VORNADO REALTY TRUST 2014 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.
We own all or portions of:
New York:
20.1 million square feet of Manhattan office space in 31 properties;
2.5 million square feet of Manhattan street retail space in 56 properties;
Four residential properties containing 1,654 units;
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;
Signage throughout Penn Plaza and Times Square;
BMS, our wholly owned subsidiary, which provides cleaning and security services
for our buildings and third parties, employing 2,700 associates;
Washington:
16.1 million square feet of office space in 59 properties with a concentration of
7.4 million square feet in Crystal City, Arlington, Virginia, just across the
Potomac from the capital and adjacent to Reagan National Airport;
Seven residential properties containing 2,414 units;
Other Real Estate/Investments:
The 3.6 million square foot Mart in Chicago; (1)
A 70% controlling interest in 555 California Street,(1) a three-building office
complex in San Francisco’s financial district aggregating 1.8 million square feet,
known as Bank of America Center;
A 25.0% interest in Vornado Capital Partners, our real estate fund. We are the
general partner and investment manager of the fund;
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.
1 TheMart and 555 California Street are reported in the Other Segment. They are operated by the New York Division.
F I N A N C I A L H I G H L I G H T S *
As Reported
Revenues
Net income
Net income per sharebasic
Net income per sharediluted
Total assets
Total equity
EBITDA (before noncontrolling interests and gains on sale of real estate)
Funds from operations
Funds from operations per share
As Adjusted for Comparability
(an apples-to-apples comparison of our continuing business, eliminating certain one-timers)
Revenues
Net income
Net income per sharebasic
Net income per sharediluted
Total assets
EBITDA
Funds from operations
Funds from operations per share
Year Ended December 31,
2014
2,635,940,000
783,388,000
4.18
4.15
21,248,320,000
7,489,382,000
1,795,400,000
911,130,000
4.83
2013
2,669,269,000
392,034,000
2.10
2.09
20,097,224,000
7,594,744,000
1,650,400,000
641,037,000
3.41
$
$
$
$
$
$
$
$
$
Year Ended December 31,
2014
2,635,940,000
411,800,000
2.21
2.18
24,399,800,000
1,672,096,000
980,252,000
5.20
2013
2,573,301,000
365,400,000
1.96
1.95
22,140,800,000
1,606,441,000
896,539,000
4.77
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
*
In these financial highlights and in the Chairman’s letter to our shareholders that follows, we present certain non-
GAAP measures, including Revenues, Net income and Total assets adjusted for comparability, 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 under “Item 7 Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” which accompanies this letter or can be viewed at www.vno.com.
To Our Shareholders
Funds from Operations, as Adjusted for Comparability (an apples-to-apples comparison of our continuing
business, eliminating certain one-timers) for the year ended December 31, 2014 was $980.3 million, $5.20 per diluted
share, compared to $896.5 million, $4.77 per diluted share, for the previous year, a 9.0% increase per share – a very
good year.
Funds from Operations, as Reported (apples-to-apples plus one-timers) for the year ended December 31, 2014
was $911.1 million, $4.83 per diluted share, compared to $641.0 million, $3.41 per diluted share, for the previous
year. (See page 4 for a reconciliation of Funds from Operations, as Reported to Funds from Operations, as Adjusted
for Comparability.)
Net Income attributable to common shares for the year ended December 31, 2014 was $783.4 million, $4.15 per
diluted share, versus $392.0 million, $2.09 per diluted share, for the previous year.
Our core business is concentrated in New York, the most important city in the world, and in Washington, DC, our
nation’s capital, and is office and retail centric.
We have run Vornado for 35 years. In each year, cash flow from the core business has increased in both total dollars
and on a same-store basis until 2012 when for the first time, there was a decrease caused by BRAC in Washington.
2013 began another run of increases.
Here are our financial results (presented in EBITDA format) by business segment:
2014
Same Store
% Increase/
(Decrease)
Cash
GAAP
7.8%
7.1%
18.2%
--
7.6%
(2.3%)
0.7%
(0.8%)
5.0%
5.5%
0.1%
--
4.7%
(2.4%)
8.8%
11.6%
($ IN MILLIONS)
EBITDA:
New York:
Office
Street Retail
Alexander’s
Hotel Pennsylvania
Total New York
Washington
theMart
555 California Street
Real Estate Fund
EBITDA before Retail(2)
RetailStrips and Malls(2)
2.3%
1.7%
Other (see page 3 for details)
EBITDA before non-controlling
interest and gains on sale of
real estate
EBITDA
% of 2014
EBITDA(2)
Increase/
(Decrease)
2013/2014
2014
2013
2012
41.3%
18.6%
2.8%
2.0%
64.7%
22.1%
5.3%
3.2%
4.7%
N/A
100.0%
26.5
33.7
(0.5)
--
59.7
(7.4)
7.7
6.1
20.8
86.9
6.7
93.6
623.2
279.6
41.7
30.7
975.2
333.8
596.7
245.9
42.2
30.7
915.5
341.2
531.5
188.9
40.4
28.3
789.1
355.5
79.6
48.8
70.3
1,507.7
71.9
42.7
49.5
1,420.8
62.5
40.5
24.6
1,272.2
204.9
1,712.6
82.8
198.2
1,619.0
31.4
195.7
1,467.9
357.8
1,795.4
1,650.4
1,825.7
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, 2014, a
copy of which accompanies this letter or can be viewed at www.vno.com.
2 The RetailStrips and Malls Segment was spun off in January 2015. Accordingly, to more meaningfully reflect the continuing business, the table
above has been presented before the Retail Segment and the percentages of 2014 EBITDA column is on a pro-forma basis to reflect the spin-off as if
it occurred in 2014.
2
Other EBITDA is comprised of:
($ IN THOUSANDS)
Corporate general and administrative expenses
Investment income
Other investments
JCPenney losses(3)
Toys “R” Us EBITDA, including impairment losses of
240.8 million in 2013 and 40.0 million in 2012
Lexington Realty Trust equity and gains from stock
issuances
Gains on sale of marketable securities, land, trade
shows and residential condos
Acquisition – related costs and tenant buy-out costs
Stop & Shop litigation settlement income
Recognition of unamortized discount on subordinated
debt of Independence Plaza
1290 Avenue of the Americas and 555 California
Street priority return
Discontinued operations – EBITDA of properties and
investments sold
Other, net
Total
2014
(94,929)
31,665
24,528
--
2013
(94,904)
49,295
29,776
(127,888)(3)
2012
(96,001)
42,685
39,386
(300,752)(3)
103,632
(5,529)
281,289
--
20,443
51,662
13,568
(31,348)
--
--
--
39,525
(3,841)
82,800
58,245
(24,857)
59,599
--
--
66,474
746
31,400
44,452
(11,248)
5,900
60,396
13,222
232,153
(5,344)
357,800
3 Total economic loss on JCPenney was $256 million. That amount cannot be reconciled to the presentation above because of mark-to-market
income recognition in prior periods.
3
The following chart reconciles Funds from Operations to Funds from Operations, as Adjusted for Comparability:
($ IN MILLIONS, EXCEPT PER SHARE)
Funds from Operations, as Reported
Adjustments for certain items that affect comparability:
Acquisition related costs
Write-off of deferred financing costs and defeasance cost in
connection with financings and in 2012 net gain on extinguishment
of debt
Net gain on sale of marketable securities, land, Canadian trade
shows and residential condos
Impairment loss and loan reserve
Recognition of unamortized discount on subordinated debt
of Independence Plaza
Net gain from Lexington’s stock issuance
Stop & Shop litigation settlement income
Toys “R” Us (Negative FFO) FFO
JCPenney losses(3)
Discontinued operations – FFO of real estate sold
Other
Noncontrolling interests’ share
Total adjustments
Funds from Operations, as Adjusted for Comparability
Funds from Operations, as Adjusted for Comparability per share
2014
911.1
2013
641.0
2012
818.6
(31.3)
(24.9)
(11.2)
(22.7)
(8.8)
8.9
13.5
(10.3)
--
--
(60.0)
--
39.5
(2.1)
4.2
(69.2)
980.3
5.20
58.2
--
33.0
--
--
--
59.6
(312.8)
(127.9)(3)
80.8
3.9
16.4
(255.5)
896.5
4.77
60.4
14.1
5.9
65.7
(300.7)(3)
184.9
13.4
(4.5)
69.9
748.7
4.02
Funds from Operations, as Adjusted for Comparability increased by $83.8 million in 2014, to $5.20 from $4.77 per
share, or $0.43, 9.0%, as detailed below:
($ IN MILLIONS, EXCEPT PER SHARE)
Same Store Operations:
Amount
Per Share
New York
Washington
theMart
555 California Street
Retail
Acquisitions, net of interest expense
Vornado Capital Partners
Interest Expense
Investment income, decrease resulting from lower
mezz loans outstanding
Other, primarily lease termination income last year
Increase in Comparable FFO
42.3
(8.8)
6.9
5.0
3.4
19.2
20.8
28.3
(17.4)
(15.9)
83.8
0.21
(0.04)
0.04
0.03
0.02
0.10
0.10
0.14
(0.09)
(0.08)
0.43
4
Report Card
Here is a chart showing Vornado’s total return to shareholders compared to the Office REIT and RMS indices for
various periods ending December 31, 2014 and for 2015 year-to-date:
2015 YTD
One-year
Three-year
Five-year
Ten-year
Fifteen-year
Twenty-year
Vornado
4.9%
36.4%
70.8%
100.6%
131.1%
637.5%
1,648.8%
Office
REIT
Index
7.2%
25.9%
51.7%
78.2%
89.5%
323.8%
892.8%
RMS
Index
5.4%
30.4%
57.3%
119.7%
122.2%
492.5%
755.0%
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)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Adjusted for Comparability
FFO
EBITDA
1,672,096
1,606,441
1,459,008
1,481,883
1,434,833
1,380,842
1,376,396
1,348,229
1,031,867
927,680
Amount
980,252
896,539
748,699
766,371
767,594
605,925
663,730
672,394
511,429
488,195
Per
Share
5.20
4.77
4.02
4.00
4.04
3.49
4.05
4.10
3.28
3.36
Shares
Outstanding
198,477
197,811
197,310
196,541
195,746
194,082
168,903
167,672
166,513
156,487
FFO has grown this year by 9.3% (9.0% on a per share basis), 10.1% per year over five years (8.3% on a per share
basis) and 7.8% per year over ten years (4.1% on a per share basis).
5
Acquisitions/Dispositions(4)
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.
Our acquisition activity since 2012 has ebbed in response to a rising market. Acquisitions during that period have
been focused almost entirely in New York and on Street Retail. If we were an industrial company, you might call
them bolt-on acquisitions.
Our disposition activity since 2012 has increased four-fold as we have implemented our strategic simplification.
Here is a ten-year schedule of acquisitions and dispositions:
($ IN THOUSANDS)
2015 to date
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Acquisitions
Dispositions(5)
Number of
Transactions
3
6
6
10
12
15
--
3
38
32
31
156
Asset
Cost
199,800
648,100
813,300
1,365,200
1,499,100
542,400
--
31,500
4,063,600
2,177,000
4,686,000
16,026,000
Number of
Transactions
3
11
20
23
7
5
16
6
5
3
--
99
Proceeds
505,170
1,061,400
1,429,800
1,222,274
389,212
137,792
262,838
493,172
186,259
105,187
--
5,793,104
Net
Gains
23,900
523,400
434,100
454,005
137,846
56,830
42,987
171,110
60,126
31,662
--
1,935,966
2014 and 2015 to date acquisitions are shown below:
($ IN THOUSANDS EXCEPT SQUARE FEET)
2015 to date:
Center Building – Office (Long Island City)
Crowne Plaza Times Square (increased ownership to
33.0% from 11.0%)
138 – 142 West 32nd Street – Retail
2014:
St. Regis Fifth Avenue – Retail (75% interest)
715 Lexington Avenue – land
One Park Avenue – Office (increased ownership
to 55% from 49.7%)
304-306 Canal Street – Retail
Development rights and land
NY
NY
NY
NY
NY
NY
NY
DC
Square Feet
Asset
Cost
142,000
Our
Ownership
437,000
Total
437,000
39,000
18,800
199,800
525,000
63,000
22,700
16,400
21,000
648,100
46,000
5,000
211,000
5,000
19,000
--
80,000
15,000
--
25,000
--
943,000
15,000
--
4 Excludes marketable securities.
5 Excludes $3.7 billion Urban Edge spin-off.
6
As I wrote last year, we sell assets for several reasons:
To make an outsized profit, i.e. where we would rather have the cash amount offered than the asset. This is a
rare event…in most instances we’d rather have the asset than the cash. By the way, history shows that the
unique, irreplaceable, timeless assets should never be sold…and I agree.
To cut losses where an investment isn’t turning out as we expected or where we have made a mistake.
To raise cash for current or future needs.
For strategic reasons, where an asset no longer fits either geographically or by line of business or whatever or
no longer fits our quality profile.
To lift us out of the “lost-our-luster” period (a very unhappy time for us, and for me personally, I must say), we have
shifted strategy to focus our business on our core strengths, trimmed, pruned and simplified. We exited business lines,
(the mall business,(6) the showroom business, LNR, etc.), disposed of mistakes (JCPenney and even a few real estate
mistakes) and sold anything off the fairway. We executed over $4.2 billion of asset sales in 57 transactions. We
separated the strip shopping center business by pro-rata tax-free spin-off to our shareholders.
In January 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping
centers, three malls, a warehouse park and $225 million of cash to Urban Edge Properties (NYSE:UE). As part of the
spin-off, our shareholders received 94.6% of the shares and Vornado retained a 5.4% ownership interest in the form of
5,712,000 UE operating partnership units. We are providing transitional services to UE for an initial period of up to
two years and they are providing us with leasing and property management services for certain assets. I am a member
of the Board of Trustees of UE. The spin-off was effected by Vornado distributing one UE common share for every
two Vornado common shares. Beginning in the first quarter of 2015, the historical financial results of UE will be
reflected in our consolidated financial statements as discontinued operations for all periods presented. Our strategy
here was that both Vornado and UE would benefit from being separate and focused. I firmly believe that UE’s
dedicated management team, led by CEO Jeff Olson and COO Bob Minutoli, focusing solely on these fine assets, will
create a ton of value.
In December, we sold 1740 Broadway for $605 million, $1,000 per square foot. The financial statement gain on the
sale was $439 million. The tax gain of $484 million was deferred in a like-kind exchange for the acquisition of the
St. Regis Fifth Avenue retail.
Last week we completed the transfer of Springfield Town Center to PREIT. Proceeds to us were $465 million,
comprised of $340 million in cash and 6.25 million common units valued at $20 per share (current market is $23.38).
The units are tax protected in favor of our original seller; accordingly, these units are in the hold-for-a-while box. We
(as well as other analysts and investors) think the shares at $20 are a good investment. We are rooting for PREIT CEO
Joe Coradino and team.
Our IRR on this investment is basically breakeven, a result we are very happy with. In 2010/2011, we tried to sell the
site and the opportunity to the usual suspects. The answer was no bid, no bid and a low-ball bid which was retraded
and then withdrawn. With no viable alternative, this then became an easy decision, use our balance sheet and
development capability to build the job ourselves and then sell the finished product. Thanks to Bob Minutoli and his
team(7) who built a first class A mall, basically from the ground up, on schedule and on budget. Our friends at PREIT
will do very well with this asset.
I AM DELIGHTED WITH THE SCALE, SPEED AND FINANCIAL OUTCOME OF OUR SIMPLIFICATION
PROGRAM.
The action here takes place on the 45th floor where our acquisitions/dispositions teams reside. Special thanks to
Michael and Wendy and to SVPs Dan Guglielmone, Cliff Broser, Mario Ramirez, Adam Green and the rest of the
team.
6 For someone who has been in the mall and strip shopping center business my whole life, this was a difficult and courageous decision.
7 Bob Byrne, Bill Rowe, Michael Khouri and their colleagues; each a senior member of the Springfield development team deserve special
mention – Stacy Meyer, Allison Fee, Terry Furry, Jessica Secreti, Jill Creps, Leigh Lyons, Rob Mercer, Joe Lemarb, David Perl,
Mara Olguin, Karen Smith, Trish Ketelsen, Michael Lowe, Ben Levine, Irene Gardiner, Genevieve Kelly, Jennifer DeDermott, Trish
Zafferese, Mara Licari.
7
Michael Franco Chief Investment Officer
I am delighted to announce that Michael Franco has been appointed Chief Investment Officer, a promotion from his
previous role as co-head. Michael oversees acquisitions/dispositions and capital markets. Michael, 46, is a highly
intelligent, seasoned, well known and well respected, measured real estate executive. After four long dog years with
us, and 12 years in senior positions at Morgan Stanley’s fund business, Michael is a veteran. At Vornado, capital
allocation is a main event (right up there with lease, lease, lease). David, Mitchell, Steve and Joe all participate with
Michael and me at the capital allocation table. Thank you and congratulations, Michael.
8
Capital Markets Thank You Wendy Welcome Mark
At year-end we had $4.091 billion of liquidity comprised of $1.591 billion of cash, restricted cash and marketable
securities and our $2.5 billion revolving credit facilities (with no outstandings). Today, after adjusting year end
liquidity for the repayment of $500 million of unsecured debt in January and for the $225 million of cash spun-off to
UE, we have $3.365 billion in liquidity. We expect our cash balance to approach $2 billion by year end resulting from
the now completed transfer of Springfield Town Center to PREIT, financing the St. Regis retail condo and financing
other asset(s), thereby increasing our liquidity to $4.5 billion.
Since January 1, 2014, we have executed the following capital markets transactions:
In January 2015, when they first became freely repayable, we repaid $500 million of 4.25% senior unsecured
notes due April 2015.
In December 2014, we completed a $575 million refinancing ($355 per square foot) of Two Penn Plaza. The
loan is interest-only at LIBOR plus 1.65% and matures in 2019 with two one-year extension options. We
realized net proceeds of $143 million. The previous $422 million loan on the property had been swapped to a
fixed rate of 4.78% through March 2018. Therefore, $422 million of the new loan bears interest at a fixed
rate of 4.78% through March 2018 and the balance of $153 million floats through March 2018; the entire
$575 million will float thereafter for the duration of the new loan.
In October 2014, on the first open call date, we redeemed at par the $445 million of 7.875% senior unsecured
notes due October 2039.
Also in October, we completed a $140 million financing of 655 Fifth Avenue, the Ferragamo flagship store.
This loan is interest only at LIBOR plus 1.40% (1.56% at December 31, 2014) and matures in October 2019
with two one-year extension options.
In September 2014, we extended one of our two $1.25 billion unsecured revolving credit facilities to
November 2018 from November 2015 with two six-month extension options. The interest rate on the
extended facility was lowered to LIBOR plus 105 basis points from LIBOR plus 125 basis points and the
facility fee was reduced to 20 basis points from 25.
In August 2014, we obtained a standby commitment for up to $500 million of five-year mezzanine loan
financing to fund a portion of the development expenditures at 220 Central Park South.
Also in August, we completed a $185 million financing ($270 per square foot) of the Universal buildings.
This loan bears interest at LIBOR plus 1.90% (2.06% at December 31, 2014) and matures in August 2019
with two one-year extension options.
In June 2014, we issued $450 million, 2.50% 5-year senior unsecured green bonds.
In April 2014, we completed a $350 million financing ($411 per square foot) of 909 Third Avenue. The
seven-year interest only loan bears interest at 3.91% and matures in May 2021. We realized net proceeds of
$145 million.
In January 2014, we completed a $600 million loan secured by our 220 Central Park South development site.
The loan bears interest at LIBOR plus 2.75% (2.92% at December 31, 2014) and matures in January 2016,
with three one-year extension options.
Debt is now 31.5% of our enterprise value. Since stock prices fluctuate, we believe an even better measure of leverage
may be debt to EBITDA – ours is currently 7.0x.
Vornado remains committed to maintaining our investment grade rating.
9
One of the hallmarks of a blue chip REIT is access to the four corners of the capital markets. Vornado is an
investment-grade blue chip that enjoys such access. But, let’s think about it. For purposes of this discussion, let’s call
the four corners of the capital markets common stock, preferred stock,(8) unsecured debt and secured or project-level
debt.
From the beginning in 1980, through 1992, our principal financial strategy was to relentlessly acquire our under-
valued shares. We acquired 52.6 million(9) shares (66% of the outstanding) at an average price of $3.64 per share.(9)
We believe this 12-year buy-back program was at that time the largest percentage cap shrink in the history of the
NYSE.
Then we switched to growth mode. From 1997 through our last issuance in 2010, we issued 108 million shares of
common stock and units at an average price of $50.14 per share. It’s easy to issue stock; many managements think
they have an unlimited supply of script, just roll the printing press. Buying assets for stock certainly grows the
business (and maybe gets the CEO a front table or larger car/plane), but it is per share growth which creates the
shareholder value we seek. Let’s focus on two large, transformative deals where we had to use stock. In 2002, we
acquired the Washington, Charles E. Smith Company using $600 million of units, valued at $38 per share, as part of
the purchase price. Those shares are now valued at $123(10) or 3.2x. The assets have not gone up that much. But in
this case, the seller would only transact assets for stock on a tax protected basis, i.e. no stock, no deal. And, it is not
really fair to focus just on the stock portion of the deal, the $1.3 billion balance of the purchase price was paid with
cash, so all the accretion there came to us. In 1997, we acquired the Mendik Company, the foundation of our New
York business, using 5.3 million units valued at $26.00 per share. Those shares appreciated 4.73x, but in this case the
assets have gone up more. Even better, the equity portion of this deal was only 22%. The long and short of it is that I
value our stock even more than cash. We will issue shares reluctantly and be very wary of dilution.
Unsecured debt is an attractive vehicle and trades in a very efficient marketplace. An investment grade company,
using its pre-filed shelf registration, need merely call its friendly investment banker to get $500 million, or even
$1 billion, in a matter of days - no fuss, no muss, no roadshow…easy. But, like cigarettes, there should be two
warnings on the label of unsecured debt. First, that it bears the full faith and credit of the issuer, in effect a personal
guarantee and, second, that markets are volatile and unpredictable and even a market as big, deep and strong as the
unsecured debt market shuts down cold in every cycle, at the very worst time. To safely partake in this market, one
should have modest maturities and have back-up liquidity. We partake, but we partake in this market in a very
measured way.
Secured or project-level debt is different. It is a much more cumbersome and time-consuming process to execute…but
it has no covenants and is recourse solely to the asset that is pledged.
Here is Vornado’s debt structure:
($ IN THOUSANDS)
Nonrecourse Secured Debt
Unsecured Debt
8,358,950
847,159
9,206,109
Nonrecourse Joint Venture Debt
Total
1,924,494
11,130,603
We calculate that Vornado has about $20 billion of assets at fair value pledged to its secured creditors very low
leverage. The remainder of our assets are unencumbered. Interestingly, if, say, 60% is an appropriate loan-to-value
ratio for secured debt (as opposed to our current 42%), the math says we should then be able to unencumber up to an
additional $6 billion of assets (a worthy goal).
8
For us, and most everyone else in the industry (except for Public Storage), preferred stock is a minor event and therefore need not be discussed
here; but I must say preferred stock with its due date of never is attractive, as is its being open after five years to an issuer call at par.
9 Adjusted for stock splits aggregating 15 for 1.
10 $111.52 Vornado stock price plus one-half of $23.52 Urban Edge Properties stock price.
10
Thank You Wendy
After 17 years at Vornado, Wendy Silverstein, Head of Capital Markets and more recently Co-Head of Acquisitions
and Capital Markets, has decided it is her time and she will be leaving us.
Wendy led the team that executed the financings that fueled our growth from a $3 billion NJ-based strip center
company to the $35 billion company we are now. All told, she oversaw over $30 billion of debt and equity financing
in 134 separate transactions.
Wendy was our Capital Markets Queen - Plus. She loves deals and even a little complexity here and there. She has
been heavily involved in the buying and selling of Toys “R” Us, LNR and AmeriCold and has represented us on those
companies’ boards (she avoided JCPenney, that was all mine). She was also instrumental in raising and investing our
real estate fund and led our mezzanine lending platform.
Wendy is highly intelligent, strong willed, has an incredible work ethic, a fierce competitive drive and a love of
challenge.
I met Wendy when the bank she then worked for repossessed a third of Alexander’s shares. We had some fun, the
outcome of which was Vornado bought those shares for $40.50 per share (current value $580 per share, $122 from a
special dividend plus shares valued today at $458). Interestingly, we will come full circle here, as Wendy, who was on
the Alexander’s Board in the mid 1990’s representing her bank, will now, 20 years later, rejoin the Alexander’s Board.
I thank Wendy for her commitment and contributions to Vornado over the years. She is part of the history of Vornado
and a part of our family.
Welcome Mark
We are delighted to announce that Mark A. Hudspeth will be joining us as Executive Vice President – Head of Capital
Markets. Mark, 40, comes to us after a 15-year career at Morgan Stanley in real estate finance. Mark is the full
package: smart, entrepreneurial, battle tested and well known to all of the financial counterparties we deal with (and
even a few more) both home and abroad. Mark is a capital structure expert. He will be joining us this summer when
his garden leave ends. Mark will report to Chief Investment Officer Michael Franco (and I guess a little bit to me,
too).
Mark will be a senior member of our talented 45th floor deal and finance teams. On the finance side, special thanks to
Richard and Jan and Dan and Adam for their contributions this year and every year.
11
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. In New York, we leased an
unprecedented 4.2 million square feet. In Washington, we leased a strong 2.1 million square feet, notwithstanding
difficult market conditions.
As in past years, we present below leasing and occupancy statistics for our businesses.
(SQUARE FEET IN THOUSANDS)
Total
New York
Washington
Retail
2014
Square feet leased
GAAP Mark-to-Market
Number of transactions
2013
Square feet leased
GAAP Mark-to-Market
Number of transactions
2012
Square feet leased
GAAP Mark-to-Market
Number of transactions
Occupancy rate:
2014
2013
2012
2011
2010
2009
2008
2007
Office
4,151
18.8%
158
2,410
14.0%
162
7,138
12.5%
519
6,446
13.7%
599
5,675
1,950
8.8%
529
92.2%
91.8%
91.5%
93.4%
94.5%
94.1%
94.3%
94.8%
4.9%
139
96.9%
96.6%
95.8%
96.2%
96.1%
95.5%
96.7%
97.6%
Street
Retail
119
62.3%
30
138
92.6%
27
192
29.5%
23
96.4%
97.4%
96.8%
95.6%
96.4%
(12)
(12)
(12)
1,817 (11)
(3.3) %
192
1,836
3.8 %
182
2,111
3.4 %
201
83.8 %
83.4 %
84.1 %
90.6 %
95.0 %
93.3 %
95.0 %
93.3 %
1,051
9.0%
139
2,062
13.7%
228
1,422
20.5%
166
95.9%
94.3%
93.7%
93.2%
92.6%
91.6%
92.0%
94.2%
I call attention with pride, that our New York Office occupancy rate is in the high 90’s percent year-in and year-out.
That’s some performance. Thanks to EVP Glen Weiss and his leasing team, Josh, Craig, Jared, Andy, Jared and
Eddie.
11 Excludes 247 square feet of non-office leases.
12
Included in New York Office.
12
Leasing highlights this year in the New York division include:
Amazon at 7 West 34th Street – 470,000 square feet;
Neuberger Berman at 1290 Avenue of the Americas – 402,000 square feet;
AMC Networks at 11 Penn Plaza – 324,000 square feet;
Madison Square Garden at 2 Penn Plaza – 312,000 square feet;
Bloomberg, L.P. at 731 Lexington Avenue – 189,000 square feet;
New York and Company at 330 West 34th Street – 178,000 square feet;
Facebook at 770 Broadway – 97,000 square feet;
555 California Street – 502,000 square feet in 11 leases;
theMART – 372,000 square feet in 57 leases.
Leasing highlights this year in the Washington division include:
Department of Justice at Skyline Tower – 169,000 square feet;
WeWork at 2221 S. Clarke Street (Crystal City) – 165,000 square feet;
Army Surgeon General at 5109 Leesburg Pike – 97,000 square feet;
WeWork at 1875 Connecticut Avenue –83,000 square feet;
American Diabetes Association at 2451 Crystal Drive – 78,000 square feet;
The Department of Labor at 201 12th Street – 75,000 square feet;
Booz Allen at 1550 Crystal Drive – 59,000 square feet.
Growth in this cycle is coming from the creative side. We are market leaders here, completing company wide in 2014,
92 deals totaling 2.9 million square feet including: Cisco Systems, Aruba Wireless Networks, CommVault Systems,
Dimension Data, SRA America, North Highland, Technologent, CS Technology, China Laws & Technology, CSC
Holding LLC, Madison Square Garden, UBM, Axiom Markets, Tetra Tech, AMC, Yodle, Deutsch, Amazon, ET
Publishing International, Hachette Book Company, Wenner Media, Facebook, Factset, Earthlink, ABC Enterprise, The
Health Pub, Sapient Corp, Young & Rubicam, Microsoft, Matter, Yelp, Braintree, 1871, Alenia Aermacchi North
America, Applied Information Sciences, Arete Associates, Booz Allen Hamilton Inc., Chinook Systems, Clarabridge,
General Dynamics Information, L-3 Communications Corporation, L-3 National Security Solutions, Lockheed Martin
Corp., Raytheon Company, Science Applications International, Technology Service Corporation, Uber Technologies,
Vista Research, WeWork, Eastern Foundry.
Thank you to our all-star leasing captains: Glen Weiss, Sherri White, Jim Creedon, Bruce Pascal and Paul Heinen. And,
we thank Michael Zucker and Leigh Lyons, who lead the Urban Edge leasing team.
Real Estate is a deal oriented business: buying is a deal; selling is a deal; leasing is a deal. But one of the essential things
we do every day and embedded in our culture is CUSTOMER SERVICE. Customer service is one of the key reasons
brokers bring their tenants to us, tenants prefer to lease space from us and tenants renew with us. Our customer facing
teams are at the head of the class, keeping our buildings at the highest level of maintenance, cleaned and polished 24-7,
technology at the cutting edge, staff well trained, well-dressed and courteous…you get the picture.
13
Street Retail
We own the best in-class 56-property, 2.5 million square foot street retail business in Manhattan, concentrated in the best
submarkets – Madison Avenue, Fifth Avenue, Times Square, Penn Plaza and Soho. While the street retail portfolio
accounts for 9% of our total Manhattan square footage, it generates 29% of the New York division EBITDA.
There has been a lot of attention shown by market participants recently in Manhattan street retail (a business we have
been in for 20 years), as well there should be. The key shopping streets of New York are the ultimate definition of
supply constraint – the centuries old street grid is not changing. Almost without exception, if a retailer has a store in
New York, it is their number one store; if they have two stores in New York, they are number one and number two – you
get the picture. The growth in retail rents in the hot spots of New York has been extraordinary. Street retail asset values
have been soaring(13) in the private market fueled by all manner of global investors and local sharp-shooters. Manhattan
is not an outlier here, the best retail assets in the other global cities are priced similarly. Here’s an interesting table –
note the comparison of retail rent growth to office rent growth.
Manhattan Retail Rents:
Upper Fifth Avenue- 49th to 57th St.
Times Square
Madison Avenue
Soho
Manhattan Office Rents:
Penn Plaza
Sixth Avenue/Rockefeller Center
Midtown South
Plaza District
Grand Central
West Side
Downtown
(Sources: REBNY Retail Report and C&W Research)
$ Rents Per SF
2004
2014
%
Increase
10-Yr CAGR
742
331
667
212
42
52
37
58
47
51
34
3,420
2,317
1,709
830
59
83
66
92
66
76
55
361%
600%
156%
292%
42%
60%
82%
59%
40%
48%
60%
16.5%
21.5%
9.9%
14.6%
3.6%
4.8%
6.2%
4.7%
3.4%
4.0%
4.8%
13 Here’s the math. Simplistically, using Fifth Avenue as an example, values have risen from, say, $12,000 per on-grade square foot in 2004 to, say,
$85,000 per on-grade square foot in 2014, this calculated by applying a 6% cap rate to 2004 rents and a 4% cap rate to 2014 rents.
14
Here is a numerical tour(14) of our assets and some recent acquisitions on upper Fifth Avenue:
Year
Purchased
Fifth
Avenue
Frontage
Cost
Per
Front Foot
Cost
Per
Square Foot
on Grade
Vornado:
640 Fifth Avenue
689 Fifth Avenue
666 Fifth Avenue
Ferragamo
St Regis
Other Recent Transactions:
685 Fifth Avenue
Crown Building
1997
1998
2012
2013
2014
2014
2014
100
50
126
50
100
58
100
315,000
$
401,000
$
$ 5,611,000
$ 5,137,000
$ 7,000,000
2,000
$
4,000
$
$ 50,000
$ 54,000
$ 87,000
$ 7,172,000
$ 11,724,000
$ 80,000
$ 96,000
In November 2014, a partnership in which we own a 75% interest completed the purchase of the St. Regis Fifth Avenue
retail for $700 million. There are lots of things which make this asset attractive to us. The asset is prime pitch (as the
British say), on the east side of Fifth Avenue at 55th Street bookended by the new Polo flagship on one side and the new
Valentino flagship on the other.(15) It had short term leases, which would allow us to get to market rents quickly. And,
perhaps most important of all, its physical configuration was perfect to create small stores for luxury retailers. We will
shortly announce, after only four months of ownership, leases with new tenants for the entire space, which more than
achieves our underwriting and validates the acquisition.
14 These numbers were calculated by Charlie adjusting the purchase price by deducting value ascribed to office and off-grade retail.
15 We also own 689 Fifth Avenue on the same block.
15
I Love Our Business
Vornado is a big business, $22 billion of equity at market after spinning-off UE. We operate in New York, the most
important city in the world and in Washington, DC, our nation’s capital. In New York, we own office towers and the best
portfolio of irreplaceable, timeless retail on the streets of Manhattan.
Vornado is a vertically integrated operating platform. On our most recent conference call, I made the following comment:
We are one of only a handful of firms who have the track record, heft, talent, relationships
and trust in the marketplace to lease, acquire, develop, finance and manage million foot
towers and Fifth Avenue retail. It’s a complicated business, rookies need not apply.
Kudos to our 4,200 team members.
I am very constructive on New York where demand, activity and absorption are accelerating and where office rents are
now rising.
The Big Kahuna for us is the Penn Plaza District where we are the dominant owner with 9 million square feet including
office, retail and the Hotel Pennsylvania. The Penn Plaza district benefits enormously from the Hudson Yards
development a few blocks to the West, and from the overflow (and direct flow) of creative class tenants in neighboring
sub-markets a few blocks South and a few blocks East. We will focus, reposition and invest here towards the goal of
driving office rents and long-term values. Welcome Marc Ricks, SVP, a government affairs veteran who joins Judy
Kessler and, of course, Barry Langer on the dedicated Penn Plaza development team we are building.
Construction is advancing on our 220 Central Park South super-tall luxury condo project. Our offering document has now
been approved and last month we opened a sales gallery for friends and family. Our goal is to make this amenities-heavy,
limestone tower, designed by Robert A.M. Stern, Architects and the Office of Thierry Despont, the best building in
New York. Initial response from brokers and buyers has been excellent. Barry Langer and Mel Blum lead our
development team here and Eli Zamek leads our construction team (together with Peter Lehrer, we are fielding very much
the same leadership team here who so successfully developed and built our 731 Lexington Avenue/Beacon Court tower).
We are busy in New York and Washington. We just transformed 7 West 34th Street and 330 West 34th Street into
1.1 million square feet of space targeted to the creative class market, a recurring theme and already we have leased 470,000
square feet at 7 West 34th Street to Amazon and 340,000 square feet at 330 West 34th Street; in the bowtie in Times
Square at 1535 Broadway, the Marriott Marquis, directly across from our 1540 Broadway, we launched the world’s largest
10K LED sign in November with Google as the first advertiser, we now have Beats/Apple; at 608 Fifth Avenue we created
a 44,000 square foot 4-level flagship for TopShop/TopMan; at our Alexander’s affiliate, we built a 312 unit rental
apartment tower on top of the Rego Park II shopping center – we expect to begin leasing apartments in May; at 61 Ninth
Avenue in the heart of the Meatpacking District, adjacent to the Apple store and Chelsea Market and across from 111
Eighth Avenue – Google’s 3 million square foot New York headquarters building, we together with a partner will be
developing a ground-up new build 130,000 square foot office building; we have commenced a building wide
redevelopment program at 90 Park Avenue and have almost completed the repositioning and retenanting of 280 Park
Avenue (50% owned); we are doing plans to redevelop 20 Broad Street after the NYSE vacates in 2016; we are
repositioning theMart in Chicago to continue to attract creative class tenants by adding amenity rich spaces; we are well
into construction at The Bartlett, a 699-unit residential project in Pentagon City with a 37,000 square foot Whole Foods
Market at the base of the building, expected to be completed in 2016; in Crystal City we are renovating a 165,000 square
foot building for WeWork’s residential concept which is scheduled to open later this year; we will demolish two older
contiguous buildings, where we will develop 1700 M Street, our new 335,000 square foot trophy office building in the
heart of the District; and, of course, we continue to keep our buildings in tip top shape by transforming our lobbies and
common areas. We thank our New York development team – Barry, Geoff, James, Alan, Mark, Alejandro, Eli, Dave,
Sandy, Brian and Eric. We thank our Washington development team – Mitch, Paul, Toby and Gordon.
16
* * *
We are confident that we will do very well in Washington as over time we raise the occupancy rate and income level back
to normal and execute on the trove of development opportunities we have. Nevertheless, we have considered and are still
considering options with respect to our Washington business, such as inviting in a new investor(s) or even separating the
business in a spin or in a spin-merge. Ditto for our Street Retail business. That we continuously consider our options
should not be a revelation or a surprise to anyone everything-is-on-the-table.(16)
At Toys, we invested in a club with two renowned private equity firms who are focused on improving operations and
growing earnings. Our suggestions of realizing value through real estate played second fiddle…as did our suggestion that
the global business should be split into its three natural geographies.
I am beginning to get a little wary. It looks like the easy money has been made for this cycle. Asset prices today are high,
well past the 2007 peak, and acquisitions are getting dicey. Our sense is that this may be a better time to harvest than to
invest…and that this is the time in the cycle when the smart guys start to build cash. At Vornado, we will continue to build
cash reserves for opportunities that will undoubtedly present themselves in the future.
* * *
Sustainability
Vornado continues to lead the industry in sustainability – it’s important to our tenants and it is important to us. From
energy procurement, to utilities management, energy efficiency and infrastructure upgrades, demand response and
metering, we are unique in our focus on energy issues. We are also committed to other critical issues like air quality, green
cleaning and water efficiency, as the link between health and the office environment is better understood.
Between 2013 and 2014, we reduced our energy consumption by 27,000 megawatt hours and diverted over 15,000 tons of
waste from landfills. We issued a $450 million green bond in 2014, with the use of proceeds tied to projects related to our
sustainability efforts.
We continue to be recognized for our efforts. In 2014, we were named ENERGY STAR Partner of the Year, we won
NAREIT’s Leader in the Light award (5th year in a row), and Global Real Estate Sustainability Benchmark gave us its
Green Star ranking.
Sustainability is serious business with us. Our industry leading team is led by SVP Sukanya Paciorek.
For more detail on our 2014 sustainability efforts, and a breakdown of our green bond’s use of proceeds, please see our
sustainability report at www.vno.com.
