VORNADO REALTY TRUST 2015 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:
21.3 million square feet of Manhattan office space in 35 properties;
2.6 million square feet of Manhattan street retail space in 65 properties;
1,711 units in eleven residential properties;
The 1,700 room Hotel Pennsylvania located on Seventh Avenue at 33rd Street in
the heart of the Penn Plaza district;
A 32.4% interest in Alexander’s, Inc. (NYSE:ALX) which owns seven 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 2,566 associates;
Washington:
15.8 million square feet of office space in 57 properties;
2,414 units in seven residential properties;
Other Real Estate/Investments:
The 3.6 million square foot Mart (“theMART”) 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 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. The fund’s investment period
ended in July 2013;
A 32.5% interest in Toys “R” Us, Inc.; a 5.4% interest in Urban Edge Properties
(NYSE:UE); an 8.1% interest in Pennsylvania Real Estate Investment Trust
(NYSE:PEI); and a 7.9% interest in Lexington Realty Trust (NYSE:LXP); and
220 Central Park South, a 950-foot-tall residential luxury for-sale condominium
tower containing 400,000 salable square feet, currently under construction for
2018 delivery.
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
% increase in 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
% increase in funds from operations per share
Year Ended December 31,
2015
2,502,267,000
679,856,000
3.61
3.59
21,143,293,000
7,476,078,000
1,576,150,000
1,039,035,000
5.48
13.4%
$
$
$
$
$
$
$
$
$
2014
2,312,512,000
783,388,000
4.18
4.15
21,157,980,000
7,489,382,000
1,784,830,000
911,130,000
4.83
41.6%
Year Ended December 31,
2015
2,451,608,000
305,452,000
1.63
1.61
23,974,540,000
1,532,755,000
915,295,000
4.83
10.5%
$
$
$
$
$
$
$
$
2014
2,274,705,000
306,255,000
1.65
1.62
21,970,838,000
1,446,777,000
825,276,000
4.37
10.1%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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,
all as 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, 2015 was $915.3 million, $4.83 per diluted
share, compared to $825.3 million, $4.37 per diluted share, for the previous year, a 10.5% increase per share – a very
good year.
Funds from Operations, as Reported (apples-to-apples plus one-timers) for the year ended December 31, 2015
was $1,039.0 million, $5.48 per diluted share, compared to $911.1 million, $4.83 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, 2015 was $679.9 million, $3.59 per
diluted share, versus $783.4 million, $4.15 per diluted share, for the previous year.
Our core business is concentrated in New York, the most important city in the world, and in Washington, DC, our
nation’s capital, and is office and high street retail centric.
We have run Vornado for 36 years. In each year, cash flow from the core business has increased in both total dollars
and on a same-store basis until 2012 when for the first time, there was a decrease caused by the Base Realignment and
Closure Statute (“BRAC”) in Washington. 2013 began another run of increases.
Here are our financial results (presented in EBITDA format) by business segment:
($ 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 Shopping Center Spin Off(2)
(6.3%)
23.3%
(7.1%)
2015
Same Store
% Increase/
(Decrease)
Cash
GAAP
(1.0%)
5.6%
7.7%
2.3%
2.4%
4.2%
(24.6%)
(25.1%)
0.3%
1.5%
(1.1%)
1.7%
4.2%
% of 2015
EBITDA
Increase/
(Decrease)
2015/2014
2015
2014
2013
EBITDA
41.9%
22.9%
2.7%
1.5%
69.0%
20.6%
5.1%
3.2%
2.1%
100.0%
44.5
78.8
1.2
(7.7)
116.8
(3.4)
.1
1.0
(36.7)
77.8
655.0
358.4
42.9
23.0
1,079.3
322.9
79.1
49.9
33.6
1,564.8
610.5
279.6
41.7
30.7
962.5
326.3
79.0
48.9
70.3
1,487.0
584.2
245.9
42.2
30.3
902.6
333.9
71.9
42.7
49.5
1,400.6
Shopping Center Spin Off (2)
Other (see page 3 for details)
EBITDA before non-controlling interest and gains on sale of real estate
--
1,564.8
11.4
1,576.2
205.3
1,692.3
92.5
1,784.8
198.2
1,598.8
51.6
1,650.4
2 The shopping centers were spun off into Urban Edge Properties (NYSE:UE) in January 2015.
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, 2015, a copy of which accompanies this letter or can be viewed at www.vno.com.
