year Ended December 31, 2011 2012 2010 $ 4,926 $ 13,840 - 5,838 24,604 79,520 46,167 32,595 29,266 212,152 (90,567) 35,397 13,748 (224,937) (75,815) 105,366 28,763 (17,386) (4,936) (4,318) 1,274 - - - - (35,327) (9,936) (66,522) $ $ 4,205 $ 2,999 1,348 736 9,288 47,614 44,724 34,779 33,529 169,934 (85,922) 52,405 7,417 - 12,984 - 9,760 (5,925) - (13,794) 5,884 82,744 12,525 (3,451) - (41,059) (14,853) 188,649 $ 503 - - - 503 6,116 46,782 41,594 30,463 125,458 (90,343) 65,499 7,556 - 130,153 - 13,710 (36,958) - - 3,149 53,100 - (5,937) (10,782) (44,033) (11,195) 199,377 (a) The amounts in these captions (for this table only) exclude the mark-to-market of our deferred compensation plan assets and offsetting liability. 181                         ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures: Our management, with the participation of our 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 annual report on Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective. Internal Control Over Financial Reporting: There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) during the fourth quarter of the fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of Vornado Realty Trust, together with its consolidated subsidiaries (the “Company”), is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. As of December 31, 2012, management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that our internal control over financial reporting as of December 31, 2012 was effective. Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States, and that receipts and expenditures are being made only in accordance with authorizations of management and our trustees; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements. The effectiveness of our internal control over financial reporting as of December 31, 2012 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing on page 183, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2012. 182       REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Trustees Vornado Realty Trust New York, New York We have audited the internal control over financial reporting of Vornado Realty Trust, together with its consolidated subsidiaries (the “Company”) as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of trustees, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and trustees of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2012 of the Company and our report dated February 26, 2013 expressed an unqualified opinion on those financial statements and financial statement schedules. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey February 26, 2013 183 ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information relating to trustees of the Registrant, including its audit committee and audit committee financial expert, will be contained in a definitive Proxy Statement involving the election of trustees under the caption “Election of Trustees” which the Registrant will file with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 not later than 120 days after December 31, 2012, and such information is incorporated herein by reference. Also incorporated herein by reference is the information under the caption “16(a) Beneficial Ownership Reporting Compliance” of the Proxy Statement. The following is a list of the names, ages, principal occupations and positions with Vornado of the executive officers of Vornado and the positions held by such officers during the past five years. All executive officers of Vornado have terms of office that run until the next succeeding meeting of the Board of Trustees of Vornado following the Annual Meeting of Shareholders unless they are removed sooner by the Board. Name Steven Roth Age 71 Michael D. Fascitelli 56 Michael J. Franco 44 PRINCIPAL OCCUPATION, POSITION AND OFFICE (Current and during past five years with Vornado unless otherwise stated) Chairman of the Board; Chief Executive Officer from May 1989 to May 2009; Managing General Partner of Interstate Properties, an owner of shopping centers and an investor in securities and partnerships; Chief Executive Officer of Alexander’s, Inc. since March 1995, a Director since 1989, and Chairman since May 2004. Chief Executive Officer since May 2009; President and a Trustee since December 1996; President of Alexander’s Inc. since August 2000 and Director since December 1996; Partner at Goldman, Sachs & Co. in charge of its real estate practice from December 1992 to December 1996; and Vice President at Goldman, Sachs & Co., prior to December 1992. Executive Vice President - Co-Head of Acquisitions and Capital Markets since November 2010; Managing Director (2003-2010) and Executive Director (2001-2003) of the Real Estate Investing Group of Morgan Stanley. David R. Greenbaum 61 President of the New York Division since April 1997 (date of our acquisition); President of Mendik Realty (the predecessor to the New York Office division) from 1990 until April 1997. Joseph Macnow 67 Mitchell N. Schear Wendy Silverstein 54 52 Executive Vice President - Finance and Administration since January 1998 and Chief Financial Officer since March 2001; Vice President and Chief Financial Officer of the Company from 1985 to January 1998; Executive Vice President and Chief Financial Officer of Alexander's Inc. since August 1995. President of Vornado/Charles E. Smith L.P. (our Washington, DC division) since April 2003; President of the Kaempfer Company from 1998 to April 2003 (date acquired by us). Executive Vice President - Co-Head of Acquisitions and Capital Markets since November 2010; Executive Vice President of Capital Markets since 1998; Senior Credit Officer of Citicorp Real Estate and Citibank, N.A. from 1986 to 1998. The Registrant has adopted a Code of Business Conduct and Ethics that applies to, among others, Michael Fascitelli, its principal executive officer, and Joseph Macnow, its principal financial and accounting officer. This Code is available on our website at www.vno.com. 184     ITEM 11. EXECUTIVE COMPENSATION Information relating to executive officer and director compensation will be contained in the Proxy Statement referred to above in Item 10, “Directors, Executive Officers and Corporate Governance,” under the caption “Executive Compensation” and such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information relating to security ownership of certain beneficial owners and management will be contained in the Proxy Statement referred to in Item 10, “Directors, Executive Officers and Corporate Governance,” under the caption “Principal Security Holders” and such information is incorporated herein by reference. Equity compensation plan information The following table provides information as of December 31, 2012 regarding our equity compensation plans. Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the second column) 4,625,981 (1) - 4,625,981 $ $ 67.16 - 67.16 5,136,249 (2) - 5,136,249 Plan Category Equity compensation plans approved by security holders Equity compensation awards not approved by security holders Total ___________________________ (1) Includes an aggregate of 1,265,909 shares/units, comprised of (i) 48,020 restricted common shares, (ii) 832,425 restricted Operating Partnership units and (iii) 385,464 Out-Performance Plan units, which do not have an exercise price. (2) Based on awards being granted as "Full Value Awards," as defined. If we were to grant "Not Full Value Awards," as defined, the number of securities available for future grants would be 10,272,498. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information relating to certain relationships and related transactions will be contained in the Proxy Statement referred to in Item 10, “Directors, Executive Officers and Corporate Governance,” under the caption “Certain Relationships and Related Transactions” and such information is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information relating to Principal Accounting fees and services will be contained in the Proxy Statement referred to in Item 10, “Directors, Executive Officers and Corporate Governance,” under the caption “Ratification of Selection of Independent Auditors” and such information is incorporated herein by reference. 185             ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: PART IV 1. The consolidated financial statements are set forth in Item 8 of this Annual Report on Form 10-K. The following financial statement schedules should be read in conjunction with the financial statements included in Item 8 of this Annual Report on Form 10-K. II--Valuation and Qualifying Accounts--years ended December 31, 2012, 2011 and 2010 III--Real Estate and Accumulated Depreciation as of December 31, 2012 Pages in this Annual Report on Form 10-K 188 189 Schedules other than those listed above are omitted because they are not applicable or the information required is included in the consolidated financial statements or the notes thereto. The following exhibits listed on the Exhibit Index, which is incorporated herein by reference, are filed with this Annual Report on Form 10-K. Exhibit No. 10.45 12 21 23 31.1 31.2 32.1 32.2 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE Form of Vornado Realty Trust 2012 Outperformance Plan Award Agreement Computation of Ratios Subsidiaries of Registrant Consent of Independent Registered Public Accounting Firm Rule 13a-14 (a) Certification of Chief Executive Officer Rule 13a-14 (a) Certification of Chief Financial Officer Section 1350 Certification of the Chief Executive Officer Section 1350 Certification of the Chief Financial Officer XBRL Instance Document XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation Linkbase XBRL Taxonomy Extension Definition Linkbase XBRL Taxonomy Extension Label Linkbase XBRL Taxonomy Extension Presentation Linkbase 186       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. SIGNATURES VORNADO REALTY TRUST (Registrant) Date: February 26, 2013 By: /s/ Joseph Macnow Joseph Macnow, Executive Vice President - Finance and Administration and Chief Financial Officer (duly authorized officer and principal financial and accounting officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature By: /s/Steven Roth (Steven Roth) Title Date Chairman of the Board of Trustees February 26, 2013 By: /s/Michael D. Fascitelli (Michael D. Fascitelli) President and Chief Executive Officer (Principal Executive Officer) By: /s/Candace K. Beinecke (Candace K. Beinecke) Trustee By: /s/Robert P. Kogod (Robert P. Kogod) By: /s/Michael Lynne (Michael Lynne) Trustee Trustee By: /s/David Mandelbaum (David Mandelbaum) Trustee By: /s/Ronald G. Targan (Ronald G. Targan) Trustee By: /s/Daniel R. Tisch (Daniel R. Tisch) By: /s/Richard R. West (Richard R. West) Trustee Trustee By: /s/Russell B. Wight (Russell B. Wight, Jr.) Trustee February 26, 2013 February 26, 2013 February 26, 2013 February 26, 2013 February 26, 2013 February 26, 2013 February 26, 2013 February 26, 2013 February 26, 2013 By: /s/Joseph Macnow (Joseph Macnow) Executive Vice President — Finance and February 26, 2013 Administration and Chief Financial Officer (Principal Financial and Accounting Officer) 187 VORNADO REALTY TRUST SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS December 31, 2012 (Amounts in Thousands) Column A Column B Column D Column E Column C Additions Charged Against Balance at Beginning of Year Uncollectible Accounts Operations Written-off Balance at End of Year Description Year Ended December 31, 2012: Allowance for doubtful accounts Year Ended December 31, 2011: Allowance for doubtful accounts Year Ended December 31, 2010: Allowance for doubtful accounts $ 46,531 $ 140,780 $ 239,785 $ $ $ 9,697 (56,995) (23,893) $ $ $ (15,389) (37,254) (75,112) $ $ $ 40,839 46,531 140,780 188 VORNADO REALTY TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (Amounts in thousands) COLUMN A COLUMN B COLUMN C COLUMN D Initial cost to company (1) COLUMN E Gross amount at which carried at close of period Encumbrances Land Building and improvements Costs capitalized subsequent to acquisition Buildings and improvements Land Total (2) Description New York New York COLUMN F Accumulated depreciation and COLUMN G COLUMN H COLUMN I Life on which depreciation in latest income statement is computed Date acquired Date of amortization construction (3) $ Manhattan 1290 Avenue of the Americas 350 Park Avenue 666 Fifth Avenue (Retail Condo) One Penn Plaza 100 West 33rd Street (Manhattan Mall) 1540 Broadway Two Penn Plaza Manhattan Mall 1535 Broadway (Marriott Marquis) 770 Broadway 90 Park Avenue 888 Seventh Avenue Eleven Penn Plaza 909 Third Avenue 640 Fifth Avenue 1740 Broadway 150 East 58th Street 595 Madison Avenue 828-850 Madison Avenue 4 Union Square South 866 United Nations Plaza 510 Fifth Avenue 478-482 Broadway 20 Broad Street 40 Fulton Street 40 East 66th Street 155 Spring Street 689 Fifth Avenue 435 Seventh Avenue 692 Broadway 715 Lexington Avenue 677-679 Madison Avenue 484-486 Broadway 431 Seventh Avenue 330 West 34th Street 1135 Third Avenue 1540 Broadway Garage 148 Spring Street 150 Spring Street 950,000 $ 515,539 $ 300,000 - - 223,242 - 425,000 101,758 - 353,000 - 318,554 330,000 199,198 - - - - 80,000 120,000 44,978 31,253 - - - - - - 98,000 - - - - - - - - - - 265,889 188,359 - 242,776 105,914 53,615 88,595 - 52,898 8,000 - 40,333 - 38,224 26,971 39,303 62,731 107,937 24,079 32,196 34,602 20,000 - 15,732 13,616 13,700 19,721 19,893 6,053 - 13,070 10,000 16,700 - 7,844 4,086 3,200 3,200 923,653 $ 363,381 469,461 412,169 247,970 214,208 164,903 113,473 240,000 95,686 175,890 117,269 85,259 120,723 25,992 102,890 80,216 62,888 28,261 55,220 37,534 18,728 13,375 28,760 26,388 34,635 30,544 13,446 19,091 22,908 26,903 9,640 6,688 2,751 8,599 7,844 8,914 8,112 5,822 106,998 $ 515,539 $ 1,030,651 $ 1,546,190 $ 393,113 469,461 580,044 256,614 237,475 245,204 186,003 249,285 181,355 213,093 217,303 139,305 177,668 139,331 141,131 109,543 81,660 28,271 57,727 46,622 36,359 41,141 56,179 37,251 34,756 32,907 22,378 19,128 25,792 26,903 10,028 11,444 2,751 15,666 13,393 8,914 8,396 5,959 659,002 657,820 580,044 499,390 343,389 297,893 274,600 249,285 234,253 221,093 217,303 179,638 177,668 177,555 168,102 148,846 144,391 136,208 81,806 78,818 70,961 61,141 56,179 52,983 48,372 46,607 42,099 39,021 31,845 26,903 23,098 21,444 19,451 15,666 13,393 13,000 11,596 9,159 265,889 188,359 - 242,776 105,914 52,689 88,597 - 52,898 8,000 - 40,333 - 38,224 26,971 39,303 62,731 107,937 24,079 32,196 34,602 20,000 - 15,732 13,616 13,700 19,721 19,893 6,053 - 13,070 10,000 16,700 - - 4,086 3,200 3,200 29,732 - 167,875 8,644 23,267 79,375 72,532 9,285 85,669 37,203 100,034 54,046 56,945 113,339 38,241 29,327 18,772 10 2,507 9,088 17,631 27,766 27,419 10,863 121 2,363 8,932 37 2,884 - 388 4,756 - 7,067 (2,295) - 284 137 189 1963 1960 - 1972 1911 - 1968 2009 - 1907 1964 1980 1923 1969 1950 1950 1969 1968 - 1965/2004 1966 - 