16 Of course, there can be no assurance that any transaction will occur here.
17
* * *
After 31 years at Vornado, Ross Morrison will be retiring in April. For all those years, Ross was the go-to guy in the Finance
Department. He was the know-it-all, in the sense that he did…really know it all (or knew where to find it). He was always
there…late at night…over the weekend…whenever there was a job to do…he did it. He did it with joy in his heart,
intelligence in his head and judgment in his belly. He was a zero tolerance for mistakes kind of guy…he himself was always
100% accurate. And through it all, with his check shirts and fancy ties he was sartorially splendid. I for one have always
been a bit jealous of his fast-growing full head of unruly hair. Ross, we wish you long life and happy times…we will miss
you and hope that you miss us. For sure we will be calling you, for you are our institutional historian.
* * *
This year for the first time we are recognizing our very talented divisional executive vice presidents by listing them on
Vornado’s Corporate Information page. These are our team leaders, deal makers and executors.
We continually broaden our leadership team through promotions from within our Company. Please join me in congratulating
this year’s class; they deserve it. Barry S. Langer was promoted to Executive Vice President, Head of Development;
Matthew Iocco was promoted to Executive Vice President, Chief Accounting Officer; Adam Green was promoted to SVP,
Acquisitions & Capital Markets; Joshua Glick was promoted to SVP, Leasing; Lisa Vogel was promoted to SVP, Marketing;
Gavin Stephenson was promoted to SVP & Senior Financial Officer; Richard Famularo was promoted to SVP, Controller;
Steve Santora was promoted to SVP, Financial Operations; Nicholas Stello was promoted to SVP, IT Infrastructure; Joanne
Porrazzo was promoted to VP – New York Operations; Valerie Bilenker, was promoted to VP – New York Leasing Counsel,
Niles Llolla, was promoted to VP – New York Operations, Bridget Cunningham, was promoted to VP – New York
Operations, Brian Cantrell was promoted to VP, Acquisitions & Capital Markets; Jared Toothman was promoted to VP,
Acquisitions & Capital Markets; Sandy Michaels was promoted to VP, Leasing; Holly Baglieri was promoted to VP, Tax &
Compliance; Melissa Graffeo was promoted to VP, SEC Reporting; Jonathan Sherick was promoted to VP, NY Retail
Controller.
Welcome Dave Bellman, Senior Vice President – Construction, Marc Ricks, Senior Vice President – Development and
Robyn Neff, Vice President – Leasing Counsel to our New York Office team and Shawn Kyle, Senior Vice President –
Management Services to our Washington Division.
I am happy to say year after year that I am fortunate to work every day with the gold medal team. Our operating platforms
are the best in the business. Thanks again to my partners David Greenbaum, Mitchell Schear, Michael Franco, Joe Macnow,
and Steve Theriot.
Special thanks to our operating officers Gaston Silva, Patrick Tyrrell, Myron Maurer and Michael Doherty. Thanks to
Laurie, Ernie, Tom and to the Paramus team…Matt, Rich and Chris, Craig and Frank, Brian and Steve, Bob, Errol and Cathy.
Thank you as well to our very talented and hardworking 38 Senior Vice Presidents and 80 Vice Presidents who make the
trains run on time, every day.
Our Vornado Family has grown with 14 marriages and 34 births this year, 15 girls and 19 boys, but who’s counting.
On behalf of Vornado’s Board, senior management and 4,168 associates, we thank our shareholders, analysts and other stake
holders for their continued support.
Steven Roth
Chairman and CEO
April 3, 2015
Again this year, I offer to assist shareholders with tickets to my wife’s productions on Broadway – the new musical
It Shoulda Been You, starring Tyne Daly, and Tony award winning best musical Kinky Boots. Please call if I can be of help.
Abigail became a bat mitzvah in Israel two weeks ago. She is a curly-haired beauty, caring, happy, smart, strong, slightly
irreverent, a little stubborn in a charming sort of way. Gammy and Pop love you and congratulate you.
18
19
Below is a reconciliation of Net Income to EBITDA:
($ IN MILLIONS)
Net Income
Interest and debt expense
Depreciation, amortization,
and income taxes
EBITDA
Gains on sale of real estate
Real estate impairment loss
Noncontrolling interests
EBITDA before noncontrolling interests and
2014
2013
2012
864.9
654.4
476.0
758.8
617.3
760.5
2011
662.3
797.9
2010
647.9
828.1
2009
106.2
826.8
2008
359.3
821.9
2007
541.5
853.5
2006
554.8
698.4
2005
536.9
418.9
710.2
759.1
742.3
782.2
706.4
739.0
568.1
680.9
530.7
346.2
2,229.5
1,993.9
2,120.1
2,242.2
2,182.4
1,672.0
1,749.3
2,075.9
1,783.9
1,302.0
(518.8)
(412.1)
(471.4)
(61.4)
(63.0)
(46.7)
(67.0)
(80.5)
(45.9)
(34.5)
26.5
59.2
43.7
24.9
131.8
45.3
28.8
55.9
109.0
55.2
23.2
25.1
--
55.4
--
69.8
--
79.9
--
133.5
gains on sale of real estate
1,796.4
1,650.4
1,825.8
2,265.7
2,283.6
1,673.6
1,737.7
2,065.2
1,817.9
1,401.0
Non-comparable items
(124.3)
(44.0)
(366.7)
(783.9)
(848.7)
(292.8)
(361.3)
(717.0)
(786.0)
(473.3)
EBITDA adjusted for comparability
1,672.1
1,606.4
1,459.1
1,481.8
1,434.9
1,380.8
1,376.4
1,348.2
1,031.9
927.7
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 losses
Partially-owned entities adjustments:
Depreciation and amortization of real property
Net gains on sale of real estate
Income tax effect of adjustments included above
Real estate impairment losses
Noncontrolling interests’ share of above adjustments
Interest on exchangeable senior debentures
Preferred share dividends
Funds From Operations
Funds From Operations per share
2011
662.3
(60.5)
601.8
530.1
(51.6)
28.8
170.9
(9.8)
(24.6)
--
(41.0)
26.3
0.3
2010
647.9
(51.2)
596.7
505.8
(57.2)
97.5
148.3
(5.8)
(24.6)
11.5
(46.8)
25.9
0.2
1,231.1
1,251.5
$6.42
$6.59
2009
106.2
(57.1)
49.1
508.6
(45.3)
23.2
140.6
(1.4)
(22.9)
--
2008
2007
2006
2005
359.3
(57.1)
302.2
509.4
541.5
554.8
(57.1)
(57.5)
484.4
451.3
497.3
337.7
536.9
(46.5)
490.4
276.9
(57.5)
(60.8)
(33.8)
(31.6)
--
--
--
--
115.9
(9.5)
(23.2)
--
134.0
(15.5)
(28.8)
--
105.6
(13.2)
(21.0)
--
42.1
(2.9)
(4.6)
--
(47.0)
(49.7)
(46.7)
(39.8)
(32.0)
--
0.2
605.1
$3.49
25.3
0.2
813.1
$4.97
25.0
0.3
943.2
$5.75
24.7
0.7
858.2
$5.51
18.0
0.9
757.2
$5.21
Below is a reconciliation of Revenues to Revenues as adjusted for comparability:
Below is a reconciliation of Total Assets to Total Assets as adjusted for comparability:
($ IN MILLIONS)
Revenues
Less: non-comparable items:
Cleveland Medical Mart
Stop & Shop litigation settlement income
Revenues, adjusted for comparability
2014
2,635.9
--
--
2,635.9
2013
2,669.3
36.4
59.6
2,573.3
($ IN MILLIONS)
Total Assets
Less: non-comparable items:
Assets related to discontinued operations
Investment in Toys “R” Us
Cash available to repay revolving credit facilities
Accumulated depreciation
Total assets, adjusted for comparability
2014
21,248.3
477.6
--
--
(3,629.1 )
24,399.8
2013
20,097.2
874.0
83.2
295.9
(3,296.7 )
22,140.8
20
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, 2014
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
Name of Each Exchange on Which Registered
New York Stock Exchange
Cumulative Redeemable Preferred Shares of beneficial
interest, no par value:
6.625% Series G
6.625% Series I
6.875% Series J
5.70% Series K
5.40% Series L
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 $18,241,786,000 at June 30, 2014.
As of December 31, 2014, there were 187,887,498 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 21, 2015.
This Annual Report on Form 10-K omits financial statements required under Rule 3-09 of Regulation S-X, for Toys “R” Us, Inc. An
amendment to this Annual Report on Form 10-K will be filed as soon as practicable following the availability of such financial
statements.
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
8
17
18
32
32
33
35
37
94
95
143
143
145
145
146
146
146
146
147
148
(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, 2014, 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 future 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 94.1% of the common limited partnership interest in the Operating Partnership
at December 31, 2014. All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its
consolidated subsidiaries, including the Operating Partnership.
On January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers,
three malls, a warehouse park and $225 million of cash to Urban Edge Properties (“UE”) (NYSE: UE). As part of this transaction, we
received 5,712,000 UE operating partnership units (5.4% ownership interest).
We currently own all or portions of:
New York:
•
•
20.1 million square feet of Manhattan office space in 31 properties;
2.5 million square feet of Manhattan street retail space in 56 properties;
• Four residential properties containing 1,654 units;
• 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:
•
16.1 million square feet of office space in 59 properties;
• Seven residential properties containing 2,414 units;
Other Real Estate and Related Investments:
• The 3.6 million square foot 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 real estate fund. We are the general partner and investment manager of the
fund;
• A 32.6% interest in Toys “R” Us, Inc.; and
• Other real estate and related investments.
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 execute 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
•
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.
ACQUISITIONS
Since January 1, 2014, we completed the following acquisitions:
• A 74.3% interest in the retail condominium of the St. Regis Hotel, located on the Southeast corner of 55th Street and
Fifth Avenue, for $700 million
• The land under our 715 Lexington Avenue retail property, located on the Southeast corner of 58th Street and Lexington
Avenue in Manhattan, for $63 million
• We increased our ownership in One Park Avenue to 55.0% from 46.5% through a joint venture with an institutional
investor
• We increased our ownership in Crowne Plaza Times Square Hotel to 33% from 11% by co-investing with our 25%
owned Real Estate Fund and one of the Fund’s limited partners to buy out the Fund’s joint venture partner’s 57% interest
Additional details about our acquisitions are provided in the “Overview” of Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
DISPOSITIONS
Since January 1, 2014, we sold nine assets for an aggregate of $1.025 billion, with net proceeds of approximately $989 million.
Below is a summary of these sales.
•
1740 Broadway for $605 million resulting in net proceeds of approximately $580 million
• Beverly Connection Shopping Center for $260 million resulting in net proceeds of $252 million
• Broadway Mall for $94 million resulting in net proceeds of $92.2 million
• Six retail assets for an aggregate of $66.4 million resulting in net proceeds of $64.8 million
Additional details about our dispositions are provided in the “Overview” of Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
5
FINANCINGS
Since January 1, 2014, we completed the following financing transactions:
• Extended one of two $1.25 billion unsecured revolving credit facilities to November 2018 with two six-month extension
options, lowering the interest rate to LIBOR plus 1.05% from LIBOR plus 1.25% and reducing the facility fee to 20
basis points from 25 basis points
Issued $450 million 2.50% senior unsecured notes due June 2019
•
• Redeemed $445 million 7.875% senior unsecured notes due October 2039
• Redeemed $500 million 4.25% senior unsecured notes due April 2015
• Obtained $2.0 billion of mortgage financings and repaid $519 million and defeased $193 million of existing mortgages
for aggregate net proceeds of $1.3 billion
Additional details about our financings are provided in the “Overview” of Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
SEGMENT DATA
We operate in the following business segments: New York, Washington, DC, Retail Properties, and Toys “R” Us (“Toys”).
Financial information related to these business segments for the years ended December 31, 2014, 2013 and 2012 is set forth in Note 25
– Segment Information to our consolidated financial statements in this Annual Report on Form 10-K.
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 and substantially all of Toys’ net income is generated in its fourth quarter, which we record on a one-quarter lag basis in our
first quarter. 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, 2014, 2013 and
2012.
6
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 our portfolio may be sold when 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, 2014, we have approximately 4,503 employees, of which 329 are corporate staff. The New York segment
has 3,400 employees, including 2,735 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 508 employees at the
Hotel Pennsylvania. The Washington, DC and Retail Properties segments have 457 and 77 employees, respectively and the Mart
properties have 240 employees. The foregoing does not include employees of partially owned entities.
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.
7
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;
global, 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;
inflation or deflation;
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 or individual acts of violence
in public spaces including retail centers;
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 liquidity, financial condition and results of operations as
well as 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. Demand for office and retail space may decline nationwide, as it did in 2008 and 2009 due to the economic downturn,
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, including our results of operations, 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.
8
Real estate is a competitive business.
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
global, 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 and employment 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. 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 to pay our indebtedness or make distributions to shareholders.
We may incur significant costs to comply with environmental laws and environmental contamination may impair our ability
to lease and/or sell real estate.
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) 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 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. To date, these environmental
assessments have not revealed 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, human exposure to
contamination or changes in clean-up or compliance requirements could result in significant costs to us.
In addition, we may become subject to costs or taxes, or increases therein, associated with natural resource or energy usage (such
as a “carbon tax”). These costs or taxes could increase our operating costs and decrease the cash available to pay our obligations or
distribute to equity holders.
9
We face risks associated with our tenants being designated “Prohibited Persons” by the Office of Foreign Assets Control and
similar requirements.
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 and thereby restricts our doing business with such persons.
Our leases, loans and other agreements may require us to comply with OFAC and related requirements. If a tenant or other party with
whom we conduct business is placed on the OFAC list or is otherwise a party with which we are prohibited from doing business, 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 cyber security, 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 primary risks that could directly
result from the occurrence of a cyber incident are theft of assets, 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.
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, with sub-limits for certain perils such as floods. Our California properties have
earthquake insurance with coverage of $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the
affected property, up to a $180,000,000 annual aggregate. We maintain coverage for terrorism acts with limits of $4.0 billion per
occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological,
chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization Act, which
expires in December 2020.
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a
portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for
coverage for NBCR acts. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies
and the Federal government with no exposure to PPIC. For NBCR acts, PPIC is responsible for a deductible of $3,200,000 and 15%
of the balance of a covered loss (16% effective January 1, 2016) and the Federal government is responsible for the remaining 85% of a
covered loss (84% effective January 1, 2016). We are ultimately responsible for any loss incurred by PPIC.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, we
cannot anticipate what coverage will be available on commercially reasonable terms in the future.
Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured
notes and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we
have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at
reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our
ability to finance our properties and expand our portfolio.
10
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.
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 2014, approximately 98% of our EBITDA, excluding items that affect comparability, came from properties located in the New
York City metropolitan area 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 media, 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, Chicago 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.
Our investments are concentrated in the New York, Washington, DC, Chicago and San Francisco metropolitan areas. Natural
disasters, including earthquakes, storms and hurricanes, could impact our properties in these and 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.
11
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 may acquire, develop or redevelop real estate and acquire related companies and this may create risks.
We may acquire, develop or redevelop properties or acquire real estate related companies when we believe doing so is consistent
with our business strategy. We may not succeed in (i) developing, redeveloping or acquiring real estate and real estate related
companies; (ii) completing these activities on time or within budget; and (iii) leasing or selling developed, redeveloped or acquired
properties at amounts sufficient to cover our costs. Competition in these activities could also significantly increase our costs.
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. Furthermore, we may be exposed to the liabilities of properties or companies
acquired, some of which we may not be aware of at the time of acquisition.
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 have made, and in the future we may seek to make, investments in companies over which we do not
have sole control. Some of these companies operate in industries with different risks than investing and operating real estate.
From time to time we have made, and in the future we may seek to make, investments in companies that we may not control,
including, but not limited to, Alexander’s, Inc. (“Alexander’s”), Toys “R” Us (“Toys”), Lexington Realty Trust (“Lexington”), 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 investing and operating real estate, including operating or managing toy stores.
Consequently, we are subject to operating and financial risks of those industries and to the risks associated with lack of control, such
as having differing objectives than our partners or the entities in which we invest, or becoming involved in disputes, or competing
directly or indirectly with these partners or entities. 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.
We are subject to risks that affect the general and New York City retail environments.
Certain of our properties are Manhattan street retail properties. As such, these properties are affected by the general and New
York City retail environments, including the level of consumer spending and consumer confidence, the threat of terrorism and
increasing competition from retailers, outlet malls, retail websites and catalog companies. These factors could adversely affect the
financial condition of our retail tenants and the willingness of retailers to lease space in our retail locations, and in turn, adversely
affect us.
12
Our investment in Toys has in the past and may in the future result in increased seasonality and volatility in our reported
earnings.
We carry our Toys investment at zero. As a result, we no longer record our equity in Toys' income or loss. 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 and substantially all of Toys net income is generated in its fourth quarter. It is possible that
the value of Toys may increase and we could again resume recording our equity in Toys' income or loss, which would increase the
seasonality and volatility of our reported earnings.
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 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 Lexington Realty Trust. As of December 31,
2014, our marketable securities have an aggregate carrying amount of $206,323,000, 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.
13
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, 2014, there were three series of preferred units of the Operating Partnership not held by Vornado with
a total liquidation value of $56,206,000.
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.
We have outstanding debt, and the amount of debt and its cost may increase and refinancing may not be available on
acceptable terms.
We rely on both secured and unsecured, variable rate and non-variable rate debt to finance acquisitions and development activities
and for working capital. If we are unable to obtain debt financing or refinance existing indebtedness upon maturity, our financial
condition and results of operations would likely be adversely affected. In addition, the cost of our existing debt may increase,
especially in the case of a rising interest rate environment, and we may not be able to refinance our existing debt in sufficient amounts
or on acceptable terms. If the cost or amount of our indebtedness increases or we cannot refinance our debt in sufficient amounts or
on acceptable terms, we are at risk of credit ratings downgrades and default on our obligations that could adversely affect our financial
condition and results of operations.
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 indebtedness and debt that we
may obtain in the future 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 or give possession of a secured property to the lender. Under those circumstances, other
sources of capital may not be available to us, or may be available only on unattractive terms.
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 so qualified. Qualifications are governed by highly technical and complex provisions of the Internal
Revenue Code for which there are only limited judicial or administrative interpretations and depend 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 relevant tax laws and/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.
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 and Chief Executive Officer of Vornado.
While we believe that we could find a replacement for him and other key personnel, the loss of their services could harm our
operations and adversely affect the value of our common shares.
14
VORNADO’S CHARTER DOCUMENTS AND APPLICABLE LAW MAY HINDER ANY ATTEMPT TO ACQUIRE US.
Our Amended and Restated Declaration of Trust (the “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 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.
The Maryland General Corporation Law (the “MGCL”) contains provisions that may reduce the likelihood of certain takeover
transactions.
The MGCL imposes conditions and restrictions on certain “business combinations” (including, among other transactions, a
merger, consolidation, share exchange, or, in certain circumstances, an asset transfer or issuance of equity securities) between a
Maryland REIT and certain persons who beneficially own at least 10% of the corporation’s stock (an “interested shareholder”). Unless
approved in advance by the board of trustees of the trust, or otherwise exempted by the statute, such a business combination is
prohibited for a period of five years after the most recent date on which the interested shareholder became an interested shareholder.
After such five-year period, a business combination with an interested shareholder must be: (a) recommended by the board of trustees
of the trust, and (b) approved by the affirmative vote of at least (i) 80% of the trust’s outstanding shares entitled to vote and (ii) two-
thirds of the trust’s outstanding shares entitled to vote which are not held by the interested shareholder with whom the business
combination is to be effected, unless, among other things, the trust’s common shareholders receive a “fair price” (as defined by the
statute) for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder
for his or her shares.
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.
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.
15
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, 2014, Interstate Properties, a New Jersey general partnership, and its partners owned an aggregate of
approximately 6.6% of the common shares of Vornado and 26.3% of the common stock of Alexander’s Inc. (NYSE: ALX)
(“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 and Chief Executive Officer 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.
We 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. See the related party disclosures in the notes to the consolidated financial statements
in this Annual Report on Form 10-K for additional information.
There may be conflicts of interest between Alexander’s and us.
As of December 31, 2014, 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, 2014. Mr. Roth is the Chairman of the Board and Chief Executive Office 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. Dr. Richard
West is a trustee of Vornado and a director of Alexander’s. In addition, Joseph Macnow, our Executive Vice President – Finance and
Chief Administrative Officer, is the Executive Vice President and Chief Financial Officer of Alexander’s, and Stephen W. Theriot, our
Chief Financial Officer, is the Assistant Treasurer of Alexander’s.
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. See the related party disclosures in the notes to the consolidated financial
statements in this Annual Report on Form 10-K for additional information.
16
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;
fluctuations in interest rates;
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, 2014, we
had authorized but unissued, 62,112,502 common shares of beneficial interest, $.04 par value and 57,266,023 preferred shares of
beneficial interest, no par value; of which 19,488,139 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.
In addition, under Maryland law, the Board has the authority to increase the number of authorized shares without shareholder
approval.
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.
17
ITEM 2.
PROPERTIES
We operate in four business segments: New York, Washington, DC, Retail Properties and Toys “R” Us. The following pages
provide details of our real estate properties as of December 31, 2014.
Type
%
Occupancy
In Service
Square Feet
Under
Development
or Not
Available
for Lease
Total
Property
%
Ownership
Property
NEW YORK:
One Penn Plaza (ground leased through 2098)
1290 Avenue of the Americas
Two Penn Plaza
666 Fifth Avenue Office Condominium (1)
909 Third Avenue (ground leased through 2063)
280 Park Avenue (1)
Independence Plaza, Tribeca (1,328 units) (1)
Eleven Penn Plaza
770 Broadway
One Park Avenue (1)
90 Park Avenue
888 Seventh Avenue (ground leased through 2067)
100 West 33rd Street
330 Madison Avenue (1)
330 West 34th Street (ground leased through 2148)
650 Madison Avenue (1)
350 Park Avenue
150 East 58th Street
7 West 34th Street
20 Broad Street (ground leased through 2081)
640 Fifth Avenue
595 Madison Avenue
50-70 W 93rd Street (326 units) (1)
Manhattan Mall
40 Fulton Street
4 Union Square South
57th Street (5 buildings) (1)
825 Seventh Avenue (1)
1540 Broadway
Paramus
608 Fifth Avenue (ground leased through 2033)
666 Fifth Avenue Retail Condominium
1535 Broadway (Marriott Marquis - retail and signage)
(ground and building leased through 2032)
689 Fifth Avenue
478-486 Broadway (2 buildings)
510 Fifth Avenue
655 Fifth Avenue
155 Spring Street
3040 M Street
435 Seventh Avenue
692 Broadway
697-703 Fifth Avenue (St. Regis)
715 Lexington
1131 Third Avenue
828-850 Madison Avenue
443 Broadway
484 Eighth Avenue
334 Canal Street
304 Canal Street
40 East 66th Street
431 Seventh Avenue
677-679 Madison Avenue
148 Spring Street
150 Spring Street
100.0%
Office / Retail
70.0%
Office / Retail
100.0%
Office / Retail
49.5%
Office / Retail
100.0%
Office
50.0%
Office / Retail
50.1% Residential / Retail
100.0%
Office / Retail
100.0%
Office / Retail
55.0%
Office / Retail
100.0%
Office / Retail
100.0%
Office / Retail
100.0%
Office
25.0%
Office / Retail
100.0%
Office / Retail
20.1%
Office / Retail
100.0%
Office / Retail
100.0%
Office / Retail
100.0%
Office / Retail
100.0%
Office
100.0%
Office / Retail
100.0%
Office / Retail
49.9%
Residential
100.0%
Retail
100.0%
Office / Retail
100.0%
Retail
50.0%
Office / Retail
51.1%
Office / Retail
100.0%
Retail
100.0%
Office
100.0%
Office / Retail
100.0%
Retail
100.0%
100.0%
100.0%
100.0%
92.5%
100.0%
100.0%
100.0%
100.0%
74.3%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Retail / Theatre
Office / Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
18
95.1%
97.8%
97.7%
76.9%
100.0%
100.0%
94.9%
99.1%
100.0%
96.8%
97.2%
93.7%
99.6%
99.1%
100.0%
87.9%
99.4%
98.2%
100.0%
99.3%
89.9%
98.7%
98.8%
92.6%
99.0%
100.0%
96.6%
100.0%
100.0%
96.1%
96.0%
100.0%
100.0%
100.0%
100.0%
90.6%
100.0%
98.5%
100.0%
100.0%
100.0%
100.0%
100.0%
85.9%
100.0%
100.0%
n/a
100.0%
n/a
100.0%
100.0%
100.0%
100.0%
100.0%
2,521,000
2,109,000
1,619,000
1,416,000
1,344,000
755,000
1,241,000
1,152,000
1,148,000
943,000
936,000
877,000
849,000
838,000
379,000
598,000
570,000
544,000
480,000
472,000
325,000
322,000
283,000
256,000
249,000
206,000
158,000
174,000
160,000
129,000
125,000
114,000
66,000
99,000
85,000
65,000
57,000
49,000
44,000
43,000
35,000
25,000
23,000
22,000
18,000
16,000
16,000
3,000
-
11,000
10,000
8,000
7,000
7,000
-
-
-
-
-
486,000
-
-
-
-
-
-
-
-
292,000
-
-
-
-
-
-
-
-
-
-
-
27,000
-
-
-
-
-
42,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,000
14,000
-
-
-
-
-
2,521,000
2,109,000
1,619,000
1,416,000
1,344,000
1,241,000
1,241,000
1,152,000
1,148,000
943,000
936,000
877,000
849,000
838,000
671,000
598,000
570,000
544,000
480,000
472,000
325,000
322,000
283,000
256,000
249,000
206,000
185,000
174,000
160,000
129,000
125,000
114,000
108,000
99,000
85,000
65,000
57,000
49,000
44,000
43,000
35,000
25,000
23,000
22,000
18,000
16,000
16,000
15,000
14,000
11,000
10,000
8,000
7,000
7,000
ITEM 2.
PROPERTIES - CONTINUED
Property
NEW YORK - continued:
966 Third Avenue
267 West 34th Street
488 Eighth Avenue
968 Third Avenue (1)
Hotel Pennsylvania
Alexander's, Inc.:
731 Lexington Avenue (1)
Rego Park II, Queens (1)
Rego Park I, Queens (1)
Rego Park II Apartment Tower, Queens (1)
Flushing, Queens (1)
Paramus, New Jersey (30.3 acres
ground leased through 2041) (1)
Rego Park III, Queens (3.2 acres) (1)
Total New York
Vornado's Ownership Interest
WASHINGTON, DC:
2011-2451 Crystal Drive (5 buildings)
Skyline Properties (7 buildings)
S. Clark Street / 12th Street (5 buildings)
1550-1750 Crystal Drive /
241-251 18th Street (4 buildings)
1800, 1851 and 1901 South Bell Street (3 buildings)
Fashion Centre Mall (1)
Rosslyn Plaza (4 buildings) (1)
1825-1875 Connecticut Avenue, NW
(Universal Buildings ) (2 buildings)
Waterfront Station (1)
2200 / 2300 Clarendon Blvd (Courthouse Plaza)
(ground leased through 2062) (2 buildings)
1299 Pennsylvania Avenue, NW
(Warner Building) (1)
Fairfax Square (3 buildings) (1)
2100 / 2200 Crystal Drive (2 buildings)
One Skyline Tower
Commerce Executive (3 buildings)
2101 L Street, NW
1501 K Street, NW (1)
223 23rd Street / 2221 South Clark Street (2
buildings)
1750 Pennsylvania Avenue, NW
1150 17th Street, NW
875 15th Street, NW (Bowen Building)
Democracy Plaza One
(ground leased through 2084)
1101 17th Street, NW (1)
1730 M Street, NW
Washington Tower (1)
2001 Jefferson Davis Highway
1399 New York Avenue, NW
1726 M Street, NW
Crystal City Shops at 2100
Crystal Drive Retail
%
Ownership
Type
%
Occupancy
In Service
Square Feet
Under
Development
or Not
Available
for Lease
Total
Property
100.0%
100.0%
100.0%
50.0%
100.0%
32.4%
32.4%
32.4%
32.4%
32.4%
32.4%
32.4%
100.0%
100.0%
100.0%
100.0%
100.0%
7.5%
46.2%
100.0%
2.5%
100.0%
55.0%
20.0%
100.0%
100.0%
100.0%
100.0%
5.0%
100.0%
100.0%
100.0%
100.0%
100.0%
55.0%
100.0%
7.5%
100.0%
100.0%
100.0%
100.0%
100.0%
Retail
Retail
Retail
Retail
Hotel
100.0%
100.0%
100.0%
100.0%
7,000
6,000
6,000
6,000
-
-
-
-
7,000
6,000
6,000
6,000
n/a
1,400,000
-
1,400,000
Office / Retail
Retail
Retail
Residential
Retail
100.0%
98.9%
100.0%
n/a
100.0%
1,059,000
609,000
343,000
-
167,000
-
-
-
255,000
-
1,059,000
609,000
343,000
255,000
167,000
Retail
n/a
100.0%
n/a
96.4%
-
-
27,604,000
-
-
1,128,000
-
-
28,732,000
96.9%
21,856,000
699,000
22,555,000
Office
Office
Office
Office
Office
Office
Office
Office
Office
89.3%
42.2%
76.9%
80.4%
93.8%
98.0%
55.8%
2,321,000
2,130,000
1,540,000
1,484,000
506,000
821,000
534,000
98.4%
n/a
685,000
-
-
-
-
-
363,000
-
202,000
-
675,000
2,321,000
2,130,000
1,540,000
1,484,000
869,000
821,000
736,000
685,000
675,000
Office
94.7%
638,000
-
638,000
77.4%
86.2%
100.0%
100.0%
86.8%
99.0%
100.0%
n/a
94.0%
91.7%
100.0%
92.4%
97.2%
90.8%
100.0%
63.1%
90.4%
98.0%
96.0%
100.0%
613,000
559,000
529,000
518,000
400,000
380,000
379,000
-
277,000
241,000
231,000
216,000
214,000
203,000
170,000
162,000
129,000
92,000
80,000
57,000
-
-
-
-
19,000
-
-
316,000
-
-
-
-
-
-
-
-
-
-
-
-
613,000
559,000
529,000
518,000
419,000
380,000
379,000
316,000
277,000
241,000
231,000
216,000
214,000
203,000
170,000
162,000
129,000
92,000
80,000
57,000
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
19
ITEM 2.
PROPERTIES - CONTINUED
Property
WASHINGTON, DC - continued:
Riverhouse (1,670 units) (3 buildings)
The Bartlett
West End 25 (283 units)
220 20th Street (265 units)
Crystal City Hotel
Rosslyn Plaza (196 units) (2 buildings) (1)
Met Park / Warehouses
Other (3 buildings)
Total Washington, DC
Vornado's Ownership Interest
RETAIL PROPERTIES:
Wayne Town Center, Wayne, NJ
(ground leased through 2064)
Allentown, PA
Bronx (Bruckner Boulevard), NY
East Brunswick, NJ
North Bergen (Tonnelle Avenue), NJ
East Hanover (200 - 240 Route 10 West), NJ
Wilkes-Barre, PA (461 - 499 Mundy Street), PA
Huntington, NY
Buffalo (Amherst), NY
Bricktown, NJ
Union (Route 22 and Morris Avenue), NJ
Hackensack, NJ
Totowa, NJ
Cherry Hill, NJ
Jersey City, NJ
Union (2445 Springfield Avenue), NJ
Middletown, NJ
Lancaster, PA
Woodbridge NJ
Chicopee, MA
Marlton, NJ
North Plainfield, NJ
Bergen Town Center - East, Paramus, NJ
Manalapan, NJ
Rochester, NY
East Rutherford, NJ
Garfield, NJ
Mt. Kisco, NY
Newington, CT
Bensalem, PA
Springfield, MA
Morris Plains, NJ
%
Ownership
Type
%
Occupancy
In Service
Square Feet
Under
Development
or Not
Available
for Lease
Total
Property
100.0%
100.0%
100.0%
100.0%
100.0%
43.7%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Residential
Residential
Residential
Residential
Hotel
Residential
Warehouse
Other
97.4%
n/a
96.8%
98.5%
100.0%
95.9%
100.0%
100.0%
84.5%
1,802,000
-
273,000
269,000
266,000
253,000
109,000
9,000
19,090,000
-
618,000
-
-
-
-
20,000
2,000
2,215,000
1,802,000
618,000
273,000
269,000
266,000
253,000
129,000
11,000
21,305,000
83.8%
16,570,000
1,442,000
18,012,000
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
100.0%
100.0%
89.6%
100.0%
98.9%
86.3%
91.7%
100.0%
100.0%
92.8%
99.4%
74.5%
100.0%
97.3%
100.0%
100.0%
94.9%
82.1%
100.0%
100.0%
100.0%
88.3%
93.6%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
98.9%
100.0%
95.9%
544,000
554,000
501,000
427,000
410,000
343,000
329,000
324,000
311,000
278,000
276,000
275,000
271,000
261,000
236,000
232,000
231,000
228,000
226,000
224,000
213,000
212,000
211,000
208,000
205,000
197,000
195,000
189,000
188,000
185,000
182,000
177,000
119,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
663,000
554,000
501,000
427,000
410,000
343,000
329,000
324,000
311,000
278,000
276,000
275,000
271,000
261,000
236,000
232,000
231,000
228,000
226,000
224,000
213,000
212,000
211,000
208,000
205,000
197,000
195,000
189,000
188,000
185,000
182,000
177,000
20
ITEM 2.
PROPERTIES - CONTINUED
Property
RETAIL PROPERTIES - continued:
Dover, NJ
Freeport (437 East Sunrise Highway), NY
Lodi (Route 17 North), NJ
Watchung, NJ
Broomall, PA
Rochester (Henrietta), NY
(ground leased through 2056)
Staten Island, NY
Baltimore (Towson), MD
Waterbury, CT
Bethlehem, PA
Lawnside, NJ
Annapolis, MD
(ground and building leased through 2042)
Hazlet, NJ
Glen Burnie, MD
Norfolk, VA
(ground and building leased through 2069)
York, PA
Kearny, NJ
Glenolden, PA
New Hyde Park, NY
(ground and building leased through 2029)
Inwood, NY
Turnersville, NJ
Rockville, MD
Lodi (Washington Street), NJ
Milford, MA
(ground and building leased through 2019)
Carlstadt, NJ (ground leased through 2050)
Bronx (1750-1780 Gun Hill Road), NY
Wyomissing, PA
(ground and building leased through 2065)
West Babylon, NY
Wheaton, MD
(ground leased through 2060)
Paramus, NJ (ground leased through 2033)
North Bergen (Kennedy Boulevard), NJ
South Plainfield, NJ
(ground leased through 2039)
San Francisco (2675 Geary Street), CA
(ground and building leased through 2043)
%
Ownership
Type
%
Occupancy
In Service
Square Feet
Under
Development
or Not
Available
for Lease
Total
Property
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Strip
93.0%
100.0%
100.0%
96.6%
100.0%
96.2%
88.2%
100.0%
68.8%
98.9%
100.0%
100.0%
100.0%
90.5%
100.0%
86.2%
100.0%
100.0%
100.0%
80.1%
96.3%
98.1%
94.1%
100.0%
100.0%
90.7%
93.2%
95.4%
100.0%
100.0%
100.0%
173,000
173,000
171,000
170,000
169,000
165,000
165,000
155,000
148,000
147,000
145,000
128,000
123,000
121,000
114,000
111,000
104,000
102,000
101,000
96,000
96,000
94,000
85,000
83,000
78,000
77,000
76,000
66,000
66,000
63,000
62,000
100.0%
Strip
85.9%
56,000
100.0%
Strip
100.0%
55,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
173,000
173,000
171,000
170,000
169,000
165,000
165,000
155,000
148,000
147,000
145,000
128,000
123,000
121,000
114,000
111,000
104,000
102,000
101,000
96,000
96,000
94,000
85,000
83,000
78,000
77,000
76,000
66,000
66,000
63,000
62,000
56,000
55,000
21
ITEM 2.
PROPERTIES - CONTINUED
Property
RETAIL PROPERTIES - continued:
Cambridge, MA
(ground and building leased through 2033)
Commack, NY
(ground and building leased through 2021)
Arlington Heights, IL
(ground and building leased through 2043)
Dewitt, NY
(ground leased through 2041)
Charleston, SC
(ground leased through 2063)
Signal Hill, CA
Vallejo, CA
(ground leased through 2043)
Freeport (240 West Sunrise Highway), NY
(ground and building leased through 2040)
San Antonio, TX
(ground and building leased through 2041)
Chicago, IL
(ground and building leased through 2051)
Englewood, NJ
Springfield, PA
(ground and building leased through 2025)
Tyson's Corner, VA
(ground and building leased through 2035)
Salem, NH
(ground leased through 2102)
Owensboro, KY
(ground and building leased through 2046)
Eatontown, NJ
Walnut Creek (1149 South Main Street), CA
East Hanover (280 Route 10 West), NJ
Montclair, NJ
Oceanside, NY
Walnut Creek (Mt. Diablo), CA
Monmouth Mall, Eatontown, NJ (1)
Bergen Town Center - West, Paramus, NJ
Montehiedra, Puerto Rico
Las Catalinas, Puerto Rico
Total Retail Properties
Vornado's Ownership Interest
%
Ownership
Type
%
Occupancy
In Service
Square Feet
Under
Development
or Not
Available
for Lease
Total
Property
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Strip
100.0%
48,000
Strip
100.0%
47,000
Strip
100.0%
46,000
Strip
100.0%
46,000
Strip
Strip
100.0%
100.0%
45,000
45,000
Strip
100.0%
45,000
Strip
100.0%
44,000
Strip
100.0%
43,000
Strip
Strip
100.0%
73.6%
41,000
41,000
Strip
100.0%
41,000
Strip
100.0%
38,000
100.0%
Strip
100.0%
37,000
32,000
30,000
29,000
26,000
18,000
16,000
7,000
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
95.0%
50.0%
100.0%
100.0%
100.0%
Strip
Strip
Strip
Strip
Strip
Strip
Strip
Mall
Mall
Mall
Mall
100.0%
73.7%
100.0%
100.0%
100.0%
100.0%
100.0%
92.5%
99.4%
90.9%
94.0%
95.8%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
48,000
47,000
46,000
46,000
45,000
45,000
45,000
44,000
43,000
41,000
41,000
41,000
38,000
37,000
32,000
30,000
29,000
26,000
18,000
16,000
7,000
1,463,000
952,000
542,000
494,000
16,797,000
-
-
-
-
119,000
1,463,000
952,000
542,000
494,000
16,916,000
95.9%
15,273,000
119,000
15,392,000
22
ITEM 2.