2
Other EBITDA is comprised of:
($ IN MILLIONS)
Corporate general and administrative expenses
Acquisition related costs
Other investments
Investment income
EBITDA of properties and investments sold
Net gain on sale of other assets
Toys “R” Us EBITDA, including impairment losses of
240.8 in 2013
Loss on JCPenney investment
Lexington Realty Trust equity and gains from stock
issuances
Stop & Shop litigation settlement income
Other, net
Total
2015
(106.4)
(35.2)
47.5
26.4
65.4
6.7
2.5
--
--
--
4.5
11.4
2014
(94.9)
(31.3)
23.3
31.7
60.4
13.6
103.6
--
--
--
(13.9)
92.5
2013
(94.9)
(25.9)
28.6
49.3
87.8
58.2
(5.5)
(127.9)
20.4
59.6
1.9
51.6
3
The following chart reconciles Funds from Operations, as Reported 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:
Reversal of deferred tax allowance
FFO of real estate sold
Acquisition related costs
Net gain on sale of other assets
Toys “R” Us FFO
Loss on JCPenney investment
Stop & Shop litigation settlement income
Write-off of deferred financing and defeasance costs
Other
Total adjustments
Funds from Operations, as Adjusted for Comparability
Funds from Operations, as Adjusted for Comparability per share
2015
1,039.0
2014
911.1
2013
641.0
(90.0)
(46.4)
12.5
(6.7)
(2.5)
--
--
--
9.4
(123.7)
915.3
4.83
--
(188.9)
16.4
(13.6)
60.0
--
--
22.7
17.6
(85.8)
825.3
4.37
--
(240.3)
24.9
(58.2)
312.8
127.9
(59.6)
8.8
(11.0)
105.3
746.3
3.97
Funds from Operations, as Adjusted for Comparability increased by $90.0 million in 2015, to $4.83 from $4.37
per share, an increase of $0.46 per share, or 10.5%, as detailed below:
($ IN MILLIONS, EXCEPT PER SHARE)
Same Store Operations:
New York
Washington
theMART
555 California Street
Properties placed back into service
Acquisitions, net of interest expense
Vornado Capital Partners
Interest expense
Other
Increase in Comparable FFO
Amount
Per Share
14.3
(3.8)
1.4
2.0
46.9
50.1
(36.7)
17.6
(1.8)
90.0
0.07
(0.02)
0.01
0.01
0.24
0.26
(0.19)
0.09
(.01)
0.46
4
Report Card
Here is a chart showing Vornado’s total return to shareholders compared to the Office REIT and MSCI indices for
various periods ending December 31, 2015 and for 2016 year-to-date:
2016 YTD
One-year
Three-year
Five-year
Ten-year
Fifteen-year
Twenty-year
Vornado
(4.4)%(3)
(3.9)%(3)
50.3%
56.5%
92.9%
469.0%
1,407.9%
Office
REIT
Index
0.3%
0.3%
33.3%
51.0%
68.0%
213.8%
617.4%
MSCI
Index
6.0%
2.5%
37.0%
75.3%
103.2%
379.0%
676.4%
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 MILLIONS,
EXCEPT PER SHARE DATA)
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
Adjusted for Comparability
FFO
EBITDA
1,532.8
1,446.8
1,386.2
1,249.6
1,271.6
1,222.6
1,172.6
1,195.9
1,186.2
886.1
Amount
915.3
825.3
746.3
607.7
628.3
609.2
473.1
555.5
571.9
427.0
Per
Share
4.83
4.37
3.97
3.26
3.28
3.21
2.73
3.39
3.48
2.74
Shares
Outstanding
199.9
198.5
197.8
197.3
196.5
195.7
194.1
168.9
167.7
166.5
FFO has grown this year by 10.9% (10.5% on a per share basis), 8.5% per year over five years (8.5% on a per share
basis) and 8.6% per year over ten years (5.8% on a per share basis).
3
If Urban Edge Properties (UE), which was spun off in January 2015, was included, the results would have been (2.9)% for 2016 YTD and
(2.6)% for one-year. The child (UE) fared better than its parent (VNO) in the stock market during these periods.
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 have been limited to strategic New York retail
properties and creative class, value-add office projects; if we were an industrial company, you might call them bolt-on
acquisitions. We have pushed away from acquisitions which are off-the-fairway, non-strategic or over-priced.