2009 1956 1987 - - 1925 2002 1923 2009 155,820 59,956 997 209,069 37,742 22,664 109,603 31,710 - 65,263 84,188 82,773 55,524 55,447 57,145 51,424 41,540 26,006 5,418 12,152 19,111 1,764 4,395 17,293 12,384 6,067 4,772 7,658 4,995 4,591 5,174 1,632 1,122 395 5,165 - 1,461 946 703 2007 2006 2012 1998 2007 2006 1997 2007 2012 1998 1997 1998 1997 1999 1997 1997 1998 1999 2005 1993 1997 2010 2007 1998 1998 2005 2007 1998 1997 2005 2001 2006 2007 2007 1998 1997 2006 2008 2008 (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) COLUMN A COLUMN B COLUMN C VORNADO REALTY TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (Amounts in thousands) COLUMN D COLUMN E Gross amount at which carried at close of period Initial cost to company (1) Building and improvements Land Costs capitalized subsequent to acquisition Buildings and improvements Land Total (2) amortization construction (3) Encumbrances - $ $ - - - - - 3,574,983 1,693 $ 10,650 - 3,856 1,483 - 2,112,458 6,507 $ 1,767 - 762 697 5,548 4,445,475 545 $ - $ (4,674) 5,513 18 33 75,473 1,228,150 6,859 - 3,856 1,483 36,096 2,134,302 8,745 $ 884 5,513 780 730 44,925 5,651,781 8,745 $ 7,743 5,513 4,636 2,213 81,021 7,786,083 - 112 - 304 279 6,611 1,271,375 COLUMN F Accumulated depreciation and Date of COLUMN G COLUMN H COLUMN I Life on which depreciation in latest income statement is computed (4) (4) (4) (4) (4) Date acquired 2011 2007 2012 1997 1997 - - 1932 - - 334,225 309,848 527,588 (10) 309,848 527,578 837,426 366 1974 2012 - - - 24,254 1,033 23,221 24,254 14,991 1967 1987 - 29,904 121,712 75,865 29,904 197,577 227,481 74,266 1919 1997 3,909,208 2,452,210 5,094,775 1,328,259 2,475,087 6,400,157 8,875,244 1,360,998 (4) (4) (4) 270,922 100,935 409,920 121,589 100,228 532,216 632,444 162,833 1984-1989 2002 (4) 73,939 57,213 131,206 192,915 57,070 324,264 381,334 77,865 1964-1969 2002 117,390 259,546 460,093 87,221 101,671 150,000 - 47,353 115,022 140,056 46,860 - - 46,366 - 64,817 118,421 41,986 47,594 67,049 32,815 37,551 - 30,077 12,266 36,303 33,481 104,473 33,090 106,946 218,330 125,078 221,869 177,373 5,039 51,642 118,806 105,475 98,962 75,343 82,004 67,363 55 61,316 1,326 66,934 60,515 26,615 64,652 138,696 41,862 47,465 68,198 39,768 37,551 - 30,176 12,231 35,886 34,178 87,666 32,726 83,400 27,022 105,980 82,520 (13,719) 31,720 1,335 34,625 3,704 2,439 (10,212) (5,311) (21,224) 190 285,429 165,318 248,608 204,524 109,870 127,209 105,087 137,195 100,198 110,003 86,125 69,105 6,650 56,369 3,648 350,081 304,014 290,470 251,989 178,068 166,977 142,638 137,195 130,374 122,234 122,011 103,283 94,316 89,095 87,048 81,804 24,203 71,548 60,481 8,647 21,412 28,021 43,164 19,192 30,706 15,617 2,432 - 10,246 1,330 1974-1980 - 1973-1984 1983-1987 - 1975 1968 1988-1989 2004 1988 1963 - - 1956 - 2002 2007 2002 2002 2007 2003 2002 2002 2005 2002 2007 2011 2007 2007 2007 (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) Description 334 Canal Street 488 Eighth Avenue 608 Fifth Avenue 484 Eighth Avenue 825 Seventh Avenue Other (Primarily Signage) Total New York   Residential Independence Plaza New Jersey Paramus Other Properties Hotel Pennsylvania Total New York Washington, DC Washington, DC 2011-2451 Crystal Drive 2001 Jefferson Davis Highway, 2100/2200 Crystal Drive, 223 23rd Street, 2221 South Clark Street, Crystal City Shops at 2100, 220 20th Street 1550-1750 Crystal Drive/ 241-251 18th Street Riverhouse Apartments Skyline Place (6 buildings) 1215, 1225 S. Clark Street/ 200, 201 12th Street S. 1229-1231 25th Street (West End 25) 2101 L Street 1800, 1851 and 1901 South Bell Street 2200 / 2300 Clarendon Blvd Bowen Building - 875 15th Street, NW One Skyline Tower 1875 Connecticut Ave, NW 1399 New York Avenue, NW H Street - North 10-1D Land Parcel 1825 Connecticut Ave, NW Warehouses COLUMN A COLUMN B COLUMN C COLUMN D Initial cost to company (1) COLUMN E Gross amount at which carried at close of period VORNADO REALTY TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (Amounts in thousands) Building and improvements Costs capitalized subsequent to acquisition Buildings and improvements Encumbrances - $ $ - 104,808 - 28,728 - 14,853 - - - - - - - Land 15,826 $ 13,401 10,292 8,000 23,359 20,020 10,095 9,450 - - 11,541 4,009 1,763 - 2,064,828 1,052,773 53,894 $ 58,705 58,351 47,191 24,876 30,032 17,541 22,062 33,628 20,465 178 6,273 641 51,767 2,376,711 16,089 $ 13,471 (2,859) 8,945 14,859 1,951 9,701 2,969 (732) 5,952 (207) (2,410) 41 (48,216) 727,001 Land 15,826 $ 13,363 10,262 8,000 24,723 21,170 10,687 9,455 - - 11,597 - 1,763 - 1,038,599 69,983 $ 72,214 55,522 56,136 38,371 30,833 26,650 25,026 32,896 26,417 (85) 7,872 682 3,551 3,117,886 85,809 $ 85,577 65,784 64,136 63,094 52,003 37,337 34,481 32,896 26,417 11,512 7,872 2,445 3,551 4,156,485 COLUMN F Accumulated depreciation and Total (2) amortization construction (3) Date of COLUMN G COLUMN H COLUMN I Life on which depreciation in latest income statement is computed (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) Date acquired 2002 2002 2002 2004 2002 2002 2002 2006 2002 2004 2007 2005 2005 1981 1985-1989 2001 1968 1970 1964 1963 1964 1987 2004 Description 1235 S. Clark Street Commerce Executive Seven Skyline Place Crystal City Hotel 1150 17th Street 1750 Pennsylvania Avenue 1730 M Street 1726 M Street Democracy Plaza One Crystal Drive Retail 1109 South Capitol Street South Capitol H Street Other Total Washington, DC Retail Properties California Los Angeles (Beverly Connection) San Jose Walnut Creek (1149 S. Main St) Pasadena Signal Hill Walnut Creek (1556 Mount Diablo Blvd) San Bernadino (1522 E. Highland Ave) Corona Vallejo San Bernadino (648 W. 4th St) Mojave Barstow Colton (1904 North Rancho Avenue) Moreno Valley Rialto Desert Hot Springs Yucaipa Riverside (5571 Mission Blvd) Total California Connecticut Waterbury Newington Total Connecticut Florida - 104,856 - - - - - - - - - - - - - - - - 104,856 72,996 42,836 2,699 - 9,652 5,909 1,651 - - 1,597 - 856 1,239 639 434 197 663 209 141,577 14,226 11,437 25,663 667 2,421 3,088 131,510 104,262 19,930 18,337 2,940 - 1,810 3,073 2,945 1,119 2,250 1,367 954 1,156 1,173 1,355 426 704 295,311 4,504 1,200 5,704 24,412 990 - 2,248 1 1,304 (675) - - (1,204) - (460) - 8 (355) - - - 26,269 4,853 872 5,725 72,996 42,836 2,699 - 9,652 5,908 1,329 - - 889 - 679 1,239 639 338 197 663 209 140,273 667 2,421 3,088 155,922 105,252 19,930 20,585 2,941 1,305 1,457 3,073 2,945 623 2,250 1,084 954 1,164 914 1,355 426 704 322,884 9,357 2,072 11,429 228,918 148,088 22,629 20,585 12,593 7,213 2,786 3,073 2,945 1,512 2,250 1,763 2,193 1,803 1,252 1,552 1,089 913 463,157 10,024 4,493 14,517 2008 2008 1969 1965 2005 2010 2006 2007 2006 2007 2004 2004 2006 2004 2004 2004 2004 2004 2004 2004 2004 2004 1969 1965 (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) Tampa (Hyde Park Village) 19,126 8,000 23,293 5,841 6,724 30,410 37,134 6,005 2005 (4) 191 17,726 22,476 14,530 11,232 12,148 8,454 9,054 4,290 13,558 9,130 - - 126 11 782,236 22,556 6,568 3,577 2,862 459 11 307 647 457 132 473 229 201 243 193 285 90 148 39,438 6,041 821 6,862 COLUMN A COLUMN B COLUMN C COLUMN D Initial cost to company (1) COLUMN E Gross amount at which carried at close of period VORNADO REALTY TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (Amounts in thousands) Encumbrances Land Building and improvements Costs capitalized subsequent to acquisition Buildings and improvements Land Total (2) COLUMN F Accumulated depreciation and COLUMN G