PROPERTIES - CONTINUED
%
%
Ownership
Type
Occupancy
In Service
Square Feet
Under
Development
or Not
Available
for Lease
Total
Property
100.0%
50.0%
Office / Retail /
Showroom
Retail
70.0%
70.0%
70.0%
Office
Office / Retail
Office / Retail
94.7%
100.0%
94.7%
3,568,000
19,000
3,587,000
94.7%
3,578,000
97.0%
100.0%
100.0%
97.6%
1,506,000
231,000
64,000
1,801,000
97.6%
1,261,000
100.0%
38.2%
Office
Office / Retail /
Hotel
57.0%
243,000
100.0%
235,000
100.0% Retail / Residential
Retail / Theatre
100.0%
Office
100.0%
Retail
100.0%
Retail
100.0%
100.0%
100.0%
90.9%
100.0%
100.0%
84.4%
146,000
127,000
112,000
8,000
9,000
880,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,000
-
3,000
3,568,000
19,000
3,587,000
3,578,000
1,506,000
231,000
64,000
1,801,000
1,261,000
243,000
235,000
146,000
127,000
112,000
11,000
9,000
883,000
n/a (3)
100.0%
Office / Retail
Warehouse
84.4%
184,000
1,000
185,000
100.0%
60.8%
76.3%
613,000
942,000
1,555,000
60.8%
942,000
-
-
-
-
613,000
942,000
1,555,000
942,000
Property
OTHER (The Mart):
The Mart, Chicago
Other (1)
Total The Mart
Vornado's Ownership Interest
OTHER (555 California Street):
555 California Street
315 Montgomery Street
345 Montgomery Street
Total 555 California Street
Vornado's Ownership Interest
OTHER (Vornado Capital Partners Real Estate Fund) (2) :
800 Corporate Pointe, Culver City, CA (2 buildings)
Crowne Plaza Times Square, NY
Lucida, 86th Street and Lexington Avenue, NY
(ground leased through 2082)
1100 Lincoln Road, Miami, FL
520 Broadway, Santa Monica, CA
11 East 68th Street Retail, NY
501 Broadway, NY
Total Real Estate Fund Properties
Vornado's Ownership Interest
OTHER:
85 Tenth Avenue, Manhattan
East Hanover Warehouse Park (5 buildings)
Total Other
Vornado's Ownership Interest
(1) Denotes property not consolidated in the accompanying consolidated financial statements and related financial data included in the Annual Report on Form 10-K.
(2) We own a 25% interest in the Fund. The ownership percentage in this section represents the Fund's ownership in the underlying asset.
(3) As of December 31, 2014, we own junior and senior mezzanine loans of 85 Tenth Avenue with an accreted balance of $147.6 million. The junior and senior
mezzanine loans bear paid-in-kind interest of 12% and 9%, respectively and mature in May 2017. We account for our investment in 85 Tenth Avenue using the
equity method of accounting because we will receive a 49.9% interest in the property after repayment of the junior mezzanine loan. As a result of recording our
share of the GAAP losses of the property, the net carrying amount of these loans is $28.2 million on our consolidated balance sheets.
23
NEW YORK
As of December 31, 2014, our New York segment consisted of 27.6 million square feet in 72 properties. The 27.6 million square
feet is comprised of 20.1 million square feet of office space in 31 properties, 2.5 million square feet of retail space in 56 properties,
four residential properties containing 1,654 units, the 1.4 million square foot Hotel Pennsylvania, and our 32.4% interest in
Alexander’s, Inc. (“Alexander’s”), which owns six properties in the greater New York metropolitan area. The New York segment
also includes 10 garages totaling 1.7 million square feet (4,909 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, 2014, the occupancy rate for our New York segment was 96.9%.
Occupancy and weighted average annual rent per square foot:
Office:
Retail:
As of December 31,
2014
2013
2012
2011
2010
Total
Property
Square Feet
20,052,000
19,217,000
18,792,000
18,637,000
15,592,000
Square Feet
16,808,000
15,776,000
15,811,000
15,664,000
14,413,000
Vornado's Ownership Interest
Occupancy
Rate
96.9 %
96.5 %
95.7 %
96.1 %
96.0 %
Weighted
Average Annual
Rent Per
Square Foot
$
65.37
61.86
60.18
58.68
56.13
As of December 31,
2014
2013
2012
2011
2010
Total
Property
Square Feet
2,450,000
2,370,000
2,192,000
2,234,000
1,991,000
Square Feet
2,179,000
2,147,000
2,032,000
1,975,000
1,899,000
Vornado's Ownership Interest
Occupancy
Rate
96.4 %
97.4 %
96.8 %
95.6 %
96.4 %
Weighted
Average Annual
Rent Per
Square Foot
$
174.08
162.92
148.71
105.36
101.82
Residential:
As of December 31,
2014
2013
2012
Number of
Units
1,654
1,653
1,651
Occupancy
Rate
95.2 %
94.8 %
96.5 %
Average Monthly
Rent Per Unit
$
3,163
2,864
2,672
24
NEW YORK – CONTINUED
Tenants accounting for 2% or more of revenues:
Tenant
IPG and affiliates
AXA Equitable Life Insurance
Macy’s
Square Feet
Leased
2014
Revenues
$
755,000
423,000
646,000
40,327,000
37,725,000
35,337,000
Percentage of
New York
Revenues
2.8 %
2.6 %
2.4 %
Percentage
of Total
Revenues
1.5 %
1.4 %
1.3 %
2014 rental revenue by tenants’ industry:
Industry
Office:
Financial Services
Communications
Family Apparel
Real Estate
Legal Services
Insurance
Advertising / Marketing
Publishing
Technology
Banking
Pharmaceutical
Engineering, Architect & Surveying
Home Entertainment & Electronics
Government
Health Services
Other
Retail:
Family Apparel
Women's Apparel
Luxury Retail
Banking
Restaurants
Department Stores
Discount Stores
Other
Percentage
14 %
7 %
6 %
6 %
6 %
4 %
4 %
3 %
3 %
2 %
2 %
2 %
2 %
2 %
1 %
10 %
74 %
8 %
5 %
3 %
2 %
2 %
1 %
1 %
4 %
26 %
Total
100 %
25
NEW YORK – CONTINUED
Lease expirations as of December 31, 2014, assuming none of the tenants exercise renewal options:
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
13
100
156
85
96
95
97
58
56
44
59
4
18
14
7
29
20
19
8
8
12
11
38,000
846,000 (1)
1,246,000
713,000
1,017,000 (2)
987,000
1,367,000
1,139,000
862,000
1,587,000
1,098,000
32,000
94,000 (3)
56,000 (4)
14,000
159,000
121,000
61,000
38,000 (5)
30,000
81,000
171,000
0.2 %
5.5 %
8.0 %
4.6 %
6.6 %
6.4 %
8.8 %
7.4 %
5.6 %
10.2 %
7.1 %
1.7 %
5.1 %
3.0 %
0.8 %
8.6 %
6.5 %
3.3 %
2.1 %
1.6 %
4.4 %
9.2 %
$
$
2,044,000 $
54,370,000
78,552,000
45,551,000
76,091,000
66,135,000
81,391,000
74,125,000
54,673,000
110,510,000
79,538,000
4,809,000 $
20,242,000
16,378,000
2,999,000
38,525,000
30,882,000
8,909,000
7,361,000
3,641,000
18,271,000
53,064,000
53.79
64.27 (1)
63.04
63.89
74.82
67.01
59.54
65.08
63.43
69.63
72.44
150.28
215.34 (3)
292.46
214.21
242.30
255.22
146.05
193.71
121.37
225.57
310.32
Year
Office:
Month to month
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Retail:
Month to month
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
(1)
(2)
Based on current market conditions, we expect to re-lease this space at weighted average rents ranging from $70 to $75 per square foot.
Excludes 492,000 square feet leased to the U.S. Post Office through 2038 (including four 5-year renewal options) for which the annual
escalated rent is $11.27 per square foot.
Based on current market conditions, we expect to re-lease this space at weighted average rents ranging from $550 to $600 per square foot.
Excludes 141,000 square feet leased to Kmart through 2036 (including four 5-year renewal options) for which the annual escalated rent is
$43.94 per square foot.
Excludes 146,000 square feet leased to Kmart through 2036 (including four 5-year renewal options) for which the annual escalated rent is
$37.64 per square foot.
(3)
(4)
(5)
Alexander’s
As of December 31, 2014, 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 $1.03 billion of outstanding debt at December 31, 2014, of which our pro
rata share was $334.6 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.
2014
Year Ended December 31,
2012
2011
2013
2010
Hotel:
Average occupancy rate
Average daily rate
Revenue per available room
92.0 %
161.93 $
148.93 $
93.4 %
158.01 $
147.63 $
89.1 %
152.79 $
136.21 $
89.1 %
152.53 $
135.87 $
83.2 %
144.21
120.00
$
$
26
WASHINGTON, DC
As of December 31, 2014, our Washington, DC segment consisted of 72 properties aggregating 19.1 million square feet
comprised of 16.1 million square feet of office space in 59 properties, seven residential properties containing 2,414 units and a hotel
property. In addition, we are in the process of developing a 699-unit residential project with a 37,000 square foot Whole Foods
Market at the base of the building and own 18.2 acres of undeveloped land. The Washington, DC segment also includes 56 garages
totaling approximately 8.9 million square feet (29,628 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, 2014, the occupancy rate for our Washington DC segment was 83.8%, and 25.8% of the occupied space was
leased to various agencies of the U.S. Government.
Occupancy and weighted average annual rent per square foot:
Office:
Vornado's Ownership Interest
As of December 31,
Square Feet
Total
Property
2014
2013
2012
2011
2010
16,109,000
16,233,000
16,106,000
16,623,000
17,219,000
Square Feet
13,731,000
13,803,000
13,637,000
14,162,000
14,035,000
Occupancy
Rate
80.9 %
80.7 %
81.2 %
89.3 %
94.8 %
Weighted
Average Annual
Rent Per
Square Foot
$
42.80
42.44
41.57
40.80
39.65
Residential:
As of December 31,
2014
2013
2012
2011
2010
Number of
Units
2,414
2,405
2,414
2,414
2,414
Occupancy
Rate
97.4%
96.3%
97.9%
96.6%
95.5%
Average Monthly
Rent Per Unit
$
2,078
2,101
2,145
2,056
1,925
Tenants accounting for 2% or more of revenues:
Tenant
U.S. Government
Boeing
Lockheed Martin
Family Health International
Arlington County
Square Feet
Leased
3,576,000
253,000
329,000
359,000
241,000
$
2014
Revenues
133,050,000
17,249,000
14,755,000
12,407,000
11,728,000
Percentage of
Washington, DC
Revenues
24.8 %
3.2 %
2.8 %
2.3 %
2.2 %
Percentage
of Total
Revenues
5.0 %
0.7 %
0.6 %
0.5 %
0.4 %
27
WASHINGTON, DC – CONTINUED
2014 rental revenue by tenants’ industry:
Industry
Percentage
U.S. Government
Government Contractors
Membership Organizations
Legal Services
Manufacturing
Business Services
Management Consulting Services
State and Local Government
Computer and Data Processing
Health Services
Food
Real Estate
Education
Communication
Television Broadcasting
Other
29%
14%
8%
5%
4%
3%
3%
2%
2%
2%
2%
2%
2%
1%
1%
20%
100%
Lease expirations as of December 31, 2014, assuming none of the tenants exercise renewal options:
Year
Month to month
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Number of
Square Feet of
Expiring Leases Expiring Leases
324,000
1,680,000 (1)
1,179,000
626,000
987,000
1,557,000
728,000
573,000
963,000
161,000
374,000
38
211
140
88
97
80
61
24
35
12
30
Percentage of
Washington, DC
$
Square Feet
3.1 %
16.1 %
11.3 %
6.0 %
9.5 %
15.0 %
7.0 %
5.5 %
9.3 %
1.5 %
3.6 %
Weighted Average Annual
Rent of Expiring Leases
Total
9,293,000 $
72,084,000
50,596,000
25,649,000
43,790,000
65,604,000
36,326,000
26,117,000
42,194,000
7,473,000
14,547,000
Per Square Foot
28.70
42.90 (1)
42.93
40.97
44.36
42.13
49.89
45.58
43.80
46.38
38.85
(1) Based on current market conditions, we expect to re-lease this space at weighted average rents ranging from $35 to $40 per square foot.
Base Realignment and Closure (“BRAC”)
Our Washington, DC segment was impacted by the BRAC statute, which required 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. See page 47
for the status of BRAC related move-outs.
28
RETAIL PROPERTIES
During 2014, we substantially completed our exit from our Retail Properties segment which comprises our non-Manhattan strip
shopping centers and regional malls business as follows:
On February 24, 2014, we sold the Broadway Mall in Hicksville, Long Island, New York, for $94,000,000.
On March 2, 2014, we entered into an agreement to transfer upon completion, the redeveloped Springfield Town Center, a
1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to Pennsylvania Real Estate Investment Trust (NYSE:
PEI) (“PREIT”) in exchange for $465,000,000 comprised of $340,000,000 of cash and $125,000,000 of PREIT operating partnership
units. The redevelopment was substantially completed in October 2014, at which time we reclassified the assets, liabilities and
financial results to discontinued operations. The transfer of the property to PREIT is expected to be completed no later than March 31,
2015.
On July 8, 2014, we sold the Beverly Connection, a 335,000 square foot power shopping center in Los Angeles, California, for
$260,000,000, of which $239,000,000 was cash and $21,000,000 was 10-year mezzanine seller financing.
We sold six small retail assets during 2014 in separate transactions, for an aggregate of $66,410,000 in cash.
On January 15, 2015, we spun-off 79 strip shopping centers, three malls, and a warehouse park to Urban Edge Properties (“UE”)
(NYSE: UE). Beginning with the first quarter of 2015, the financial results of these properties will be classified as discontinued
operations.
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 2014.
As of December 31, 2014, the occupancy rate for the Retail Properties segment was 95.9%.
Occupancy and weighted average annual rent per square foot:
Strip Shopping Centers:
Vornado's Ownership Interest
As of December 31,
2014
2013
2012
2011
2010
Total
Property
Square Feet
13,346,000
13,302,000
13,080,000
13,126,000
13,028,000
Square Feet
12,920,000
12,923,000
12,701,000
12,747,000
12,675,000
Occupancy
Rate
96.1 %
95.4 %
95.2 %
95.3 %
94.6 %
Weighted Average
Annual Net Rent
Per Square Foot
$
17.45
17.24
16.93
16.69
15.98
Regional Malls:
Vornado's Ownership Interest
Weighted Average Annual
Net Rent Per Square Foot
Mall and
Anchor
Tenants
$
Occupancy
Rate
Mall
Tenants
95.1 %
$
95.4 %
93.6 %
92.9 %
93.5 %
43.89
43.83
46.37
45.07
45.18
26.30
25.95
26.20
25.49
26.47
Total
Property
As of December 31,
2014
2013
2012
2011
2010
Square Feet
Square Feet
3,451,000
3,451,000
3,424,000
3,409,000
3,362,000
2,353,000
2,352,000
2,326,000
2,305,000
2,133,000
29
RETAIL PROPERTIES – CONTINUED
Tenants accounting for 2% or more of revenues:
Tenant
The Home Depot
Wal-Mart
Lowe's
Best Buy
The TJX Companies, Inc.
Stop & Shop / Koninklijke Ahold NV
Kohl's
Sears Holding Company (Kmart Corp. and Sears Corp.)
Shop Rite
BJ's Wholesale Club
2014 rental revenue by type of retailer
Square Feet
Leased
2014
Revenues
Percentage of
Retail Properties
Revenues
5.9 %
5.5 %
4.0 %
3.8 %
3.6 %
3.2 %
2.9 %
2.4 %
2.3 %
2.3 %
19,431,000
18,144,000
13,120,000
12,536,000
11,902,000
10,471,000
9,554,000
7,733,000
7,587,000
7,411,000
Percentage of
Total
Revenues
0.7 %
0.7 %
0.5 %
0.5 %
0.5 %
0.4 %
0.4 %
0.3 %
0.3 %
0.3 %
$
994,000
1,439,000
976,000
443,000
567,000
633,000
716,000
547,000
337,000
454,000
Industry
Discount Stores
Home Improvement
Supermarkets
Family Apparel
Restaurants
Home Entertainment and Electronics
Banking and Other Business Services
Personal Services
Sporting Goods, Toys and Hobbies
Home Furnishings
Membership Warehouse Clubs
Women's Apparel
Other
Percentage
20 %
11 %
11 %
8 %
8 %
7 %
4 %
4 %
4 %
3 %
3 %
3 %
14 %
100 %
30
RETAIL PROPERTIES – CONTINUED
Lease expirations as of December 31, 2014, assuming none of the tenants exercise renewal options:
Year
Strip Shopping Centers:
Month to month
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Regional Malls:
Month to month
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
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
7
32
60
55
53
75
47
32
43
39
46
10
33
33
21
24
26
23
12
6
8
10
38,000
177,000 (1)
606,000
425,000
1,293,000
1,317,000
1,142,000
578,000
927,000
1,136,000
1,225,000
30,000
80,000 (2)
87,000
40,000
53,000
173,000
105,000
130,000
37,000
37,000
105,000
0.3 %
1.3 %
4.3 %
3.0 %
9.2 %
9.4 %
8.2 %
4.1 %
6.6 %
8.1 %
8.7 %
0.2 %
0.6 %
0.6 %
0.3 %
0.4 %
1.2 %
0.7 %
0.9 %
0.3 %
0.3 %
0.7 %
$
$
1,036,000 $
5,798,000
10,304,000
7,525,000
18,767,000
20,056,000
15,751,000
8,572,000
11,147,000
18,424,000
14,966,000
952,000 $
3,408,000
4,065,000
2,453,000
3,476,000
6,298,000
4,738,000
3,721,000
1,370,000
1,454,000
3,253,000
27.03
32.62 (1)
16.99
17.69
14.51
15.23
13.79
14.83
12.03
16.22
12.22
32.10
42.27 (2)
46.75
61.82
65.09
36.38
45.22
28.72
37.28
39.55
31.06
(1) Based on current market conditions, we expect the space to be re-leased at weighted average rents ranging from $33 to $37 per square foot.
(2) Based on current market conditions, we expect the space to be re-leased at weighted average rents ranging from $43 to $47 per square foot.
31
OTHER INVESTMENTS
The Mart
As of December 31, 2014, we own the 3.6 million square foot the Mart in Chicago, whose largest tenant is Motorola Mobility,
guaranteed by Google, which leases 608,000 square feet. The Mart is encumbered by a $550,000,000 mortgage loan that bears
interest at a fixed rate of 5.57% and matures in December 2016. As of December 31, 2014 the Mart had an occupancy rate of 94.7%
and a weighted average annual rent per square foot of $35.97.
555 California Street
As of December 31, 2014, 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 $597,868,000 mortgage loan that bears interest at a fixed rate of 5.10%
and matures in September 2021. As of December 31, 2014, 555 California Street had an occupancy rate of 97.6% and a weighted
average annual rent per square foot of $65.98.
Vornado Capital Partners Real Estate Fund (the “Fund”)
As of December 31, 2014, we own a 25.0% interest in the Fund. We are the general partner and investment manager of the Fund.
At December 31, 2014, the Fund had seven investments which are carried at an aggregate fair value of $513,973,000. Our share of
unfunded commitments is $36,031,000.
Toys “R” Us, Inc. (“Toys”)
As of December 31, 2014 we own a 32.6% interest in Toys, a worldwide specialty retailer of toys and baby products, which has
1,826 stores worldwide. Toys had $11.3 billion of total assets and $5.7 billion of outstanding debt at November 1, 2014, of which our
pro rata share of the outstanding debt was $1.9 billion, none of which is recourse to us.
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 is not expected to have a material adverse effect on our financial position, results of
operations or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
32
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, 2014 and 2013 were as follows:
Quarter
High
Year Ended
December 31, 2014
Low
Dividends
High
Year Ended
December 31, 2013
Low
Dividends
1st
2nd
3rd
4th
$
$
100.02
109.01
109.12
120.23
$
87.82
96.93
99.26
93.09
0.73
0.73
0.73
0.73
$
$
$
85.94
88.73
89.35
91.91
79.43
76.19
79.56
82.73
0.73
0.73
0.73
0.73
As of February 1, 2015, there were 1,117 holders of record of our common shares.
Recent Sales of Unregistered Securities
During the fourth quarter of 2014, we issued 6,179 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
33
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, 2009 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.
2009
2010
2011
2012
2013
2014
Vornado Realty Trust
S&P 500 Index
The NAREIT All Equity Index
$
100 $
100
100
123 $
115
128
118 $
117
139
128 $
136
166
147 $
180
171
201
205
218
34
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
Acquisition and transaction related costs,
and impairment losses
Total expenses
Operating income
Income (loss) from Real Estate Fund
(Loss) income applicable to Toys "R" Us
Income from partially owned entities
Interest and debt expense
Interest and other investment income (loss), net
Net gain on disposition of wholly owned and partially
owned assets
Net loss on extinguishment of debt
Income before income taxes
Income tax (expense) benefit
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
Preferred unit and share redemptions
Net income attributable to common shareholders
2014
Year Ended December 31,
2012
2011
2013
2010
$ 2,110,797 $
329,398
-
195,745
2,635,940
2,081,115
301,167
36,369
250,618
2,669,269
$ 1,990,784 $
279,075
235,234
144,124
2,649,217
2,015,461 $ 2,002,920
290,998
-
146,140
2,440,058
288,889
154,080
149,165
2,607,595
1,064,753
536,230
185,924
-
1,030,951
515,724
196,267
32,210
33,391
1,820,298
815,642
163,034
(73,556)
15,425
(467,715)
38,787
13,568
-
505,185
(11,002)
494,183
514,843
1,009,026
(96,561)
(47,563)
(50)
864,852
(81,464)
-
$
783,388 $
43,857
1,819,009
850,260
102,898
(362,377)
23,592
(481,304)
(24,876)
3,407
-
111,600
6,406
118,006
446,734
564,740
(63,952)
(23,659)
(1,158)
475,971
(82,807)
(1,130)
392,034
988,883
490,028
190,109
226,619
25,786
1,921,425
727,792
63,936
14,859
408,267
(484,794)
(261,179)
13,347
-
482,228
(8,132)
474,096
220,445
694,541
959,166
493,657
188,450
145,824
950,453
467,475
198,117
-
35,205
1,822,302
785,293
22,886
48,540
70,072
(508,555)
148,537
36,958
1,653,003
787,055
(303)
71,624
20,869
(509,912)
234,913
15,134
-
581,907
(23,925)
557,982
182,018
740,000
81,432
(10,782)
674,896
(22,137)
652,759
55,272
708,031
(4,920)
(44,033)
(11,195)
647,883
(55,534)
4,382
596,731
(32,018)
(35,327)
(9,936)
617,260
(76,937)
8,948
549,271 $
(21,786)
(41,059)
(14,853)
662,302
(65,531)
5,000
601,771 $
$
$
1.83 $
1.82
2.95
2.94
3.76
(1)
2.34 $
2.32
3.26
3.23
2.76
2.99
2.96
3.27
3.24
2.60
$ 22,065,049 $ 20,446,487 $ 20,517,471
15,165,420
(2,395,247)
9,971,527
6,830,405
15,444,754
(2,742,244)
9,710,265
7,508,447
17,365,533
(2,966,067)
11,042,050
7,904,144
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
$
1.59
1.58
4.18
4.15
2.92
(0.14)
(0.14)
2.10
2.09
2.92
Balance Sheet Data:
Total assets
Real estate, at cost
Accumulated depreciation
Debt
Total equity
$ 21,248,320 $ 20,097,224
17,418,946
(3,296,717)
9,978,718
7,594,744
18,845,392
(3,629,135)
10,898,859
7,489,382
(1) Includes a special long-term capital gain dividend of $1.00 per share.
35
ITEM 6. SELECTED FINANCIAL DATA - CONTINUED
(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
(loss) 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
2014
Year Ended December 31,
2012
2013
2011
2010
$
864,852 $
517,493
(507,192)
26,518
475,971 $
501,753
(411,593)
37,170
617,260 $
504,407
(245,799)
129,964
662,302 $
530,113
(51,623)
28,799
647,883
505,806
(57,248)
97,500
21,579
(760)
-
(7,287)
69,741
-
6,552
(26,703)
68,483
-
9,824
(27,493)
70,883
(491)
-
(24,634)
70,174
-
-
(24,561)
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
Preferred unit and share 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)
96,187
(10,820)
-
(8,073)
992,497
(81,464)
-
911,033
97
-
87,529
(465)
-
(15,089)
724,866
(82,807)
(1,130)
640,929
108
-
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
$
911,130 $
641,037 $
818,565 $ 1,230,973 $ 1,251,533
________________________________
(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.
36
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, 2014, 2013 and 2012
Results of Operations:
Year Ended December 31, 2014 Compared to December 31, 2013
Year Ended December 31, 2013 Compared to December 31, 2012
Supplemental Information:
Net Income and EBITDA by Segment for the Three Months Ended
December 31, 2014 and 2013
Three Months Ended December 31, 2014 Compared to December 31, 2013
Three Months Ended December 31, 2014 Compared to September 30, 2014
Related Party Transactions
Liquidity and Capital Resources
Financing Activities and Contractual Obligations
Certain Future Cash Requirements
Cash Flows for the Year Ended December 31, 2014
Cash Flows for the Year Ended December 31, 2013
Cash Flows for the Year Ended December 31, 2012
Funds From Operations for the Three Months and Years Ended
December 31, 2014 and 2013
Page
Number
38
43
48
51
56
63
71
76
78
80
81
81
84
87
89
91
93
37
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 94.1% of the common limited partnership interest in the Operating Partnership
at December 31, 2014. All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its
consolidated subsidiaries, including the Operating Partnership.
On January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers,
three malls, a warehouse park and $225 million of cash to Urban Edge Properties (“UE”) (NYSE: UE). As part of this transaction, we
received 5,712,000 UE operating partnership units (5.4% ownership interest). We are providing transition services to UE for an initial
period of up to two years, including information technology, human resources, tax and public reporting. UE is providing us with
leasing and property management services for (i) the Monmouth Mall, (ii) certain small retail properties which did not fit UE’s
strategy that we plan to sell, and (iii) our affiliate, Alexander’s, Inc. (NYSE: ALX), Rego Park retail assets. Steven Roth, our
Chairman and Chief Executive Officer is a member of the Board of Trustees of UE. The spin-off distribution was effected by
Vornado distributing one UE common share for every two Vornado common shares. Beginning in the first quarter of 2015, the
historical financial results of UE will be reflected in our consolidated financial statements as discontinued operations for all periods
presented.
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 32.4% interest in Alexander’s, Inc.
(NYSE: ALX) (“Alexander’s”), which owns six properties in the greater New York metropolitan area, a 32.6% interest in Toys “R”
Us, Inc. (“Toys”) 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 FTSE NAREIT Office Index (“Office REIT”) and the Morgan Stanley REIT Index
(“RMS”) for the following periods ended December 31, 2014:
Vornado
18.5%
36.4%
70.8%
100.6%
131.1%
Total Return(1)
Office REIT
12.7%
25.9%
51.7%
78.2%
89.5%
RMS
14.3%
30.4%
57.3%
119.7%
122.2%
Three-months
One-year
Three-year
Five-year
Ten-year
(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 execute 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
•
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 our 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. See “Risk Factors” in Item 1A for additional information
regarding these factors.
38
Overview - continued
Year Ended December 31, 2014 Financial Results Summary
Net income attributable to common shareholders for the year ended December 31, 2014 was $783,388,000, or $4.15 per diluted
share, compared to $392,034,000, or $2.09 per diluted share for the year ended December 31, 2013. Net income for the years ended
December 31, 2014 and 2013 includes $518,772,000 and $412,058,000, respectively, of net gains on sale of real estate, and
$26,518,000 and $43,722,000, respectively, of real estate impairment losses. In addition, the years ended December 31, 2014 and
2013 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 for the year ended December 31, 2014 by $371,567,000, or $1.97 per diluted share
and $26,657,000, or $0.14 per diluted share for the year ended December 31, 2013.
Funds from operations attributable to common shareholders plus assumed conversions (“FFO”) for the year ended December 31,
2014 was $911,130,000, or $4.83 per diluted share, compared to $641,037,000, or $3.41 per diluted share for the prior year. FFO for
the years ended December 31, 2014 and 2013 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 for the year ended December 31, 2014
by $69,122,000, or $0.37 per diluted share and $255,502,000, or $1.36 per diluted share for the year ended December 31, 2013.
(Amounts in thousands)
Items that affect comparability income (expense):
Toys "R" Us negative FFO (including impairment losses of $75,196 and $240,757,
respectively)
FFO from discontinued operations, including LNR in 2013
Acquisition and transaction related costs
Write-off of deferred financing costs and defeasance costs in connection with refinancings
Net gain on sale of residential condominiums and land parcels
Impairment loss and loan reserve on investment in Suffolk Downs
Losses from the disposition of investment in J.C. Penney
Stop & Shop litigation settlement income
Net gain on sale of marketable securities
Net gain on sale of Harlem Park property under development
Other, net
Noncontrolling interests' share of above adjustments
Items that affect comparability, net
For the Year Ended December 31,
2014
2013
$
$
(60,024)
39,525
(31,348)
(22,660)
13,568
(10,263)
-
-
-
-
(2,097)
(73,299)
4,177
(69,122)
$
$
(312,788)
80,779
(24,857)
(8,814)
2,997
-
(127,888)
59,599
31,741
23,507
3,847
(271,877)
16,375
(255,502)
The percentage increase (decrease) in same store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)
and cash basis same store EBITDA of our operating segments for the year ended December 31, 2014 over the year ended December
31, 2013 is summarized below.
Same Store EBITDA:
December 31, 2014 vs. December 31, 2013
Same store EBITDA
Cash basis same store EBITDA
New York
Washington, DC
Retail Properties
4.7%
7.6%
(2.4%)
(2.3%)
1.7%
2.3%
39
Overview - continued
Quarter Ended December 31, 2014 Financial Results Summary
Net income attributable to common shareholders for the quarter ended December 31, 2014 was $513,238,000, or $2.72 per diluted
share, compared to a net loss of $68,887,000, or $0.37 per diluted share for the quarter ended December 31, 2013. Net income for the
quarter ended December 31, 2014 and net loss for the quarter ended December 31, 2013 include $460,216,000 and $127,512,000,
respectively, of net gains on sale of real estate, and $5,676,000 and $32,899,000, respectively, of real estate impairment losses. In
addition, the quarters ended December 31, 2014 and 2013 include certain other items that affect comparability which are listed in the
table below. The aggregate of net gains on sale of real estate, real estate impairment losses and the items in the table below, net of
amounts attributable to noncontrolling interests, increased net income attributable to common shareholders for the quarter ended
December 31, 2014 by $400,211,000, or $2.12 per diluted share and decreased net loss attributable to common shareholders for the
quarter ended December 31, 2013 by $167,086,000, or $0.89 per diluted share.
FFO for the quarter ended December 31, 2014 was a positive $230,143,000, or $1.22 per diluted share, compared to a negative
$6,784,000, or $0.04 per diluted share for the prior year’s quarter. FFO for the quarters ended December 31, 2014 and 2013 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 for the quarter ended December 31, 2014 by $25,994,000, or $0.14 per diluted share and
$241,605,000, or $1.29 per diluted share for the quarter ended December 31, 2013.
(Amounts in thousands)
Items that affect comparability income (expense):
Acquisition and transaction related costs
Write-off of deferred financing costs and defeasance costs in connection with refinancings
FFO from discontinued operations
Toys "R" Us FFO (negative FFO) (including a $162,215 impairment loss in 2013)
Net gain on sale of residential condominiums and land parcels
Net gain on sale of Harlem Park property under development
Deferred income tax reversal
Other, net
Noncontrolling interests' share of above adjustments
Items that affect comparability, net
For the Three Months Ended December 31,
2014
2013
$
$
(18,376)
(16,747)
8,656
606
363
-
-
(2,097)
(27,595)
1,601
(25,994)
$
$
(18,088)
(8,436)
15,757
(282,041)
481
23,507
16,055
(4,183)
(256,948)
15,343
(241,605)
The percentage increase (decrease) in same store EBITDA and cash basis same store EBITDA of our operating segments for the
quarter ended December 31, 2014 over the quarter ended December 31, 2013 and the trailing quarter ended September 30, 2014 are
summarized below.
Same Store EBITDA:
December 31, 2014 vs. December 31, 2013
Same store EBITDA
Cash basis same store EBITDA
December 31, 2014 vs. September 30, 2014
Same store EBITDA
Cash basis same store EBITDA
New York
Washington, DC
Retail Properties
3.3%
8.2%
1.8%
4.7%
(2.3%)
(3.8%)
(3.0%)
(3.4%)
1.9%
2.4%
0.6%
0.7%
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.
40
Overview – continued
Acquisitions
On June 26, 2014, we invested an additional $22,700,000 to increase our ownership in One Park Avenue to 55.0% from 46.5%
through a joint venture with an institutional investor, who increased its ownership interest to 45.0%. The transaction was based on a
property value of $560,000,000. The property is encumbered by a $250,000,000 interest-only mortgage loan that bears interest at
4.995% and matures in March 2016.
On July 23, 2014, a joint venture in which we are a 50.1% partner entered into a 99-year ground lease for 61 Ninth Avenue
located on the Southwest corner of Ninth Avenue and 15th Street in Manhattan. The venture’s current plans are to construct an office
building, with retail at the base, of approximately 130,000 square feet. Total development costs are currently estimated to be
approximately $125,000,000.
On August 1, 2014, we acquired the land under our 715 Lexington Avenue retail property located on the Southeast corner of 58th
Street and Lexington Avenue in Manhattan, for $63,000,000.
On October 28, 2014, we completed the purchase of the retail condominium of the St. Regis Hotel for $700,000,000. We own a
74.3% controlling interest of the joint venture which owns the property. The acquisition was used in a like-kind exchange for income
tax purposes for the sale of 1740 Broadway (see below). We consolidate the accounts of the venture into our consolidated financial
statements from the date of acquisition.
On November 21, 2014, we entered into an agreement to acquire the Center Building, an eight story 437,000 square foot office
building, located at 33-00 Northern Boulevard in Long Island City, New York. The building is 98% leased. The purchase price is
approximately $142,000,000, including the assumption of an existing $62,000,000 4.43% mortgage maturing in October 2018. The
purchase is expected to close in the first quarter of 2015, subject to customary closing conditions. As of December 31, 2014, our
$14,200,000 non-refundable deposit was included in “other assets” on our consolidated balance sheet.
On January 20, 2015, we co-invested with our 25% owned Fund and one of the Fund’s limited partners to buy out the Fund’s joint
venture partner’s 57% interest in the Crowne Plaza Times Square Hotel. The purchase price for the 57% interest was approximately
$95,000,000 (our share $39,000,000) which valued the property at approximately $480,000,000. The property is encumbered by a
newly placed $310,000,000 mortgage loan bearing interest at LIBOR plus 2.80% and maturing in December 2018 with a one-year
extension option. Our aggregate ownership interest in the property increased to 33% from 11%.
Dispositions
New York
On December 18, 2014, we completed the sale of 1740 Broadway, a 601,000 square foot office building in Manhattan for
$605,000,000. The sale resulted in net proceeds of approximately $580,000,000, after closing costs, and resulted in a financial
statement gain of approximately $441,000,000. The tax gain of approximately $484,000,000, was deferred in like-kind exchanges,
primarily for the acquisition of the St. Regis Fifth Avenue retail.
Retail Properties
On February 24, 2014, we completed the sale of Broadway Mall in Hicksville, Long Island, New York, for $94,000,000. The sale
resulted in net proceeds of $92,174,000 after closing costs.
On March 2, 2014, we entered into an agreement to transfer upon completion, the redeveloped Springfield Town Center, a
1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to Pennsylvania Real Estate Investment Trust (NYSE:
PEI) (“PREIT”) in exchange for $465,000,000 comprised of $340,000,000 of cash and $125,000,000 of PREIT operating partnership
units. In connection therewith, we recorded a non-cash impairment loss of $20,000,000 in the first quarter of 2014, which is included
in “income from discontinued operations” on our consolidated statements of income. The redevelopment was substantially completed
in October 2014, at which time we reclassified the assets, liabilities and financial results to discontinued operations, and the transfer of
the property to PREIT is expected to be completed no later than March 31, 2015.
On July 8, 2014, we completed the sale of Beverly Connection, a 335,000 square foot power shopping center in Los Angeles,
California, for $260,000,000, of which $239,000,000 was cash and $21,000,000 was 10-year mezzanine seller financing. The sale
resulted in a net gain of $44,155,000, which was recognized in the third quarter of 2014.
In addition to the above, during 2014, we sold six of the 22 strip shopping centers which did not fit UE’s strategy, in separate
transactions, for an aggregate of $66,410,000 in cash, which resulted in a net gain aggregating $22,500,000.
41
Overview – continued
Financings
Secured Debt
On January 31, 2014, we completed a $600,000,000 loan secured by our 220 Central Park South development site. The loan
bears interest at LIBOR plus 2.75% (2.92% at December 31, 2014) and matures in January 2016, with three one-year extension
options.
On April 16, 2014, we completed a $350,000,000 refinancing of 909 Third Avenue, a 1.3 million square foot Manhattan office
building. The seven-year interest only loan bears interest at 3.91% and matures in May 2021. We realized net proceeds of
approximately $145,000,000 after defeasing the existing 5.64%, $193,000,000 mortgage, defeasance cost and other closing costs.
On July 16, 2014, we completed a $130,000,000 financing of Las Catalinas, a 494,000 square foot mall located in the San Juan
area of Puerto Rico. The 10-year fixed rate loan bears interest at 4.43% and matures in August 2024. The loan amortizes based on a
30-year schedule beginning in year six.
On August 12, 2014, we completed a $185,000,000 financing of the Universal buildings, a 690,000 square foot, two-building
office complex located in Washington, DC. The loan bears interest at LIBOR plus 1.90% (2.06% at December 31, 2014) and matures
in August 2019 with two one-year extension options. The loan amortizes based on a 30-year schedule beginning in the fourth year.
On August 26, 2014, we obtained a standby commitment for up to $500,000,000 of five-year mezzanine loan financing to fund a
portion of the development expenditures at 220 Central Park South.
On October 27, 2014, we completed a $140,000,000 financing of 655 Fifth Avenue, a 57,500 square foot retail and office
property. The loan is interest only at LIBOR plus 1.40% (1.56% at December 31, 2014) and matures in October 2019 with two one-
year extension options.
On December 8, 2014, we completed a $575,000,000 refinancing of Two Penn Plaza, a 1.6 million square foot Manhattan office
building. The loan is interest-only at LIBOR plus 1.65% (1.81% at December 31, 2014) and matures in 2019 with two one-year
extension options. We realized net proceeds of approximately $143,000,000. Pursuant to an existing swap agreement, the
$422,000,000 previous loan on the property was swapped to a fixed rate of 4.78% through March 2018. Therefore, $422,000,000 of
the new loan bears interest at a fixed rate of 4.78% through March 2018 and the balance of $153,000,000 floats through March 2018.
The entire $575,000,000 will float thereafter for the duration of the new loan.
On January 6, 2015, we completed the modification of the $120,000,000, 6.04% mortgage loan secured by our Montehiedra
Town Center, in the San Juan area of Puerto Rico. The loan has been extended from July 2016 to July 2021 and separated into two
tranches, a senior $90,000,000 position with interest at 5.33% to be paid currently, and a junior $30,000,000 position with interest
accruing at 3%. Montehiedra Town Center and the loan were included in the spin-off to UE on January 15, 2015. As part of the
planned redevelopment of the property, UE is committed to fund $20,000,000 through a loan for leasing and building capital
expenditures of which $8,000,000 has been funded. This loan is senior to the $30,000,000 position noted above and accrues interest at
10%.
Senior Unsecured Notes
On June 16, 2014, we completed a green bond public offering of $450,000,000 2.50% senior unsecured notes due June 30, 2019.
The notes were sold at 99.619% of their face amount to yield 2.581%.
On October 1, 2014, we redeemed all of the $445,000,000 principal amount of our outstanding 7.875% senior unsecured notes,
which were scheduled to mature on October 1, 2039, at a redemption price of 100% of the principal amount plus accrued interest
through the redemption date. In the fourth quarter of 2014, we wrote off $12,532,000 of unamortized deferred financing costs, which
are included as a component of “interest and debt expense” on our consolidated statements of income.