Our disposition activity since 2012 has increased three-fold as we have implemented our strategic simplification. True
to our word…we have sold much more than we have acquired. We exited business lines, the mall business,(5) the
showroom business, LNR, etc., disposed of mistakes and sold anything off-the-fairway. We have executed over $4.7
billion of asset sales in 65 transactions, recognizing $1.7 billion of gains. We separated the strip shopping center
business(5) through a pro-rata tax-free spin off to our shareholders, a $3.7 billion transaction. Importantly, we have
also significantly upgraded the mix and quality of our assets. For example, trading:
the Green Acres B+ mall for the retail block at 666 Fifth Avenue;
866 UN Plaza for 655 Fifth Avenue (the Ferragamo store);
1740 Broadway, a B office building, for the St. Regis retail on Fifth Avenue; and
1750 Pennsylvania Avenue for Old Navy on 34th Street.
Here is a ten-year schedule of acquisitions and dispositions:
Acquisitions
Dispositions
($ IN MILLIONS)
2016 to date
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
Number of
Transactions
1
13
6
6
10
12
15
--
3
38
32
136
Asset
Cost
46.2
955.8
648.1
813.3
1,365.2
1,499.1
542.4
--
31.5
4,063.6
2,177.0
12,142.2
Number of
Transactions
--
11
11
20
23
7
5
16
6
5
3
107
(6)
Proceeds
--
975.6
1,061.4
1,429.8
1,222.3
389.2
137.8
262.8
493.2
186.3
105.2
6,263.6
(6)
Net
Gain
--
316.7
523.4
434.1
454.0
137.8
56.8
43.0
171.1
60.1
31.7
2,228.7
4 Excludes marketable securities.
5 We sold the malls (into a very strong market) and spun off the strips in half measure to de-conglomerate i.e., there is no real benefit in
having $50 million shopping centers in New Jersey, no matter how great they may be, together with million square foot office towers in
Manhattan and in half measure anticipating secular change (note the current softness in retail) and recognizing that with only a handful of
malls, we were in no man’s land. I believe the decision to exit the mall business will look better and better as each year goes by.
6 In addition, in 2015, we spun off Urban Edge in a $3.7 billion transaction.
6
2015 and 2016 to date acquisitions are detailed below:
($ IN MILLIONS EXCEPT SQUARE FEET)
2016 to date:
Mezzanine Loan – New York
2015:
150 West 34th Street – Old Navy – Retail
Center Building, Long Island City – Office
260 Eleventh Avenue – Office
512 West 22nd Street – Office (55% interest)
Crowne Plaza Times Square (increased ownership to
33.0% from 11.0%)
265 West 34th Street – Retail
Other
NY
NY
NY
NY
NY
NY
NY
Square Feet
Our
Ownership
--
78,000
446,000
184,000
95,000
77,000
3,000
84,000
Total
--
78,000
446,000
184,000
173,000
235,000
3,000
100,000
Asset
Cost
46.2
355.0
142.0
190.0
75.3
39.0
28.5
126.0
955.8
The action here takes place on the 45th floor where our acquisitions/dispositions teams reside. Special thanks to
CIO Michael Franco and EVP Mark Hudspeth and to SVPs Dan Guglielmone, Cliff Broser, Mario Ramirez, Adam
Green and the rest of the team; and also to SVP Ernie Wittich in Washington.
7
Capital Markets
At year-end we had $4.1 billion of liquidity comprised of $2.1 billion of cash, restricted cash and marketable securities
and $2.0 billion available on our $2.5 billion revolving credit facilities. Today, we have $4.4 billion of liquidity
comprised of $1.9 billion of cash, restricted cash and marketable securities and the full $2.5 billion available on our
$2.5 billion revolving credit facilities.
Since January 1, 2015, we have executed the following capital markets transactions:
In February 2016, we completed a $700 million refinancing of 770 Broadway, a 1,158,000 square foot
Manhattan office building. The five-year loan is interest-only at LIBOR + 1.75% (2.19% at March 31, 2016),
which was swapped for four and a half years to a fixed rate of 2.56%. We realized net proceeds of
approximately $330 million. The property was previously encumbered by a 5.65%, $353 million mortgage
which was scheduled to mature in March 2016.