COLUMN H COLUMN I Life on which depreciation in latest income statement is computed Date acquired Date of amortization construction (3) Description Illinois Lansing Iowa Dubuque Maryland Rockville Baltimore (Towson) Annapolis Wheaton Total Maryland Massachusetts Springfield Chicopee Cambridge Total Massachusetts Michigan Roseville Battle Creek Midland Total Michigan New Hampshire Salem New Jersey $ - $ 2,135 $ 1,064 $ 71 $ 2,135 $ 1,135 $ 3,270 $ 175 - - 1,479 - - 1,479 1,479 230 - 15,900 - - 15,900 5,830 8,452 - 14,282 - - - - 3,470 581 - - 4,051 2,797 895 - 3,692 30 1,264 - 1,294 20,599 3,227 9,652 5,367 38,845 2,471 - - 2,471 6,128 2,144 133 8,405 100 10,109 - - 10,209 592 - 260 852 1,461 (2,443) 86 (896) 3,470 581 - - 4,051 2,797 895 - 3,692 30 264 - 294 20,699 13,336 9,652 5,367 49,054 3,063 - 260 3,323 7,589 701 219 8,509 24,169 13,917 9,652 5,367 53,105 5,860 895 260 7,015 7,619 965 219 8,803 4,032 4,781 2,454 839 12,106 849 - 121 970 2,005 109 92 2,206 1968 1993 1969 - 6,083 - - 6,083 - 6,083 - 2006 2006 2005 1968 2005 2006 1966 1969 2005 2006 2006 2006 Paramus (Bergen Town Center) North Bergen (Tonnelle Ave) Union (Springfield Avenue) East Rutherford Wayne Towne Center East Hanover I and II Garfield Lodi (Washington Street) Englewood Bricktown North Plainfield Hazlet Totowa Carlstadt 282,312 75,000 29,010 13,836 - 43,571 - 8,940 11,924 32,525 - - 25,217 - 19,884 24,493 19,700 - - 2,232 45 7,606 2,300 1,391 500 7,400 120 - 81,723 - 45,090 36,727 26,137 18,241 8,068 13,125 17,245 11,179 13,983 9,413 11,994 16,457 370,825 64,346 - 60 6,190 10,563 21,646 313 (6,827) 6,175 2,696 - 4,561 12 37,635 31,806 19,700 - - 2,671 45 7,606 1,495 1,391 500 7,400 120 - 434,797 57,033 45,090 36,787 32,327 28,365 29,714 13,438 11,223 17,354 16,679 9,413 16,555 16,469 472,432 88,839 64,790 36,787 32,327 31,036 29,759 21,044 12,718 18,745 17,179 16,813 16,675 16,469 55,752 6,070 6,294 3,880 1,519 14,016 3,942 2,680 1,568 10,987 12,719 1,314 11,897 2,133 1957/2009 2009 2007 1962 2009 1968 1955 1957/1999 2003 2006 2007 2007 2010 1962/1998 1998 2004 2007 1968 1989 2007 1957 2007 192 (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) COLUMN A COLUMN B COLUMN C COLUMN D Initial cost to company (1) COLUMN E Gross amount at which carried at close of period VORNADO REALTY TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (Amounts in thousands) Building and improvements Land Costs capitalized subsequent to acquisition Buildings and improvements Land Total (2) amortization construction (3) COLUMN F Accumulated depreciation and Description East Brunswick II (339-341 Route 18 S.) $ Marlton Manalapan Union (Route 22 and Morris Ave) Hackensack Cherry Hill South Plainfield Watchung Dover Lodi (Route 17 N.) East Brunswick I (325-333 Route 18 S.) Jersey City Morris Plains Middletown Woodbridge Delran Lawnside Kearny Bordentown North Bergen (Kennedy Blvd) Montclair Encumbrances 11,995 $ 17,574 21,423 32,916 41,283 14,115 5,216 15,342 13,389 11,548 25,328 20,642 21,758 17,685 21,033 - 10,879 - - 5,188 2,678 832,327 2,098 $ 1,611 725 3,025 692 5,864 - 4,178 559 238 319 652 1,104 283 1,509 756 851 309 498 2,308 66 113,316 Total New Jersey New York Bronx (Bruckner Blvd) Hicksville (Broadway Mall) Poughkeepsie Huntington Mt. Kisco Bronx (1750-1780 Gun Hill Road) Staten Island Inwood Queens (99-01 Queens Blvd) West Babylon Buffalo (Amherst) Freeport (437 E. Sunrise Highway) Dewitt Oceanside - 85,180 - 16,960 28,637 - 16,939 - - - - 21,758 - - 66,100 126,324 12,733 21,200 22,700 6,427 11,446 12,419 7,839 6,720 5,743 1,231 - 2,710 10,949 $ 3,464 7,189 7,470 10,219 2,694 10,044 5,463 6,363 9,446 6,220 7,495 6,411 5,248 2,675 4,468 3,164 3,376 3,176 636 419 425,971 259,503 48,904 12,026 33,667 26,700 11,885 21,262 19,097 20,392 13,786 4,056 4,747 7,116 2,306 2,888 $ 10,122 5,620 2,469 1,687 3,637 1,469 1,545 2,986 - 2,764 468 952 1,951 1,779 734 1,220 1,211 1,178 48 381 525,669 2,098 $ 1,611 1,046 3,025 692 4,864 - 4,441 559 238 319 652 1,104 283 1,539 756 851 309 713 2,308 66 137,843 512 (65,818) 17,142 191 416 18,541 787 519 2,099 69 8,520 1,419 - - 66,100 75,179 8,469 21,200 23,297 6,428 11,446 12,419 7,839 6,720 5,107 1,231 - 2,710 13,837 $ 13,586 12,488 9,939 11,906 7,331 11,513 6,745 9,349 9,446 8,984 7,963 7,363 7,199 4,424 5,202 4,384 4,587 4,139 684 800 927,113 15,935 $ 15,197 13,534 12,964 12,598 12,195 11,513 11,186 9,908 9,684 9,303 8,615 8,467 7,482 5,963 5,958 5,235 4,896 4,852 2,992 866 1,064,956 260,015 34,231 33,432 33,858 26,519 30,425 22,049 19,616 22,491 13,855 13,212 6,166 7,116 2,306 326,115 109,410 41,901 55,058 49,816 36,853 33,495 32,035 30,330 20,575 18,319 7,397 7,116 5,016 8,536 7,220 8,124 4,815 8,971 4,050 1,438 3,665 6,057 3,127 8,777 2,428 6,620 5,254 2,496 5,152 4,099 3,392 4,022 428 674 234,116 38,965 6,007 4,506 4,375 3,351 3,165 4,921 3,881 4,925 2,003 4,718 5,029 1,101 322 193 Date of 1972 1973 1971 1962 1963 1964 COLUMN G COLUMN H COLUMN I Life on which depreciation in latest income statement is computed (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) Date acquired 1972 1973 1971 1962 1963 1964 2007 1959 1964 1975 1957 1965 1985 1963 1959 1972 1969 1959 1958 1959 1972 1994 1964 1999 1957 1965 1961 1963 1959 1972 1969 1938 1958 1993 1972 2009 2009 1968 1981 2007 2005 2005 2007 2007 2005 2004 2004 2004 2007 1968 1981 2006 2007 (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) COLUMN A COLUMN B COLUMN C COLUMN D Initial cost to company (1) COLUMN E Gross amount at which carried at close of period VORNADO REALTY TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (Amounts in thousands) Description Albany (Menands) Rochester Freeport (240 West Sunrise Highway) Commack New Hyde Park Total New York Encumbrances - $ $ 4,463 - - - 173,937 Building and improvements Land 460 $ 2,172 - - - 306,224 2,091 $ - - 43 4 487,585 Costs capitalized subsequent to acquisition Buildings and improvements Land Total (2) 2,340 $ - 260 207 - (12,796) 460 $ 2,172 - - - 250,777 4,431 $ - 260 250 4 530,236 4,891 $ 2,172 260 250 4 781,013 COLUMN F Accumulated depreciation and amortization construction (3) Date of COLUMN G COLUMN H COLUMN I Life on which depreciation in latest income statement is computed (4) (4) (4) (4) (4) Date acquired 1965 1966 2005 2006 1976 1965 1966 1970 3,476 - 106 6 4 90,861 3,408 12,569 3,212 5,485 3,704 2,832 422 1,941 - 33,573 568 373 491 543 2,484 3,027 1957 1972/1999 1966 1970 1966 1966 1975 2007 1957 1972 1966 1970 1966 1966 1975 2005 2006 2006 2006 2006 2005 2006 2006 (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) 20,201 30,517 15,147 5,691 5,300 10,879 5,495 6,974 - 100,204 6,053 187 2,727 827 409 850 3,140 850 - 15,043 26,646 15,580 6,698 5,200 2,568 2,171 63 1,820 - 60,746 - - 3,634 - 1,521 2,386 375 479 1,840 513 1,772 1,425 564 568 80 7,616 - - 6,053 187 2,727 839 409 850 3,140 850 - 15,055 27,021 16,059 8,538 5,701 4,340 3,596 627 2,388 80 68,350 33,074 16,246 11,265 6,540 4,749 4,446 3,767 3,238 80 83,405 - 3,634 3,634 1,521 2,386 3,907 - - - - - 458 33 - 491 491 49,516 - 49,516 265,964 3,927 269,891 (58,248) 15 (58,233) 849 - 849 256,383 3,942 260,325 257,232 3,942 261,174 - 7,830 27,490 2,478 7,830 29,968 37,798 4,961 - - 174 102 - 276 276 79 194 Pennsylvania Wilkes-Barre Allentown Bensalem Bethlehem York Broomall Lancaster Glenolden Springfield Total Pennsylvania South Carolina Charleston Tennessee Antioch Texas Texarkana Virginia Springfield (Springfield Mall) Norfolk Total Virginia Washington, DC 3040 M