On January 1, 2015, we redeemed all of the $500,000,000 principal amount of our outstanding 4.25% senior unsecured notes,
which were scheduled to mature on April 1, 2015, at a redemption price of 100% of the principal amount plus accrued interest through
December 31, 2014.
Unsecured Revolving Credit Facility
On September 30, 2014, we extended one of our two $1.25 billion unsecured revolving credit facilities from November 2015 to
November 2018 with two six-month extension options. The interest rate on the extended facility was lowered to LIBOR plus 105
basis points from LIBOR plus 125 basis points and the facility fee was reduced to 20 basis points from 25 basis points.
42
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
Strips
Malls
1,248
1,095
66.79 $
12.3
51
51
410.63 $
11.5
658
619
36.86 $
9.4
210
210
18.98 $
6.6
732
45
461
92
Quarter Ended December 31, 2014:
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, 2014:
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
See notes on the following page.
$
$
$
$
$
$
$
$
$
$
$
$
$
$
57
51
49.18
6.4
15
69.20
69.64
(0.6%)
70.22
67.21
4.5%
16.53
2.58
5.3%
161
142
36.19
5.6
70
34.16
32.98
3.6%
34.71
32.29
7.5%
11.96
2.14
5.9%
13.16 $
13.16 $
-
13.21 $
12.72 $
3.9%
5.24 $
0.79 $
4.2%
890
890
19.15 $
6.8
20.31 $
19.45 $
4.4%
20.53 $
18.77 $
9.4%
10.66 (4) $
1.57 (4) $
8.2% (4)
92
1,121
434
68.25 $
60.63 $
12.6%
67.80 $
55.87 $
21.4%
260.31 $
175.49 $
48.3%
307.92 $
173.75 $
77.2%
36.64 $
39.68 $
(7.7%)
34.42 $
36.89 $
(6.7%)
78.45 $
6.38 $
9.5%
177.43 $
15.43 $
3.8%
61.48 $
6.54 $
17.7%
3,973
3,416
66.78 $
11.3
2,550
68.18 $
60.50 $
12.7%
67.44 $
56.76 $
18.8%
119
114
327.38 $
11.2
1,817 (3)
1,674 (3)
38.57 $
8.2
289.74 $
206.62 $
40.2%
331.33 $
204.15 $
62.3%
38.57 $
41.37 $
(6.8%)
36.97 $
38.25 $
(3.3%)
75.89 $
6.72 $
10.1%
110.60 $
9.88 $
3.0%
46.77 $
5.70 $
14.8%
43
Overview - continued
Leasing Activity - continued
(Square feet in thousands)
Year Ended December 31, 2013:
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
Strips
Malls
$
$
$
$
$
$
$
2,410
2,024
60.78 $
11.0
1,716
60.04 $
56.84 $
5.6%
59.98 $
52.61 $
14.0%
61.78 $
5.61 $
9.2%
138
121
268.52 $
8.6
1,836
1,392
39.91 $
7.0
1,388
1,388
17.27 $
6.2
103
910
959
262.67 $
117.45 $
123.7%
293.45 $
152.34 $
92.6%
100.93 $
11.64 $
4.3%
40.91 $
41.16 $
(0.6%)
40.87 $
39.36 $
3.8%
33.24 $
4.75 $
11.9%
16.57 $
15.18 $
9.2%
16.91 $
14.76 $
14.6%
3.96 $
0.64 $
3.7%
674
600
26.39
8.1
205
23.59
22.76
3.6%
24.04
21.87
9.9%
20.69
2.55
9.7%
(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) Excludes (i) 165 square feet leased to WeWork that will be redeveloped into rental residential apartments, and (ii) 82 square feet of retail space
that was leased at an initial rent of $46.76 per square foot.
(4) Tenant improvements and leasing commissions for the year ended December 31, 2014 reflect first generation leasing activity at our Kearny
strip shopping center.
44
Overview - continued
Square footage (in service) and Occupancy as of December 31, 2014:
(Square feet in thousands)
New York:
Office
Retail
Alexander's
Hotel Pennsylvania
Residential - 1,654 units
Washington, DC:
Office, excluding the Skyline Properties
Skyline Properties
Total Office
Residential - 2,414 units
Other
Retail Properties:
Strip Shopping Centers
Regional Malls
Other:
The Mart
555 California Street
Primarily Warehouses
Number of
properties
Square Feet (in service)
Our
Total
Share
Portfolio
Occupancy %
31
56
6
1
4
51
8
59
7
6
86
4
2
3
6
20,052
2,450
2,178
1,400
1,524
27,604
13,461
2,648
16,109
2,597
384
19,090
13,346
3,451
16,797
3,587
1,801
1,555
6,943
16,808
2,179
706
1,400
763
21,856
11,083
2,648
13,731
2,455
384
16,570
12,920
2,353
15,273
3,578
1,261
942
5,781
96.9%
96.4%
99.7%
95.2%
96.9%
87.5%
53.5%
80.9%
97.4%
100.0%
83.8%
96.1%
95.1%
95.9%
94.7%
97.6%
60.8%
Total square feet at December 31, 2014
70,434
59,480
45
Overview - continued
Square footage (in service) and Occupancy as of December 31, 2013:
(Square feet in thousands)
New York:
Office
Retail
Alexander's
Hotel Pennsylvania
Residential - 1,653 units
Washington, DC:
Office, excluding the Skyline Properties
Skyline Properties
Total Office
Residential - 2,405 units
Other
Retail Properties:
Strip Shopping Centers
Regional Malls
Other:
The Mart
555 California Street
Primarily Warehouses
Number of
properties
Square Feet (in service)
Our
Total
Share
Portfolio
Occupancy %
30
54
6
1
4
51
8
59
7
5
89
4
3
3
6
19,217
2,370
2,178
1,400
1,523
26,688
13,581
2,652
16,233
2,588
379
19,200
13,302
3,451
16,753
3,703
1,795
1,555
7,053
15,776
2,147
706
1,400
762
20,791
11,151
2,652
13,803
2,446
379
16,628
12,923
2,352
15,275
3,694
1,257
942
5,893
96.5%
97.4%
99.4%
94.8%
96.7%
85.4%
60.8%
80.7%
96.3%
100.0%
83.4%
95.4%
95.4%
95.4%
96.3%
94.5%
45.6%
Total square feet at December 31, 2013
69,694
58,587
46
Overview - continued
Washington, DC Segment
Of the 2,395,000 square feet subject to the effects of the Base Realignment and Closure (“BRAC”) statute, 393,000 square feet
has been taken out of service for redevelopment and 1,137,000 square feet has been leased or is pending. The table below summarizes
the status of the BRAC space.
Resolved:
Relet
Leases pending
Taken out of service for redevelopment
To Be Resolved:
Vacated
Expiring in 2015
Rent Per
Square Foot
Total
Crystal City
Skyline
Rosslyn
Square Feet
$
37.19
34.29
1,126,000
11,000
393,000
1,530,000
664,000
11,000
393,000
1,068,000
381,000
-
-
381,000
81,000
-
-
81,000
35.92
43.79
771,000
94,000
865,000
281,000
88,000
369,000
425,000
6,000
431,000
65,000
-
65,000
Total square feet subject to BRAC
2,395,000
1,437,000
812,000
146,000
Due to the effects of BRAC related move-outs and the sluggish leasing environment in the Washington, DC / Northern Virginia
area, EBITDA from continuing operations for the year ended December 31, 2013 was lower than 2012 by $14,254,000 and EBITDA
from continuing operations for the year ended December 31, 2014 was lower than 2013 by $5,633,000, which was offset by an interest
expense reduction of $18,568,000 from the restructuring of the Skyline properties mortgage loan in October 2013. We expect 2015
EBITDA from continuing operations will be flat to 2014.
47
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. 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 net book value of the existing property, exceeds the estimated fair value of redeveloped property, the excess is charged
to expense. Depreciation is recognized 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.
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, 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, acquired in-place leases and tenant relationships) 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.
As of December 31, 2014 and 2013, the carrying amounts of real estate, net of accumulated depreciation, were $15.2 billion and
$14.1 billion, respectively. As of December 31, 2014 and 2013, the carrying amounts of identified intangible assets (including
acquired above-market leases, tenant relationships and acquired in-place leases) were $276,239,000 and $307,436,000, respectively,
and the carrying amounts of identified intangible liabilities, a component of “deferred revenue” on our consolidated balance sheets,
were $488,868,000 and $496,489,000, 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.
48
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 (i) the power to direct the activities of the VIE that
most significantly impact the VIE’s economic performance and (ii) 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. 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, 2014 and 2013, the carrying amounts of investments in partially owned entities, including Toys “R” Us, was
$1.2 billion and $1.2 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 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. 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, 2014 and 2013, the carrying amounts of mortgage and mezzanine loans receivable were $16,748,000 and
$170,972,000, respectively, net of an allowance of $5,811,000 and $5,845,000, respectively, and are included in “other assets” on our
consolidated balance sheets.
49
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
($17,060,000 and $21,869,000 as of December 31, 2014 and 2013, respectively) 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 ($3,188,000 and $4,355,000 as of December 31, 2014 and 2013, 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 was
recognized as the related services were performed under the respective agreements using the criteria set forth in ASC 605-25,
Multiple Element Arrangements.
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 and
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.
50
Net Income and EBITDA by Segment for the Years Ended December 31, 2014, 2013 and 2012
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the years ended December
31, 2014, 2013 and 2012.
(Amounts in thousands)
For the Year Ended December 31, 2014
Total revenues
Total expenses
Operating income (loss)
(Loss) income from partially owned
entities, including Toys
Income from Real Estate Fund
Interest and other investment
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 from discontinued
operations
Net income (loss)
Less net income attributable to
noncontrolling interests
Net income (loss) attributable to
Vornado
Interest and debt expense(2)
Depreciation and amortization(2)
Income tax expense(2)
EBITDA(1)
____________________________
See notes on pages 53 and 54.
$
New York
Total
2,635,940 $
1,820,298
815,642
1,520,845 $
946,466
574,379
Washington, DC Properties
537,151 $
358,019
179,132
326,947 $
197,206
129,741
Retail
(58,131)
163,034
38,787
(467,715)
13,568
505,185
(11,002)
20,701
-
6,711
(183,427)
-
418,364
(4,305)
(3,677)
-
183
(75,395)
-
100,243
(242)
1,730
-
35
(54,754)
-
76,752
(1,721)
Toys
Other
- $
-
-
(73,556)
-
250,997
318,607
(67,610)
(3,329)
163,034
-
-
31,858
(154,139)
-
(73,556)
-
13,568
(16,618)
(4,734)
494,183
414,059
100,001
75,031
(73,556)
(21,352)
514,843
1,009,026
463,163
877,222
-
100,001
50,873
125,904
-
(73,556)
807
(20,545)
(144,174)
(8,626)
-
(119)
-
(135,429)
864,852
654,398
685,973
24,248
2,229,471 $
868,596
241,959
324,239
4,395
1,439,189 (3) $
$
100,001
89,448
145,853
288
335,590 (4) $
125,785
59,322
73,433
1,721
260,261 (5) $
(73,556)
100,549
64,533
12,106
103,632 $
(155,974)
163,120
77,915
5,738
90,799 (6)
51
Net Income and EBITDA by Segment for the Years Ended December 31, 2014, 2013 and 2012 - continued
$
$
$
(Amounts in thousands)
Total revenues
Total expenses
Operating income (loss)
(Loss) income from partially owned
entities, including Toys
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 attributable to
noncontrolling interests
Net income (loss) attributable to
Vornado
Interest and debt expense(2)
Depreciation and amortization(2)
Income tax expense (benefit)(2)
EBITDA(1)
(Amounts in thousands)
Total revenues
Total expenses
Operating income (loss)
Income (loss) from partially owned
entities, including Toys
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
Net income (loss) attributable to
Vornado
Interest and debt expense(2)
Depreciation and amortization(2)
Income tax expense (benefit)(2)
EBITDA(1)
____________________________
See notes on pages 53 and 54.
For the Year Ended December 31, 2013
Washington, DC
Retail
Properties
Toys
Other
New York
Total
2,669,269 $
1,819,009
850,260
1,470,907 $
910,498
560,409
541,161 $
347,686
193,475
372,435 $
199,650
172,785
- $
-
-
(338,785)
102,898
(24,876)
(481,304)
3,407
111,600
6,406
15,527
-
5,357
(181,966)
-
399,327
(2,794)
(6,968)
-
129
(102,277)
-
84,359
14,031
2,097
-
(362,377)
-
11
(55,219)
1,377
121,051
(2,311)
-
-
-
(362,377)
-
284,766
361,175
(76,409)
12,936
102,898
(30,373)
(141,842)
2,030
(130,760)
(2,520)
118,006
396,533
98,390
118,740
(362,377)
(133,280)
446,734
564,740
160,314
556,847
-
98,390
287,067
405,807
-
(362,377)
(647)
(133,927)
(88,769)
(10,786)
-
(3,065)
-
(74,918)
475,971
758,781
732,757
26,371
1,993,880 $
546,061
236,645
293,974
3,002
1,079,682 (3) $
98,390
116,131
142,409
(15,707)
341,223 (4) $
402,742
63,803
72,161
2,311
541,017 (5) $
(362,377)
181,586
135,178
33,532
(12,081) $
(208,845)
160,616
89,035
3,233
44,039 (6)
For the Year Ended December 31, 2012
Washington, DC
Retail
Properties
Toys
Other
New York
Total
2,649,217 $
1,921,425
727,792
1,319,470 $
835,563
483,907
554,028 $
360,056
193,972
318,566 $
189,480
129,086
- $
-
-
423,126
63,936
(261,179)
(484,794)
13,347
482,228
(8,132)
207,773
-
4,002
(146,350)
-
549,332
(3,491)
(5,612)
-
126
(115,574)
-
72,912
(1,650)
1,458
-
21
(53,772)
8,491
85,284
-
14,859
-
-
-
-
14,859
-
457,153
536,326
(79,173)
204,648
63,936
(265,328)
(169,098)
4,856
(240,159)
(2,991)
474,096
545,841
71,262
85,284
14,859
(243,150)
220,445
694,541
30,293
576,134
167,766
239,028
(52,561)
32,723
-
14,859
74,947
(168,203)
(77,281)
(2,138)
-
1,812
-
(76,955)
617,260
760,523
735,293
7,026
2,120,102 $
573,996
187,855
252,257
3,751
1,017,859 (3) $
$
239,028
133,625
157,816
1,943
532,412 (4) $
34,535
79,462
86,529
-
200,526 (5) $
14,859
147,880
135,179
(16,629)
281,289 $
(245,158)
211,701
103,512
17,961
88,016 (6)
52
Net Income and EBITDA by Segment for the Years Ended December 31, 2014, 2013 and 2012 - 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(a)
Retail(b)
Alexander's (c)
Hotel Pennsylvania
Total New York
(a)
For the Year Ended December 31,
2013
2014
1,085,262 $
281,428
41,746
30,753
$
1,439,189
$
$
759,941 $
246,808
42,210
30,723
$
1,079,682
2012
568,518
189,484
231,402
28,455
1,017,859
2014, 2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect
comparability, aggregating $462,239, $163,528 and $37,129, respectively. Excluding these items, EBITDA was $623,023,
$596,413 and $531,389, respectively.
2014, 2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect
comparability, aggregating $1,751, $934 and $510, respectively. Excluding these items, EBITDA was $279,677, $245,874 and
$188,974, respectively.
2014, 2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect
comparability, aggregating $171, $730 and $191,040, respectively. Excluding these items, EBITDA was $41,575, $41,480 and
$40,362, respectively.
(b)
(c)
(4) The elements of "Washington, DC" EBITDA are summarized below.
(Amounts in thousands)
Office, excluding the Skyline Properties (a)
Skyline properties
Total Office
Residential
Total Washington, DC
(a)
For the Year Ended December 31,
2013
2014
2012
$
$
266,859 $
27,150
294,009
41,581
$
335,590
268,373 $
29,499
297,872
43,351
$
341,223
449,448
40,037
489,485
42,927
532,412
2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect comparability,
aggregating $176,935. Excluding these items, EBITDA was $272,513.
(5) 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,
2013
2014
$
$
219,122 $
41,139
$
260,261
285,612 $
255,405
$
541,017
2012
172,708
27,818
200,526
2014, 2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect
comparability, aggregating $72,010, $143,504 and $32,697, respectively. Excluding these items, EBITDA was $147,112,
$142,108 and $140,011, respectively.
2014, 2013 and 2012 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that affect
comparability, aggregating net losses of $16,608, net gains of $199,285 and net losses of $27,826, respectively. Excluding
these items, EBITDA was $57,747, $56,120 and $55,644, respectively.
(b)
53
Net Income and EBITDA by Segment for the Years Ended December 31, 2014, 2013 and 2012 - continued
Notes to preceding tabular information:
(6) The elements of "other" EBITDA are summarized below.
(Amounts in thousands)
Our share of Real Estate Fund:
Income before net realized/unrealized gains
Net realized/unrealized gains on investments
Carried interest
Total
The Mart and trade shows
555 California Street
India real estate ventures
LNR (a)
Lexington (b)
Other investments
Corporate general and administrative expenses(c)
Investment income and other, net(c)
Acquisition and transaction related costs, and impairment losses(d)
Net gain on sale of marketable securities, land parcels and residential
condominiums
Our share of net gains on extinguishment of debt and net gains on sale of
real estate of partially owned entities
Suffolk Downs impairment loss and loan reserve
Our share of impairment losses of partially owned entities
Losses from the disposition of investment in J.C. Penney
Severance costs (primarily reduction in force at the Mart)
Purchase price fair value adjustment and accelerated amortization of
discount on investment in subordinated debt of Independence Plaza
The Mart discontinued operations
Net gain resulting from Lexington's stock issuance and asset acquisition
Net income attributable to noncontrolling interests in the Operating Partnership
Preferred unit distributions of the Operating Partnership
For the Year Ended December 31,
2013
2014
2012
$
8,056 $
37,535
24,715
70,306
79,636
48,844
6,434
-
-
17,270
222,490
(94,929)
31,665
(31,348)
7,752 $
23,489
18,230
49,471
74,270
42,667
5,841
20,443
6,931
18,981
218,604
(94,904)
46,525
(24,857)
6,385
13,840
4,379
24,604
62,470
46,167
3,654
75,202
32,595
25,612
270,304
(89,082)
45,563
(17,386)
13,568
56,868
4,856
13,000
(10,263)
(5,771)
-
-
-
-
-
(127,888)
(5,492)
-
-
(4,936)
(300,752)
(3,005)
-
-
-
(47,563)
(50)
90,799 $
-
-
-
(23,659)
(1,158)
44,039 $
105,366
93,588
28,763
(35,327)
(9,936)
88,016
$
(a) On April 19, 2013, LNR was sold.
(b)
In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security -
available for sale. This investment was previously accounted for under the equity method.
(c) The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred
compensation plan of $11,557, $10,636 and $6,809 for the years ended December 31, 2014, 2013 and 2012, respectively.
(d) The year ended December 31, 2014, includes $14,956 of transaction costs related to the spin-off of our strip shopping
centers and malls to UE on January 15, 2015.
54
Net Income and EBITDA by Segment for the Years Ended December 31, 2014, 2013 and 2012 - continued
EBITDA by Region
Below is a summary of the percentages of EBITDA by geographic region (excluding discontinued operations, other gains and
losses that affect comparability and our Toys and Other Segments).
For the Year Ended December 31,
2013
2012
2014
Region:
New York City metropolitan area
Washington, DC / Northern Virginia area
Puerto Rico
Other geographies
75%
23%
1%
1%
100%
73%
24%
2%
1%
100%
70%
27%
2%
1%
100%
55
Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013
Revenues
Our revenues, which consist of property rentals (including hotel and trade show revenues), tenant expense reimbursements, and
fee and other income, were $2,635,940,000 in the year ended December 31, 2014, compared to $2,669,269,000 in the prior year, a
decrease of $33,329,000. This decrease was primarily attributable to income in the prior year of $59,599,000 pursuant to a settlement
agreement with Stop & Shop, $36,369,000 related to the Cleveland Medical Mart development project and $23,992,000 from the
deconsolidation of Independence Plaza. Excluding these items, revenues increased by $86,631,000. Below are the details of the
(decrease) increase by segment:
Total
New York
Washington, DC
Retail
Properties
Other
$
16,910
(23,992)
$
20,244
(23,992)
$
(1,867)
-
$
(188)
-
$
(Amounts in thousands)
(Decrease) increase due to:
Property rentals:
Acquisitions and other
Deconsolidation of Independence Plaza (1)
Properties placed into / taken out of
service for redevelopment
Same store operations
Tenant expense reimbursements:
Acquisitions and other
Properties placed into / taken out of
service for redevelopment
Same store operations
(9,143)
45,907
29,682
934
(2,338)
29,635
28,231
229
30,213
26,694
353
(1,650)
17,782
16,485
Cleveland Medical Mart development project
(36,369) (2)
-
Fee and other income:
BMS cleaning fees
Signage revenue
Management and leasing fees
Lease termination fees
Other income
19,152
5,063
(3,254)
(75,454)
(380)
(54,873)
19,358
5,063
(862)
(17,093) (4)
293
6,759
(1,279)
-
(8,349)
14,216
4,588
(194)
(681)
3,376
2,501
1,251
3,877
4,940
(34)
(101)
9,356
9,221
-
(36,369) (2)
-
-
(87)
(59,187) (5)
(375)
(59,649)
(206) (3)
-
464
(3,312)
(1,435)
(4,489)
(2,274)
(2,399)
(6,540)
809
94
(879)
24
-
-
-
(2,769)
4,138
1,137
2,506
Total (decrease) increase in revenues
$
(33,329)
$
49,938
$
(4,010)
$
(45,488)
$
(33,769)
(1)
(2)
On June 7, 2013, we sold an 8.65% economic interest in our investment of Independence Plaza, which reduced our economic interest to 50.1%. As a
result, we determined that we were no longer the primary beneficiary of the VIE and accordingly, we deconsolidated the operations of the property on
June 7, 2013 and began accounting for our investment under the equity method.
Due to the completion of the project. This decrease in revenue is substantially offset by a decrease in development costs expensed in the period. See
note (4) on page 57.
(3) Represents the change in the elimination of intercompany fees from operating segments upon consolidation. See note (3) on page 57.
(4) Primarily due to a $19,500 termination fee from a tenant at 1290 Avenue of the Americas recognized during the third quarter of 2013.
(5) Results primarily from $59,599 of income recognized in the first quarter of 2013 pursuant to a settlement with Stop & Shop.
56
Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - continued
Expenses
Our expenses, which consist primarily of operating (including hotel and trade show expenses), depreciation and amortization and
general and administrative expenses, were $1,820,298,000 in the year ended December 31, 2014, compared to $1,819,009,000 in the
prior year, an increase of $1,289,000. Excluding expenses of $32,210,000 related to the Cleveland Medical Mart development project
in 2013 and $25,899,000 from the deconsolidation of Independence Plaza, expenses increased by $59,398,000. Below are the details
of the increase (decrease) by segment:
(Amounts in thousands)
Increase (decrease) due to:
Operating:
Acquisitions and other
Deconsolidation of Independence Plaza(1)
Properties placed into / taken out of
service for redevelopment
Non-reimbursable expenses, including
bad-debt reserves
BMS expenses
Same store operations
Depreciation and amortization:
Acquisitions and other
Deconsolidation of Independence Plaza(1)
Properties placed into / taken out of
service for redevelopment
Same store operations
General and administrative:
Mark-to-market of deferred compensation
plan liability (2)
Non-same store
Same store operations
Total
New York
Washington, DC
Retail
Properties
Other
$
(728)
(9,592)
$
(197)
(9,592)
$
1,008
-
$
$
(71)
-
(1,468)
-
(6,637)
(1,202)
(206) (3)
1,818
(7,695)
(11)
-
(3,167)
(430)
(3,608)
921
(5,403)
(3,107)
(7,589)
(1,113)
-
-
4,927
4,822
-
-
(649)
5,881
5,232
-
-
279
279
-
1,966
(12)
-
7,984
9,867
(111)
-
8,004
1,102
8,995
-
-
(2,306)
(2,306)
(10,158)
87
11,813
42,380
33,802
9,734
(16,307)
27,676
(597)
20,506
921
(5,403)
(5,861)
(10,343)
(4,374)
1,301
12,019
27,651
26,808
9,856
(16,307)
23,488
(7,150)
9,887
-
-
(727)
(727)
-
-
Cleveland Medical Mart development project
(32,210) (4)
Impairment losses, acquisition related costs
and tenant buy-outs
(10,466)
-
(32,210) (4)
-
(19,000)
8,534
Total increase (decrease) in expenses
$
1,289
$
35,968
$
10,333
$
(2,444)
$
(42,568)
(1)
(2)
On June 7, 2013, we sold an 8.65% economic interest in our investment of Independence Plaza, which reduced our economic interest to 50.1%. As a
result, we determined that we were no longer the primary beneficiary of the VIE and accordingly, we deconsolidated the operations of the Property on
June 7, 2013 and began accounting for our investment under the equity method.
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.
(3)
Represents the change in the elimination of intercompany fees from operating segments upon consolidation. See note (3) on page 56.
(4)
Due to the completion of the project. This decrease in expense is offset by the decrease in development revenue in the period. See note (2) on page 56.
57
Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - continued
(Loss) Applicable to Toys
We account for Toys on the equity method, which means our investment is increased or decreased for our pro rata share of Toys
undistributed net income or loss. We have not guaranteed any of Toys’ obligations and are not committed to provide any support to
Toys. Pursuant to ASC 323-10-35-20, we discontinued applying the equity method for our Toys’ investment when the carrying
amount was reduced to zero in the third quarter of 2014. We will resume application of the equity method if during the period the
equity method was suspended our share of unrecognized net income exceeds our share of unrecognized net losses.
In the year ended December 31, 2014, we recognized a net loss of $73,556,000 from our investment in Toys, comprised of (i)
$4,691,000 for our share of Toys’ net loss and a (ii) $75,196,000 non-cash impairment loss, partially offset by (iii) $6,331,000 of
management fee income. In the year ended December 31, 2013, we recognized a net loss of $362,377,000 from our investment in
Toys, comprised of (i) $128,919,000 for our share of Toys’ net loss and (ii) $240,757,000 non-cash impairment losses, partially offset
by (iii) $7,299,000 of management fee income.
In the first quarter of 2013, we recognized our share of Toys’ fourth quarter net income of $78,542,000 and a corresponding non-
cash impairment loss of the same amount to continue to carry our investment at fair value.
At December 31, 2013, we estimated that the fair value of our investment in Toys was approximately $80,062,000 ($83,224,000
including $3,162,000 for our share of Toys’ accumulated other comprehensive income), or $162,215,000 less than the carrying
amount after recognizing our share of Toys’ third quarter net loss in our fourth quarter. In determining the fair value of our
investment, we considered, among other inputs, a December 31, 2013 third-party valuation of Toys. As of December 31, 2013, we
have concluded that the decline in the value of our investment was “other-than-temporary” based on, among other factors, Toys’ 2013
holiday sales results, compression of earnings multiples of comparable retailers and our inability to forecast a recovery in the near
term. Accordingly, we recognized an additional non-cash impairment loss of $162,215,000 in the fourth quarter of 2013.
In the first quarter of 2014, we recognized our share of Toys’ fourth quarter net income of $75,196,000 and a corresponding non-
cash impairment loss of the same amount to continue to carry our investment at fair value.
Income from Partially Owned Entities
Summarized below are the components of income (loss) from partially owned entities for the years ended December 31, 2014
and 2013.
(Amounts in thousands)
Equity in Net Income (Loss):
Alexander's
India real estate ventures (1)
Partially owned office buildings (2)
Other investments (3)
LNR (4)
Lexington (5)
Percentage
Ownership at
December 31, 2014
For the Year Ended
December 31,
2014
2013
32.4%
4.1%-36.5%
Various
Various
n/a
n/a
$
$
30,009
(8,309)
93
(6,368)
-
-
15,425
$
$
24,402
(3,533)
(4,212)
(10,817)
18,731
(979)
23,592
(1)
(2)
(3)
(4)
(5)
Includes a $5,771 non-cash impairment loss in 2014.
Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and
others.
Includes interests in Independence Plaza, Monmouth Mall, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others. In
the third quarter of 2014, we recognized a $10,263 non-cash impairment loss and loan loss reserve on our equity and debt investments in
Suffolk Downs race track and adjacent land.
On April 19, 2013, LNR was sold.
In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable security - available for sale.
58
Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - continued
Income from Real Estate Fund
Below are the components of the income from our Real Estate Fund for the years ended December 31, 2014 and 2013.
(Amounts in thousands)
Net investment income
Net realized gains
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,
2014
2013
$
$
$
12,895
76,337
73,802
163,034
(92,728)
70,306 $
8,943
8,184
85,771
102,898
(53,427)
49,471
___________________________________
(1) Excludes management and leasing fees of $2,865 and $2,992 in the years ended December 31, 2014 and 2013, respectively,
which are included as a component of "fee and other income" on our consolidated statements of income.
Interest and Other Investment Income (Loss), net
Interest and other investment income (loss), net was income of $38,787,000 in the year ended December 31, 2014, compared to a
loss of $24,876,000 in the prior year, an increase in income of $63,663,000. This increase resulted from:
(Amounts in thousands)
Losses from the disposition of investment in J.C. Penney in 2013
Lower average mezzanine loans receivable balances in 2014
Higher dividends 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
Interest and Debt Expense
$
$
72,974
(15,575)
1,261
921
4,082
63,663
Interest and debt expense was $467,715,000 in the year ended December 31, 2014, compared to $481,304,000 in the prior year, a
decrease of $13,589,000. This decrease was primarily due to (i) $20,483,000 of higher capitalized interest and debt expense and (ii)
$18,568,000 of interest savings from the restructuring of the Skyline properties mortgage loan in the fourth quarter of 2013, partially
offset by (iii) $13,287,000 of interest expense from the $600,000,000 financing of our 220 Central Park South development site in
January 2014, (iv) $6,265,000 of interest expense from the issuance of the $450,000,000 unsecured notes in June 2014, and (v)
$5,589,000 of defeasance cost in connection with the refinancing of 909 Third Avenue.
Net Gain on Disposition of Wholly Owned and Partially Owned Assets
Net gain on disposition of wholly owned and partially owned assets was $13,568,000 in the year ended December 31, 2014,
primarily from the sale of residential condominiums and a land parcel, compared to $3,407,000 in the year ended December 31, 2013,
primarily of net gains from the sale of marketable securities, land parcels (including Harlem Park), and residential condominiums
aggregating $58,245,000, partially offset by a $54,914,000 net loss on sale of J.C. Penney common shares.
Income Tax (Expense) Benefit
In the year ended December 31, 2014, we had an income tax expense of $11,002,000, compared to a benefit of $6,406,000 in the
prior year, an increase in expense of $17,408,000. This increase resulted primarily from a reversal of previously accrued deferred tax
liabilities in the prior year due to a change in the effective tax rate resulting from an amendment of the Washington, DC
Unincorporated Business Tax Statute.
59
Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - continued
Income from Discontinued Operations
We have reclassified the revenues and expenses of the properties that were sold or are currently held for sale to “income from
discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to
discontinued operations” for all the periods presented in the accompanying financial statements. The table below sets forth the
combined results of assets related to discontinued operations for the years ended December 31, 2014 and 2013.
(Amounts in thousands)
Total revenues
Total expenses
Net gains on sales of real estate
Impairment losses
Income from discontinued operations
For the Year Ended December 31,
2014
2013
$
$
70,593
36,424
34,169
507,192
(26,518)
514,843
$
$
129,860
79,458
50,402
414,502
(18,170)
446,734
Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries
Net income attributable to noncontrolling interests in consolidated subsidiaries was $96,561,000 in the year ended December 31,
2014, compared to $63,952,000 in the prior year, an increase of $32,609,000. This increase resulted primarily from higher net income
allocated to the noncontrolling interests, including 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 $47,563,000 in the year ended December 31,
2014, compared to $23,659,000 in the prior year, an increase of $23,904,000. This increase resulted primarily from higher net income
subject to allocation to unitholders.
Preferred Unit Distributions of the Operating Partnership
Preferred unit distributions of the Operating Partnership were $50,000 in the year ended December 31, 2014, compared to
$1,158,000 in the prior year, a decrease of $1,108,000. This decrease resulted from the redemption of the 6.875% Series D-15
cumulative redeemable preferred units in May 2013.
Preferred Share Dividends
Preferred share dividends were $81,464,000 in the year ended December 31, 2014, compared to $82,807,000 in the prior year, a
decrease of $1,343,000. This decrease resulted primarily from the redemption of $262,500,000 of 6.75% Series F and Series H
cumulative redeemable preferred shares in February 2013.
Preferred Unit and Share Redemptions
In the year ended December 31, 2014, we recognized $0 of expense in connection with preferred unit and share redemptions. In
the year ended December 31, 2013, we recognized $1,130,000 of expense in connection with preferred unit and share redemptions,
comprised of $9,230,000 of expense from the redemption of the 6.75% Series F and Series H cumulative redeemable preferred shares
in February 2013, partially offset by an $8,100,000 discount from the redemption of all of the 6.875% Series D-15 cumulative
redeemable preferred units in May 2013.
60
Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - continued
Same Store EBITDA
Same store EBITDA represents EBITDA from property level operations which are owned by us in both the current and prior year
reporting periods. Same store EBITDA excludes segment-level overhead expenses, which are expenses that we do not consider to be
property-level expenses, as well as other non-operating items. We also present same store EBITDA on a cash basis (which excludes
income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash
adjustments). We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our
properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our
properties and segments to those of our peers. Same store EBITDA should not be considered as an alternative to net income or cash
flow from operations and may not be comparable to similarly titled measures employed by other companies.
Below is the reconciliation of EBITDA to same store EBITDA for each of our segments for the year ended December 31, 2014,
compared to the year ended December 31, 2013.
(Amounts in thousands)
New York
Washington, DC Retail Properties
EBITDA for the year ended December 31, 2014
Add-back:
$
1,439,189
$
335,590
$
260,261
Non-property level overhead expenses included above
28,479
27,339
16,686
Less EBITDA from:
Acquisitions
Dispositions, including net gains on sale
Properties taken out-of-service for redevelopment
Other non-operating income
Same store EBITDA for the year ended December 31, 2014
EBITDA for the year ended December 31, 2013
Add-back:
Non-property level overhead expenses included above
Less EBITDA from:
Acquisitions
Dispositions, including net gains on sale
Properties taken out-of-service for redevelopment
Other non-operating income
Same store EBITDA for the year ended December 31, 2013
Increase (decrease) in same store EBITDA -
Year ended December 31, 2014 vs. December 31, 2013(1)
(33,917)
(463,991)
(26,056)
(9,013)
934,691
1,079,682
29,206
(4,764)
(160,232)
(20,013)
(31,522)
892,357
$
$
$
-
(1,858)
(1,432)
(5,446)
354,193
341,223
27,060
-
(150)
(4,056)
(1,129)
362,948
$
$
$
-
(54,499)
(2,660)
(18,217)
201,571
541,017
18,992
-
(302,264)
(2,758)
(56,698)
198,289
42,334
$
(8,755)
$
3,282
$
$
$
$
% increase (decrease) in same store EBITDA
4.7%
(2.4%)
1.7%
(1) See notes on following page
61
Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - continued
Notes to preceding tabular information:
New York:
The $42,334,000 increase in New York same store EBITDA resulted primarily from higher (i) rental revenue of $30,213,000
(primarily due to an increase in average rent per square foot) and (ii) cleaning fees, signage revenue, and other income of
$26,882,000, partially offset by (iii) higher office operating expenses, net of reimbursements, of $14,761,000.
Washington, DC:
The $8,755,000 decrease in Washington, DC same store EBITDA resulted primarily from (i) lower rental revenue of $2,399,000,
(ii) lower management and leasing fee income of $2,769,000 and (iii) higher operating expenses of $4,927,000, partially offset by
an increase in other income of $1,538,000.
Retail Properties:
The $3,282,000 increase in Retail Properties same store EBITDA resulted primarily from an increase in rental revenue of
$3,877,000, primarily due to an increase in average same store occupancy, partially offset by higher operating expenses, net of
reimbursements.
Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA
(Amounts in thousands)
New York
Washington, DC Retail Properties
Same store EBITDA for the year ended December 31, 2014
Less: Adjustments for straight line rents, amortization of acquired
below-market leases, net, and other non-cash adjustments
Cash basis same store EBITDA for the year ended December 31, 2014
Same store EBITDA for the year ended December 31, 2013
Less: Adjustments for straight line rents, amortization of acquired
below-market leases, net, and other non-cash adjustments
Cash basis same store EBITDA for the year ended December 31, 2013
Increase (decrease) in Cash basis same store EBITDA -
Year ended December 31, 2014 vs. December 31, 2013
$
$
$
$
$
934,691
$
354,193
$
201,571
(103,496)
831,195
892,357
(119,625)
772,732
$
$
$
(9,726)
344,467
362,948
(10,198)
352,750
$
$
$
(6,174)
195,397
198,289
(7,346)
190,943
58,463
$
(8,283)
$
4,454
% increase (decrease) in Cash basis same store EBITDA
7.6%
(2.3%)
2.3%
62
Results of Operations – Year Ended December 31, 2013 Compared to December 31, 2012
Revenues
Our revenues, which consist primarily of property rentals (including hotel and trade show revenues), tenant expense
reimbursements, and fee and other income, were $2,669,269,000 in the year ended December 31, 2013, compared to $2,649,217,000
in the year ended December 31, 2012, an increase of $20,052,000. Below are the details of the increase (decrease) by segment:
(Amounts in thousands)
Increase (decrease) due to:
Property rentals:
Acquisitions and other
Properties placed into / taken out of
service for redevelopment
Same store operations
Tenant expense reimbursements:
Acquisitions and other
Properties placed into / taken out of
service for redevelopment
Same store operations
Total
New York
Washington, DC
Retail
Properties
Other
$
64,524
$
75,004
$
462
$
(10,369)
$
(573)
(2,782)
28,589
90,331
(1,138)
32,602
106,468
(2,333)
(15,267)
(17,138)
1,287
2,715
67
20,738
22,092
(402)
8,385
10,698
735
2,850
(6,784)
(1,728)
374
3,939
2,585
(46)
8,404
7,785
904
(98)
5,971
6,777
-
(198,865) (1)
-
-
(1,567)
59,793 (4)
(158)
58,068
8,129 (2)
-
(1,513)
4,027 (5)
1,273
11,916
(604)
193
2,443
2,032
-
-
-
1,691
983
(435)
2,239
Cleveland Medical Mart development project
(198,865) (1)
-
Fee and other income:
BMS cleaning fees
Signage revenue
Management and leasing fees
Lease termination fees
Other income
(1,079)
11,974
2,788
90,136
2,675
106,494
(9,208)
11,974
4,177
25,333 (3)
1,995
34,271
Total increase (decrease) in revenues
$
20,052
$
151,437
$
(12,867)
$
53,869
$
(172,387)
(1) Due to the completion of the project. This decrease in revenue is substantially offset by a decrease in development costs expensed in the
period. See note (3) on page 64.
(2) Represents the change in the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 64.
(3) Primarily due to a $19,500 termination fee from a tenant at 1290 Avenue of the Americas recognized during the third quarter of 2013.