In December, we completed a $450 million financing of the retail condominium of the St. Regis Hotel and
the adjacent retail town house located on Fifth Avenue at 55th Street. The loan matures in December 2020,
with two one-year extension options. The loan is interest only at LIBOR plus 1.80% (2.24% at March 31,
2016) for the first three years, LIBOR plus 1.90% for years four and five, and LIBOR plus 2.00% during the
extension periods. We own a 74.3% controlling interest in the joint venture which owns the property; we
received all proceeds from this financing.
In December, we completed a $375 million refinancing of 888 Seventh Avenue, a 882,000 square foot
Manhattan office building. The five-year loan is interest only at LIBOR plus 1.60% (2.04% at March 31,
2016) which was swapped for the term of the loan to a fixed rate of 3.15% and matures in December 2020.
We realized net proceeds of approximately $49 million.
In October, we entered into a $750 million unsecured delayed-draw term loan facility, which matures in
October 2018 with two one-year extension options. The interest rate is LIBOR plus 1.15% (1.58% at
March 31, 2016) with a fee of 0.20% per annum on the unused portion. At closing, we drew $187.5 million
and drew an additional $187.5 million in February 2016. All draws must be made by October 2017. This
facility, together with the $950 million development loan described below, provides the funding for our 220
Central Park South development.
In September, we upsized the loan on our 220 Central Park South development by $350 million to
$950 million. The interest rate on the loan is LIBOR plus 2.00% (2.43% at March 31, 2016) and the final
maturity date is 2020. In connection with the upsizing, the standby commitment for a $500 million
mezzanine loan for this development was terminated by payment of a $15 million fee.
In July, we completed a $580 million refinancing of 100 West 33rd Street, a 1,111,000 square foot property
comprised of 855,000 square feet of office space and the 256,000 square foot Manhattan Mall. The loan is
interest only at LIBOR plus 1.65% (2.09% at March 31, 2016) and matures in July 2020. We realized net
proceeds of approximately $242 million.
In June, we completed a $205 million financing in connection with the acquisition of 150 West 34th Street.
The loan bears interest at LIBOR plus 2.25% (2.69% at March 31, 2016) and matures in 2018 with two one-
year extension options.
In April, we completed a $308 million refinancing of RiverHouse Apartments, a three building, 1,670 unit
rental complex located in Arlington, VA. The loan is interest only at LIBOR plus 1.28% (1.72% at
March 31, 2016) and matures in 2025. We realized net proceeds of approximately $43 million. The property
was previously encumbered by a 5.43%, $195 million mortgage maturing in April 2015 and a $64 million
mortgage at LIBOR plus 1.53% maturing in 2018.
In January, we redeemed the $500 million principal amount of our outstanding 4.25% senior unsecured notes,
which were scheduled to mature on April 1, 2015, at par plus accrued interest.
Our Triple A capital markets team was responsible for over $4.4 billion of transactions in this very active year.
Thank you to EVP Mark Hudspeth and SVPs Richard Reczka and Jan LaChapelle.
8
Excluding financing related to the 220 Central Park South project,(7) our consolidated debt is currently 31% of our
enterprise value. Since stock prices fluctuate, we believe an even better measure of leverage may be debt to EBITDA
– ours is currently 7.2x. If we were to exclude the Skyline properties and use, say, $1 billion of excess cash to reduce
debt, pro forma debt to EBITDA would be 6.0x, low leverage indeed. By the way, the same pro forma metric using
total debt (consolidated debt plus our share of unconsolidated real estate joint ventures debt, excluding Toys “R” Us
debt) is also a low 6.7x.
Fixed rate debt accounted for 77% of debt with a weighted average rate of 4.0% and a weighted average term of
5.1 years, and floating rate debt accounted for 23% of debt with a weighted average interest rate of 2.0% and a
weighted average term of 5.8 years.
Last year, in my annual letter to shareholders (on page 10), I laid out our debt philosophy. Relevant paragraphs are
reprinted below; the numbers have been updated.
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, unsecured debt and secured or project-level debt.
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 $1 billion, in a
matter of days - no fuss, no muss, no roadshow…easy. But, like cigarettes, there should be two warnings on the label of
unsecured debt. First, that it bears the full faith and credit of the issuer, in effect a personal guarantee and, second, that
markets are volatile and unpredictable and even a market as big, deep and strong as the unsecured debt market shuts down
cold in every cycle, at the very worst time. To safely partake in this market, one should have modest maturities and have
back-up liquidity. We partake, but we partake in this market in a very measured way.
Secured or project-level debt is different. It is a much more cumbersome and time-consuming process to execute…but it
has no covenants and is recourse solely to the asset that is pledged.