Street Wisconsin Fond Du Lac Description Puerto Rico Las Catalinas Montehiedra Total Puerto Rico Other Merchandise Mart Illinois Merchandise Mart, Chicago 527 W. Kinzie, Chicago Total Illinois New York 7 West 34th Street MMPI Piers Total New York Ohio Cleveland Medical Mart COLUMN A COLUMN B COLUMN C COLUMN D Initial cost to company (1) COLUMN E Gross amount at which carried at close of period VORNADO REALTY TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (Amounts in thousands) Encumbrances Land Building and improvements Costs capitalized subsequent to acquisition Buildings and improvements Land Total (2) COLUMN F Accumulated depreciation and COLUMN G COLUMN H COLUMN I Life on which depreciation in latest income statement is computed Date acquired Date of amortization construction (3) $ 54,101 $ 120,000 174,101 15,280 $ 9,182 24,462 64,370 $ 66,751 131,121 8,916 $ 5,830 14,746 15,281 $ 9,267 24,548 73,285 $ 72,496 145,781 88,566 $ 81,763 170,329 26,746 27,961 54,707 1996 1996 2002 1997 - - - 5,345 - 5,345 5,345 374 (4) (4) (4) Total Retail Properties 1,460,396 687,832 1,786,028 533,031 604,763 2,402,128 3,006,891 491,122 550,000 - 550,000 64,528 5,166 69,694 34,614 - 34,614 - - - - 319,146 - 319,146 94,167 - 94,167 199,701 - 199,701 34,101 10,826 44,927 64,535 5,166 69,701 34,614 - 34,614 518,840 - 518,840 128,268 10,826 139,094 583,375 5,166 588,541 162,882 10,826 173,708 168,346 - 168,346 36,573 525 37,098 1930 1998 (4) 1901 2000 2008 (4) (4) - - 167 - 167 167 - 2009 (4) Total Merchandise Mart 550,000 104,308 413,313 244,795 104,315 658,101 762,416 205,444 Warehouse/Industrial New Jersey East Hanover Total Warehouse/Industrial Other 555 California Street 220 Central Park South Borgata Land, Atlantic City, NJ 40 East 66th Residential 677-679 Madison Other Total Other Leasehold Improvements Equipment and Other Total December 31, 2012 - - 576 576 7,752 7,752 9,030 9,030 691 691 16,667 16,667 17,358 17,358 13,785 13,785 1972 1972 (4) 600,000 123,750 60,000 - - - 783,750 221,903 115,720 83,089 29,199 1,462 28,052 479,425 893,324 16,420 7 85,798 1,058 - 996,607 47,495 122,145 (4) (77,582) 284 (16,769) 75,569 221,903 - 83,089 14,541 1,626 9,364 330,523 940,819 254,285 3 22,874 1,178 1,919 1,221,078 1,162,722 254,285 83,092 37,415 2,804 11,283 1,551,601 - - - 125,364 - 125,364 125,364 $ 8,768,182 $ 4,777,124 $ 10,675,186 $ 3,043,049 $ 4,553,978 $ 13,941,381 $ 18,495,359 $ 2007 2005 2010 2005 2006 2005 (4) (4) (4) (4) (4) (4) 142,842 1922/1969/1970 - - 3,745 243 3 146,833 96,656 3,097,074 195 VORNADO REALTY TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Notes: (1) (2) (3) (4) Initial cost is cost as of January 30, 1982 (the date on which Vornado commenced real estate operations) unless acquired subsequent to that date see Column H. The net basis of the Company’s assets and liabilities for tax purposes is approximately $3.8 billion lower than the amount reported for financial statement purposes. Date of original construction –– many properties have had substantial renovation or additional construction –– see Column D. Depreciation of the buildings and improvements are calculated over lives ranging from the life of the lease to forty years. 196 VORNADO REALTY TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (AMOUNTS IN THOUSANDS) The following is a reconciliation of real estate assets and accumulated depreciation: Year Ended December 31, 2011 2010 2012 $ 16,703,757 $ 16,454,967 $ 16,344,244 514,950 1,615,077 18,833,784 338,425 347,345 324,114 17,015,703 560,736 $ 18,495,359 $ 16,703,757 $ 16,454,967 33,481 315,762 16,804,210 100,453 $ $ 2,894,374 $ 427,189 3,321,563 224,489 3,097,074 $ 2,530,945 $ 452,793 2,983,738 89,364 2,894,374 $ 2,228,425 428,788 2,657,213 126,268 2,530,945 Real Estate Balance at beginning of period Additions during the period: Land Buildings & improvements Less: Assets sold and written-off Balance at end of period Accumulated Depreciation Balance at beginning of period Additions charged to operating expenses Less: Accumulated depreciation on assets sold and written-off Balance at end of period 197 EXHIBIT INDEX Exhibit No. 3.1 3.2 - Articles of Restatement of Vornado Realty Trust, as filed with the State Department of Assessments and Taxation of Maryland on July 30, 2007 - Incorporated by reference to Exhibit 3.75 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (File No. 001-11954), filed on July 31, 2007 - Amended and Restated Bylaws of Vornado Realty Trust, as amended on March 2, 2000 - Incorporated by reference to Exhibit 3.12 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000 3.3 - Articles Supplementary, 6.875% Series J Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by reference to Exhibit 3.2 of Vornado Realty Trust's Registration Statement on Form 8-A (File No. 001-11954), filed on April 20, 2011 3.4 - Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P., dated as of October 20, 1997 (the “Partnership Agreement”) – Incorporated by reference to Exhibit 3.26 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003 * * * * 3.5 - Amendment to the Partnership Agreement, dated as of December 16, 1997 – Incorporated by * reference to Exhibit 3.27 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003 3.6 - Second Amendment to the Partnership Agreement, dated as of April 1, 1998 – Incorporated by reference to Exhibit 3.5 to Vornado Realty Trust’s Registration Statement on Form S-3 (File No. 333-50095), filed on April 14, 1998 3.7 - Third Amendment to the Partnership Agreement, dated as of November 12, 1998 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on November 30, 1998 3.8 - Fourth Amendment to the Partnership Agreement, dated as of November 30, 1998 - Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on February 9, 1999 * * * 3.9 - Fifth Amendment to the Partnership Agreement, dated as of March 3, 1999 - Incorporated by * reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on March 17, 1999 3.10 3.11 3.12 - Sixth Amendment to the Partnership Agreement, dated as of March 17, 1999 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on July 7, 1999 - Seventh Amendment to the Partnership Agreement, dated as of May 20, 1999 - Incorporated by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on July 7, 1999 - Eighth Amendment to the Partnership Agreement, dated as of May 27, 1999 - Incorporated by reference to Exhibit 3.4 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on July 7, 1999 3.13 - Ninth Amendment to the Partnership Agreement, dated as of September 3, 1999 - Incorporated by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on October 25, 1999 * * * * * _______________________ Incorporated by reference. 