(4) Results primarily from $59,599 of income recognized in the first quarter of 2013 pursuant to a settlement with Stop & Shop.
(5) Primarily due to $3,000 in 2013 from the termination of our subsidiaries' agreements with Cuyahoga County to operate the Cleveland Medical
Mart Convention Center.
63
Results of Operations – Year Ended December 31, 2013 Compared to December 31, 2012 - continued
Expenses
Our expenses, which consist primarily of operating (including hotel and trade show expenses), depreciation and amortization and
general and administrative expenses, were $1,819,009,000 in the year ended December 31, 2013, compared to $1,921,425,000 in the
year ended December 31, 2012, a decrease of $102,416,000. Below are the details of the (decrease) increase by segment:
(Amounts in thousands)
(Decrease) increase due to:
Operating:
Acquisitions and other
Properties placed into / taken out of
service for redevelopment
Non-reimbursable expenses, including
bad-debt reserves
BMS expenses
Same store operations
Depreciation and amortization:
Acquisitions and other
Properties placed into / taken out of
service for redevelopment
Same store operations
General and administrative:
Mark-to-market of deferred compensation
plan liability (1)
Non-same store
Same store operations
Total
New York
Washington, DC
Retail
Properties
Other
$
23,791
$
26,583
$
-
$
(1,209)
$
(1,583)
(1,382)
(1,138)
(5,445)
(1,933)
928
(4,151)
26,945
42,068
(3,366)
(7,889)
20,812
34,207
(992)
-
-
2,045
1,053
39,154
41,047
-
(1,519)
(16,216)
2,758
25,696
(552)
(2,955)
37,540
(16,177)
2,369
(13,808)
1,470
-
4,747
3,626
513
1,612
606
-
-
(4,662)
(4,662)
2,824
3,738 (2)
(659)
3,182
(374)
-
1,732
1,358
3,827
9,244
(5,824)
7,247
3,827
9,244
(6,913)
6,158
-
-
3,188
3,188
-
-
-
-
385
385
-
Cleveland Medical Mart development project
(194,409) (3)
Impairment losses, acquisition related costs
and tenant buy-outs
18,071
-
(194,409) (3)
-
10,600
7,471
Total (decrease) increase in expenses
$
(102,416)
$
74,935
$
(12,370)
$
10,170
$
(175,151)
(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) Represents the change in the elimination of intercompany fees from operating segments upon consolidation. See note (2) on page 63.
(3) Due to the completion of the project. This decrease in expense is offset by the decrease in development revenue in the period. See note (1) on
page 63.
64
Results of Operations – Year Ended December 31, 2013 Compared to December 31, 2012 - continued
(Loss) Income Applicable to Toys
In the year ended December 31, 2013, we recognized a net loss of $362,377,000 from our investment in Toys, comprised of (i)
$128,919,000 for our share of Toys’ net loss and (ii) $240,757,000 non-cash impairment losses, partially offset by (iii) $7,299,000 of
management fee income. In the year ended December 31, 2012, we recognized net income of $14,859,000 from our investment in
Toys, comprised of (i) $45,267,000 for our share of Toys’ net income and (ii) $9,592,000 of management fee income, partially offset
by a (iii) $40,000,000 non-cash impairment loss.
At December 31, 2012, we estimated that the fair value of our investment was $40,000,000 less than the carrying amount of
$518,041,000 and concluded that the decline in the value of our investment was “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 of 2012.
In the first quarter of 2013, we recognized our share of Toys’ fourth quarter net income of $78,542,000 and a corresponding non-
cash impairment loss of the same amount to continue to carry our investment at fair value.
At December 31, 2013, we estimated that the fair value of our investment in Toys was approximately $80,062,000 ($83,224,000
including $3,162,000 for our share of Toys’ accumulated other comprehensive income), or $162,215,000 less than the carrying
amount after recognizing our share of Toys’ third quarter net loss in our fourth quarter. In determining the fair value of our
investment, we considered, among other inputs, a December 31, 2013 third-party valuation of Toys. As of December 31, 2013, we
have concluded that the decline in the value of our investment was “other-than-temporary” based on, among other factors, Toys’ 2013
holiday sales results, compression of earnings multiples of comparable retailers and our inability to forecast a recovery in the near
term. Accordingly, we recognized an additional non-cash impairment loss of $162,215,000 in the fourth quarter of 2013.
Income from Partially Owned Entities
Summarized below are the components of income (loss) from partially owned entities for the years ended December 31, 2013
and 2012.
(Amounts in thousands)
Equity in Net Income (Loss):
Alexander's (1)
India real estate ventures
Partially owned office buildings (2)
Other investments(3) (4)
LNR (5)
Lexington (6)
Percentage
Ownership at
December 31, 2013
For the Year Ended
December 31,
2013
2012
32.4%
4.1%-36.5%
Various
Various
n/a
n/a
$
$
24,402
(3,533)
(4,212)
(10,817)
18,731
(979)
23,592
$
$
218,391
(5,008)
(3,770)
103,644
66,270
28,740
408,267
(1)
(2)
(3)
(4)
(5)
(6)
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.
Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and
others.
Includes interests in Independence Plaza, Monmouth Mall, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and
others.
2012 includes $105,366 of income from Independence Plaza comprised of (i) $60,396 from the accelerated amortization of discount
on investment in the 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.
On April 19, 2013, LNR was sold.
2012 includes a $28,763 net gain resulting primarily from Lexington's stock issuances. In the first quarter of 2013, we began
accounting for our investment in Lexington as a marketable equity security - available for sale.
65
Results of Operations – Year Ended December 31, 2013 Compared to December 31, 2012 - continued
Income from Real Estate Fund
Below are the components of the income from our Real Estate Fund for the years ended December 31, 2013 and 2012.
(Amounts in thousands)
Net investment income
Net realized gains
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,
2013
2012
$
$
$
8,943
8,184
85,771
102,898
(53,427)
49,471 $
8,575
-
55,361
63,936
(39,332)
24,604
___________________________________
(1) Excludes management and leasing fees of $2,992 and $3,278 in the years ended December 31, 2013 and 2012, respectively,
which are included as a component of "fee and other income" on our consolidated statements of income.
Interest and Other Investment Loss, net
Interest and other investment loss, net was a loss of $24,876,000 in the year ended December 31, 2013, compared to a loss of
$261,179,000 in the year ended December 31, 2012, a decrease in loss of $236,303,000. This decrease resulted from:
(Amounts in thousands)
Non-cash impairment loss on J.C. Penney common shares ($39,487 in 2013, compared to
$224,937 in 2012)
J.C. Penney derivative position ($33,487 mark-to-market loss in 2013, compared to a $75,815
mark-to-market loss in 2012)
Higher interest on mezzanine loans receivable
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)
Lower dividends and interest on marketable securities
Other, net
$
185,450
42,328
5,634
3,827
(533)
(403)
236,303
$
Interest and Debt Expense
Interest and debt expense was $481,304,000 in the year ended December 31, 2013, compared to $484,794,000 in the year ended
December 31, 2012, a decrease of $3,490,000. This decrease was primarily due to (i) $25,502,000 of higher capitalized interest and
(ii) $4,738,000 of interest savings from the restructuring of the Skyline properties mortgage loan in the fourth quarter of 2013,
partially offset by (iii) interest expense of $12,319,000 from the financing of the retail condominium at 666 Fifth Avenue in the first
quarter of 2013, (iv) an $8,436,000 prepayment penalty in connection with the refinancing of Eleven Penn Plaza, and (v) interest
expense of $6,855,000 from the financing of 1290 Avenue of the Americas in the fourth quarter of 2012.
Net Gain on Disposition of Wholly Owned and Partially Owned Assets
Net gain on disposition of wholly owned and partially owned assets was $3,407,000 in year ended December 31, 2013
(comprised primarily of net gains from the sale of marketable securities, land parcels (including Harlem Park), and residential
condominiums aggregating $58,245,000, partially offset by a $54,914,000 net loss on sale of J.C. Penney common shares), compared
to $13,347,000, in the year ended December 31, 2012 (comprised of net gains from the sale of marketable securities, land parcels and
residential condominiums).
66
Results of Operations – Year Ended December 31, 2013 Compared to December 31, 2012 - continued
Income Tax Benefit (Expense)
Income tax benefit (expense) was a benefit of $6,406,000 in the year ended December 31, 2013, compared to an expense of
$8,132,000 in the year ended December 31, 2012 a decrease in expense of $14,538,000. This decrease resulted primarily from a
reversal of previously accrued deferred tax liabilities in the current year due to a change in the effective tax rate resulting from an
amendment of the Washington, DC Unincorporated Business Tax Statute.
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, 2013 and 2012.
(Amounts in thousands)
Total revenues
Total expenses
Net gains on sales of real estate
Impairment losses
Gain on sale of Canadian Trade Shows, net of $11,448 of income taxes
Income from discontinued operations
Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries
For the Year Ended December 31,
2013
2012
$
$
129,860
79,458
50,402
414,502
(18,170)
-
446,734
$
$
264,878
190,450
74,428
245,799
(119,439)
19,657
220,445
Net income attributable to noncontrolling interests in consolidated subsidiaries was $63,952,000 in the year ended December 31,
2013, compared to $32,018,000 in the year ended December 31, 2012, an increase of $31,934,000. This increase resulted primarily
from (i) $14,095,000 of higher net income allocated to the noncontrolling interests of our Real Estate Fund, (ii) $13,222,000 of lower
income in the prior year resulting from a priority return on our investment in 1290 Avenue of the Americas and 555 California Street,
and (iii) $2,909,000 of income allocated to the noncontrolling interest for its share of the net gain on sale of a retail property in Tampa,
Florida.
Net Income Attributable to Noncontrolling Interests in the Operating Partnership
Net income attributable to noncontrolling interests in the Operating Partnership was $23,659,000 in the year ended December
31, 2013, compared to $35,327,000 in the year ended December 31, 2012, a decrease of $11,668,000. 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 $1,158,000 in the year ended December 31, 2013, compared to
$9,936,000 in the year ended December 31, 2012, a decrease of $8,778,000. This decrease resulted primarily from the redemption of
the 6.875% Series D-15 cumulative redeemable preferred units in May 2013, and the 7.0% Series D-10 and 6.75% Series D-14
cumulative redeemable preferred units in July 2012.
67
Results of Operations – Year Ended December 31, 2013 Compared to December 31, 2012 - continued
Preferred Share Dividends
Preferred share dividends were $82,807,000 in the year ended December 31, 2013, compared to $76,937,000 in the year ended
December 31, 2012, an increase of $5,870,000. This increase resulted from the issuance of $300,000,000 of 5.70% Series K
cumulative redeemable preferred shares in July 2012 and $300,000,000 of 5.40% Series L cumulative redeemable preferred shares in
January 2013, partially offset by the redemption of $262,500,000 of 6.75% Series F and Series H cumulative redeemable preferred
shares in February 2013 and $75,000,000 of 7.0% Series E cumulative redeemable preferred shares in August 2012.
Preferred Unit and Share Redemptions
In the year ended December 31, 2013, we recognized $1,130,000 of expense in connection with preferred unit and share
redemptions, comprised of $9,230,000 of expense from the redemption of the 6.75% Series F and Series H cumulative redeemable
preferred shares in February 2013, partially offset by an $8,100,000 discount from the redemption of all of the 6.875% Series D-15
cumulative redeemable preferred units in May 2013. In the year ended December 31, 2012, we recognized an $8,948,000 discount
primarily from the redemption of all of the 7.0% Series D-10 and 6.75% Series D-14 cumulative redeemable preferred units.
68
Results of Operations – Year Ended December 31, 2013 Compared to December 31, 2012 - continued
Same Store EBITDA
Below is the reconciliation of EBITDA to same store EBITDA for each of our segments for the year ended December 31, 2013,
compared to the year ended December 31, 2012.
(Amounts in thousands)
New York
Washington, DC Retail Properties
EBITDA for the year ended December 31, 2013
Add-back:
$
1,079,682
$
341,223
$
541,017
Non-property level overhead expenses included above
29,206
27,630
18,992
Less EBITDA from:
Acquisitions
Dispositions, including net gains on sale
Properties taken out-of-service for redevelopment
Other non-operating income
Same store EBITDA for the year ended December 31, 2013
EBITDA for the year ended December 31, 2012
Add-back:
Non-property level overhead expenses included above
Less EBITDA from:
Acquisitions
Dispositions, including net gains on sale
Properties taken out-of-service for redevelopment
Other non-operating income
Same store EBITDA for the year ended December 31, 2012
Increase (decrease) in same store EBITDA -
Year ended December 31, 2013 vs. December 31,2012(1)
(67,613)
(160,232)
(20,050)
(27,418)
833,575
1,017,859
26,096
(4,131)
(221,076)
(20,056)
(6,790)
791,902
$
$
$
-
(150)
(4,457)
(1,129)
363,117
532,412
27,237
-
(176,052)
(9,319)
(838)
373,440
$
$
$
-
(300,995)
(5,089)
(41,741)
212,184
200,526
23,654
-
(8,576)
(1,394)
(4,519)
209,691
41,673
$
(10,323)
$
2,493
$
$
$
$
% increase (decrease) in same store EBITDA
5.3%
(2.8%)
1.2%
(1)
See notes on following page.
69
Results of Operations – Year Ended December 31, 2013 Compared to December 31, 2012 - continued
Notes to preceding tabular information:
New York:
The $41,673,000 increase in New York same store EBITDA resulted primarily from increases in Office and Retail of
$29,693,000 and $9,229,000, respectively. The Office increase resulted primarily from higher (i) rental revenue of $13,983,000
(primarily due to a $1.85 increase in average annual rents per square foot) and (ii) signage revenue and management and leasing
fees of $16,037,000. The Retail increase resulted primarily from higher rental revenue of $10,414,000, (primarily due to a $9.35
increase in average annual rents per square foot).
Washington, DC:
The $10,323,000 decrease in Washington, DC same store EBITDA resulted primarily from lower rental revenue of $15,267,000,
primarily due to a 330 basis point decrease in office average same store occupancy to 82.8% from 86.1%, a significant portion of
which resulted from the effects of BRAC related move-outs and the sluggish leasing environment in the Washington, DC /
Northern Virginia area (see page 47 for details).
Retail Properties:
The $2,493,000 increase in Retail Properties same store EBITDA resulted primarily from higher rental revenue of $2,847,000,
due to a 70 basis point increase in average same store occupancy to 94.2% from 93.5%, and a $0.23 increase in average annual
rents per square foot.
Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA
(Amounts in thousands)
New York
Washington, DC Retail Properties
Same store EBITDA for the year ended December 31, 2013
Less: Adjustments for straight line rents, amortization of acquired
below-market leases, net, and other non-cash adjustments
Cash basis same store EBITDA for the year ended December 31, 2013
Same store EBITDA for the year ended December 31, 2012
Less: Adjustments for straight line rents, amortization of acquired
below-market leases, net, and other non-cash adjustments
Cash basis same store EBITDA for the year ended December 31, 2012
Increase (decrease) in Cash basis same store EBITDA -
Year ended December 31, 2013 vs. December 31, 2012
$
$
$
$
$
833,575
$
363,117
$
212,184
(105,981)
727,594
791,902
(115,711)
676,191
$
$
$
(10,181)
352,936
373,440
(6,484)
366,956
$
$
$
(7,902)
204,282
209,691
(9,039)
200,652
51,403
$
(14,020)
$
3,630
% increase (decrease) in Cash basis same store EBITDA
7.6%
(3.8%)
1.8%
70
Supplemental Information
Net Income and EBITDA by Segment for the Three Months Ended December 31, 2014 and 2013
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, 2014 and 2013.
(Amounts in thousands)
For the Three Months Ended December 31, 2014
Total revenues
Total expenses
Operating income (loss)
Income from partially owned
entities, including Toys
Income from Real Estate Fund
Interest and other investment
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 from discontinued
operations
Net income (loss)
Less net income attributable to
noncontrolling interests
Net income (loss) attributable to
Vornado
Interest and debt expense(2)
Depreciation and amortization(2)
Income tax expense(2)
EBITDA(1)
_________________________
See notes on pages 73 and 74.
Total
New York
$
679,101 $
476,146
202,955
Washington, DC Properties
133,506 $
92,720
40,786
83,478 $
49,329
34,149
400,159 $
243,739
156,420
Retail
19,295
20,616
9,947
(126,102)
363
127,074
(2,644)
4,329
-
1,822
(48,457)
-
114,114
(1,308)
1,248
-
90
480
-
9
(18,703)
(14,453)
-
23,421
(196)
-
20,185
(146)
124,430
112,806
23,225
20,039
451,556
575,986
445,762
558,568
-
23,225
5,794
25,833
(42,383)
(1,423)
-
(5)
Toys
Other
- $
-
-
606
-
-
-
-
606
-
606
-
606
-
61,958
90,358
(28,400)
12,632
20,616
8,026
(44,489)
363
(31,252)
(994)
(32,246)
-
(32,246)
(40,955)
533,603
143,674
155,921
2,759
835,957 $
557,145
61,809
83,199
1,326
703,479 (3) $
$
23,225
21,979
37,486
200
82,890 (4) $
25,828
15,597
17,046
146
58,617 (5) $
606
-
-
-
606 $
(73,201)
44,289
18,190
1,087
(9,635) (6)
71
Supplemental Information – continued
Net Income and EBITDA by Segment for the Three Months Ended December 31, 2014 and 2013 - continued
(Amounts in thousands)
For the Three Months Ended December 31, 2013
Total revenues
Total expenses
Operating income (loss)
(Loss) income from partially owned
entities, including Toys
Income from Real Estate Fund
Interest and other investment
income, net
Interest and debt expense
Net gain on disposition of wholly
owned and partially owned assets
(Loss) income before income taxes
Income tax benefit (expense)
(Loss) income from continuing
operations
Income (loss) from discontinued
operations
Net (loss) income
Less net (income) loss attributable to
noncontrolling interests
Net (loss) income attributable to
Vornado
Interest and debt expense(2)
Depreciation and amortization(2)
Income tax expense (benefit)(2)
EBITDA(1)
_________________________
See notes on pages 73 and 74.
Total
New York
Washington, DC
Retail
Properties
Toys
Other
$
649,403 $
475,446
173,957
370,040 $
222,117
147,923
134,509 $
89,095
45,414
79,009 $
66,448
12,561
- $
-
-
(293,165)
28,951
8,196
(120,625)
23,988
(178,698)
12,578
1,507
-
1,418
(56,538)
-
94,310
(1,496)
(166,120)
92,814
127,361
(38,759)
135,528
228,342
(9,760)
(1,268)
(423)
-
30
585
-
8
(18,927)
(13,339)
(293,066)
-
-
-
-
26,094
15,980
42,074
-
42,074
-
-
(185)
(831)
-
(293,066)
-
(1,016)
(293,066)
(8,349)
(9,365)
14
-
(293,066)
-
65,845
97,786
(31,941)
(1,768)
28,951
6,740
(31,821)
23,988
(5,851)
(1,075)
(6,926)
182
(6,744)
(8,506)
(48,519)
207,424
183,685
8,270
350,860 $
227,074
73,066
73,694
1,558
375,392 (3) $
$
42,074
22,416
36,610
(17,841)
83,259 (4) $
(9,351)
14,503
19,721
831
25,704 (5) $
(293,066)
62,239
31,446
22,573
(176,808) $
(15,250)
35,200
22,214
1,149
43,313 (6)
72
Supplemental Information – continued
Net Income and EBITDA by Segment for the Three Months Ended December 31, 2014 and 2013 - 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(a)
Retail(b)
Alexander's (c)
Hotel Pennsylvania
Total New York
(a)
For the Three Months Ended December 31,
2014
2013
$
$
604,982 $
75,959
10,658
11,880
703,479 $
283,092
69,414
11,069
11,817
375,392
2014 and 2013 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that
affect comparability, aggregating $445,464 and $135,064, respectively. Excluding these items, EBITDA was
$159,518 and $148,028, respectively.
(b)
(c)
2014 and 2013 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that
affect comparability, aggregating $464 and $484, respectively. Excluding these items, EBITDA was $75,495 and
$68,930, respectively.
2014 and 2013 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that
affect comparability, aggregating $171 and $730, respectively. Excluding these items, EBITDA was $10,487 and
$10,339, respectively.
(4) The elements of "Washington, DC" EBITDA are summarized below.
For the Three Months Ended December 31,
(Amounts in thousands)
Office, excluding the Skyline Properties
Skyline properties
Total Office
Residential
Total Washington, DC
2014
2013
$
$
66,641 $
5,880
72,521
10,369
82,890 $
65,910
6,953
72,863
10,396
83,259
(5) The elements of "Retail Properties" EBITDA are summarized below.
For the Three Months Ended December 31,
(Amounts in thousands)
Strip shopping centers(a)
Regional malls(b)
Total Retail properties
(a)
2014
2013
$
$
40,623 $
17,994
58,617 $
21,547
4,157
25,704
2014 and 2013 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that
affect comparability, aggregating net gains of $4,133 and net losses of $14,563, respectively. Excluding these items,
EBITDA was $36,490 and $36,110, respectively.
(b)
2014 and 2013 includes EBITDA from discontinued operations, net gains on sale of real estate and other items that
affect comparability, aggregating to net income in 2014 of $2,315 and to a net loss of $10,184 in 2013. Excluding
these items, EBITDA was $15,679 and $14,341, respectively.
73
Supplemental Information – continued
Net Income and EBITDA by Segment for the Three Months Ended December 31, 2014 and 2013 - continued
Notes to preceding tabular information:
(6)
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 realized/unrealized gains on investments
Carried interest
Total
The Mart and trade shows
555 California Street
India real estate ventures
Other investments
Corporate general and administrative expenses(a)
Investment income and other, net(a)
Acquisition and transaction related costs, and impairment losses(b)
Our share of debt satisfaction gains and net gains on sale of real estate
of partially owned entities
Our share of impairment losses of partially owned entities
Net gain on sale of land parcels and residential condominiums
Severance costs (primarily reduction in force at the Mart)
Net (income) loss attributable to noncontrolling interests in the Operating Partnership
Preferred unit distributions of the Operating Partnership
For the Three Months
Ended December 31,
2014
2013
$
$
1,380 $
4,646
3,079
9,105
18,598
13,278
1,860
3,445
46,286
(22,977)
8,901
(18,376)
13,000
(5,771)
363
-
(31,049)
(12)
(9,635) $
2,015
6,574
6,256
14,845
20,038
10,296
1,133
4,774
51,086
(23,850)
7,372
(18,088)
-
-
23,988
(1,338)
4,155
(12)
43,313
(a)
(b)
The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our
deferred compensation plan of $3,425 and $4,429 for the three months ended December 31, 2014 and 2013,
respectively.
The three months ended December 31, 2014, includes $5,612 of transaction costs related to the spin-off of our strip
shopping centers and malls.
74
Supplemental Information – continued
Net Income and EBITDA by Segment for the Three Months Ended December 31, 2014 and 2013 - continued
EBITDA by Region
Below is a summary of the percentages of EBITDA by geographic region (excluding discontinued operations, other gains and
losses that affect comparability and our Toys and Other Segments).
Region:
New York City metropolitan area
Washington, DC / Northern Virginia area
Puerto Rico
Other geographies
For the Three Months
Ended December 31,
2014
2013
76%
22%
1%
1%
100%
74%
23%
2%
1%
100%
75
Supplemental Information – continued
Three Months Ended December 31, 2014 Compared to December 31, 2013
Same Store EBITDA
Same store EBITDA represents EBITDA from property level operations which are owned by us in both the current and prior year
reporting periods. Same store EBITDA excludes segment-level overhead expenses, which are expenses that we do not consider to be
property-level expenses, as well as other non-operating items. We also present same store EBITDA on a cash basis (which excludes
income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash
adjustments). We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our
properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our
properties and segments to those of our peers. Same store EBITDA should not be considered as an alternative to net income or cash
flow from operations and may not be comparable to similarly titled measures employed by other companies.
Below is the reconciliation of EBITDA to same store EBITDA for each of our segments for the three months ended December
31, 2014, compared to the three months ended December 31, 2013.
(Amounts in thousands)
New York
Washington, DC Retail Properties
EBITDA for the three months ended December 31, 2014
Add-back:
Non-property level overhead expenses included above
Less EBITDA from:
Acquisitions
Dispositions, including net gains on sale
Properties taken out-of-service for redevelopment
Other non-operating (income) expense
Same store EBITDA for the three months ended December 31, 2014
EBITDA for the three months ended December 31, 2013
Add-back:
Non-property level overhead expenses included above
Less EBITDA from:
Acquisitions
Dispositions, including net gains on sale
Properties taken out-of-service for redevelopment
Other non-operating (income) expense
Same store EBITDA for the three months ended December 31, 2013
Increase (decrease) in GAAP basis same store EBITDA -
Three months ended December 31, 2014 vs. December 31, 2013
$
703,479
$
82,890
$
58,617
6,055
(9,711)
(445,928)
(8,761)
(2,467)
242,667
375,392
7,318
(4,525)
(135,548)
(5,269)
(2,442)
234,926
$
$
$
6,866
-
(1,785)
(47)
(1,336)
86,588
83,259
6,848
-
(33)
(1,124)
(316)
88,634
$
$
$
3,757
-
(5,562)
(574)
(7,869)
48,369
25,704
4,168
-
5,681
(749)
12,656
47,460
7,741
$
(2,046)
$
909
$
$
$
$
% increase (decrease) in same store EBITDA
3.3%
(2.3%)
1.9%
76
Supplemental Information – continued
Three Months Ended December 31, 2014 Compared to December 31, 2013 - continued
Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA
(Amounts in thousands)
New York
Washington, DC Retail Properties
Same store EBITDA for the three months ended December 31, 2014
Less: Adjustments for straight line rents, amortization of acquired
below-market leases, net, and other non-cash adjustments
Cash basis same store EBITDA for the three months ended
December 31, 2014
Same store EBITDA for the three months ended December 31, 2013
Less: Adjustments for straight line rents, amortization of acquired
below-market leases, net, and other non-cash adjustments
Cash basis same store EBITDA for the three months ended
December 31, 2013
Increase (decrease) in Cash basis same store EBITDA -
Three months ended December 31, 2014 vs. December 31, 2013
$
$
$
$
$
242,667
$
86,588
$
48,369
(24,299)
218,368
234,926
(33,195)
$
$
(3,142)
83,446
88,634
(1,909)
$
$
(700)
47,669
47,460
(927)
201,731
$
86,725
$
46,533
16,637
$
(3,279)
$
1,136
% increase (decrease) in Cash basis same store EBITDA
8.2%
(3.8%)
2.4%
77
Supplemental Information – continued
Three Months Ended December 31, 2014 Compared to September 30, 2014
Below is the reconciliation of Net Income to EBITDA for the three months ended September 30, 2014.
(Amounts in thousands)
Net income attributable to Vornado for the three months ended
September 30, 2014
Interest and debt expense
Depreciation and amortization
Income tax expense
EBITDA for the three months ended September 30, 2014
New York
Washington, DC Retail Properties
$
$
112,381
58,010
79,446
746
250,583
$
$
24,955
22,208
36,411
145
83,719
$
$
85,198
11,205
15,256
525
112,184
Below is the reconciliation of EBITDA to same store EBITDA for each of our segments for the three months ended December
31, 2014, compared to the three months ended September 30, 2014.
(Amounts in thousands)
New York
Washington, DC Retail Properties
EBITDA for the three months ended December 31, 2014
Add-back:
Non-property level overhead expenses included above
Less EBITDA from:
Acquisitions
Dispositions, including net gains on sale
Properties taken out-of-service for redevelopment
Other non-operating income
Same store EBITDA for the three months ended December 31, 2014
EBITDA for the three months ended September 30, 2014
Add-back:
Non-property level overhead expenses included above
Less EBITDA from:
Acquisitions
Dispositions, including net gains on sale
Properties taken out-of-service for redevelopment
Other non-operating income
Same store EBITDA for the three months ended September 30, 2014
Increase (decrease) in same store EBITDA -
Three months ended December 31, 2014 vs. September 30, 2014
$
703,479
$
82,890
$
58,617
6,055
(4,191)
(445,929)
(8,761)
(2,467)
248,186
250,583
7,986
50
(5,851)
(5,897)
(3,078)
243,793
$
$
$
6,866
-
(1,785)
(47)
(1,336)
86,588
83,719
6,454
-
(73)
(400)
(421)
89,279
$
$
$
3,757
-
(5,562)
(574)
(7,869)
48,369
112,184
4,163
-
(60,273)
(618)
(7,379)
48,077
4,393
$
(2,691)
$
292
$
$
$
$
% increase (decrease) in same store EBITDA
1.8%
(3.0%)
0.6%
78
Supplemental Information – continued
Three Months Ended December 31, 2014 Compared to September 30, 2014 - continued
Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA
(Amounts in thousands)
New York
Washington, DC Retail Properties
Same store EBITDA for the three months ended December 31, 2014
Less: Adjustments for straight line rents, amortization of acquired
below-market leases, net, and other non-cash adjustments
Cash basis same store EBITDA for the three months ended
December 31, 2014
Same store EBITDA for the three months ended September 30, 2014
Less: Adjustments for straight line rents, amortization of acquired
below-market leases, net, and other non-cash adjustments
Cash basis same store EBITDA for the three months ended
September 30, 2014
Increase (decrease) in Cash basis same store EBITDA -
Three months ended December 31, 2014 vs. September 30, 2014
$
$
$
$
$
248,186
$
86,588
$
48,369
(25,692)
222,494
243,793
(31,353)
$
$
(3,142)
83,446
89,279
(2,918)
$
$
(700)
47,669
48,077
(743)
212,440
$
86,361
$
47,334
10,054
$
(2,915)
$
335
% increase (decrease) in Cash basis same store EBITDA
4.7%
(3.4%)
0.7%
79
Related Party Transactions
Alexander’s
We own 32.4% of Alexander’s. Steven Roth, the Chairman of our Board and Chief Executive Officer is also the Chairman of the
Board and Chief Executive Officer 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.
On January 15, 2015, we completed the spin-off of 79 strip shopping centers, three malls, a warehouse park and $225,000,000 of
cash to UE and the transfer of all of the employees responsible for the management and leasing of those assets. In addition, we
entered into agreements with UE to provide management and leasing services, on our behalf, for Alexander’s Rego Park retail assets.
Fees for these services are similar to the fees we are receiving from Alexander’s as 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, 2014,
Interstate and its partners beneficially owned an aggregate of approximately 6.6% 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 $535,000, $606,000, and
$794,000 of management fees under the agreement for the years ended December 31, 2014, 2013 and 2012.
On January 15, 2015, we completed the spin-off of 79 strip shopping centers, three malls, a warehouse park and $225,000,000 of
cash to UE and the transfer of all of the employees responsible for the management and leasing of those assets. In addition, we
entered into agreements with UE to provide management and leasing services, on our behalf, for Interstate’s properties. Fees for
these services are similar to the fees we are receiving from Interstate described above.
80
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 may require funding from
borrowings and/or equity offerings.
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 21, 2015, we declared a quarterly common dividend of $0.63 per share (an indicated annual rate of $2.52 per common
share). This dividend, if continued for all of 2015, would require us to pay out approximately $474,000,000 of cash for common share
dividends. In addition, during 2015, we expect to pay approximately $82,000,000 of cash dividends on outstanding preferred shares
and approximately $29,000,000 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.” We have issued senior unsecured notes from a shelf registration statement that contain
financial covenants that restrict our ability to incur debt, and that require us to maintain a level of unencumbered assets based on the
level of our secured debt. Our revolving credit facilities contain financial covenants that require us to maintain minimum interest
coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings
below Baa3/BBB. Our revolving credit facilities also contain customary conditions precedent to borrowing, including representations
and warranties, and 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, 2014, we are in compliance with all of the financial covenants required by our senior
unsecured notes and our revolving credit facilities.
As of December 31, 2014, we had $1,198,477,000 of cash and cash equivalents and $2,460,448,000 of borrowing capacity under
our revolving credit facilities, net of outstanding borrowings and letters of credit of $0 and $39,552,000, respectively. A summary of
our consolidated debt as of December 31, 2014 and 2013 is presented below.
(Amounts in thousands)
Consolidated debt:
Variable rate
Fixed rate
2014
Weighted
2013
December 31,
Balance
$
$
1,840,769
9,058,090
10,898,859
Average
Interest Rate
2.20%
4.37%
4.00%
December 31,
Balance
$
$
1,064,730
8,913,988
9,978,718
Weighted
Average
Interest Rate
2.01%
4.73%
4.44%
During 2015, $742,712,000 of our outstanding debt matures; we may refinance this 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.
81
Liquidity and Capital Resources – continued
Financing Activities and Contractual Obligations – continued
Below is a schedule of our contractual obligations and commitments at December 31, 2014.
(Amounts in thousands)
Contractual cash obligations (principal and interest(1)):
Notes and mortgages payable
Operating leases
Senior unsecured notes due 2019
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
________________________
(1)
Total
Less than
1 Year
1 – 3 Years
3 – 5 Years Thereafter
11,501,953 $
1,450,782
500,625
540,833
505,313
397,292
664,728
15,561,526 $
809,644 $
39,925
11,250
20,000
505,313
12,500
332,364
1,730,996 $
2,798,399 $
80,836
22,500
40,000
-
25,000
332,364
3,299,099 $
1,784,666 $
77,912
466,875
40,000
-
25,000
-
2,394,453 $
6,109,244
1,252,109
-
440,833
-
334,792
-
8,136,978
104,050 $
39,552
143,602 $
90,277 $
39,552
129,829 $
13,773 $
-
13,773 $
- $
-
- $
-
-
-
$
$
$
$
Interest on variable rate debt is computed using rates in effect at December 31, 2014.
Details of 2014 financing activities are provided in the “Overview” of Management’s Discussion and Analysis of Financial
Conditions and Results of Operations. Details of 2013 financing activities are discussed below.
Secured Debt
On February 20, 2013, we completed a $390,000,000 financing of the retail condominium located at 666 Fifth Avenue at 53rd
Street, which we had acquired in December 2012. The 10-year fixed-rate interest only loan bears interest at 3.61%. This property was
previously unencumbered. The net proceeds from this financing were approximately $387,000,000.
On March 25, 2013, we completed a $300,000,000 financing of the Outlets at Bergen Town Center, a 948,000 square foot
shopping center located in Paramus, New Jersey. The 10-year fixed-rate interest only loan bears interest at 3.56%. The property was
previously encumbered by a $282,312,000 floating-rate loan.
On June 7, 2013, we completed a $550,000,000 refinancing of Independence Plaza, a three-building 1,328 unit residential
complex in the Tribeca submarket of Manhattan. The five-year fixed-rate interest only mortgage loan bears interest at 3.48%. The
property was previously encumbered by a $323,000,000 floating-rate loan. The net proceeds of $219,000,000, after repaying the
existing loan and closing costs, were distributed to the partners, of which our share was $137,000,000.
On October 30, 2013, we completed the restructuring of the $678,000,000 (face amount) 5.74% Skyline properties mortgage loan.
The loan was separated into two tranches; a senior $350,000,000 position and a junior $328,000,000 position. The maturity date has
been extended from February 2017 to February 2022, with a one-year extension option. The effective interest rate is 2.965%. Amounts
expended to re-lease the property are senior to the $328,000,000 junior position.
On November 27, 2013, we completed a $450,000,000 refinancing of Eleven Penn Plaza, a 1.1 million square foot Manhattan
office building. The seven-year fixed-rate interest only loan bears interest at 3.95%. The net proceeds from this refinancing were
approximately $107,000,000 after repaying the existing loan and closing costs.
82
Liquidity and Capital Resources – continued
Unsecured Revolving Credit Facility
On March 28, 2013, we extended one of our two $1.25 billion revolving credit facilities from June 2015 to June 2017, with two
six-month extension options. The interest on the extended facility was reduced from LIBOR plus 135 basis points to LIBOR plus 115
basis points. In addition, the facility fee was reduced from 30 basis points to 20 basis points.
Preferred Securities
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
$290,306,000, 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).
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 May 9, 2013, we redeemed all of the outstanding 6.875% Series D-15 Cumulative Redeemable Preferred Units with an
aggregate face amount of $45,000,000 for $36,900,000 in cash, plus accrued and unpaid distributions through the date of redemption.
Acquisitions and Investments
Details of 2014 acquisitions and investments are provided in the “Overview” of Management’s Discussion and Analysis of
Financial Conditions and Results of Operations. Details of 2013 acquisitions and investments are discussed below.
650 Madison Avenue
On September 30, 2013, a joint venture, in which we have a 20.1% interest, acquired 650 Madison Avenue, a 27-story, 594,000
square foot Class A office and retail tower located on Madison Avenue between 59th and 60th Street, for $1.295 billion. The property
contains 523,000 square feet of office space and 71,000 square feet of retail space. The purchase price was funded with cash and a
new $800,000,000 seven-year 4.39% interest-only loan.
655 Fifth Avenue
On October 4, 2013, we acquired a 92.5% interest in 655 Fifth Avenue, a 57,500 square foot retail and office property located at
the northeast corner of Fifth Avenue and 52nd Street in Manhattan, for $277,500,000 in cash.
220 Central Park South
On October 15, 2013, we acquired, for $194,000,000 in cash, land and air rights for 137,000 zoning square feet thereby
completing the assemblage for our 220 Central Park South development site in Manhattan.
Other
In addition to the above, during 2013, we acquired three Manhattan street retail properties, in separate transactions, for an
aggregate of $65,300,000.
83
Liquidity and Capital Resources – continued
Certain Future Cash Requirements
Capital Expenditures
The following table summarizes anticipated 2015 capital expenditures.
(Amounts in millions, except square foot data)
Total
New York
Washington, DC
Other (2)
Expenditures to maintain assets
Tenant improvements
Leasing commissions
Total capital expenditures and leasing
commissions
$
$
130.0 $
155.0
38.0
(1) $
60.0
54.0
24.0
27.0 $
88.0
12.0
323.0 $
138.0 $
127.0 $
43.0
13.0
2.0
58.0
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
1,200
10
65.00 $
6.50 $
1,800
8
55.00
6.85
$
$
(1) Includes $15.0 related to 2014 that is expected to be expended in 2015.
(2) Primarily The Mart and 555 California Street.
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.
84
Liquidity and Capital Resources – continued
Development and Redevelopment Expenditures
On March 2, 2014, we entered into an agreement to transfer upon completion, the redeveloped Springfield Town Center, a
1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to Pennsylvania Real Estate Investment Trust (NYSE:
PEI) (“PREIT’) in exchange for $465,000,000 comprised of $340,000,000 of cash and $125,000,000 of PREIT operating partnership
units. The incremental development cost of this project was approximately $250,000,000, of which $225,000,000 has been expended
as of December 31, 2014. The redevelopment was substantially completed in October 2014 and the transfer of the property to PREIT
is expected to be completed no later than March 31, 2015.
We are in the process of redeveloping and substantially expanding the existing retail space at the Marriott Marquis Times Square
Hotel, including converting the below grade parking garage into retail, which is expected to be completed by the end of 2015. Upon
completion of the redevelopment, the retail space will include 20,000 square feet on grade and 20,000 square feet below grade. As
part of the redevelopment, we have completed the construction of a six-story, 300 foot wide block front, dynamic LED sign, which
was lit for the first time in November 2014. The incremental development cost of this project is approximately $220,000,000, of which
$170,000,000 has been expended as of December 31, 2014.