Here is Vornado’s current debt structure:
($ IN THOUSANDS)
Nonrecourse Secured Debt
Unsecured Debt
Term Loan
Nonrecourse Joint Venture Debt
Total
9,373,739
850,000
375,000
10,598,739
2,605,672
13,204,411
We calculate that Vornado has about $22 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
$7 billion of assets, a worthy goal.
We have $11 billion of unencumbered Class A assets in New York.
Vornado remains committed to maintaining our investment grade rating.
7 We appropriately exclude 220 Central Park South debt since it is for-sale property and the debt will self liquidate from the proceeds of already
executed sales contracts.
9
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
2.4 million square feet; and in Washington we leased 2.0 million square feet.
As in past years, we present below leasing and occupancy statistics for our businesses:
(SQUARE FEET IN THOUSANDS)
Total
New York
Washington
Office
Street
Retail
2015
Square feet leased
GAAP Mark-to-Market
Number of transactions
2014
Square feet leased
GAAP Mark-to-Market
Number of transactions
2013
Square feet leased
GAAP Mark-to-Market
Number of transactions
Occupancy rate:
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
4,354
9.1%
365
6,087
13.3%
380
4,384
13.6%
371
91.0%
90.6%
90.4%
90.4%
93.5%
95.5%
94.2%
95.7%
95.6%
94.2%
2,276
22.8%
165
4,151
18.8%
158
2,410
14.0%
162
96.3%
96.9%
96.6%
95.8%
96.2%
96.1%
95.5%
96.7%
97.6%
97.5%
91
99.6%
20
119
62.3%
30
138
92.6%
27
96.2%
96.5%
97.4%
96.8%
95.6%
96.4%
(9)
(9)
(9)
(9)
1,987 (8)
(8.2 )%
180
1,817 (8)
(3.3) %
192
1,836
3.8 %
182
84.8 %
83.6 %
83.4 %
84.1 %
90.6 %
95.0 %
93.0 %
94.2 %
93.4 %
91.2 %
Washington
Excluding
Skyline
91.5%
89.5%
87.7%
88.8%
93.5%
95.2%
92.6%
93.8%
92.3%
89.6%
Year in and year out, our New York Office occupancy rate is in the high 90s. That’s some performance. Thanks to
EVP Glen Weiss and his New York leasing machine: Josh Glick, Craig Panzirer, Jared Solomon, Andy Ackerman,
Jared Silverman and Edward Riguardi. Kudos as well to the Washington leasing team, who year-after-year are in the
2 million square foot club.
8 Excludes 161 square feet in 2015 and 247 square feet in 2014 of retail leases.
9
Included in New York Office.
10
Leasing highlights this year in the New York division include:
GSA at 85 Tenth Avenue – 171,000 square feet;
Footlocker at 330 West 34th Street – 145,000 square feet;
PJT Partners LLC at 280 Park Avenue – 142,000 square feet;
Fiduciary Trust at 280 Park Avenue – 127,000 square feet;
TPG Capital at 888 7th Avenue – 99,000 square feet;
Interpublic Group at 100 West 33rd Street – 94,000 square feet;
Structure Tone at 330 West 34th Street – 82,000 square feet;
Facebook at 770 Broadway – 80,000 square feet;
AOL at 770 Broadway – 79,000 square feet;
Morrison Cohen at 909 3rd Avenue – 65,000 square feet;
GIC at 280 Park Avenue – 50,000 square feet;
Phillips Nizer at 666 5th Avenue – 50,000 square feet;
Victoria’s Secret at 640 5th Avenue – 64,000 square feet;
Swatch at St. Regis/1535 Broadway – 12,000 square feet;
Harry Winston at St. Regis – 8,000 square feet; and
Moncler at 650 Madison Avenue – 6,000 square feet.
theMART:
ConAgra Foods – 168,000 square feet;
Yelp – 142,000 square feet;
1871 – 51,000 square feet;
Allstate – 45,000 square feet;
Teknion – 23,000 square feet; and
PayPal – 22,000 square feet.
555 California Street:
Sidley Austin – 53,000 square feet; and
Supercell – 23,000 square feet.