198     3.14 - Tenth Amendment to the Partnership Agreement, dated as of September 3, 1999 - Incorporated by reference to exhibit 3,4 to Vornado Realty Trust's Current Report on Form 8-K (File No. 001-11954), filed on October 25, 1999 3.15 - Eleventh Amendment to the Partnership Agreement, dated as of November 24, 1999 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on December 23, 1999 3.16 - Twelfth Amendment to the Partnership Agreement, dated as of May 1, 2000 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on May 19, 2000 3.17 - Thirteenth Amendment to the Partnership Agreement, dated as of May 25, 2000 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on June 16, 2000 3.18 - Fourteenth Amendment to the Partnership Agreement, dated as of December 8, 2000 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on December 28, 2000 3.19 - Fifteenth Amendment to the Partnership Agreement, dated as of December 15, 2000 - Incorporated by reference to Exhibit 4.35 to Vornado Realty Trust’s Registration Statement on Form S-8 (File No. 333-68462), filed on August 27, 2001 3.20 3.21 - Sixteenth Amendment to the Partnership Agreement, dated as of July 25, 2001 - Incorporated by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001 11954), filed on October 12, 2001 - Seventeenth Amendment to the Partnership Agreement, dated as of September 21, 2001 - Incorporated by reference to Exhibit 3.4 to Vornado Realty Trust’s Current Report on Form 8 K (File No. 001-11954), filed on October 12, 2001 3.22 - Eighteenth Amendment to the Partnership Agreement, dated as of January 1, 2002 - Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K/A (File No. 001-11954), filed on March 18, 2002 3.23 3.24 - Nineteenth Amendment to the Partnership Agreement, dated as of July 1, 2002 - Incorporated by reference to Exhibit 3.47 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 001-11954), filed on August 7, 2002 - Twentieth Amendment to the Partnership Agreement, dated April 9, 2003 - Incorporated by reference to Exhibit 3.46 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003 3.25 - Twenty-First Amendment to the Partnership Agreement, dated as of July 31, 2003 - Incorporated by reference to Exhibit 3.47 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (File No. 001-11954), filed on November 7, 2003 3.26 3.27 - Twenty-Second Amendment to the Partnership Agreement, dated as of November 17, 2003 – Incorporated by reference to Exhibit 3.49 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 001-11954), filed on March 3, 2004 - Twenty-Third Amendment to the Partnership Agreement, dated May 27, 2004 – Incorporated by reference to Exhibit 99.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on June 14, 2004 * * * * * * * * * * * * * * * _______________________ Incorporated by reference. 199     3.28 - Twenty-Fourth Amendment to the Partnership Agreement, dated August 17, 2004 – Incorporated by reference to Exhibit 3.57 to Vornado Realty Trust and Vornado Realty L.P.’s Registration Statement on Form S-3 (File No. 333-122306), filed on January 26, 2005 3.29 - Twenty-Fifth Amendment to the Partnership Agreement, dated November 17, 2004 – Incorporated by reference to Exhibit 3.58 to Vornado Realty Trust and Vornado Realty L.P.’s Registration Statement on Form S-3 (File No. 333-122306), filed on January 26, 2005 3.30 - Twenty-Sixth Amendment to the Partnership Agreement, dated December 17, 2004 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on December 21, 2004 3.31 - Twenty-Seventh Amendment to the Partnership Agreement, dated December 20, 2004 – Incorporated by reference to Exhibit 3.2 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on December 21, 2004 3.32 - Twenty-Eighth Amendment to the Partnership Agreement, dated December 30, 2004 - Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on January 4, 2005 * * * * * 3.33 - Twenty-Ninth Amendment to the Partnership Agreement, dated June 17, 2005 - Incorporated * by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on June 21, 2005 3.34 - Thirtieth Amendment to the Partnership Agreement, dated August 31, 2005 - Incorporated by * reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on September 1, 2005 3.35 - Thirty-First Amendment to the Partnership Agreement, dated September 9, 2005 - Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on September 14, 2005 3.36 - Thirty-Second Amendment and Restated Agreement of Limited Partnership, dated as of December 19, 2005 – Incorporated by reference to Exhibit 3.59 to Vornado Realty L.P.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (File No. 000-22685), filed on May 8, 2006 3.37 - Thirty-Third Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of April 25, 2006 – Incorporated by reference to Exhibit 10.2 to Vornado Realty Trust’s Form 8-K (File No. 001-11954), filed on May 1, 2006 3.38 - Thirty-Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of May 2, 2006 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on May 3, 2006 3.39 - Thirty-Fifth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of August 17, 2006 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Form 8-K (File No. 000-22685), filed on August 23, 2006 3.40 - Thirty-Sixth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of October 2, 2006 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Form 8-K (File No. 000-22685), filed on January 22, 2007 * * * * * * * _______________________ Incorporated by reference. 200     3.41 3.42 3.43 3.44 3.45 3.46 3.47 3.48 4.1 4.2 - - - - - - - - - - Thirty-Seventh Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on June 27, 2007 Thirty-Eighth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.2 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on June 27, 2007 Thirty-Ninth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.3 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on June 27, 2007 Fortieth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.4 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on June 27, 2007 Forty-First Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of March 31, 2008 – Incorporated by reference to Exhibit 3.44 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (file No. 001-11954), filed on May 6, 2008 * * * * * Forty-Second Amendment to Second Amended and Restated Agreement of Limited Partnership, * dated as of December 17, 2010 – Incorporated by reference to Exhibit 99.1 to Vornado Realty L.P.'s Current Report on Form 8-K (File No. 000-22685), filed on December 21, 2010 Forty-Third Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of April 20, 2011 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.'s Current Report on Form 8-K (File No. 000-22685), filed on April 21, 2011 Forty-Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership dated as of July 18, 2012 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 001-34482), filed on July 18, 2012 Indenture, dated as of November 25, 2003, between Vornado Realty L.P. and The Bank of New York, as Trustee - Incorporated by reference to Exhibit 4.10 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File No. 001-11954), filed on April 28, 2005 Indenture, dated as of November 20, 2006, among Vornado Realty Trust, as Issuer, Vornado Realty L.P., as Guarantor and The Bank of New York, as Trustee – Incorporated by reference to Exhibit 4.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on November 27, 2006 Certain instruments defining the rights of holders of long-term debt securities of Vornado Realty Trust and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. Vornado Realty Trust hereby undertakes to furnish to the Securities and Exchange * * * * * _______________________ Incorporated by reference. 