We are constructing a residential condominium tower containing 472,000 zoning square feet on our 220 Central Park South
development site. The incremental development cost of this project is approximately $1.0 billion, of which $94,000,000 has been
expended as of December 31, 2014. In January 2014, we completed a $600,000,000 loan secured by this site. On August 26, 2014, we
obtained a standby commitment for up to $500,000,000 of five-year mezzanine loan financing to fund a portion of the development
expenditures at 220 Central Park South.
We are developing The Bartlett, a 699-unit residential project in Pentagon City, which is expected to be completed in 2016. The
project will include a 37,000 square foot Whole Foods Market at the base of the building. The incremental development cost of this
project is approximately $250,000,000, of which $49,000,000 has been expended as of December 31, 2014.
We plan to redevelop an existing 165,000 square foot office building in Crystal City (2221 S. Clark Street), which we have leased
to WeWork, into approximately 250 rental residential units. The incremental development cost of this project is approximately
$40,000,000. The redevelopment is expected to be completed in the second half of 2015.
We are in the process of repositioning and re-tenanting 280 Park Avenue (50% owned). Our share of the incremental
development cost of this project is approximately $62,000,000, of which $34,700,000 was expended prior to 2014, and $22,000,000
has been expended in 2014.
We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including
the Penn Plaza District, and in Washington, including 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, or completed on schedule or within budget.
85
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, with sub-limits for certain perils such as floods. Our California properties have
earthquake insurance with coverage of $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the
affected property, up to a $180,000,000 annual aggregate. We maintain coverage for terrorism acts with limits of $4.0 billion per
occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological,
chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization Act, which
expires in December 2020.
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a
portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for
coverage for NBCR acts. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies
and the Federal government with no exposure to PPIC. For NBCR acts, PPIC is responsible for a deductible of $3,200,000 and 15%
of the balance of a covered loss (16% effective January 1, 2016) and the Federal government is responsible for the remaining 85% of a
covered loss (84% effective January 1, 2016). We are ultimately responsible for any loss incurred by PPIC.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, we
cannot anticipate what coverage will be available on commercially reasonable terms in the future.
Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured
notes and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we
have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at
reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our
ability to finance our properties and expand our portfolio.
Other Commitments and Contingencies
We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation
with legal counsel, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of
operations or cash flows.
Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental
assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of
new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in
cleanup requirements would not result in significant costs to us.
Our mortgage loans are non-recourse to us. However, in certain cases we have provided guarantees or master leased tenant space.
These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying
loans. As of December 31, 2014, the aggregate dollar amount of these guarantees and master leases is approximately $359,000,000.
At December 31, 2014, $39,552,000 of letters of credit were outstanding under one of our revolving credit facilities. Our
revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to
market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our
revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and
also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or
principal.
As of December 31, 2014, we expect to fund additional capital to certain of our partially owned entities aggregating
approximately $104,000,000.
86
Liquidity and Capital Resources – continued
Cash Flows for the Year Ended December 31, 2014
Our cash and cash equivalents were $1,198,477,000 at December 31, 2014, a $615,187,000 increase over the balance at
December 31, 2013. Our consolidated outstanding debt was $10,898,859,000 at December 31, 2014, a $920,141,000 increase over the
balance at December 31, 2013. As of December 31, 2014 and 2013, $0 and $295,870,000, respectively, was outstanding under our
revolving credit facilities. During 2015 and 2016, $742,712,000 and $1,530,311,000, respectively, of our outstanding debt matures;
we may refinance this maturing debt as it comes due or choose to repay it.
Cash flows provided by operating activities of $1,135,310,000 was comprised of (i) net income of $1,009,026,000, (ii) return of
capital from Real Estate Fund investments of $215,676,000, and (iii) distributions of income from partially owned entities of
$96,286,000, partially offset by (iv) $89,536,000 of non-cash adjustments, which include depreciation and amortization expense, the
effect of straight-lining of rental income, equity in net loss of partially owned entities and net gains on sale of real estate and (v) the
net change in operating assets and liabilities of $96,142,000, including $3,392,000 related to Real Estate Fund investments.
Net cash used in investing activities of $574,465,000 was comprised of (i) $544,187,000 of development costs and construction
in progress, (ii) $279,206,000 of additions to real estate, (iii) $211,354,000 of acquisitions of real estate and other, (iv) $120,639,000
of investments in partially owned entities, and (v) $30,175,000 of investments in mortgage and mezzanine loans receivable and other,
partially offset by (vi) $388,776,000 of proceeds from sales of real estate and related investments, (vii) $99,464,000 of changes in
restricted cash, (viii) $96,913,000 of proceeds from sales and repayments of mortgages and mezzanine loans receivable and other, and
(ix) $25,943,000 of capital distributions from partially owned entities.
Net cash provided by financing activities of $54,342,000 was comprised of (i) $2,428,285,000 of proceeds from borrowings, (ii)
$30,295,000 of contributions from noncontrolling interests, and (iii) $19,245,000 of proceeds received from exercise of employee
share options, partially offset by (iv) $1,312,258,000 for the repayments of borrowings, (v) $547,831,000 of dividends paid on
common shares, (vi) $220,895,000 of distributions to noncontrolling interests, (vii) purchase of marketable securities in connection
with the defeasance of mortgage notes payable of $198,884,000, (viii) $81,468,000 of dividends paid on preferred shares, (ix)
$58,336,000 of debt issuance and other costs, and (x) $3,811,000 for the repurchase of shares related to stock compensation
agreements and related tax withholdings.
Capital Expenditures for the Year Ended December 31, 2014
Capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions.
Recurring capital expenditures include expenditures to maintain a property’s competitive position within the market and tenant
improvements and leasing commissions necessary to re-lease expiring leases or renew or extend existing leases. Non-recurring capital
improvements include expenditures to lease space that has been vacant for more than nine months and expenditures completed in the
year of acquisition and the following two years that were planned at the time of acquisition, as well as tenant improvements and
leasing commissions for space that was vacant at the time of acquisition of a property.
87
Liquidity and Capital Resources – continued
Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to
the cash expended in the year ended December 31, 2014.
(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
Retail
Properties
Other
$
$
$
107,728 $
205,037
79,636
122,330
48,518 $
143,007
66,369
64,423
23,425 $
37,842
5,857
37,798
16,715 $
551
145
10,014
514,731
322,317
104,922
27,425
140,490
67,577
45,084
5,124
(313,746)
(205,258)
(63,283)
(9,814)
341,475 $
184,636 $
86,723 $
22,735 $
5.98 $
10.6%
6.82 $
9.1%
5.70 $
14.8%
1.63 $
7.6%
19,070
23,637
7,265
10,095
60,067
22,705
(35,391)
47,381
-
-
Development and Redevelopment Expenditures
Development and redevelopment expenditures consist of all hard and soft costs associated with the development or
redevelopment of a property, including capitalized interest, debt and operating costs, until the property is substantially completed and
ready for its intended use.
Below is a summary of development and redevelopment expenditures incurred in the year ended December 31, 2014. These
expenditures include interest of $62,787,000, payroll of $7,319,000, and other soft costs (primarily architectural and engineering fees,
permits, real estate taxes and professional fees) aggregating $67,939,000, that were capitalized in connection with the development
and redevelopment of these projects.
(Amounts in thousands)
Springfield Mall
Marriott Marquis Times Square - retail
and signage
220 Central Park South
330 West 34th Street
The Bartlett
608 Fifth Avenue
Wayne Towne Center
7 West 34th Street
Other
Total
New York
Washington, DC
Retail
Properties
$
127,467 $
- $
- $
127,467 $
112,390
78,059
41,592
38,163
20,377
19,740
11,555
94,844
544,187 $
112,390
-
41,592
-
20,377
-
11,555
27,892
213,806 $
$
-
-
-
38,163
-
-
-
45,482
83,645 $
-
-
-
-
-
19,740
-
8,048
155,255 $
Other
-
-
78,059
-
-
-
-
-
13,422
91,481
88
Liquidity and Capital Resources – continued
Cash Flows for the Year Ended December 31, 2013
Our cash and cash equivalents were $583,290,000 at December 31, 2013, a $377,029,000 decrease over the balance at December
31, 2012. Our consolidated outstanding debt was $9,978,718,000 at December 31, 2013, a $1,626,297,000 decrease over the balance
at December 31, 2012.
Cash flows provided by operating activities of $1,040,789,000 was comprised of (i) net income of $564,740,000, (ii)
$426,643,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental
income, equity in net loss of partially owned entities and net gains on sale of real estate, (iii) return of capital from Real Estate Fund
investments of $56,664,000, and (iv) distributions of income from partially owned entities of $54,030,000, partially offset by (v) the
net change in operating assets and liabilities of $61,288,000, including $37,817,000 related to Real Estate Fund investments.
Net cash provided by investing activities of $722,076,000 was comprised of (i) $1,027,608,000 of proceeds from sales of real
estate and related investments, (ii) $378,709,000 of proceeds from sales of, and return of investment in, marketable securities, (iii)
$290,404,000 of capital distributions from partially owned entities, (iv) $240,474,000 of proceeds from the sale of LNR, (v)
$101,150,000 from the return of the J.C. Penney derivative collateral, and (vi) $50,569,000 of proceeds from sales and repayments of
mortgage and mezzanine loans receivable and other, partially offset by (vii) $469,417,000 of development costs and construction in
progress, (viii) $260,343,000 of additions to real estate, (ix) $230,300,000 of investments in partially owned entities, (x) $193,417,000
of acquisitions of real estate, (xi) $186,079,000 for the funding of the J.C. Penney derivative collateral and settlement of derivative
position, (xii) $26,892,000 of changes in restricted cash, and (xiii) $390,000 of investments in mortgage and mezzanine loans
receivable and other.
Net cash used in financing activities of $2,139,894,000 was comprised of (i) $3,580,100,000 for the repayments of borrowings,
(ii) $545,913,000 of dividends paid on common shares, (iii) $299,400,000 for purchases of outstanding preferred units and shares, (iv)
$215,247,000 of distributions to noncontrolling interests, (v) $83,188,000 of dividends paid on preferred shares, (vi) $19,883,000 of
debt issuance and other costs, and (vii) $443,000 for the repurchase of shares related to stock compensation agreements and related tax
withholdings, partially offset by (viii) $2,262,245,000 of proceeds from borrowings, (ix) $290,306,000 of proceeds from the issuance
of preferred shares, (x) $43,964,000 of contributions from noncontrolling interests, and (xi) $7,765,000 of proceeds received from
exercise of employee share options.
89
Liquidity and Capital Resources – continued
Capital Expenditures in the year ended December 31, 2013
(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
Retail
Properties
Other
$
$
$
73,130 $
120,139
51,476
49,441
34,553 $
87,275
39,348
11,579
22,165 $
6,976
4,389
37,342
5,664 $
12,431
2,113
-
294,186
172,755
70,872
20,208
155,035
56,345
26,075
5,562
(150,067)
(91,107)
(36,702)
(14,011)
299,154 $
137,993 $
60,245 $
11,759 $
4.33 $
9.5%
5.89 $
8.1%
4.75 $
11.9%
1.33 $
6.6%
10,748
13,457
5,626
520
30,351
67,053
(8,247)
89,157
-
-
Development and Redevelopment Expenditures in the year ended December 31, 2013
Below is a summary of development and redevelopment expenditures incurred in the year ended December 31, 2013. These
expenditures include interest of $42,303,000, payroll of $4,534,000, and other soft costs (primarily architectural and engineering fees,
permits, real estate taxes and professional fees) aggregating $27,812,000, that were capitalized in connection with the development
and redevelopment of these projects.
(Amounts in thousands)
220 Central Park South
Springfield Mall
Marriott Marquis Times Square - retail
and signage
1290 Avenue of the Americas
Other
Total
243,687 $
68,716
New York
Washington, DC
- $ - $
- -
40,356
13,865
102,793
469,417 $
40,356 -
13,865 -
41,701
31,764
41,701 $
85,985 $
$
$
Retail
Properties
- $
68,716
-
-
25,210
93,926 $
Other
243,687
-
-
-
4,118
247,805
90
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 $11,605,015,000 at December 31, 2012, a $1,038,979,000 increase from the balance
at December 31, 2011.
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
common 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 of 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 sales of marketable securities, (xii) $52,504,000 of proceeds from the sale of the Canadian Trade Shows, (xiii)
$38,483,000 of proceeds from sales and 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, 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.
91
Liquidity and Capital Resources – continued
Capital Expenditures 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
Retail
Properties
69,912 $
169,205
56,203
17,198
27,434 $
71,572
27,573
5,822
20,582 $
41,846
11,393
10,296
4,676 $
9,052
2,368
-
Other
17,220
46,735
14,869
1,080
312,518
132,401
84,117
16,096
79,904
105,350
41,975
24,370
10,353
28,652
(170,744)
(76,283)
(43,600)
(7,754)
(43,107)
247,124 $
98,093 $
64,887 $
18,695 $
65,449
4.16 $
9.6%
5.48 $
8.8%
4.86 $
12.0%
1.04 $
5.2%
-
-
Development and Redevelopment Expenditures in the Year Ended December 31, 2012
Below is a summary of development and redevelopment expenditures incurred in the year ended December 31, 2012. These
expenditures include interest of $16,801,000, payroll of $1,412,000, and other soft costs (primarily architectural and engineering fees,
permits, real estate taxes and professional fees) aggregating $23,749,000, that were capitalized in connection with the development
and redevelopment of these projects.
(Amounts in thousands)
Springfield Mall
1290 Avenue of the Americas
Crystal Square 5
220 Central Park South
Bergen Town Center
510 Fifth Avenue
Other
Total
New York
Washington, DC
Retail
Properties
Other
$
$
18,278 $
16,778
15,039
12,191
11,404
10,206
72,977
156,873 $
- $
16,778
-
-
-
10,206
24,576
51,560 $
- $
-
15,039
-
-
-
24,295
39,334 $
18,278 $
-
-
-
11,404
-
23,864
53,546 $
-
-
-
12,191
-
-
242
12,433
92
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 $911,130,000, or $4.83 per diluted share for the year
ended December 31, 2014, compared to $641,037,000, or $3.41 per diluted share for the year ended December 31, 2013. FFO
attributable to common shareholders plus assumed conversions was a positive $230,143,000, or $1.22 per diluted share for the three
months ended December 31, 2014, compared to a negative $6,784,000, or $0.04 per diluted share for the three months ended
December 31, 2013. 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 (loss) to FFO (negative FFO):
Net income (loss) 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 loss 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
Noncontrolling interests' share of above adjustments
FFO
Preferred share dividends
Preferred unit and share redemptions
FFO (negative FFO) attributable to common shareholders
Convertible preferred share dividends
FFO (negative 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
Denominator for FFO (negative FFO) per diluted share
FFO (negative FFO) attributable to common shareholders plus
assumed conversions per diluted share
For The Year
Ended December 31,
2013
2014
For The Three Months
Ended December 31,
2013
2014
$
864,852 $
517,493
(507,192)
26,518
475,971 $
501,753
(411,593)
37,170
533,603 $
129,944
(449,396)
5,676
(48,519)
124,611
(127,512)
32,443
21,579
(760)
-
(7,287)
96,187
(10,820)
(8,073)
992,497
(81,464)
-
911,033
97
69,741
-
6,552
(26,703)
87,529
(465)
(15,089)
724,866
(82,807)
(1,130)
640,929
108
-
-
-
-
24,350
(10,820)
17,127
250,484
(20,365)
-
230,119
24
16,506
-
456
(5,937)
25,282
-
(3,746)
13,584
(20,368)
-
(6,784)
-
$
911,130 $
641,037 $
230,143 $
(6,784)
187,572
186,941
187,776
187,109
1,075
43
188,690
768
48
187,757
1,153
41
188,970
-
-
187,109
$
4.83 $
3.41 $
1.22 $
(0.04)
93
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 $674,443 and
$682,484 of Toys debt in 2014 and 2013)
Redeemable noncontrolling interests’ share of
above
Total change in annual net income
Per share-diluted
December 31,
Balance
$
$
$
$
1,840,769
9,058,090
10,898,859
319,387
1,199,835
2,754,410
4,273,632
2014
Weighted
Average
Interest Rate
2.20%
4.37%
4.00%
1.74%
6.47%
6.43%
6.09%
Effect of 1%
Change In
Base Rates
$
2013
December 31,
Balance
Weighted
Average
Interest Rate
18,408 $
-
18,408 $
1,064,730
8,913,988
9,978,718
2.01%
4.73%
4.44%
3,194 $
11,998
196,240
1,179,001
-
15,192 $
2,814,162
4,189,403
2.09%
5.45%
6.46%
5.97%
$
$
(1,949)
31,651
0.17
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, 2014, 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 $422,000,000 mortgage loan that swapped the rate from LIBOR plus 1.65% (1.81% at December 31, 2014) to a fixed
rate of 4.78% through March 2018.
Fair Value of Debt
The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the
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, 2014, the estimated fair value of our consolidated debt was $10,936,000,000.
94
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2014 and 2013
Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
Page
Number
96
97
98
99
100
103
105
95
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,
2014 and 2013, 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, 2014. 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, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2014, 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, 2014, based on the criteria established in Internal Control—
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated February 17, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 17, 2015
96
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 $17,060 and $21,869
Investments in partially owned entities
Investment in Toys "R" Us
Real Estate Fund investments
Receivable arising from the straight-lining of rents, net of allowance of $3,188 and $4,355
Deferred leasing and financing costs, net of accumulated amortization of $300,227 and $259,286
Identified intangible assets, net of accumulated amortization of $225,841 and $276,426
Assets related to discontinued operations
Other assets
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Mortgages payable
Senior unsecured notes
Revolving credit facility debt
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 - 11,356,550 and 11,292,038 units outstanding
Series D cumulative redeemable preferred units - 1 unit 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 52,678,939 and 52,682,807 shares
Common shares of beneficial interest: $.04 par value per share; authorized
250,000,000 shares; issued and outstanding 187,887,498 and 187,284,688 shares
Additional capital
Earnings less than distributions
Accumulated other comprehensive income
Total Vornado shareholders' equity
Noncontrolling interests in consolidated subsidiaries
Total equity
December 31,
2014
December 31,
2013
$
$
$
$
$
$
4,240,009
13,338,445
1,136,344
130,594
18,845,392
(3,629,135)
15,216,257
1,198,477
186,512
206,323
124,144
1,246,496
-
513,973
877,486
503,384
276,239
477,620
421,409
21,248,320
9,551,700
1,347,159
-
499,702
519,280
117,284
1,146
211
384,676
12,421,158
1,336,780
1,000
1,337,780
4,016,851
12,245,111
1,024,714
132,270
17,418,946
(3,296,717)
14,122,229
583,290
262,440
191,917
115,862
1,166,443
83,224
667,710
795,256
404,907
307,436
874,050
522,460
20,097,224
8,331,993
1,350,855
295,870
422,276
529,002
116,515
1,280
14,709
436,360
11,498,860
1,002,620
1,000
1,003,620
1,277,026
1,277,225
7,493
6,873,025
(1,505,385)
93,267
6,745,426
743,956
7,489,382
7,469
7,143,840
(1,734,839)
71,537
6,765,232
829,512
7,594,744
$
21,248,320
$
20,097,224
See notes to the consolidated financial statements.
97
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
Acquisition and transaction related costs, and impairment losses
Total expenses
Operating income
Income from Real Estate Fund
(Loss) income applicable to Toys "R" Us
Income from partially owned entities
Interest and debt expense
Interest and other investment income (loss), net
Net gain on disposition of wholly owned and partially owned assets
Income before income taxes
Income tax (expense) benefit
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
Preferred unit and share redemptions
NET INCOME attributable to common shareholders
INCOME (LOSS) PER COMMON SHARE - BASIC:
Income (loss) from continuing operations, net
Income from discontinued operations, net
Net income per common share
Weighted average shares outstanding
INCOME (LOSS) PER COMMON SHARE - DILUTED:
Income (loss) from continuing operations, net
Income from discontinued operations, net
Net income per common share
Weighted average shares outstanding
2014
Year Ended December 31,
2013
2012
$
2,110,797
$
2,081,115
$
329,398
-
195,745
2,635,940
1,064,753
536,230
185,924
-
33,391
1,820,298
815,642
163,034
(73,556)
15,425
(467,715)
38,787
13,568
505,185
(11,002)
494,183
514,843
1,009,026
(96,561)
(47,563)
(50)
864,852
(81,464)
-
301,167
36,369
250,618
2,669,269
1,030,951
515,724
196,267
32,210
43,857
1,819,009
850,260
102,898
(362,377)
23,592
(481,304)
(24,876)
3,407
111,600
6,406
118,006
446,734
564,740
(63,952)
(23,659)
(1,158)
475,971
(82,807)
(1,130)
$
783,388
$
392,034
$
1,990,784
279,075
235,234
144,124
2,649,217
988,883
490,028
190,109
226,619
25,786
1,921,425
727,792
63,936
14,859
408,267
(484,794)
(261,179)
13,347
482,228
(8,132)
474,096
220,445
694,541
(32,018)
(35,327)
(9,936)
617,260
(76,937)
8,948
549,271
$
$
$
$
1.59
2.59
4.18
$
$
(0.14)
2.24
2.10
$
$
1.83
1.12
2.95
187,572
186,941
185,810
1.58
2.57
4.15
188,690
$
$
(0.14)
2.23
2.09
187,709
$
$
1.82
1.12
2.94
186,530
See notes to consolidated financial statements.
98
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Net income
Other comprehensive income (loss):
Change in unrealized net gain (loss) on securities available-for-sale
Amounts reclassified from accumulated other comprehensive income:
Non-cash impairment loss on J.C. Penney common shares
Sale of available-for-sale securities
Pro rata share of other comprehensive income (loss) 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
2014
Year Ended December 31,
2013
2012
$
1,009,026
$
564,740
$
694,541
14,465
142,281
(283,649)
-
-
2,509
6,079
-
1,032,079
(145,497)
886,582
$
$
-
(42,404)
(22,814)
18,183
533
660,519
(94,065)
566,454
$
224,937
(3,582)
(31,758)
(5,659)
329
595,159
(70,574)
524,585
See notes to consolidated financial statements.
99
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Preferred Shares
Common Shares
Additional
Accumulated
Earnings
Less Than
Other
Non-
Comprehensive controlling
Shares
Amount
52,683 $ 1,277,225
-
-
Amount
Distributions Income (Loss)
Interests
Capital
7,143,840 $
(1,734,839) $
864,852
71,537 $
-
829,512 $
-
Total
Equity
7,594,744
864,852
(Amounts in thousands)
Balance, December 31, 2013
Net income attributable to Vornado
Net income attributable to
noncontrolling interests in
consolidated subsidiaries
Dividends on common shares
Dividends on 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
Transfer of noncontrolling interest
in Real Estate Fund
Conversion of Series A preferred
shares to common shares
Deferred compensation shares
and options
Change in unrealized net gain
on 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, 2014
Shares
187,285 $
-
-
-
-
271
304
17
-
-
-
-
-
5
5
-
-
-
-
-
-
187,887 $
-
-
-
-
-
-
-
-
-
-
-
(4)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(193)
-
-
-
-
-
-
-
-
(6)
52,679 $ 1,277,026
7,469 $
-
-
-
-
11
12
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(547,831)
(81,464)
27,262
17,428
1,803
-
(3,393)
-
-
-
-
-
-
193
-
-
-
-
-
-
5,852
(340)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
96,561
-
-
96,561
(547,831)
(81,464)
-
-
-
5,297
32,998
27,273
14,047
1,804
5,297
32,998
-
-
(182,964)
(4,463)
(182,964)
(4,463)
-
(33,028)
(33,028)
-
-
2,509
6,079
-
-
-
-
-
-
5,512
14,465
2,509
6,079
-
14,465
-
(315,276)
-
-
(315,276)
-
-
7,493 $
-
(8,077)
6,873,025 $
-
(2,370)
(1,505,385) $
(1,323)
-
93,267 $
-
43
743,956 $
(1,323)
(10,410)
7,489,382
See notes to consolidated financial statements.
100
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED
(Amounts in thousands)
Preferred Shares
Common Shares
Additional
Accumulated
Earnings
Less Than
Other
Non-
Comprehensive controlling
Amount
Distributions Income (Loss)
Interests
Capital
7,195,438 $
(1,573,275) $
475,971
(18,946) $ 1,053,209 $
-
-
Total
Equity
7,904,144
475,971
Shares
Amount
Balance, December 31, 2012
Net income attributable to Vornado
Net income attributable to
noncontrolling interests in
consolidated subsidiaries
Dividends on common shares
Dividends on preferred shares
Issuance of Series L preferred shares
Redemption of Series F and Series H
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 gain
on securities available-for-sale
Amounts reclassified related to sale
of available-for-sale securities
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
Preferred unit and share
redemptions
Deconsolidation of partially
owned entity
Consolidation of partially
owned entity
Other
Balance, December 31, 2013
51,185 $ 1,240,278
-
-
-
-
-
12,000
-
-
-
290,306
(10,500)
(253,269)
-
-
-
-
-
-
-
-
(2)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(90)
-
-
-
-
-
-
-
-
-
-
-
-
-
52,683 $ 1,277,225
Shares
186,735 $
-
-
-
-
-
-
299
104
22
128
-
-
-
-
3
(6)
-
-
-
-
-
-
-
-
-
-
187,285 $
7,440 $
-
-
-
-
-
-
12
23
1
5
-
-
-
-
-
-
-
-
-
-
-
25,305
5,892
1,850
11,456
-
-
-
-
90
-
-
-
-
-
-
-
-
-
(108,252)
-
-
-
-
-
-
(12)
9,589
(307)
-
(545,913)
(82,807)
-
-
-
(107)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
63,952
-
-
-
63,952
(545,913)
(82,807)
290,306
-
(253,269)
-
-
-
-
28,078
15,886
25,317
5,808
1,851
11,461
28,078
15,886
-
-
(47,268)
(133,153)
(47,268)
(133,153)
-
-
142,281
(42,404)
-
-
-
-
9,270
142,281
(42,404)
(22,814)
18,183
-
-
(22,814)
18,183
-
-
(108,252)
(1,130)
-
(5,296)
-
-
(5,296)
(1,130)
-
-
(165,427)
(165,427)
-
-
7,469 $
-
2,472
7,143,840 $
-
(7,271)
(1,734,839) $
-
533
71,537 $
16,799
(2,564)
829,512 $
16,799
(6,830)
7,594,744
See notes to consolidated financial statements.
101
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED
Preferred Shares
Common Shares
Additional
Accumulated
Earnings
Less Than
Other
Non-
Comprehensive controlling
Amount
Distributions Income (Loss)
Interests
Capital
7,127,258 $
(1,401,704) $
617,260
73,729 $
-
680,131 $
-
Total
Equity
7,508,447
617,260
(Amounts in thousands)
Balance, December 31, 2011
Net income attributable to Vornado
Net income attributable to
noncontrolling interests in
consolidated subsidiaries
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
Non-cash impairment loss on
J.C. Penney common shares
Amounts reclassified related to sale
of available-for-sale securities
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
Preferred unit and share
redemptions
Consolidation of partially owned
entity
Other
Balance, December 31, 2012
Shares
Amount
42,187 $ 1,021,660
-
-
-
-
-
12,000
-
-
-
290,971
(3,000)
(72,248)
-
-
-
-
-
-
-
-
(2)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(105)
-
-
-
-
-
-
-
-
-
-
-
-
-
51,185 $ 1,240,278
Shares
185,080 $
-
-
-
-
-
-
1,121
434
29
64
-
-
-
-
3
4
-
-
-
-
-
-
-
-
-
-
186,735 $
7,373 $
-
-
-
-
-
-
45
18
1
3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
89,717
9,521
2,306
5,121
-
-
-
-
105
-
-
-
-
-
-
(52,117)
-
-
-
-
7,440 $
-
-
-
-
7,195,438 $
-
(699,318)
(76,937)
-
-
-
(16,389)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
32,018
-
-
-
32,018
(699,318)
(76,937)
290,971
-
(72,248)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
195,029
18,103
-
-
-
-
(48,138)
(59)
-
-
89,762
(6,850)
2,307
5,124
195,029
18,103
(48,138)
(59)
-
13,054
(283,649)
-
(283,649)
224,937
(3,582)
(31,758)
(5,659)
-
6,707
-
-
-
-
-
-
-
224,937
(3,582)
(31,758)
(5,659)
(52,117)
6,707
8,948
8,948
-
-
(4,662)
(1,573,275) $
-
329
176,132
(7)
(18,946) $ 1,053,209 $
176,132
(4,340)
7,904,144
13,527
(473)
See notes to consolidated financial statements.
102
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)
Net gains on sale of real estate
Return of capital from Real Estate Fund investments
Net realized and unrealized gains on Real Estate Fund investments
Distributions of income from partially owned entities
Straight-lining of rental income
Equity in net loss (income) of partially owned entities, including Toys “R” Us
Amortization of below-market leases, net
Other non-cash adjustments
Impairment losses and tenant buy-outs
Net gain on disposition of wholly owned and partially owned assets
Defeasance cost in connection with the refinancing of mortgage notes payable
Losses from the disposition of investment in J.C. Penney
Gain on sale of Canadian Trade Shows
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:
Development costs and construction in progress
Additions to real estate
Proceeds from sales of real estate and related investments
Acquisitions of real estate and other
Investments in partially owned entities
Restricted cash
Proceeds from sales and repayments of mortgage and mezzanine loans
receivable and other
Investments in mortgage and mezzanine loans receivable and other
Distributions of capital from partially owned entities
Proceeds from sales of, and return of investment in, marketable securities
Proceeds from the sale of LNR
Funding of J.C. Penney derivative collateral; and settlement of derivative in 2013
Return of J.C. Penney derivative collateral
Proceeds from the sale of Canadian Trade Shows
Proceeds from the repayment of loan to officer
Net cash (used in) provided by investing activities
Year Ended December 31,
2013
2014
2012
$
1,009,026 $
564,740
$
694,541
583,408
(507,192)
215,676
(150,139)
96,286
(82,800)
58,131
(46,786)
37,303
26,518
(13,568)
5,589
-
-
(3,392)
(8,282)
(8,786)
(123,435)
44,628
3,125
1,135,310
(544,187)
(279,206)
388,776
(211,354)
(120,639)
99,464
96,913
(30,175)
25,943
-
-
-
-
-
-
(574,465)
561,998
(414,502)
56,664
(85,771)
54,030
(69,391)
338,785
(52,876)
41,663
37,170
(3,407)
-
72,974
-
(37,817)
83,897
(2,207)
(50,856)
(41,729)
(12,576)
1,040,789
(469,417)
(260,343)
1,027,608
(193,417)
(230,300)
(26,892)
50,569
(390)
290,404
378,709
240,474
(186,079)
101,150
-
-
722,076
557,888
(245,799)
63,762
(55,361)
226,172
(69,648)
(423,126)
(54,359)
52,082
133,977
(13,347)
-
300,752
(31,105)
(262,537)
(23,271)
(10,549)
(46,573)
21,595
9,955
825,049
(156,873)
(205,652)
445,683
(673,684)
(134,994)
(75,138)
38,483
(94,094)
144,502
60,258
-
(191,330)
134,950
52,504
13,123
(642,262)
See notes to consolidated financial statements.
103
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2013
2014
2012
(Amounts in thousands)
Cash Flows from Financing Activities:
Proceeds from borrowings
Repayments of borrowings
Dividends paid on common shares
Distributions to noncontrolling interests
Purchase of marketable securities in connection with the defeasance of mortgage
notes payable
Dividends paid on preferred shares
Debt issuance and other costs
Contributions from noncontrolling interests
Proceeds received from exercise of employee share options
Repurchase of shares related to stock compensation agreements and related
tax withholdings
Purchases of outstanding preferred units and shares
Proceeds from the issuance of preferred shares
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 $53,139, $42,303 and $16,801)
Cash payments for income taxes
Non-Cash Investing and Financing Activities:
Like-kind exchange of real estate:
Acquisitions
Dispositions
Adjustments to carry redeemable Class A units at redemption value
Marketable securities transferred in connection with the defeasance of mortgage
notes payable
Defeasance of mortgage notes payable
Write-off of fully depreciated assets
Accrued capital expenditures included in accounts payable and accrued expenses
Elimination of a mortgage and mezzanine loan asset and liability
Transfer of interest in Real Estate Fund to unconsolidated joint venture
Transfer of noncontrolling interest in Real Estate Fund
Beverly Connection seller financing
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
$
$
$
$
$
2,428,285 $
2,262,245 $
(1,312,258)
(547,831)
(220,895)
(3,580,100)
(545,913)
(215,247)
(198,884)
(81,468)
(58,336)
30,295
19,245
-
(83,188)
(19,883)
43,964
7,765
(3,811)
-
-
54,342
615,187
583,290
1,198,477 $
(443)
(299,400)
290,306
(2,139,894)
(377,029)
960,319
583,290 $
3,593,000
(2,747,694)
(699,318)
(104,448)
-
(73,976)
(39,073)
213,132
11,853
(30,168)
(243,300)
290,971
170,979
353,766
606,553
960,319
443,538 $
465,260 $
491,869
11,696 $
9,023 $
21,709
606,816 $
(630,352)
(315,276)
66,076 $
(128,767)
(108,252)
230,913
(230,913)
(52,117)
198,884
(193,406)
(121,673)
100,528
59,375
(58,564)
(33,028)
13,620
-
-
-
-
-
-
-
-
-
-
-
(77,106)
72,042
-
-
-
-
79,253
-
-
-
-
-
-
-
-
(177,367)
80,350
-
-
-
-
-
(163,144)
35,000
240,000
(240,000)
342,919
334,225
(852,166)
(322,903)
-
-
See notes to consolidated financial statements.
104
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 94.1% of the common limited partnership interest in the Operating Partnership
at December 31, 2014. All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its
consolidated subsidiaries, including the Operating Partnership.
On January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers,
three malls, a warehouse park and $225 million of cash to Urban Edge Properties (“UE”) (NYSE: UE). As part of this transaction, we
received 5,712,000 UE operating partnership units (5.4% ownership interest). We are providing transition services to UE for an initial
period of up to two years, including information technology, human resources, tax and public reporting. UE is providing us with
leasing and property management services for (i) the Monmouth Mall, (ii) certain small retail properties which did not fit UE’s
strategy that we plan to sell, and (iii) our affiliate, Alexander’s, Inc. (NYSE: ALX), Rego Park retail assets. Steven Roth, our
Chairman and Chief Executive Officer is a member of the Board of Trustees of UE. The spin-off distribution was effected by
Vornado distributing one UE common share for every two Vornado common shares. Beginning in the first quarter of 2015, the
historical financial results of UE will be reflected in our consolidated financial statements as discontinued operations for all periods
presented.
We currently own all or portions of:
New York:
•
•
20.1 million square feet of Manhattan office space in 31 properties;
2.5 million square feet of Manhattan street retail space in 56 properties;
• Four residential properties containing 1,654 units;
• 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:
•
16.1 million square feet of office space in 59 properties;
• Seven residential properties containing 2,414 units;
Other Real Estate and Related Investments:
• The 3.6 million square foot 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 real estate fund. We are the general partner and investment manager of the
fund;
• A 32.6% interest in Toys “R” Us, Inc.; and
• Other real estate and related investments.
105
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 its consolidated subsidiaries, including
the Operating Partnership. All inter-company amounts have been eliminated. 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, 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 April 2014, the Financial Accounting Standards Board (“FASB”) issued an update (“ASU 2014-08”) Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity to ASC Topic 205, Presentation of Financial Statements and
ASC Topic 360, Property Plant and Equipment. Under ASU 2014-08, only disposals that represent a strategic shift that has (or will
have) a major effect on the entity’s results and operations would qualify as discontinued operations. In addition, ASU 2014-08
expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose
information about disposals of individually significant components that do not meet the definition of discontinued operations. ASU
2014-08 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2014. Upon adoption of this
standard, individual properties sold in the ordinary course of business are not expected to qualify as discontinued operations. The
financial results of our strip shopping centers and malls, which were spun off to UE on January 15, 2015, will be treated as a
discontinued operation in the first quarter of 2015.
In May 2014, the FASB issued an update ("ASU 2014-09") establishing ASC Topic 606, Revenue from Contracts with
Customers. ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from
contracts with customers and supersedes most of the existing revenue recognition guidance. ASU 2014-09 requires an entity to
recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. ASU 2014-09 is
effective for interim and annual reporting periods in fiscal years that begin after December 15, 2016. We are currently evaluating the
impact of the adoption of ASU 2014-09 on our consolidated financial statements.
In June 2014, the FASB issued an update (“ASU 2014-12”) to ASC Topic 718, Compensation – Stock Compensation. ASU
2014-12 requires an entity to treat performance targets that can be met after the requisite service period of a share based award has
ended, as a performance condition that affects vesting. ASU 2014-12 is effective for interim and annual reporting periods in fiscal
years that begin after December 15, 2015. We are currently evaluating the impact of the adoption of ASU 2014-12 on our
consolidated financial statements.
106
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Basis of Presentation and Significant Accounting Policies - continued
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 net book value of the existing property, exceeds the estimated fair value of redeveloped property, the excess is
charged to expense. Depreciation is recognized 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 and debt expense capitalized during construction of $62,786,000 and $42,303,000 for
the years ended December 31, 2014 and 2013, 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, 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, acquired in-place leases and tenant relationships) 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.
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 impairment losses, acquisition related costs and tenant buy-outs in the years ended December 31,
2014, 2013 and 2012.
(Amounts in thousands)
Impairment losses
Acquisition related costs
For the Year Ended December 31,
2013
2012
2014
$
$
-
33,391
33,391
$
$
19,000
24,857 (1)
43,857
$
$
14,538
11,248
25,786
(1) Includes a $10,949 prepayment penalty in connection with the repayment of the mortgage loan upon the acquisition of 655 Fifth
Avenue.
107
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Basis of Presentation and Significant 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 (i) the power to
direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) 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, 2014, 2013 and 2012, we recognized non-cash
impairment losses on investments in partially owned entities, aggregating $85,459,000, $281,098,000 and $44,936,000, respectively.
Included in these amounts are $75,196,000, $240,757,000 and $40,000,000 of impairment losses related to our investment in Toys in
2014, 2013 and 2012, 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 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. Mortgage and mezzanine loans receivable are included in
“other assets” on our consolidated balance sheets.
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 for the purposes of facilitating a Section 1031
Like-Kind exchange, cash restricted in connection with our deferred compensation plan and cash escrowed under loan agreements for
debt service, real estate taxes, property insurance and capital improvements.
108
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Basis of Presentation and Significant Accounting Policies – continued
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, 2014 and
2013, we had $17,060,000 and $21,869,000, respectively, in allowances for doubtful accounts. In addition, as of December 31, 2014
and 2013, we had $3,188,000 and $4,355,000, 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.
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 was
recognized as the related services were performed under the respective agreements using the criteria set forth in ASC 605-25,
Multiple Element Arrangements.
109
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, 2014 and 2013, our derivative instruments consisted of 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 Taxes: We operate in a manner intended to enable us to continue to qualify as a REIT under Sections 856-860 of the
Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income
as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable
income which is distributed to its shareholders. We distribute to our shareholders 100% of our taxable income and therefore, no
provision for Federal income taxes is required. Dividends distributed for the years ended December 31, 2014 and 2013, were
characterized, for federal income tax purposes, as ordinary income. Dividend distributions for the year ended December 31, 2012,
were characterized, for Federal income tax purposes, as 62.7% ordinary income and 37.3% long-term capital gain.
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 $10,777,000, $9,608,000 and $20,336,000 for the years ended December 31, 2014, 2013 and 2012,
respectively, and have immaterial differences between the financial reporting and tax basis of assets and liabilities.