Leasing highlights this year in the Washington division include:
U.S. Marshals Service at 1215 South Clark/201 12th Street – 371,000 square feet;
WeWork at 1875 Connecticut Avenue – 122,000 square feet;
U.S. Department of Defense at Skyline – 97,000 square feet;
Social Security Administration at 2121 Crystal Drive – 66,000 square feet;
Cushman & Wakefield at 2101 L Street – 59,000 square feet;
U.S. Department of the Treasury at 875 15th Street – 58,000 square feet;
U.S. Department of Defense at 1550 Crystal Drive – 45,000 square feet; and
Smithsonian Institution at 2011 Crystal Drive – 46,000 square feet.
Thank you to our all-star leasing captains: Glen Weiss, Ed Hogan, Jim Creedon, Bruce Pascal and Paul Heinen.
11
Business Review
In our marathon fourth quarter conference call just six weeks ago, David Greenbaum, President of the New York
Division, and Mitchell Schear, President of the Washington, DC Division, extensively reviewed their businesses. Please
visit our website to read their comments at www.vno.com.
Manhattan High Street Retail
We own the best-in-class 65-property, 2.6 million square foot street retail business in Manhattan, concentrated on the
best high streets – Fifth Avenue, Times Square, Madison Avenue, Penn Plaza and Soho. While the street retail portfolio
accounts for 9% of our total Manhattan square footage, it generates 33% of the New York division EBITDA. As David
mentioned on our fourth quarter earnings call, the Victoria’s Secret and Swatch leases we did in 2015 on upper Fifth
Avenue are equivalent in value to a 1 million square foot office tower. This is a growing business. Here are the
statistics:
($ IN MILLIONS)
2015
2014
2013
2012
Number of
Properties
65
57
54
47
EBITDA
358.4
279.7
245.9
189.0
Acquisitions
Number
7
3
4
2
Asset Cost
486.2
604.4
343.3
947.0
High street retail is the most unique, scarce, lowest cap rate real estate asset class. It exists in Manhattan and a handful
of other gateway cities. In last year’s letter, pages 14-15, I discussed the extraordinary rental growth and value creation
that this asset class has had over the last 10 years.
12
Penn Plaza
Please visit our website at www.vno.com to view work-in-process images of our plans to transform Two Penn Plaza.
This design is by BIG, Bjarke Ingel’s architectural firm. Google his work…it’s amazing. Our intent here is to transform
a good 48 year old building(10) with its punched windows into a modern age building for today’s office users with a new
floor-to-ceiling glass curtain wall. The main event here is the massive, undulating canopy (in spots it’s 85 feet high and
extends out 65 feet) inspired by the iconic photograph of Marilyn Monroe standing over a subway grate holding down
her skirt in The Seven Year Itch (hence, Bjarke has named this design SKIRT), which will provide grand entrances for
Penn Station, Madison Square Garden and our Two Penn Plaza office building. The entrances to Penn Station and
Madison Square Garden surely deserve a place-making gesture as grand as our SKIRT design.
We intend to cluster the 1.6 million square foot Two Penn Plaza and the 2.6 million square foot One Penn Plaza
(currently connected underground via Penn Station) into a 4.2 million square foot complex. Think about it, 4.2 million
square feet of modernized space located in the heart of Manhattan’s new West Side, directly on top of Penn Station (the
busiest transit hub in North America), adjacent to the sports and entertainment mecca, Madison Square Garden, and
across the street from Macy’s, the world’s largest department store. And our scale here will permit us to provide our
tenants with the best and largest food and amenities complex this side of Silicon Valley.
This is an ambitious and long-term project and the first of many to transform our vast Penn Plaza holdings. Penn Plaza
is Vornado’s big kahuna.
David and I and all senior management work on Penn Plaza…together with the project team, lead by Barry Langer,
including Marc Ricks and Judy Kessler with David Bellman on the construction side. Craig Dykers, a founding partner
of Snøhetta, is the master plan architect.
220 Central Park South
Our business is owning income-producing property for the long term. We seek both recurring income and capital
appreciation. Every once in a while we do a for-sale condo project. The last one was a dozen years ago when we sold
apartments at the top of the Bloomberg tower; in that case it was really a binary decision, since the zoning dictated that
we either build apartments or forego that square footage. We got into the 220 Central Park South condo project initially
by providing financing and, after the twists and turns of the Great Recession, ended up the full owner and developer.
And, boy are we happy about that.