201     10.1 10.2 - Master Agreement and Guaranty, between Vornado, Inc. and Bradlees New Jersey, Inc. dated as of May 1, 1992 - Incorporated by reference to Vornado, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 (File No. 001-11954), filed May 8, 1992 - Registration Rights Agreement between Vornado, Inc. and Steven Roth, dated December 29, 1992 - Incorporated by reference to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 001-11954), filed February 16, 1993 10.3 ** - Stock Pledge Agreement between Vornado, Inc. and Steven Roth dated December 29, 1992 - Incorporated by reference to Vornado, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 001-11954), filed February 16, 1993 * * * 10.4 ** - Management Agreement between Interstate Properties and Vornado, Inc. dated July 13, 1992 * - Incorporated by reference to Vornado, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 001-11954), filed February 16, 1993 10.5 ** - Employment Agreement, dated as of April 15, 1997, by and among Vornado Realty Trust, * The Mendik Company, L.P. and David R. Greenbaum - Incorporated by reference to Exhibit 10.4 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on April 30, 1997 10.6 ** - Letter agreement, dated November 16, 1999, between Steven Roth and Vornado Realty Trust - Incorporated by reference to Exhibit 10.51 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000 10.7 10.8 10.9 - Agreement and Plan of Merger, dated as of October 18, 2001, by and among Vornado Realty Trust, Vornado Merger Sub L.P., Charles E. Smith Commercial Realty L.P., Charles E. Smith Commercial Realty L.L.C., Robert H. Smith, individually, Robert P. Kogod, individually, and Charles E. Smith Management, Inc. - Incorporated by reference to Exhibit 2.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on January 16, 2002 - Tax Reporting and Protection Agreement, dated December 31, 2001, by and among Vornado, Vornado Realty L.P., Charles E. Smith Commercial Realty L.P. and Charles E. Smith Commercial Realty L.L.C. - Incorporated by reference to Exhibit 10.3 to Vornado Realty Trust’s Current Report on Form 8-K/A (File No. 1-11954), filed on March 18, 2002 - Employment Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated March 8, 2002 - Incorporated by reference to Exhibit 10.7 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 (File No. 001-11954), filed on May 1, 2002 * * * * 10.10 - First Amendment, dated October 31, 2002, to the Employment Agreement between Vornado * Realty Trust and Michael D. Fascitelli, dated March 8, 2002 - Incorporated by reference to Exhibit 99.6 to the Schedule 13D filed by Michael D. Fascitelli on November 8, 2002 10.11 ** - Amendment to Real Estate Retention Agreement, dated as of July 3, 2002, by and between Alexander’s, Inc. and Vornado Realty L.P. - Incorporated by reference to Exhibit 10(i)(E)(3) to Alexander’s Inc.’s Quarterly Report for the quarter ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002 10.12 ** - 59th Street Real Estate Retention Agreement, dated as of July 3, 2002, by and between Vornado Realty L.P., 731 Residential LLC and 731 Commercial LLC - Incorporated by reference to Exhibit 10(i)(E)(4) to Alexander’s Inc.’s Quarterly Report for the quarter ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002 _______________________ Incorporated by reference. Management contract or compensatory agreement. * ** * * 202       10.13 - Amended and Restated Management and Development Agreement, dated as of July 3, 2002, * by and between Alexander's, Inc., the subsidiaries party thereto and Vornado Management Corp. - Incorporated by reference to Exhibit 10(i)(F)(1) to Alexander's Inc.'s Quarterly Report for the quarter ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002 10.14 - Amendment dated May 29, 2002, to the Stock Pledge Agreement between Vornado Realty * Trust and Steven Roth dated December 29, 1992 - Incorporated by reference to Exhibit 5 of Interstate Properties’ Schedule 13D/A dated May 29, 2002 (File No. 005-44144), filed on May 30, 2002 10.15 ** - Vornado Realty Trust’s 2002 Omnibus Share Plan - Incorporated by reference to Exhibit 4.2 to Vornado Realty Trust’s Registration Statement on Form S-8 (File No. 333-102216) filed December 26, 2002 10.16 ** - Form of Stock Option Agreement between the Company and certain employees – Incorporated by reference to Exhibit 10.77 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2004 (File No. 001-11954), filed on February 25, 2005 10.17 ** - Form of Restricted Stock Agreement between the Company and certain employees – Incorporated by reference to Exhibit 10.78 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2004 (File No. 001-11954), filed on February 25, 2005 10.18 ** - Amendment, dated March 17, 2006, to the Vornado Realty Trust Omnibus Share Plan – Incorporated by reference to Exhibit 10.50 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (File No. 001-11954), filed on May 2, 2006 10.19 ** - Form of Vornado Realty Trust 2006 Out-Performance Plan Award Agreement, dated as of April 25, 2006 – Incorporated by reference to Exhibit 10.1 to Vornado Realty Trust’s Form 8-K (File No. 001-11954), filed on May 1, 2006 10.20 ** - Form of Vornado Realty Trust 2002 Restricted LTIP Unit Agreement – Incorporated by reference to Vornado Realty Trust’s Form 8-K (Filed No. 001-11954), filed on May 1, 2006 10.21 ** - Amendment No.2, dated May 18, 2006, to the Vornado Realty Trust Omnibus Share Plan – Incorporated by reference to Exhibit 10.53 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (File No. 001-11954), filed on August 1, 2006 10.22 ** - 10.23 ** - Amended and Restated Employment Agreement between Vornado Realty Trust and Joseph Macnow dated July 27, 2006 – Incorporated by reference to Exhibit 10.54 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (File No. 001-11954), filed on August 1, 2006 Amendment, dated October 26, 2006, to the Vornado Realty Trust Omnibus Share Plan – Incorporated by reference to Exhibit 10.54 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (File No. 001-11954), filed on October 31, 2006 10.24 ** - Amendment to Real Estate Retention Agreement, dated January 1, 2007, by and between Vornado Realty L.P. and Alexander’s Inc. – Incorporated by reference to Exhibit 10.55 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2006 (File No. 001-11954), filed on February 27, 2007 * * * * * * * * * * * ** _______________________ Incorporated by reference. Management contract or compensatory agreement. 203     10.25 ** - Amendment to 59th Street Real Estate Retention Agreement, dated January 1, 2007, by and among Vornado Realty L.P., 731 Retail One LLC, 731 Restaurant LLC, 731 Office One LLC and 731 Office Two LLC. – Incorporated by reference to Exhibit 10.56 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2006 (File No. 001-11954), filed on February 27, 2007 * 10.26 ** - Employment Agreement between Vornado Realty Trust and Mitchell Schear, as of April 19, * 2007 – Incorporated by reference to Exhibit 10.46 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (File No. 001-11954), filed on May 1, 2007 10.27 ** - Form of Vornado Realty Trust 2002 Omnibus Share Plan Non-Employee Trustee Restricted * LTIP Unit Agreement – Incorporated by reference to Exhibit 10.45 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2007 (File No. 001-11954) filed on February 26, 2008 10.28 ** - Form of Vornado Realty Trust 2008 Out-Performance Plan Award Agreement – Incorporated * by reference to Exhibit 10.46 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (File No. 001-11954) filed on May 6, 2008 10.29 ** - Amendment to Employment Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated December 29, 2008. Incorporated by reference to Exhibit 10.47 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009 10.30 ** - Amendment to Employment Agreement between Vornado Realty Trust and Joseph Macnow, dated December 29, 2008. Incorporated