At December 31, 2014 and 2013, we had deferred tax assets from our taxable REIT subsidiaries of $94,100,000 and $87,800,000,
respectively, against which we have recorded a full valuation allowance because we have not determined that it is more likely than not that
we will realize these net operating loss carryforwards which expire in 2034. The year over year change in the valuation allowance relates to
an increase in the net operating loss carryforwards.
The following table reconciles net income attributable to common shareholders to estimated taxable income for the years ended
December 31, 2014, 2013 and 2012.
(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
Other, net
Estimated taxable income (unaudited)
For the Year Ended December 31,
2013
2012
2014
$
783,388
$
392,034
$
549,271
219,403
-
(77,526)
71,960
(9,566)
(477,061)
-
1,260
511,858
$
155,401
37,236
(64,811)
339,376
4,884
(324,936)
31,578
4,608
575,370
$
205,155
211,328
(64,679)
(60,049)
(28,701)
(123,905)
71,228
17,080
776,728
$
The net basis of our assets and liabilities for tax reporting purposes is approximately $3.6 billion lower than the amounts reported in our
consolidated balance sheet at December 31, 2014.
110
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Vornado Capital Partners Real Estate Fund (the “Fund”)
We are the general partner and investment manager of the Fund, which has an eight-year term and a three-year investment period
that ended in July 2013. During the investment period, the Fund was our exclusive investment vehicle for all investments that fit
within its investment parameters, as defined. The Fund is accounted for under the AICPA Investment Company Guide and its
investments are reported on its balance sheet at fair value, with changes in value each period recognized in earnings. We consolidate
the accounts of the Fund into our consolidated financial statements, retaining the fair value basis of accounting.
On June 26, 2014, the Fund sold its 64.7% interest in One Park Avenue to a newly formed joint venture that we and an
institutional investor own 55% and 45%, respectively (see Note 6 - Investments in Partially Owned Entities - One Park Avenue). This
transaction was based on a property value of $560,000,000. From the inception of this investment through its disposition, the Fund
realized a $75,529,000 net gain.
On August 21, 2014, the Fund and its 50% joint venture partner completed the sale of The Shops at Georgetown Park, a 305,000
square foot retail property, for $272,500,000. From the inception of this investment through its disposition, the Fund realized a
$51,124,000 net gain.
On January 20, 2015, we co-invested with the Fund and one of the Fund’s limited partners to buy out the Fund’s joint venture
partner’s 57% interest in the Crowne Plaza Times Square Hotel. The purchase price for the 57% interest was approximately
$95,000,000 (our share $39,000,000) which valued the property at approximately $480,000,000. The property is encumbered by a
newly placed $310,000,000 mortgage loan bearing interest at LIBOR plus 2.80% and maturing in December 2018 with a one-year
extension option. Our aggregate ownership interest in the property increased to 33% from 11%.
At December 31, 2014, the Fund had seven investments with an aggregate fair value of $513,973,000, or $176,899,000 in excess
of cost, and had remaining unfunded commitments of $144,123,000, of which our share was $36,031,000. At December 31, 2013, the
Fund had nine investments with an aggregate fair value of $667,710,000.
Below is a summary of income from the Fund for the years ended December 31, 2014, 2013 and 2012:
(Amounts in thousands)
For the Year Ended December 31,
2013
2012
2014
Net investment income
Net realized gains
Net unrealized gains
Income from Real Estate Fund
Less income attributable to noncontrolling interests
Income from Real Estate Fund attributable to Vornado (1)
$
$
12,895 $
76,337
73,802
163,034
(92,728)
70,306 $
8,943 $
8,184
85,771
102,898
(53,427)
49,471 $
8,575
-
55,361
63,936
(39,332)
24,604
(1) Excludes $2,865, $2,992, and $3,278 of management and leasing fees in the years ended December 31, 2014, 2013 and 2012, respectively,
which are included as a component of "fee and other income" on our consolidated statements of income.
4. Acquisitions
On August 1, 2014, we acquired the land under our 715 Lexington Avenue retail property located on the Southeast corner of 58th
Street and Lexington Avenue in Manhattan, for $63,000,000.
On October 28, 2014, we completed the purchase of the retail condominium of the St. Regis Hotel for $700,000,000. We own a
74.3% controlling interest of the joint venture which owns the property. The acquisition was used in a like-kind exchange for income
tax purposes for the sale of 1740 Broadway (see Note 8 – Dispositions). We consolidate the accounts of the venture into our
consolidated financial statements from the date of acquisition.
On November 21, 2014, we entered into an agreement to acquire the Center Building, an eight story 437,000 square foot office
building, located at 33-00 Northern Boulevard in Long Island City, New York. The building is 98% leased. The purchase price is
approximately $142,000,000, including the assumption of an existing $62,000,000 4.43% mortgage maturing in October 2018. The
purchase is expected to close in the first quarter of 2015, subject to customary closing conditions. As of December 31, 2014, our
$14,200,000 non-refundable deposit was included in “other assets” on our consolidated balance sheet.
On January 20, 2015, we co-invested with our 25% owned Fund and one of the Fund’s limited partners to acquire the Fund’s joint
venture partner’s 57% interest in the Crowne Plaza Times Square Hotel (see Note 3 – Vornado Capital Partners Real Estate Fund).
111
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 income (loss).” 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.
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.
Below is a summary of our marketable securities portfolio as of December 31, 2014 and 2013.
Equity securities:
Lexington Realty Trust
Other
As of December 31, 2014
GAAP
Cost
Unrealized
Gain
Fair Value
As of December 31, 2013
GAAP
Cost
Unrealized
Gain
Fair Value
$
$
202,789 $
3,534
206,323 $
72,549 $
-
72,549 $
130,240 $
3,534
133,774 $
188,567 $
3,350
191,917 $
72,549 $
59
72,608 $
116,018
3,291
119,309
Investment in Lexington Realty Trust (“Lexington”) (NYSE: LXP)
From the inception of our investment in Lexington in 2008, until the first quarter of 2013, we accounted for our investment under
the equity method because of our ability to exercise significant influence over Lexington’s operating and financial policies. As a result
of Lexington’s common share issuances, our ownership interest was reduced over time from approximately 17.2% to 8.8% at March
31, 2013. In the first quarter of 2013, we concluded that we no longer have the ability to exercise significant influence over
Lexington’s operating and financial policies, and began accounting for this investment as a marketable equity security – available for
sale, in accordance with ASC Topic 320, Investments – Debt and Equity Securities.
Investment in J.C. Penney Company, Inc. (“J.C. Penney”) (NYSE: JCP)
In the first quarter of 2013, we wrote down 8,584,010 J.C. Penney common shares we owned to fair value, based on J.C. Penney’s
March 31, 2013 closing share price of $15.11 per share, and recorded a $39,487,000 impairment loss. On September 19, 2013, we
settled a forward contract and received 4,815,990 J.C. Penney common shares. In connection therewith, we recognized a $33,487,000
loss from the mark-to-market of the derivative position through its settlement date. These losses are included in “interest and other
investment income (loss), net” on our consolidated statements of income.
In March 2013 and September 2013, we sold an aggregate of 23,400,000 J.C. Penney common shares at a price of $14.29 per
share, or $334,500,000, resulting in a net loss of $54,914,000. The net losses resulting from these sales are included in “net gain on
disposition of wholly owned and partially owned assets” on our consolidated statements of income.
Other Investments
During 2013 and 2012, we sold other marketable securities for aggregate proceeds of $44,209,000 and $58,718,000, respectively,
resulting in net gains of $31,741,000 and $3,582,000, 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.
112
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Investments in Partially Owned Entities
Toys “R” Us (“Toys”)
As of December 31, 2014, we own 32.6% of Toys. We account for our investment in Toys under the equity method and record
our 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. The business of Toys is highly seasonal and substantially all of Toys’ net income is
generated in its fourth quarter.
We have not guaranteed any of Toys’ obligations and are not committed to provide any support to Toys. Pursuant to ASC 323-
10-35-20, we discontinued applying the equity method for our Toys’ investment when the carrying amount was reduced to zero in the
third quarter of 2014. We will resume application of the equity method if during the period the equity method was suspended our
share of unrecognized net income exceeds our share of unrecognized net losses.
In the first quarter of 2013, we recognized our share of Toys’ fourth quarter net income of $78,542,000 and a corresponding non-
cash impairment loss of the same amount to continue to carry our investment at fair value.
At December 31, 2013, we estimated that the fair value of our investment in Toys was approximately $80,062,000 ($83,224,000
including $3,162,000 for our share of Toys’ accumulated other comprehensive income), or $162,215,000 less than the carrying
amount after recognizing our share of Toys’ third quarter net loss in our fourth quarter. In determining the fair value of our
investment, we considered, among other inputs, a December 31, 2013 third-party valuation of Toys. As of December 31, 2013, we
have concluded that the decline in the value of our investment was “other-than-temporary” based on, among other factors, Toys’ 2013
holiday sales results, compression of earnings multiples of comparable retailers and our inability to forecast a recovery in the near
term. Accordingly, we recognized an additional non-cash impairment loss of $162,215,000 in the fourth quarter of 2013.
In the first quarter of 2014, we recognized our share of Toys’ fourth quarter net income of $75,196,000 and a corresponding non-
cash impairment loss of the same amount to continue to carry our investment at fair value.
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 (1)
Balance as of
November 1, 2014
November 2, 2013
$
11,267,000 $
10,377,000
82,000
808,000
11,756,000
10,437,000
75,000
1,244,000
Income Statement:
Total revenues
Net (loss) income attributable to Toys
November 1, 2014
For the Twelve Months Ended
November 2, 2013
October 27, 2012
$
12,645,000
(343,000)
$
13,046,000 $
(396,000)
13,698,000
138,000
(1)
At December 31, 2014, the carrying amount of our investment in Toys is less than our share of Toys' equity by approximately
$263,455. This basis difference results primarily from non-cash impairment losses aggregating $355,953 that we have recognized
through December 31, 2014. We have allocated the basis difference primarily to Toys' real estate, which is being amortized over its
remaining estimated useful life.
Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX)
As of December 31, 2014, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common
equity. We manage, lease and develop Alexander’s properties pursuant to agreements which expire in March of each year and are
automatically renewable.
113
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Investments in Partially Owned Entities – continued
Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX) - continued
As of December 31, 2014 the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s, based on
Alexander’s December 31, 2014 closing share price of $437.18, was $723,125,000, or $591,509,000 in excess of the carrying amount
on our consolidated balance sheet. As of December 31, 2014, 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 $42,048,000. 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, Leasing and Development Agreements
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 revenue 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) $280,000, 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.
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, and 1% of gross proceeds, as defined, for asset sales of
$50,000,000 or more. The total of these amounts was 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% (1.58% at December 31, 2014).
On December 22, 2014, the leasing agreements with Alexander’s were amended to eliminate the annual installment cap of
$4,000,000. In addition, Alexander’s repaid to us the outstanding balance of $40,353,000.
On January 15, 2015, we completed the spin-off of 79 strip shopping centers, three malls, a warehouse park and $225,000,000 of
cash to UE and the transfer of all of the employees responsible for the management and leasing of those assets. In addition, we
entered into agreements with UE to provide management and leasing services, on our behalf, for Alexander’s Rego Park retail assets.
Fees for these services are similar to the fees we are receiving from Alexander’s described above.
Other Agreements
Building Maintenance Services (“BMS”), our wholly-owned subsidiary, supervises (i) cleaning, engineering and security services
at Alexander’s 731 Lexington Avenue property and (ii) security services at Alexander’s Rego Park I and Rego Park II properties, for
an annual fee of the costs for such services plus 6%. During the years ended December 31, 2014, 2013 and 2012, we recognized
$2,318,000, $2,036,000 and $2,362,000 of income, respectively, under these agreements.
Below is a summary of Alexander’s latest available financial information:
(Amounts in thousands)
Balance Sheet:
Assets
Liabilities
Stockholders' equity
$
Balance as of December 31,
2014
2013
$
1,423,000
1,075,000
348,000
1,458,000
1,124,000
334,000
Income Statement:
Total revenues
Net income attributable to Alexander’s (1)
For the Year Ended December 31,
2013
2012
2014
$
201,000
68,000
$
196,000 $
57,000
191,000
674,000
(1) 2012 includes a $600,000 net gain on sale of real estate.
114
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Investments in Partially Owned Entities – continued
LNR Property LLC (“LNR”)
In January 2013, we and the other equity holders of LNR entered into a definitive agreement to sell LNR for $1.053 billion, of
which our share of the net proceeds was $240,474,000. The definitive agreement provided that LNR would not (i) make any cash
distributions to the equity holders, including us, through the completion of the sale, which occurred on April 19, 2013, and (ii) take
any of the following actions (among others) without the purchaser’s approval, the lending or advancing of any money, the acquisition
of assets in excess of specified amounts, or the issuance of equity interests. Notwithstanding the terms of the definitive agreement, in
accordance with GAAP, we recorded our pro rata share of LNR’s earnings on a one-quarter lag basis through the date of sale, which
increased the carrying amount of our investment in LNR above our share of the net sales proceeds and resulted in us recognizing a
$27,231,000 “other-than-temporary” impairment loss on our investment in the three months ended March 31, 2013.
One Park Avenue
On June 26, 2014, we invested an additional $22,700,000 to increase our ownership in One Park Avenue to 55.0% from 46.5%
through a joint venture with an institutional investor, who increased its ownership interest to 45.0% (see Note 3 – Vornado Capital
Partners Real Estate Fund). The transaction was based on a property value of $560,000,000. The property is encumbered by a
$250,000,000 interest-only mortgage loan that bears interest at 4.995% and matures in March 2016. We account for our investment in
the joint venture under the equity method because we share control over major decisions with our joint venture partner.
61 Ninth Avenue
On July 23, 2014, a joint venture in which we are a 50.1% partner entered into a 99-year ground lease for 61 Ninth Avenue
located on the Southwest corner of Ninth Avenue and 15th Street in Manhattan. The venture’s current plans are to construct an office
building, with retail at the base, of approximately 130,000 square feet. Total development costs are currently estimated to be
approximately $125,000,000. We account for our investment in the joint venture under the equity method because we share control
over major decisions with our joint venture partner.
The following is a summary of condensed combined financial information for all of our partially owned entities, including Toys,
Alexander’s and LNR (sold in April 2013), as of December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013 and
2012.
(Amounts in thousands)
Balance Sheet:
Assets
Liabilities
Noncontrolling interests
Equity
Income Statement:
Total revenue
Net (loss) income(1)
(1) 2012 includes a $600,000 net gain on sale of real estate.
$
Balance as of December 31,
2014
2013
21,773,000
21,389,000 $
17,986,000
17,982,000
104,000
96,000
3,299,000
3,695,000
For the Year Ended December 31,
2013
14,092,000 $
(368,000)
2014
13,620,000 $
(434,000)
2012
15,119,000
1,091,000
$
115
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Investments in Partially Owned Entities - continued
Below are schedules summarizing our investments in, and income from, partially owned entities.
(Amounts in thousands)
Investments:
Toys
Alexander’s
India real estate ventures
Partially owned office buildings (1)
Other investments (2)
Percentage
Ownership at
December 31, 2014
32.6%
32.4%
4.1%-36.5%
Various
Various
As of December 31,
2014
-
131,616
76,752
760,749
277,379
1,246,496
$
$
$
2013
83,224
167,785
88,467
621,294
288,897
1,166,443
$
$
$
______________________________________________________
(1)
Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and
others.
(2)
Includes interests in Independence Plaza, Monmouth Mall, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others.
(Amounts in thousands)
Our Share of Net (Loss) Income:
Toys:
Equity in net (loss) earnings
Non-cash impairment losses (see page 113 for details)
Management fees
Alexander's:
Equity in net income
Management, leasing and development fees
Net gain on sale of real estate
India real estate ventures (1)
Partially owned office buildings (2)
Other investments (3)
LNR (see page 115 for details):
Equity in net income
Impairment loss
Net gain on sale
Lexington (see page 112 for details): (4)
Equity in net loss
Net gain resulting from Lexington's stock issuance and asset
acquisition
Percentage
Ownership at
December 31, 2014
For the Year Ended December 31,
2012
2013
2014
32.6%
$
$
32.4%
$
(4,691) $
(75,196)
6,331
(73,556) $
(128,919) $
(240,757)
7,299
(362,377) $
45,267
(40,000)
9,592
14,859
21,287 $
8,722
-
30,009
17,721 $
6,681
-
24,402
24,709
13,748
179,934
218,391
4.1%-36.5%
(8,309)
(3,533)
(5,008)
Various
Various
n/a
n/a
93
(4,212)
(3,770)
(6,368)
(10,817)
103,644
-
-
-
-
-
-
-
42,186
(27,231)
3,776
18,731
(979)
-
(979)
66,270
-
-
66,270
(23)
28,763
28,740
______________________________________________________
(1)
(2)
(3)
Includes a $5,771 non-cash impairment loss in 2014.
Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others.
Includes interests in Independence Plaza, Monmouth Mall, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others. In the
third quarter of 2014, we recognized a $10,263 non-cash charge, comprised of a $5,959 impairment loss and a $4,304 loan loss reserve, on
our equity and debt investments in Suffolk Downs.
(4)
In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale.
$
15,425 $
23,592 $
408,267
116
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, 2014 and 2013, none of which is recourse to us.
(Amounts in thousands)
Toys:
Notes, loans and mortgages payable
Alexander's:
Mortgages payable
Partially owned office buildings(1):
Mortgages payable
India Real Estate Ventures:
TCG Urban Infrastructure Holdings mortgages
payable
Other(2):
Mortgages payable
Percentage
Ownership at
December 31,
2014
Maturity
Interest
Rate at
December 31,
2014
100% Partially Owned Entities’
Debt at December 31,
2013
2014
32.6%
2015-2021
7.23%
$
5,748,350 $
5,702,247
32.4%
2015-2021
2.59%
$
1,032,780 $
1,049,959
Various
2015-2023
5.59%
$
3,691,274 $
3,622,759
25.0%
2015-2026
13.25%
$
183,541 $
199,021
Various
2015-2023
4.33%
$
1,480,485 $
1,709,509
(1)
(2)
Includes 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue and others.
Includes Independence Plaza, Monmouth Mall, Fashion Center Mall, 50-70 West 93rd Street 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 $4,273,632,000 and $4,189,403,000 as of December 31, 2014 and 2013, respectively.
7. Mortgage and Mezzanine Loans Receivable
In October 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 had an interest rate of LIBOR plus
10.2%, with a LIBOR floor of 1.0%. Of the $475,000,000, we funded $93,750,000, representing our 25% share of the $375,000,000
that was funded at acquisition. In March 2013, we transferred at par, the 25% participation in the mortgage loan. The transfer did not
qualify for sale accounting given our continuing interest in the mezzanine loan. Accordingly, we continued to include the 25%
participation in the mortgage loan in “other assets” and recorded a $59,375,000 liability in “other liabilities” on our consolidated
balance sheet as of December 31, 2013. On January 14, 2014, the mortgage and mezzanine loans were repaid; accordingly, the
$59,375,000 asset and liability were eliminated.
On April 17, 2013, a $50,091,000 mezzanine loan that was scheduled to mature in August 2015, was repaid. In connection
therewith, we received net proceeds of $55,358,000, including prepayment penalties, which resulted in income of $5,267,000, which
is included in “interest and other investment income (loss), net” on our consolidated statement of income.
In March 2014, a $30,000,000 mezzanine loan that was scheduled to mature in January 2015 was repaid. In May 2014, a
$25,000,000 mezzanine loan that was scheduled to mature in November 2014 was repaid.
As of December 31, 2014 and 2013, the carrying amounts of mortgage and mezzanine loans receivable were $16,748,000 and
$170,972,000, respectively, net of an allowance of $5,811,000 and $5,845,000, respectively, and are included in “other assets” on our
consolidated balance sheets. These loans have a weighted average interest rate of 9.1% and 11.0% at December 31, 2014 and 2013,
respectively and have maturities ranging from April 2015 to May 2016.
117
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Dispositions
Discontinued Operations
2014 Activity:
New York
On December 18, 2014, we completed the sale of 1740 Broadway, a 601,000 square foot office building in Manhattan for
$605,000,000. The sale resulted in net proceeds of approximately $580,000,000, after closing costs, and resulted in a financial
statement gain of approximately $441,000,000. The tax gain of approximately $484,000,000, was deferred in like-kind exchanges,
primarily for the acquisition of the St. Regis Fifth Avenue retail (see Note 4 – Acquisitions).
Retail Properties
On February 24, 2014, we completed the sale of Broadway Mall in Hicksville, Long Island, New York, for $94,000,000. The sale
resulted in net proceeds of $92,174,000 after closing costs.
On March 2, 2014, we entered into an agreement to transfer upon completion, the redeveloped Springfield Town Center, a
1,350,000 square foot mall located in Springfield, Fairfax County, Virginia, to Pennsylvania Real Estate Investment Trust (NYSE:
PEI) (“PREIT”) in exchange for $465,000,000 comprised of $340,000,000 of cash and $125,000,000 of PREIT operating partnership
units. In connection therewith, we recorded a non-cash impairment loss of $20,000,000 in the first quarter of 2014, which is included
in “income from discontinued operations” on our consolidated statements of income. The redevelopment was substantially completed
in October 2014, at which time we reclassified the assets, liabilities and financial results to discontinued operations, and the transfer of
the property to PREIT is expected to be completed no later than March 31, 2015.
On July 8, 2014, we completed the sale of Beverly Connection, a 335,000 square foot power shopping center in Los Angeles,
California, for $260,000,000, of which $239,000,000 was cash and $21,000,000 was 10-year mezzanine seller financing. The sale
resulted in a net gain of $44,155,000, which was recognized in the third quarter of 2014.
In addition to the above, during 2014, we sold six of the 22 strip shopping centers which did not fit UE’s strategy (see Note 1 –
Organization and Business), in separate transactions, for an aggregate of $66,410,000 in cash, which resulted in a net gain aggregating
$22,500,000.
2013 Activity:
New York
On December 17, 2013, we sold 866 United Nations Plaza, a 360,000 square foot office building in Manhattan for $200,000,000.
The sale resulted in net proceeds of $146,439,000 after repaying the existing loan and closing costs, and a net gain of $127,512,000.
Retail Properties
On January 24, 2013, we sold the Green Acres Mall located in Valley Stream, New York, for $500,000,000. The sale resulted in
net proceeds of $185,000,000 after repaying the existing loan and closing costs, and a net gain of $202,275,000.
On April 15, 2013, we sold The Plant, a power strip shopping center in San Jose, California, for $203,000,000. The sale resulted
in net proceeds of $98,000,000 after repaying the existing loan and closing costs, and a net gain of $32,169,000.
On April 15, 2013, we sold a retail property in Philadelphia, which is a part of the Gallery at Market Street, for $60,000,000. The
sale resulted in net proceeds of $58,000,000, and a net gain of $33,058,000.
On September 23, 2013, we sold a retail property in Tampa, Florida for $45,000,000, of which our 75% share was $33,750,000.
Our share of the net proceeds after repaying the existing loan and closing costs were $20,810,000, and our share of the net gain was
$8,728,000.
In addition to the above, during 2013, we sold 12 other properties, in separate transactions, for an aggregate of $82,300,000, in
cash, which resulted in a net gain aggregating $7,851,000.
118
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Dispositions - continued
2012 Activity:
Washington, DC
On July 26, 2012, we sold 409 Third Street S.W., a 409,000 square foot office building in Washington, DC, for $200,000,000,
which resulted in a net gain of $126,621,000.
On November 7, 2012, we sold 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.
Merchandise Mart
On January 6, 2012, we sold the 350 West Mart Center, a 1.2 million square foot office building in Chicago, Illinois, for
$228,000,000, which resulted in a net gain of $54,911,000.
On June 22, 2012, we sold the 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 sold 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. The sale of the Canadian Trade Shows resulted in an after-tax net gain of
$19,657,000.
On December 31, 2012, we sold the Boston Design Center, a 554,000 square foot showroom building in Boston, Massachusetts,
for $72,400,000, which resulted in a net gain of $5,252,000.
Retail Properties
In 2012, we sold 12 other properties in separate transactions, for an aggregate of $157,000,000, which resulted in a net gain
aggregating $22,266,000.
In accordance with the provisions of ASC 360, Property, Plant, and Equipment, we have reclassified the revenues and expenses
of all of the properties discussed above to “income from discontinued operations” and the related assets and liabilities to “assets
related to discontinued operations” and “liabilities related to discontinued operations” for all of the periods presented in the
accompanying financial statements. The net gains resulting from the sale of these properties are included in “income from
discontinued operations” on our consolidated statements of income. The tables below set forth the assets and liabilities related to
discontinued operations at December 31, 2014 and 2013, and their combined results of operations for the years ended December 31,
2014, 2013 and 2012.
(Amounts in thousands)
Retail
New York
Total
(Amounts in thousands)
Total revenues
Total expenses
Assets Related to
Discontinued Operations as of
December 31,
Liabilities Related to
Discontinued Operations as of
December 31,
2014
2013
2014
2013
$
$
$
477,620
-
477,620 $
$
735,888
138,162
874,050 $
$
211
-
211 $
14,709
-
14,709
$
For the Year Ended December 31,
2013
2012
2014
70,593 $
36,424
34,169
507,192
(26,518)
-
514,843 $
129,860 $
79,458
50,402
414,502
(18,170)
-
446,734 $
264,878
190,450
74,428
245,799
(119,439)
19,657
220,445
Net gains on sales of real estate
Impairment losses
Gain on sale of Canadian Trade Shows, net of $11,448 of income taxes
Income from discontinued operations
$
119
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, 2014 and 2013.
(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,
2013
2014
$
$
$
$
502,080 $
(225,841)
276,239 $
885,763 $
(396,895)
488,868 $
583,862
(276,426)
307,436
855,860
(359,371)
496,489
Amortization of acquired below-market leases, net of acquired above-market leases resulted in an increase to rental income of
$46,277,000, $50,128,000 and $51,271,000 for the years ended December 31, 2014, 2013 and 2012, 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, 2015 is as follows:
(Amounts in thousands)
2015
2016
2017
2018
2019
$
57,202
45,333
42,457
41,311
30,950
Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $29,870,000,
$64,196,000 and $49,442,000 for the years ended December 31, 2014, 2013 and 2012, 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, 2015 is as follows:
(Amounts in thousands)
2015
2016
2017
2018
2019
$
27,210
21,437
17,859
13,533
11,553
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 $3,363,000, $4,290,000 and $1,261,000 for the years ended December 31,
2014, 2013 and 2012, respectively. Estimated annual amortization of these below-market leases, net of above-market leases for each
of the five succeeding years commencing January 1, 2015 is as follows:
(Amounts in thousands)
2015
2016
2017
2018
2019
$
3,363
3,363
3,363
3,363
3,363
120
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Debt
Secured Debt
On January 31, 2014, we completed a $600,000,000 loan secured by our 220 Central Park South development site. The loan
bears interest at LIBOR plus 2.75% (2.92% at December 31, 2014) and matures in January 2016, with three one-year extension
options.
On April 16, 2014, we completed a $350,000,000 refinancing of 909 Third Avenue, a 1.3 million square foot Manhattan office
building. The seven-year interest only loan bears interest at 3.91% and matures in May 2021. We realized net proceeds of
approximately $145,000,000 after defeasing the existing 5.64%, $193,000,000 mortgage, defeasance cost and other closing costs.
On July 16, 2014, we completed a $130,000,000 financing of Las Catalinas, a 494,000 square foot mall located in the San Juan
area of Puerto Rico. The 10-year fixed rate loan bears interest at 4.43% and matures in August 2024. The loan amortizes based on a
30-year schedule beginning in year six.
On August 12, 2014, we completed a $185,000,000 financing of the Universal buildings, a 690,000 square foot, two-building
office complex located in Washington, DC. The loan bears interest at LIBOR plus 1.90% (2.06% at December 31, 2014) and matures
in August 2019 with two one-year extension options. The loan amortizes based on a 30-year schedule beginning in the fourth year.
On August 26, 2014, we obtained a standby commitment for up to $500,000,000 of five-year mezzanine loan financing to fund a
portion of the development expenditures at 220 Central Park South.
On October 27, 2014, we completed a $140,000,000 financing of 655 Fifth Avenue, a 57,500 square foot retail and office
property. The loan is interest only at LIBOR plus 1.40% (1.56% at December 31, 2014) and matures in October 2019 with two one-
year extension options.
On December 8, 2014, we completed a $575,000,000 refinancing of Two Penn Plaza, a 1.6 million square foot Manhattan office
building. The loan is interest-only at LIBOR plus 1.65% (1.81% at December 31, 2014) and matures in 2019 with two one-year
extension options. We realized net proceeds of approximately $143,000,000. Pursuant to an existing swap agreement, the
$422,000,000 previous loan on the property was swapped to a fixed rate of 4.78% through March 2018. Therefore, $422,000,000 of
the new loan bears interest at a fixed rate of 4.78% through March 2018 and the balance of $153,000,000 floats through March 2018.
The entire $575,000,000 will float thereafter for the duration of the new loan.
On January 6, 2015, we completed the modification of the $120,000,000, 6.04% mortgage loan secured by our Montehiedra
Town Center, in the San Juan area of Puerto Rico. The loan has been extended from July 2016 to July 2021 and separated into two
tranches, a senior $90,000,000 position with interest at 5.33% to be paid currently, and a junior $30,000,000 position with interest
accruing at 3%. Montehiedra Town Center and the loan were included in the spin-off to UE on January 15, 2015. As part of the
planned redevelopment of the property, UE is committed to fund $20,000,000 through a loan for leasing and building capital
expenditures of which $8,000,000 has been funded. This loan is senior to the $30,000,000 position noted above and accrues interest at
10%.
Senior Unsecured Notes
On June 16, 2014, we completed a green bond public offering of $450,000,000 2.50% senior unsecured notes due June 30, 2019.
The notes were sold at 99.619% of their face amount to yield 2.581%.
On October 1, 2014, we redeemed all of the $445,000,000 principal amount of our outstanding 7.875% senior unsecured notes,
which were scheduled to mature on October 1, 2039, at a redemption price of 100% of the principal amount plus accrued interest
through the redemption date. In the fourth quarter of 2014, we wrote off $12,532,000 of unamortized deferred financing costs, which
are included as a component of “interest and debt expense” on our consolidated statements of income.
On January 1, 2015, we redeemed all of the $500,000,000 principal amount of our outstanding 4.25% senior unsecured notes,
which were scheduled to mature on April 1, 2015, at a redemption price of 100% of the principal amount plus accrued interest through
December 31, 2014.
121
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Debt – continued
Unsecured Revolving Credit Facility
On September 30, 2014, we extended one of our two $1.25 billion unsecured revolving credit facilities from November 2015 to
November 2018 with two six-month extension options. The interest rate on the extended facility was lowered to LIBOR plus 105
basis points from LIBOR plus 125 basis points and the facility fee was reduced to 20 basis points from 25 basis points.
The following is a summary of our debt:
(Amounts in thousands)
Mortgages Payable:
Fixed rate
Variable rate
Unsecured Debt:
Senior unsecured notes
Unsecured revolving credit facilities
Weighted Average
Interest Rate at
December 31, 2014
Balance at December 31,
2013
2014
4.45%
2.20%
4.02%
3.89%
-
3.89%
$
$
$
$
7,710,931 $
1,840,769
9,551,700 $
7,563,133
768,860
8,331,993
1,347,159 $
-
1,347,159 $
1,350,855
295,870
1,646,725
The net carrying amount of properties collateralizing the mortgages payable amounted to $10.4 billion at December 31, 2014. As
of December 31, 2014, the principal repayments required for the next five years and thereafter are as follows:
(Amounts in thousands)
Year Ending December 31,
2015
2016
2017
2018
2019
Thereafter
Mortgages Payable
$
433,699
1,552,419
626,525
340,442
996,579
5,601,148
Senior Unsecured
Debt and
Revolving Credit
Facilities
$
500,000
-
-
-
450,000
400,000
122
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. Redeemable Noncontrolling Interests
Redeemable noncontrolling interests on our consolidated balance sheets are primarily comprised of Class A Operating
Partnership units held by third parties and are recorded at the greater of their carrying amount or redemption value at the end of each
reporting period. Changes in the value from period to period are charged to “additional capital” in our consolidated statements of
changes in equity. 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 redeemable noncontrolling interests as of December 31, 2014 and 2013.
(Amounts in thousands, except units and
per unit amounts)
Balance as of
December 31,
Units Outstanding at
December 31,
Unit Series
2014
2013
2014
2013
Per Unit
Liquidation
Preference
Preferred or
Annual
Distribution
Rate
Common:
Class A
Perpetual Preferred: (1)
$
1,336,780 $
1,002,620
11,356,550
11,292,038
n/a $
2.92
5.00% D-16 Cumulative Redeemable
50,000.00
(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
1 $ 1,000,000.00 $
1,000 $
1,000
$
1
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.
Below is a table summarizing the activity of redeemable noncontrolling interests.
(Amounts in thousands)
Balance at December 31, 2012
Net income
Other comprehensive income
Distributions
Redemption of Class A units for common shares, at redemption value
Adjustments to carry redeemable Class A units at redemption value
Redemption of Series D-15 redeemable units
Other, net
Balance at December 31, 2013
Net income
Other comprehensive income
Distributions
Redemption of Class A units for common shares, at redemption value
Adjustments to carry redeemable Class A units at redemption value
Other, net
Balance at December 31, 2014
$
$
944,152
24,817
5,296
(34,053)
(25,317)
108,252
(36,900)
17,373
1,003,620
47,613
1,323
(33,469)
(27,273)
315,276
30,690
1,337,780
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 $55,097,000 as of December 31,
2014 and 2013.
123
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. Shareholders’ Equity
Common Shares
As of December 31, 2014, there were 187,887,498 common shares outstanding. During 2014, we paid an aggregate of
$547,831,000 of common dividends comprised of quarterly common dividends of $0.73 per share.
Preferred Shares
The following table sets forth the details of our preferred shares of beneficial interest as of December 31, 2014 and 2013.
(Amounts in thousands, except share and
per share amounts)
Preferred Shares
Convertible Preferred:
Balance as of
December 31,
2014
2013
Shares Outstanding at
December 31,
2014
2013
Per Share Annual
Liquidation Dividend
Preference
Rate(1)
6.5% Series A: authorized 83,977 shares(2)
$
1,393 $
1,592
28,939
32,807 $
50.00 $
3.25
Cumulative Redeemable:
6.625% Series G: authorized 8,000,000 shares(3)
6.625% Series I: authorized 10,800,000 shares(3)
6.875% Series J: authorized 9,850,000 shares(3)
5.70% Series K: authorized 12,000,000 shares(3)
5.40% Series L: authorized 12,000,000 shares(3)
$
193,135
262,379
238,842
290,971
290,306
1,277,026 $
193,135
262,379
238,842
290,971
290,306
1,277,225
8,000,000
10,800,000
9,850,000
12,000,000
12,000,000
52,678,939
8,000,000 $
10,800,000 $
9,850,000 $
12,000,000 $
12,000,000 $
52,682,807
25.00 $
25.00 $
25.00 $
25.00 $
25.00 $
1.65625
1.65625
1.71875
1.425
1.35
(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 of 1.4334 common shares per Series A Preferred Share plus accrued and
unpaid dividends through the date of redemption, or convertible at any time at the option of the holder for 1.4334 common shares per Series A
Preferred Share.
(3) 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 (Loss)
The following tables set forth the changes in accumulated comprehensive income (loss) by component.
For the Year Ended December 31, 2014
Pro rata share of
nonconsolidated
subsidiaries' OCI
Securities
available-
for-sale
Interest
rate
swap
Total
Other
$
$
71,537 $
21,730
93,267 $
119,309 $
14,465
133,774 $
(11,501) $
2,509
(8,992) $
(31,882) $
6,079
(25,803) $
(4,389)
(1,323)
(5,712)
(Amounts in thousands)
Balance as of December 31, 2013
Net current period OCI
Balance as of December 31, 2014
13. Variable Interest Entities (“VIEs”)
Unconsolidated VIEs
At December 31, 2014, we have unconsolidated VIEs comprised of our investments in the entities that own One Park Avenue,
Independence Plaza, and the Warner Building, and at December 31, 2013, our unconsolidated VIEs comprised of our investments in
the entities that own Independence Plaza and the Warner Building. We do not consolidate these entities because we are not the
primary beneficiary and the nature of our involvement in the activities of these entities does not give us power over decisions that
significantly affect these entities’ economic performance. We account for our investment in these entities under the equity method
(see Note 6 – Investments in Partially Owned Entities). As of December 31, 2014 and 2013, the net carrying amount of our
investments in these entities was $286,783,000 and $152,929,000, respectively, and our maximum exposure to loss in these entities, is
limited to our investments. We did not have any consolidated VIEs as of December 31, 2014 and 2013.
124
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. 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) interest rate swaps and (v) mandatorily redeemable instruments (Series G-1 through
G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units). The tables below aggregate the fair values of
these financial assets and liabilities by their levels in the fair value hierarchy at December 31, 2014 and 2013, 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)
Total assets
Mandatorily redeemable instruments (included in other liabilities)
Interest rate swap (included in other liabilities)
Total liabilities
(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)
Total assets
Mandatorily redeemable instruments (included in other liabilities)
Interest rate swap (included in other liabilities)
Total liabilities
Total
206,323
513,973
117,284
837,580
55,097
25,797
80,894
Total
191,917
667,710
116,515
976,142
55,097
31,882
86,979
$
$
$
$
$
$
$
$
As of December 31, 2014
Level 1
Level 2
Level 3
$
206,323
$
-
$
-
-
53,969
260,292
55,097
-
55,097
$
$
$
-
-
-
-
25,797
25,797
$
$
$
513,973
63,315
577,288
-
-
-
$
$
$
As of December 31, 2013
Level 1
Level 2
Level 3
$
191,917
$
-
$
-
-
47,733
239,650
55,097
-
55,097
$
$
$
-
-
-
-
31,882
31,882
$
$
$
667,710
68,782
736,492
-
-
-
$
$
$
125
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Fair Value Measurements - continued
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued
Real Estate Fund Investments
At December 31, 2014, our Real Estate Fund had seven investments with an aggregate fair value of $513,973,000, or
$176,899,000 in excess of cost. These investments are classified as Level 3. We use a discounted cash flow valuation technique to
estimate the fair value of each of these investments, which is updated quarterly by personnel responsible for the management of each
investment and reviewed by senior management at each reporting period. The discounted cash flow valuation technique requires us to
estimate cash flows for each investment over the anticipated holding period, which currently ranges from 0.8 to 6.0 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, 2014.
Unobservable Quantitative Input
Discount rates
Terminal capitalization rates
Range
12.0% to 17.5%
4.7% to 6.5%
Weighted Average
(based on fair
value of investments)
13.7%
5.3%
The above inputs are subject to change based on changes in economic and market conditions and/or changes in use or timing of
exit. Changes in discount rates and terminal capitalization rates result in increases or decreases in the fair values of these investments.
The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates
and the amount and timing of cash flows. Therefore, a change in the fair value of these investments resulting from a change in the
terminal capitalization rate, may be partially offset by a change in the discount rate. It is not possible for us to predict the effect of
future economic or market conditions on our estimated fair values.
The table below summarizes the changes in the fair value of Fund investments that are classified as Level 3, for the years ended
December 31, 2014 and 2013.