It is the best site in town with 140 feet of frontage on Central Park;
Our aim here is to create the best apartment project in town, highest quality, highly-amenitized, and
designed by Robert A.M. Stern Architects and the Office of Thierry Despont;
We began sales in February 2015 in a two-room salon adjacent to my office. Since then, we have signed
contracts with deposits for $1.7 billion of apartments, more than half of the projected sell out, at record
setting prices;
45% of the buyers are New Yorkers and an additional 30% are Americans from other parts of the country;
and
The building is now 350 feet vertical (up to the 25th floor) and will rise at the rate of one floor per week to
its full height of 950 feet.
Please visit our website at www.vno.com to view images of 220 Central Park South and for a recent picture of the
building as it begins to claim its position on the skyline.
Vornado is a full service, vertically integrated real estate business. We have a robust development and construction
operation, building 220 Central Park South and all of our many other projects from the largest down to 5,000 square foot
pre-builds and tenant build-outs. Thank you to EVP, Development Barry Langer; Mel Blum, a senior leader on the 220
Central Park South project; Eli Zamek, who heads up construction on this project; and the rest of our gold medal
development team.
10 We are the market leader in these types of transformations, having recently completed the very successful repositioning of seven buildings totaling
6.4 million square feet.
13
Washington
We continue to explore separating Washington into its own freestanding business unit. There can be no assurance
that any transaction will be completed. And, we have begun a process to dispose of the Skyline properties.(11)
Our objective in pursuing a separation of Washington would be much the same as it was in our separation of Urban
Edge Properties, namely to create a smaller, laser-focused business unit with its own dedicated management and its
own report card (i.e. stock price). In the case of UE, de-conglomerating was in order, i.e. $50 million New Jersey
shopping centers, no matter how great they may be, are not a natural fit with million square foot Manhattan office
towers. While it is true that Washington and New York are both office-centric, each is its own market and there
really is little overlap or synergy between them. Furthermore, New York and Washington are in totally different
lifecycle situations (growth vs recovery).
Our Washington business is bouncing along the bottom.(12) Excluding Skyline and buildings coming out of service,
we expect the core business’ EBITDA to be flat to positive $4 million in 2016 versus 2015.
Mitchell Schear and team have done a wonderful job of innovating and dealmaking in a difficult market.
Washington has a very sizable future development pipeline, outlined below, which will take place over an extended
period of time as market conditions permit. This is quite a warrant on the future of the nation’s capital.
Crystal City
Pentagon City
District of Columbia
Rosslyn
Reston
Total
(SQUARE FEET IN THOUSANDS)
Office
Retail
Residential
Units
600
1,700
600
425
380
3,705
300
100
--
--
10
410
2,300
2,600
--
200
500
5,600
The 3.7 million square foot future office development pipeline is the net result of 5.7 million square feet of
new-builds less 2.0 million square feet which will be razed to create the sites and increased density.
11 Skyline is subject to a non-recourse mortgage loan of $678 million. We have requested the loan be transferred to special servicing with the
intent to substantially restructure the loan and/or dispose of all or a substantial interest in the properties.
12 Washington has been a victim of the U.S. Government’s Department of Defense Base Realignment and Closure Statute move-outs, limited
government growth in the Capital District, and a generally all around soft real estate market. Confoundingly, Washington has the lowest
unemployment rate in the nation, the most educated work force in the nation, coupled with the highest vacancy rate in the nation; something
doesn’t add up.
14
Corporate Governance
Over the last nine years, we have received our share of non-binding, precatory, shareholder proposals, all of which
related to corporate governance.(13) Over that period, the standard for shareholder participation in the governance
process has changed quite substantially. Year in and year out, we are in constant communication with our
shareholders…at industry events (at least four a year), numerous property tours and one-on-ones, not to mention our
frequent issuance of press releases, financial reports and updates to our website. Over the last two years, we initiated
a robust process of outreach to our shareholders, specifically focused on governance, led by Trustee Candace
Beinecke, Chair of the Corporate Governance and Nominating Committee, together with Stephen Theriot, Chief
Financial Officer; Joseph Macnow, Chief Administrative Officer; Catherine Creswell, SVP, Director of Investor
Relations; and Alan Rice, SVP, Corporation Counsel and Secretary.