by reference to Exhibit 10.48 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009 10.31 ** - Amendment to Employment Agreement between Vornado Realty Trust and David R. Greenbaum, dated December 29, 2008. Incorporated by reference to Exhibit 10.49 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009 10.32 ** - Amendment to Indemnification Agreement between Vornado Realty Trust and David R. Greenbaum, dated December 29, 2008. Incorporated by reference to Exhibit 10.50 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009 10.33 ** - Amendment to Employment Agreement between Vornado Realty Trust and Mitchell N. Schear, dated December 29, 2008. Incorporated by reference to Exhibit 10.51 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009 * * * * * 10.34 ** - Vornado Realty Trust's 2010 Omnibus Share Plan. Incorporated by reference to Exhibit 10.41 to * Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 001-11954) filed on August 3, 2010 10.35 ** - Employment Agreement between Vornado Realty Trust and Michael J. Franco, dated * September 24, 2010. Incorporated by reference to Exhibit 10.42 to Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 001-11954) filed on November 2, 2010 _______________________ Incorporated by reference. Management contract or compensatory agreement. * ** 204     10.36 ** - Form of Vornado Realty Trust 2010 Omnibus Share Plan Incentive / Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 99.1 to Vornado Realty Trust's Current Report on Form 8-K (File No. 001-11954) filed on April 5, 2012 10.37 ** - Form of Vornado Realty Trust 2010 Omnibus Share Plan Restricted Stock Agreement. Incorporated by reference to Exhibit 99.2 to Vornado Realty Trust's Current Report on Form 8-K (File No. 001-11954) filed on April 5, 2012 10.38 ** - Form of Vornado Realty Trust 2010 Omnibus Share Plan Restricted LTIP Unit Agreement. Incorporated by reference to Exhibit 99.3 to Vornado Realty Trust's Current Report on Form 8-K (File No. 001-11954) filed on April 5, 2012 10.39 ** 10.40 ** - Letter Agreement between Vornado Realty Trust and Michelle Felman, dated December 21, 2010. Incorporated by reference to Exhibit 10.45 to Vornado Realty Trust's Annual Report on Form 10-K for the year ended December 31, 2010 (File No. 001-11954) filed on February 23, 2011 - Waiver and Release between Vornado Realty Trust and Michelle Felman, dated December 21, 2010. Incorporated by reference to Exhibit 10.46 to Vornado Realty Trust's Annual Report on Form 10-K for the year ended December 31, 2010 (File No. 001-11954) filed on February 23, 2011 * * * * * 10.41 ** - Revolving Credit Agreement dated as of June 8, 2011, by and among Vornado Realty L.P. as * borrower, Vornado Realty Trust as General Partner, the Banks listed on the signature pages thereof, and J.P. Morgan Chase Bank N.A., as Administrative Agent for the Banks. Incorporated by reference to Exhibit 10.46 to Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 (File No. 001-11954) filed on August 1, 2011 10.42 ** 10.43 ** - Letter Agreement between Vornado Realty Trust and Christopher G. Kennedy, dated August 5, 2011. Incorporated by reference to Exhibit 10.47 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 (File No. 001-11954) filed on November 3, 2011 - Waiver and Release between Vornado Realty Trust and Christopher G. Kennedy, dated August 5, 2011. Incorporated by reference to Exhibit 10.48 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 (File No. 001-11954) filed on November 3, 2011 * * 10.44 - Revolving Credit Agreement dated on November 7, 2011, by and among Vornado Realty L.P. as * borrower, Vornado Realty Trust as General Partner, the Banks listed on the signature pages thereof, and JP Morgan Chase Bank N.A., as administrative agent for the Banks. Incorporated by reference to Exhibit 10.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954) filed on November 11, 2011 10.45 ** - Form of Vornado Realty Trust 2012 Outperformance Plan Award Agreement * ** _______________________ Incorporated by reference. Management contract or compensatory agreement. 205     12 21 23 31.1 31.2 32.1 32.2 - Computation of Ratios - Subsidiaries of the Registrant - Consent of Independent Registered Public Accounting Firm - Rule 13a-14 (a) Certification of the Chief Executive Officer - Rule 13a-14 (a) Certification of the Chief Financial Officer - Section 1350 Certification of the Chief Executive Officer - Section 1350 Certification of the Chief Financial Officer 101.INS - XBRL Instance Document 101.SCH - XBRL Taxonomy Extension Schema 101.CAL - XBRL Taxonomy Extension Calculation Linkbase 101.DEF - XBRL Taxonomy Extension Definition Linkbase 101.LAB - XBRL Taxonomy Extension Label Linkbase 101.PRE - XBRL Taxonomy Extension Presentation Linkbase 206 VORNADO CORPORATE INFORMATION TRUSTEES STEVEN ROTH Chairman of the Board CANDACE K. BEINECKE Chair of Hughes Hubbard & Reed LLP MICHAEL D. FASCITELLI Former President and Chief Executive Officer of Vornado ROBERT P. KOGOD* President of Charles E. Smith Management LLC MICHAEL LYNNE Principal of Unique Features DAVID M. MANDELBAUM Partner, Interstate Properties RONALD G. TARGAN President, Malt Products Corporation DANIEL R. TISCH* Managing Member, TowerView LLC RICHARD R. WEST* Dean Emeritus, Leonard N. Stern School of Business, New York University RUSSELL B. WIGHT, JR. Partner, Interstate Properties *Members of the Audit Committee OFFICERS STEVEN ROTH Chairman of the Board and Chief Executive Officer MICHAEL J. FRANCO Executive Vice President – Co-Head of Acquisitions and Capital Markets DAVID R. GREENBAUM President of the New York Division JOSEPH MACNOW Executive Vice President – Finance and Administration and Chief Financial Officer ROBERT MINUTOLI Executive Vice President - Retail MITCHELL N. SCHEAR President of the Vornado/Charles E. Smith Washington DC Division WENDY SILVERSTEIN Executive Vice President – Co-Head of Acquisitions and Capital Markets COMPANY DATA EXECUTIVE OFFICES 888 Seventh Avenue New York, New York 10019 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP Parsippany, New Jersey COUNSEL Sullivan & Cromwell LLP New York, New York TRANSFER AGENT AND REGISTRAR American Stock Transfer & Trust Co. New York, New York MANAGEMENT CERTIFICATIONS The Company’s Chief Executive Officer and Chief Financial Officer provided certifications to the Securities and Exchange Commission as required by Section 302 of the Sarbanes-Oxley Act of 2002 and these certifications are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. In addition, as required by Section 303A.12(a) of the New York Stock Exchange (NYSE) Listed Company Manual, on June 6, 2012 the Company’s Chief Executive Officer submitted to the NYSE the annual CEO certification regarding the Company’s compliance with the NYSE’s corporate governance listing standards. REPORT ON FORM 10-K Shareholders may obtain a copy of the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission free of charge (except for exhibits), by writing to the Secretary, Vornado Realty Trust, 888 Seventh Avenue, New York, New York 10019; or, visit the Company’s website at www.vno.com and refer to the Company’s SEC Filings. ANNUAL MEETING The annual meeting of shareholders of Vornado Realty Trust, will be held at 11:30 AM on May 23, 2013 at the Saddle Brook Marriott, Interstate 80 and the Garden State Parkway, Saddle Brook, New Jersey 07663. 

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