(Amounts in thousands)
Beginning balance
Purchases
Dispositions / Distributions
Net unrealized gains
Net realized gains
Other, net
Ending balance
Real Estate Fund Investments
For The Year Ended December 31,
2014
2013
$
$
667,710
3,392
(307,268)
73,802
76,337
-
513,973
$
$
600,786
43,816
(70,848)
85,771
8,184
1
667,710
126
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Fair Value Measurements - continued
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued
Deferred Compensation Plan Assets
Deferred compensation plan assets that are classified as Level 3 consist of investments in limited partnerships and investment
funds, which are managed by third parties. We receive quarterly financial reports from a third-party administrator, which are
compiled from the quarterly reports provided to them from each limited partnership and investment fund. The quarterly reports
provide net asset values on a fair value basis which are audited by independent public accounting firms on an annual basis. The third-
party administrator does not adjust these values in determining our share of the net assets and we do not adjust these values when
reported in our consolidated financial statements.
The table below summarizes the changes in the fair value of Deferred Compensation Plan Assets that are classified as Level 3, for
the years ended December 31, 2014 and 2013.
(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,
2014
2013
$
$
68,782
14,162
(24,951)
3,415
1,907
63,315
$
$
62,631
5,018
(7,306)
7,189
1,250
68,782
Fair Value Measurements on a Nonrecurring Basis
Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist primarily of real estate assets and
our investment in Toys that were written-down to estimated fair value during 2014 or 2013. See Note 2 – Basis of Presentation and
Significant Accounting Policies for details of impairment losses recognized during 2014 and 2013. See Note 6 – Investments in
Partially Owned Entities for details of impairment losses related to Toys recognized during 2014 and 2013. The fair value of our real
estate assets was 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. In determining the fair value of
our investment in Toys, we considered, among other inputs, a December 31, 2013 third-party valuation of Toys and Toys’ historical
results, financial forecasts and business outlook. Our determination of the fair value of our investment in Toys included consideration
of the following widely-used valuation methodologies: (i) market multiple methodology, that considered comparable publicly traded
retail companies and a range of EBITDA multiples from 5.75x to 6.5x, (ii) comparable sales transactions methodology, that
considered sales of retailers ranging in size from $150 million to $3 billion, (iii) a discounted cash flow methodology, that utilized
five-year financial projections and assumed a terminal EBITDA multiple of 5.75x, a 10% discount rate and a 38% tax rate, and (iv) a
Black-Scholes valuation analysis, that assumed one, two and three year time-to-expiration periods and 24% to 29% volatility factors.
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)
Real estate assets
(Amounts in thousands)
Real estate assets
Investment in Toys
Total assets
Total
As of December 31, 2014
Level 2
Level 1
Level 3
$
4,848 $
- $
- $
4,848
Total
354,341 $
83,224
437,565 $
$
$
As of December 31, 2013
Level 2
Level 1
Level 3
- $
-
- $
- $
-
- $
354,341
83,224
437,565
127
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Fair Value Measurements – continued
Financial Assets and Liabilities not Measured at Fair Value
Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents
(primarily money market funds, which invest in obligations of the United States government), mortgage and mezzanine loans
receivable (included in “other assets” in our consolidated balance sheets) 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 is classified as Level 2. The table below summarizes the carrying amounts and fair value of these financial
instruments as of December 31, 2014 and 2013.
(Amounts in thousands)
Cash equivalents
Mortgage and mezzanine loans receivable
(included in other assets)
Debt:
Mortgages payable
Senior unsecured notes
Revolving credit facility debt
$
$
$
As of December 31, 2014
Fair
Value
Carrying
Amount
As of December 31, 2013
Fair
Value
Carrying
Amount
749,418 $
749,000 $
295,000 $
295,000
16,748
766,166 $
17,000
766,000 $
170,972
465,972 $
171,000
466,000
8,331,993 $
1,350,855
295,870
9,978,718 $
8,104,000
1,402,000
296,000
9,802,000
9,551,700 $
1,347,159
-
9,551,000 $
1,385,000
-
$
10,898,859 $
10,936,000 $
128
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 awards 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, 2014, we have approximately
4,004,000 shares available for future grants under the Plan, if all awards granted are Full Value Awards, as defined.
In the years ended December 31, 2014, 2013 and 2012, we recognized an aggregate of $36,641,000, $34,914,000 and
$30,588,000, 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 (“the OPPs”)
OPPs are multi-year, performance-based equity compensation plans under which participants, including our Chairman 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 the
requisite performance periods as described below. The aggregate notional amounts of the 2012, 2013, 2014 and 2015 OPPs are
$40,000,000, $40,000,000, $50,000,000 and $40,000,000, respectively.
Awards under the 2012 OPP have been earned. Awards under the 2013 OPP may be earned if we (i) achieve a TSR greater than
14% over the two-year performance measurement period, or 21% over the three-year performance measurement period (the “Absolute
Component”), and/or (ii) achieve a TSR above that of the SNL REIT Index (the “Index”) over the two-year or three-year performance
measurement period (the “Relative Component”). Awards under the 2014 and 2015 OPP may be earned if we (i) achieve a TSR level
greater than 7% per annum, or 21% over the three-year performance measurement periods (the “Absolute Component”), and/or (ii)
achieve a TSR above that of the Index over the three-year performance measurement periods (the “Relative Component”). To the
extent awards would be earned under the Absolute Component of each of the OPPs, 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 fully earned under the Absolute Component, awards may still
be earned or increased 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, such awards earned under the Relative Component would be
reduced based on our absolute TSR, 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. Dividends on awards issued accrue during the
performance period.
If the designated performance objectives are achieved, OPP units are subject to time-based vesting requirements. Awards earned
under the OPPs vest 33% in year three, 33% in year four and 34% in year five. Our executive officers (for the purposes of Section 16
of the Exchange Act) are required to hold earned 2013, 2014 and 2015 OPP awards for one year following vesting.
The fair value of the 2012, 2013, 2014 and 2015 OPPs on the date of grant was $12,250,000, $6,814,000, $8,202,000, and
$9,120,000, respectively. Such amounts are 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, 2014, 2013 and 2012, we recognized $6,185,000, $3,226,000 and
$2,826,000, respectively, of compensation expense related to OPPs. As of December 31, 2014, there was $11,937,000 of total
unrecognized compensation cost related to the OPPs, which will be recognized over a weighted-average period of 1.4 years.
129
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, 2014, 2013 and
2012, we recognized $4,550,000, $8,234,000 and $8,638,000, respectively, of compensation expense related to stock options that
vested during each year. As of December 31, 2014, there was $1,855,000 of total unrecognized compensation cost related to unvested
stock options, which is expected to be recognized over a weighted-average period of 1.5 years.
Below is a summary of our stock option activity for the year ended December 31, 2014.
Outstanding at January 1, 2014
Granted
Exercised
Cancelled or expired
Outstanding at December 31, 2014
Options vested and expected to vest at
December 31, 2014
Options exercisable at December 31, 2014
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Shares
3,248,699 $
49,088
(434,204)
(43,468)
2,820,115 $
67.51
91.32
67.27
104.74
67.38
4.6 $
145,317,000
2,818,587 $
2,606,260 $
67.37
65.62
4.6 $
145,271,000
4.4 $
138,912,000
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, 2014, 2013 and 2012.
Expected volatility
Expected life
Risk free interest rate
Expected dividend yield
2014
36.00%
5.0 years
1.81%
4.10%
December 31,
2013
36.00%
5.0 years
0.91%
4.30%
2012
36.00%
5.0 years
1.05%
4.30%
The weighted average grant date fair value of options granted during the years ended December 31, 2014, 2013 and 2012 was
$20.31, $17.18 and $17.50, respectively. Cash received from option exercises for the years ended December 31, 2014, 2013 and 2012
was $17,441,000, $5,915,000 and $9,546,000, respectively. The total intrinsic value of options exercised during the years ended
December 31, 2014, 2013 and 2012 was $18,223,000, $3,386,000 and $40,887,000, respectively.
130
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, 2014, 2013 and 2012, we recognized $1,303,000, $1,344,000 and
$1,604,000, respectively, of compensation expense related to restricted stock awards that vested during each year. As of December
31, 2014, there was $1,468,000 of total unrecognized compensation cost related to unvested restricted stock, which is expected to be
recognized over a weighted-average period of 1.7 years. Dividends paid on unvested restricted stock are charged directly to retained
earnings and amounted to $88,000, $110,000 and $200,000 for the years ended December 31, 2014, 2013 and 2012, respectively.
Below is a summary of our restricted stock activity under the Plan for the year ended December 31, 2014.
Unvested Shares
Unvested at January 1, 2014
Granted
Vested
Cancelled or expired
Unvested at December 31, 2014
Weighted-Average
Grant-Date
Fair Value
Shares
29,664 $
11,475
(15,733)
(2,957)
22,449
79.24
91.31
74.61
87.42
87.58
Restricted stock awards granted in 2014, 2013 and 2012 had a fair value of $1,048,000, $857,000 and $929,000, respectively. The
fair value of restricted stock that vested during the years ended December 31, 2014, 2013 and 2012 was $1,174,000, $1,194,000 and
$1,864,000, 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, 2014, 2013 and
2012, we recognized $24,603,000, $22,110,000 and $17,520,000, respectively, of compensation expense related to OP Units that
vested during each year. As of December 31, 2014, there was $20,798,000 of total unrecognized compensation cost related to
unvested OP Units, which is expected to be recognized over a weighted-average period of 1.7 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 $2,866,000, $2,598,000 and $3,203,000 in the years ended December 31, 2014, 2013 and 2012,
respectively.
Below is a summary of restricted OP unit activity under the Plan for the year ended December 31, 2014.
Unvested Units
Unvested at January 1, 2014
Granted
Vested
Cancelled or expired
Unvested at December 31, 2014
Weighted-Average
Grant-Date
Fair Value
Units
765,971 $
226,638
(327,555)
(6,575)
658,479
76.27
86.79
69.48
83.16
83.20
OP Units granted in 2014, 2013 and 2012 had a fair value of $19,669,000, $31,947,000 and $16,464,000, respectively. The fair
value of OP Units that vested during the years ended December 31, 2014, 2013 and 2012 was $22,758,000, $16,404,000 and
$15,014,000, respectively.
131
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(1)
Other income
For the Year Ended December 31,
2013
2014
2012
$
$
85,658 $
37,929
21,382
17,042
33,734
195,745 $
66,505 $
32,866
24,637
92,497
34,113
250,618 $
67,584
20,892
21,849
2,361
31,438
144,124
__________________________
(1) The year ended December 31, 2013 includes (i) $59,599 of income pursuant to a settlement agreement with Stop & Shop, which terminates our
right to receive $6,000 of additional annual rent under a 1992 agreement, for a period potentially through 2031, (ii) $19,500 from a tenant at 1290
Avenue of the Americas, of which our 70% share, net of a $1,529 write-off of the straight lining of rents, was $12,121, and (iii) $3,000 from the
termination of our subsidiaries' agreements with Cuyahoga County to operate the Cleveland Medical Mart Convention Center.
The above table excludes fee income from partially owned entities, which is included in “income from partially owned entities”
(see Note 6 – Investments in Partially Owned Entities).
17. Interest and Other Investment Income (Loss), Net
The following table sets forth the details of our interest and other investment income (loss):
(Amounts in thousands)
Dividends and interest on marketable securities
Mark-to-market of investments in our deferred compensation plan (1)
Interest on mezzanine loans receivable
Losses from the disposition of investment in J.C. Penney
Other, net
For the Year Ended December 31,
2013
2014
2012
$
$
12,707 $
11,557
3,920
-
10,603
38,787 $
11,446 $
10,636
19,495
(72,974)
6,521
(24,876) $
11,979
6,809
13,861
(300,752)
6,924
(261,179)
__________________________
(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 and debt expense
132
For the Year Ended December 31,
2013
2014
2012
$
$
483,578 $
46,923
(62,786)
467,715 $
498,050 $
25,557
(42,303)
481,304 $
478,688
22,907
(16,801)
484,794
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 includes the weighted average number of common shares outstanding without regard to
dilutive potential common shares, and (ii) diluted income per common share - which includes the weighted average common shares
and dilutive share equivalents. Dilutive share equivalents may include our Series A convertible preferred shares, employee stock
options and restricted stock awards.
(Amounts in thousands, except per share amounts)
Numerator:
Year Ended December 31,
2013
2014
2012
Income from continuing operations, net of income attributable to noncontrolling interests
Income from discontinued operations, net of income attributable to noncontrolling
$
379,333 $
57,727 $
408,439
interests
Net income attributable to Vornado
Preferred share dividends
Preferred unit and share 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 (LOSS) PER COMMON SHARE – BASIC:
Income (loss) from continuing operations, net
Income from discontinued operations, net
Net income per common share
INCOME (LOSS) PER COMMON SHARE – DILUTED:
Income (loss) from continuing operations, net
Income from discontinued operations, net
Net income per common share
485,519
864,852
(81,464)
-
783,388
(125)
783,263
418,244
475,971
(82,807)
(1,130)
392,034
(110)
391,924
97
-
$
783,360 $
391,924 $
208,821
617,260
(76,937)
8,948
549,271
(202)
549,069
113
549,182
187,572
186,941
185,810
1,075
43
768
-
670
50
188,690
187,709
186,530
$
$
$
$
1.59 $
2.59
4.18 $
1.58 $
2.57
4.15 $
(0.14) $
2.24
2.10 $
(0.14) $
2.23
2.09 $
1.83
1.12
2.95
1.82
1.12
2.94
(1)
The effect of dilutive securities in the years ended December 31, 2014, 2013 and 2012 excludes an aggregate of 11,238, 11,752 and 14,400
weighted average common share equivalents, respectively, as their effect was anti-dilutive.
133
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, 2014, 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:
2015
2016
2017
2018
2019
Thereafter
$
1,783,293
1,717,984
1,671,172
1,578,671
1,399,001
8,055,804
These amounts do not include percentage rentals based on tenants’ sales. These percentage rents approximated $7,963,000,
$8,578,000 and $8,090,000, for the years ended December 31, 2014, 2013 and 2012, respectively.
None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2014, 2013 and 2012.
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, 2014 are as follows:
(Amounts in thousands)
Year Ending December 31:
2015
2016
2017
2018
2019
Thereafter
$
39,925
39,833
41,003
38,920
38,992
1,252,109
Rent expense was $50,556,000, $49,968,000 and $41,778,000 for the years ended December 31, 2014, 2013 and 2012,
respectively.
134
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. Leases - continued
We are also a lessee under a capital lease under which we will redevelop the retail and signage components of the Marriott
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, 2014, future
minimum lease payments under this capital lease are as follows:
(Amounts in thousands)
Year Ending December 31:
2015
2016
2017
2018
2019
Thereafter
Total minimum obligations
Interest portion
Present value of net minimum payments
$
$
12,500
12,500
12,500
12,500
12,500
334,792
397,292
(157,292)
240,000
At December 31, 2014, the carrying amount of the property leased under the capital lease was $249,253,000, 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.
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, 2014, our subsidiaries’ participation in these plans were not significant to our consolidated financial statements.
In the years ended December 31, 2014, 2013 and 2012, our subsidiaries contributed $11,431,000, $10,223,000 and $10,683,000,
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, 2014, 2013 and 2012.
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, 2014, 2013 and 2012, our subsidiaries contributed $29,073,000, $26,262,000 and $26,759,000,
respectively, towards these plans, which is included as a component of “operating” expenses on our consolidated statements of
income.
135
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, with sub-limits for certain perils such as floods. Our California properties have
earthquake insurance with coverage of $180,000,000 per occurrence, subject to a deductible in the amount of 5% of the value of the
affected property, up to a $180,000,000 annual aggregate. We maintain coverage for terrorism acts with limits of $4.0 billion per
occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological,
chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization Act, which
expires in December 2020.
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a
portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for
coverage for NBCR acts. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies
and the Federal government with no exposure to PPIC. For NBCR acts, PPIC is responsible for a deductible of $3,200,000 and 15%
of the balance of a covered loss (16% effective January 1, 2016) and the Federal government is responsible for the remaining 85% of a
covered loss (84% effective January 1, 2016). We are ultimately responsible for any loss incurred by PPIC.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, we
cannot anticipate what coverage will be available on commercially reasonable terms in the future.
Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured
notes and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we
have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at
reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our
ability to finance our properties and expand our portfolio.
Other Commitments and Contingencies
We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation
with legal counsel, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of
operations or cash flows.
Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental
assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of
new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in
cleanup requirements would not result in significant costs to us.
Our mortgage loans are non-recourse to us. However, in certain cases we have provided guarantees or master leased tenant space.
These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying
loans. As of December 31, 2014, the aggregate dollar amount of these guarantees and master leases is approximately $359,000,000.
At December 31, 2014, $39,552,000 of letters of credit were outstanding under one of our revolving credit facilities. Our
revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to
market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our
revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and
also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or
principal.
As of December 31, 2014, we expect to fund additional capital to certain of our partially owned entities aggregating
approximately $104,000,000.
136
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 Chief Executive Officer is also the Chairman of the
Board and Chief Executive Officer 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.
On January 15, 2015, we completed the spin-off of 79 strip shopping centers, three malls, a warehouse park and $225,000,000 of
cash to UE and the transfer of all of the employees responsible for the management and leasing of those assets. In addition, we
entered into agreements with UE to provide management and leasing services, on our behalf, for Alexander’s Rego Park retail assets.
Fees for these services are similar to the fees we are receiving from Alexander’s 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, 2014,
Interstate and its partners beneficially owned an aggregate of approximately 6.6% 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 $535,000, $606,000, and
$794,000 of management fees under the agreement for the years ended December 31, 2014, 2013 and 2012.
On January 15, 2015, we completed the spin-off of 79 strip shopping centers, three malls, a warehouse park and $225,000,000 of
cash to UE and the transfer of all of the employees responsible for the management and leasing of those assets. In addition, we
entered into agreements with UE to provide management and leasing services, on our behalf, for Interstate’s properties. Fees for
these services are similar to the fees we are receiving from Interstate described above.
24. Summary of Quarterly Results (Unaudited)
The following summary represents the results of operations for each quarter in 2014 and 2013:
(Amounts in thousands, except per share amounts)
2014
December 31
September 30
June 30
March 31
2013
December 31
September 30
June 30
March 31
Net Income (Loss)
Attributable
to Common
Net Income (Loss) Per
Common Share (2)
Revenues
Shareholders (1)
Basic
Diluted
$
$
679,101 $
657,209
652,972
646,658
649,403 $
655,883
658,550
705,433
513,238 $
131,159
76,642
62,349
(68,887) $
83,005
145,926
231,990
2.73 $
0.70
0.41
0.33
(0.37) $
0.44
0.78
1.24
2.72
0.69
0.41
0.33
(0.37)
0.44
0.78
1.24
_______________________________
(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.
137
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. Segment Information
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the years ended December
31, 2014, 2013 and 2012.
(Amounts in thousands)
For the Year Ended December 31, 2014
Total revenues
Total expenses
Operating income (loss)
(Loss) income from partially owned
entities, including Toys
Income from Real Estate Fund
Interest and other investment
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 from discontinued
operations
Net income (loss)
Less net income attributable to
noncontrolling interests
Net income (loss) attributable to
Vornado
Interest and debt expense(2)
Depreciation and amortization(2)
Income tax expense(2)
EBITDA(1)
Balance Sheet Data:
Real estate at cost
Investments in partially owned entities
Total assets
See notes on pages 141 and 142.
$
$
$
New York
Total
2,635,940 $
1,820,298
815,642
1,520,845 $
946,466
574,379
Washington, DC Properties
537,151 $
358,019
179,132
326,947 $
197,206
129,741
Retail
(58,131)
163,034
38,787
(467,715)
13,568
505,185
(11,002)
20,701
-
6,711
(183,427)
-
418,364
(4,305)
(3,677)
-
183
(75,395)
-
100,243
(242)
1,730
-
35
(54,754)
-
76,752
(1,721)
Toys
Other
- $
-
-
(73,556)
-
250,997
318,607
(67,610)
(3,329)
163,034
-
-
31,858
(154,139)
-
(73,556)
-
13,568
(16,618)
(4,734)
494,183
414,059
100,001
75,031
(73,556)
(21,352)
514,843
1,009,026
463,163
877,222
-
100,001
50,873
125,904
-
(73,556)
807
(20,545)
(144,174)
(8,626)
-
(119)
-
(135,429)
864,852
654,398
685,973
24,248
2,229,471 $
868,596
241,959
324,239
4,395
1,439,189 (3) $
100,001
89,448
145,853
288
335,590 (4) $
125,785
59,322
73,433
1,721
260,261 (5) $
(73,556)
100,549
64,533
12,106
103,632 $
(155,974)
163,120
77,915
5,738
90,799 (6)
18,845,392 $
1,246,496
21,248,320
9,732,818 $
1,036,130
10,752,763
4,383,418 $
102,635
4,310,974
2,057,374
6,007
3,580,803
- $
-
-
2,671,782
101,724
2,603,780
138
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. Segment Information – continued
(Amounts in thousands)
Total revenues
Total expenses
Operating income (loss)
(Loss) income from partially owned
entities, including Toys
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 attributable to
noncontrolling interests
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 141 and 142.
$
$
$
For the Year Ended December 31, 2013
Washington, DC
Retail
Properties
Toys
Other
New York
Total
2,669,269 $
1,819,009
850,260
1,470,907 $
910,498
560,409
541,161 $
347,686
193,475
372,435 $
199,650
172,785
- $
-
-
(338,785)
102,898
(24,876)
(481,304)
3,407
111,600
6,406
15,527
-
5,357
(181,966)
-
399,327
(2,794)
(6,968)
-
129
(102,277)
-
84,359
14,031
2,097
-
(362,377)
-
11
(55,219)
1,377
121,051
(2,311)
-
-
-
(362,377)
-
284,766
361,175
(76,409)
12,936
102,898
(30,373)
(141,842)
2,030
(130,760)
(2,520)
118,006
396,533
98,390
118,740
(362,377)
(133,280)
446,734
564,740
160,314
556,847
-
98,390
287,067
405,807
-
(362,377)
(647)
(133,927)
(88,769)
(10,786)
-
(3,065)
-
(74,918)
475,971
758,781
732,757
26,371
1,993,880 $
546,061
236,645
293,974
3,002
1,079,682 (3) $
98,390
116,131
142,409
(15,707)
341,223 (4) $
402,742
63,803
72,161
2,311
541,017 (5) $
(362,377)
181,586
135,178
33,532
(12,081) $
(208,845)
160,616
89,035
3,233
44,039 (6)
17,418,946 $
1,249,667
20,097,224
8,422,297 $
904,278
9,255,964
4,243,048 $
100,543
4,107,636
2,060,093 $
6,640
3,374,896
- $
83,224
83,224
2,693,508
154,982
3,275,504
139
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. Segment Information – continued
(Amounts in thousands)
Total revenues
Total expenses
Operating income (loss)
Income (loss) from partially owned
entities, including Toys
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
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 141 and 142.
$
$
$
For the Year Ended December 31, 2012
Washington, DC
Retail
Properties
Toys
Other
New York
Total
2,649,217 $
1,921,425
727,792
1,319,470 $
835,563
483,907
554,028 $
360,056
193,972
318,566 $
189,480
129,086
- $
-
-
423,126
63,936
(261,179)
(484,794)
13,347
482,228
(8,132)
207,773
-
4,002
(146,350)
-
549,332
(3,491)
(5,612)
-
126
(115,574)
-
72,912
(1,650)
1,458
-
21
(53,772)
8,491
85,284
-
14,859
-
-
-
-
14,859
-
457,153
536,326
(79,173)
204,648
63,936
(265,328)
(169,098)
4,856
(240,159)
(2,991)
474,096
545,841
71,262
85,284
14,859
(243,150)
220,445
694,541
30,293
576,134
167,766
239,028
(52,561)
32,723
-
14,859
74,947
(168,203)
(77,281)
(2,138)
-
1,812
-
(76,955)
617,260
760,523
735,293
7,026
2,120,102 $
573,996
187,855
252,257
3,751
1,017,859 (3) $
239,028
133,625
157,816
1,943
532,412 (4) $
34,535
79,462
86,529
-
200,526 (5) $
14,859
147,880
135,179
(16,629)
281,289 $
(245,158)
211,701
103,512
17,961
88,016 (6)
17,365,533 $
1,704,297
22,065,049
8,687,141 $
576,336
9,215,438
4,171,879 $
95,670
4,196,694
2,108,328 $
7,083
3,583,999
- $
478,041
478,041
2,398,185
547,167
4,590,877
140
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. 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(a)
Retail
Alexander's(b)
Hotel Pennsylvania
Total New York
(a)
(b) 2012 includes $179,934 for our share of net gain on sale of Kings Plaza.
2014
1,085,262 $
281,428
41,746
30,753
$
1,439,189
2014 and 2013 includes $440,537 and $127,512 net gains on sale of real estate, respectively.
$
$
For the Year Ended December 31,
2013
759,941 $
246,808
42,210
30,723
$
1,079,682
2012
568,518
189,484
231,402
28,455
1,017,859
(4) The elements of "Washington, DC" EBITDA are summarized below.
(Amounts in thousands)
Office, excluding the Skyline Properties (a)
Skyline properties
Total Office
Residential
Total Washington, DC
(a) 2012 includes $163,367 of net gains on sale of real estate.
$
$
For the Year Ended December 31,
2013
2012
2014
266,859 $
27,150
294,009
41,581
$
335,590
268,373 $
29,499
297,872
43,351
$
341,223
449,448
40,037
489,485
42,927
532,412
(5) 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,
2013
2012
2014
$
$
219,122 $
41,139
$
260,261
285,612 $
255,405
$
541,017
172,708
27,818
200,526
2014 includes $66,023 of net gains on sale of real estate and $5,676 of impairment losses. 2013 includes $81,806 of net gains on
sale of real estate, $59,599 of income pursuant to a settlement agreement with Stop & Shop and a $19,000 real estate impairment
loss. 2012 includes $15,821 of net gains on sale of real estate and a $33,775 real estate impairment loss.
(b)
2014 includes $20,842 of impairment losses. 2013 includes a $202,275 net gain on sale of the Green Acres Mall and a $13,443
real estate impairment loss. 2012 includes a $70,100 real estate impairment loss.
141
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. Segment Information – continued
Notes to preceding tabular information:
(6) 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 realized/unrealized gains on investments
Carried interest
Total
The Mart and trade shows
555 California Street
India real estate ventures
LNR(a)
Lexington(b)
Other investments
Corporate general and administrative expenses(c)
Investment income and other, net(c)
Acquisition and transaction related costs, and impairment losses(d)
Net gain on sale of marketable securities, land parcels and residential
condominiums
Our share of debt satisfaction gains and net gains on sale of real estate
of partially owned entities
Suffolk Downs impairment loss and loan reserve
Our share of impairment losses of partially owned entities
Losses from the disposition of investment in J.C. Penney
Severance costs (primarily reduction in force at the Mart)
Purchase price fair value adjustment and accelerated amortization of
discount on investment in subordinated debt of Independence Plaza
The Mart discontinued operations
Net gain resulting from Lexington's stock issuance and asset acquisition
Net income attributable to noncontrolling interests in the Operating Partnership
Preferred unit distributions of the Operating Partnership
For the Year Ended December 31,
2013
2014
2012
$
8,056 $
37,535
24,715
70,306
79,636
48,844
6,434
-
-
17,270
222,490
(94,929)
31,665
(31,348)
7,752 $
23,489
18,230
49,471
74,270
42,667
5,841
20,443
6,931
18,981
218,604
(94,904)
46,525
(24,857)
6,385
13,840
4,379
24,604
62,470
46,167
3,654
75,202
32,595
25,612
270,304
(89,082)
45,563
(17,386)
13,568
56,868
4,856
13,000
(10,263)
(5,771)
-
-
-
-
-
(127,888)
(5,492)
-
-
-
-
-
-
(47,563)
(50)
90,799 $
(23,659)
(1,158)
44,039 $
$
-
-
(4,936)
(300,752)
(3,005)
105,366
93,588
28,763
(35,327)
(9,936)
88,016
(a) On April 19, 2013, LNR was sold.
(b)
In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security -
available for sale. This investment was previously accounted for under the equity method (see page 112 for details).
(c) The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred
compensation plan of $11,557, $10,636 and $6,809 for the years ended December 31, 2014, 2013 and 2012,
respectively.
(d) The year ended December 31, 2014, includes $14,956 of transaction costs related to the spin-off of our strip shopping
centers and malls.
142
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, 2014, management conducted an assessment of the effectiveness of our internal control over financial
reporting based on the framework established in Internal Control – Integrated Framework (2013) 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, 2014 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 accounting principles generally accepted 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, 2014 has been audited by Deloitte & Touche
LLP, an independent registered public accounting firm, as stated in their report appearing on page 144, which expresses an unqualified
opinion on the effectiveness of our internal control over financial reporting as of December 31, 2014.
143
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, 2014, based on criteria established in Internal Control—Integrated Framework (2013) 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,
2014, based on the criteria established in Internal Control—Integrated Framework (2013) 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, 2014 of the Company
and our report dated February 17, 2015 expressed an unqualified opinion on those financial statements and financial statement
schedules.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 17, 2015
144
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, 2014, 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
Age
PRINCIPAL OCCUPATION, POSITION AND OFFICE
(Current and during past five years with Vornado unless otherwise stated)
Steven Roth
73 Chairman of the Board; Chief Executive Officer since April 2013 and 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.
Michael J. Franco
46
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
63
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
69
Mitchell N. Schear
Wendy Silverstein
56
54
Stephen W. Theriot
55
Executive Vice President - Finance and Chief Administrative Officer since June 2013; Executive
Vice President - Finance and Administration from January 1998 to June 2013, and Chief Financial
Officer from March 2001 to June 2013; 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.
Chief Financial Officer since June 2013; Assistant Treasurer of Alexander's, Inc. since May 2014;
Partner at Deloitte & Touche LLP (1994 - 2013) and most recently, leader of its Northeast Real
Estate practice (2011 - 2013).
The Registrant has adopted a Code of Business Conduct and Ethics that applies to, among others, Steven Roth, its principal
executive officer, and Stephen W. Theriot, its principal financial and accounting officer. This Code is available on our website at
www.vno.com.
145
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive officer and trustee 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, 2014 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)
4,668,945 (1) $
-
4,668,945
$
67.38
-
67.38
4,003,507 (2)
-
4,003,507
Plan Category
Equity compensation plans approved
by security holders
Equity compensation awards not
approved by security holders
Total
___________________________
(1)
Includes an aggregate of 1,848,830 shares/units, comprised of (i) 22,449 restricted common shares, (ii) 913,009 restricted Operating Partnership units and (iii)
913,372 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 8,007,014.
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.
146
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, 2014, 2013 and 2012
III--Real Estate and Accumulated Depreciation as of December 31, 2014
Pages in this
Annual Report
on Form 10-K
149
158
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.
12
21
23
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
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
147
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 17, 2015
By:
/s/ Stephen W. Theriot
Stephen W. Theriot, 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
Title
Date
By:
/s/Steven Roth
(Steven Roth)
Chairman of the Board of Trustees
and Chief Executive Officer
By:
/s/Candace K. Beinecke
(Candace K. Beinecke)
Trustee
By:
/s/Michael D. Fascitelli
(Michael D. Fascitelli)
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/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 17, 2015
February 17, 2015
February 17, 2015
February 17, 2015
February 17, 2015
February 17, 2015
February 17, 2015
February 17, 2015
February 17, 2015
By:
/s/Stephen W. Theriot
(Stephen W. Theriot)
Chief Financial Officer
February 17, 2015
(Principal Financial and Accounting Officer)
148
VORNADO REALTY TRUST
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
December 31, 2014
(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, 2014:
Allowance for doubtful accounts
Year Ended December 31, 2013:
Allowance for doubtful accounts
Year Ended December 31, 2012:
Allowance for doubtful accounts
$
32,069
$
3,614
$
(9,624)
$
26,059
$
40,839
$
11,417
$
(20,187)
$
32,069
$
46,531
$
9,697
$
(15,389)
$
40,839
149
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E
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 $3.6 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.
157
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,
2013
2012
2014
$
17,418,946 $ 17,365,533 $
15,444,754
225,536
1,348,153
18,992,635
147,243
131,646
1,014,876
18,512,055
1,093,109
18,845,392 $ 17,418,946 $
514,950
1,615,077
17,574,781
209,248
17,365,533
3,296,717 $
461,689
3,758,406
129,271
3,629,135 $
2,966,067 $
423,844
3,389,911
93,194
3,296,717 $
2,742,244
427,189
3,169,433
203,366
2,966,067
$
$
$
Real Estate
Balance at beginning of period
Additions during the period:
Land
Buildings & improvements
Less: Assets sold, written-off and deconsolidated
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
158
Exhibit No.
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
EXHIBIT INDEX
-
-
-
-
-
-
-
-
-
-
-
-
-
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
Articles Supplementary, 5.40% Series L Cumulative Redeemable Preferred Shares of
Beneficial Interest, liquidation preference $25.00 per share, no par value – Incorporated by
reference to Exhibit 3.6 to Vornado Realty Trust’s Registration Statement on Form 8-A
(File No. 001-11954), filed on January 25, 2013
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
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
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
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
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
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
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
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.
159
3.14
3.15
3.16
3.17
3.18
3.19
3.20
3.21
3.22
3.23
3.24
3.25
3.26
-
-
-
-
-
-
-
-
-
-
-
-
-
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
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
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
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
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
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
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
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
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
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
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
*
_______________________
Incorporated by reference.
*
*
*
*
*
*
*
*
*
*
*
*
*
160
3.27
3.28
3.29
3.30
3.31
3.32
3.33
3.34
3.35
3.36
3.37
3.38
3.39
3.40
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
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
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
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
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
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
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
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
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
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
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
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
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
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.
*
161
*
*
*
*
*
*
*
*
*
*
*
*
*
*
3.41
3.42
3.43
3.44
3.45
3.46
3.47
3.48
3.49
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
Forty-Fifth Amendment to Second Amended and Restated Agreement of Limited Partnership,
dated as of January 25, 2013 – 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 January 25, 2013
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 March 31, 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.
*
*
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162
10.1
-
10.2
**
-
10.3
**
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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
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
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
10.4
10.5
-
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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
10.6
**
-
10.7
**
-
10.8
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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
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
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
10.9
**
-
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
10.10
**
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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
10.11
**
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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
_______________________
Incorporated by reference.
Management contract or compensatory agreement.
*
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163
*
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*
*
10.12
**
- 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
10.13
**
10.14
**
- 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
- 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
10.15
**
- 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
10.16
**
- 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
10.17
**
- Amendment to Employment Agreement between Vornado Realty Trust and Mitchell N.
10.18
**
10.19
**
10.20
**
10.21
**
10.22
**
10.23
**
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
- 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
- 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
- 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
- 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
- Form of Vornado Realty Trust 2012 Outperformance Plan Award 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, 2012 (File No. 001-11954) filed on February 26, 2013
- Letter Agreement between Vornado Realty Trust and Michael D. Fascitelli, dated
February 27, 2013. Incorporated by reference to Exhibit 99.1 to Vornado Realty Trust’s
Current Report on Form 8-K (File No. 001-11954), filed on February 27, 2013
_______________________
Incorporated by reference.
Management contract or compensatory agreement.
*
**
164
10.24
**
- Waiver and Release between Vornado Realty Trust and Michael D. Fascitelli, dated
February 27, 2013. Incorporated by reference to Exhibit 99.2 to Vornado Realty Trust’s
Current Report on Form 8-K (File No. 001-11954), filed on February 27, 2013
10.25
-
Amendment to June 2011 Revolving Credit Agreement dated as of March 28, 2013, by and
among Vornado Realty L.P., as Borrower, the banks listed on the signature pages, and
J.P. Morgan Chase Bank N.A., as Administrative Agent. Incorporated by reference to
Exhibit 10.48 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2013 (File No. 001-11954), filed on May 6, 2013
10.26
**
10.27
**
10.28
**
10.29
**
10.30
- Form of Vornado Realty Trust 2013 Outperformance Plan Award Agreement. Incorporated
by reference to Exhibit 10.50 to Vornado Realty Trust’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2013 (File No. 001-11954), filed on May 6, 2013
- Employment agreement between Vornado Realty Trust and Stephen W. Theriot dated
June 1, 2013. Incorporated by reference to Exhibit 10.51 to Vornado Realty Trust’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (File No. 001-11954),
filed on August 5, 2013
-
-
Employment agreement between Vornado Realty Trust and Michael J. Franco dated
January 10, 2014. Incorporated by reference to Exhibit 10.52 to Vornado Realty Trust's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (File No. 001-11954),
filed on May 5, 2014
Form of Vornado Realty Trust 2014 Outerperformance Plan Award Agreement. Incorporated
by reference to Exhibit 10.53 to Vornado Realty Trust's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2014 (File No. 001-11954), filed on May 5, 2014
- Amended and Restated Revolving Credit Agreement dated as of September 30, 2014, by and
among Vornado Realty L.P. as borrower, Vornado Realty Trust as General Partner, the
Banks listed on the signature pages thereof, and JPMorgan Chase Bank N.A. as
Administrative Agent for the Banks. Incorporated by reference to Exhibit 10.54 to
Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2014 (File No. 001-11954), filed on November 3, 2014
*
*
*
*
*
*
*
_______________________
Incorporated by reference.
Management contract or compensatory agreement.
*
**
165
12
21
23
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
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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
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
166
VORNADO CORPORATE INFORMATION
TRUSTEES
STEVEN ROTH
Chairman of the Board
CANDACE K. BEINECKE
Chair of Hughes Hubbard & Reed LLP
MICHAEL D. FASCITELLI
Owner of MDF Capital LLC and 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
DANIEL R. TISCH*
Managing Member,
TowerView LLC
CORPORATE OFFICERS
STEVEN ROTH
Chairman of the Board and
Chief Executive Officer
DAVID R. GREENBAUM
President of the New York Division
MITCHELL N. SCHEAR
President of the Vornado/Charles E. Smith
Washington DC Division
MICHAEL J. FRANCO
Executive Vice President –
Chief Investment Officer
JOSEPH MACNOW
Executive Vice President –
Finance and Chief Administrative Officer
STEPHEN W. THERIOT
Chief Financial Officer
RICHARD R. WEST*
Dean Emeritus, Leonard N. Stern School of Business,
New York University
DIVISION EXECUTIVE VICE PRESIDENTS
RUSSELL B. WIGHT, JR.
Partner, Interstate Properties
*Members of the Audit Committee
GLEN J.WEISS
Executive Vice President
Leasing – New York Office
SHERRI A. WHITE
Executive Vice President
Leasing – New York Retail
BARRY S. LANGER
Executive Vice President
Development – New York
GASTON SILVA
Chief Operating Officer – New York
MYRON MAURER
Chief Operating Officer – theMart
JAMES E. CREEDON
Executive Vice President
Leasing – Washington, DC
LAURIE H. KRAMER
Executive Vice President
Finance – Washington, DC
PATRICK J. TYRRELL
Chief Operating Officer – Washington DC
ROBERT ENTIN
Executive Vice President
Chief Information Officer
MATTHEW IOCCO
Executive Vice President
Chief Accounting Officer
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, 2014. In
addition, as required by Section 303A.12(a) of
the New York Stock Exchange (NYSE) Listed
Company Manual, on June 6, 2014 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 12:00 PM on
Thursday, May 21, 2015 at the Saddle Brook
Marriott, Interstate 80 and the Garden State
Parkway, Saddle Brook, New Jersey 07663.