Responsive to our shareholders and acknowledging that it is no longer appropriate for us to be an outlier, our Board
has taken the following important governance steps:
We will de-stagger our Board, i.e., all trustees will be elected annually. At our upcoming annual meeting in
May, the Board is proposing a charter amendment which provides that beginning in 2017, nominees would
be elected annually and, therefore, in 2019, all trustees would be elected annually;(14)
We have adopted a trustee resignation policy in the event a trustee does not receive majority support from
our investors;
We have elected Candace Beinecke as Lead Trustee;
We have amended our Governance Guidelines to provide for increased clarity and emphasis on diversity as
a criteria for the selection of new trustees; and
We will add one or two new independent trustees.(15)
For a complete summary, including all the improvements to our governance status, please refer to our proxy
statement which can be viewed at www.vno.com-proxy and governance section on our website at www.vno.com-
governance.
Thank you to Candace, Joe, Steve, Alan and Cathy for your efforts in this regard, and thank you to Russ Wight, who
has served as our Lead Trustee for the past five years.
13 This year we have received none.
14 This phase out process is frequently used by others when declassifying their boards.
15 Our Board is great, just getting a little old.
15
Public Real Estate Is Cheap
Over the last five years, public real estate has been selling cheap compared to private real estate values. This seems
to be a chronic phenomenon. With respect to Vornado, not only does each asset in a sum-of-the-parts sell cheap, but
the public valuation of our Company gives no credit whatsoever for our franchise value, our management team or
our balance sheet, which taken together, year in and year out, have a track record of creating increasing shareholder
value. We are not alone here. Below is a table comparing five office REITS with significant New York holdings:
NAV- stock price (discount)/premium to
Green Street estimate
-21.2%
-10.6%
-29.9%
-26.1%
-15.6%
Vornado
A
B
C
D
For better or for worse, I am a public real estate CEO lifer. I am a disciple of the stock market. I believe in its
predictive value and I respect it as a weighing machine. Nonetheless, we do have a chronic NAV discount...what
have we done about it, so far?
We have simplified, pruned and focused, selling $4.7 billion of assets. Today we are 69% Manhattan-
centric, 21% Washington-centric and 10% theMART and 555 California Street;
We own and continue to build the largest and highest quality Manhattan high street retail business; it is
unique and one of a kind;
Ditto our Manhattan office business;
We spun off Urban Edge Properties, a $3.7 billion transaction;
We have further strengthened our already fortress, low-levered balance sheet;
We have modernized our corporate governance; and
We continue to explore separating Washington.(16)
16 The table below sets forth a comparison of the ten year history of comparable EBITDA of our growing New York business and our
Washington business. And, just for kicks (and completeness), we also show the performance of Urban Edge assets during the period we
owned them:
($ IN MILLIONS)
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
CAGR:
Five year
Ten year
Washington
New York
1,079.3
962.5
902.6
778.1
752.5
715.9
672.3
693.3
620.4
472.1
420.5
Historical
322.9
326.3
333.9
352.6
403.0
399.4
374.7
349.9
328.9
297.7
249.6
Excluding
Skyline
298.7
299.1
304.4
312.6
346.9
339.2
316.6
295.4
275.2
246.4
202.2
8.6%
9.9%
-4.2%
2.6%
-2.5%
4.0%
Urban Edge
195.4
190.1
185.5
179.5
177.5
167.5
154.2
136.4
120.1
125.7
3.1%
5.0%
16
Some Thoughts, 2015 Version
I love our business - Vornado is a big business, $32.1 billion of total enterprise value. 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 largest portfolio of retail on the high streets of Manhattan.
Vornado and its management team are one of only a very small handful of firms who have the capital base, track
record, talent, relationships, and trust in the marketplace to lease, acquire, develop, finance and manage million square
foot towers and Fifth Avenue retail. It’s a complicated business, rookies need not apply.
In my last year’s letter to shareholders, and in each of our earnings calls since then, I stated that:
The easy money has been made for this cycle;
Asset prices are high, well past the 2007 peak;
It’s a better time to sell than to invest; and
Now is the time in the cycle when the smart guys build cash for opportunities that will undoubtedly present
themselves in the future.
To be honest, I didn’t expect to be so right…so quickly.
Quality is everything. We recently published a 342-page coffee table book of Vornado’s Manhattan, highlighting our
105 properties. This book shows clearly the quality of our portfolio. It has been very well received by our
shareholders, analysts, lenders, tenants and other stakeholders. The book has now been posted on our website at
www.vno.com. Please take a look. Thank you Lisa Vogel, SVP - Marketing and her team who created this book.
We have reached our target of $2 billion of cash and over $4 billion of immediate liquidity. We understand this is not
without cost and that, say, each $500 million of cash in the treasury, which today earns nil, has a cost of $12 - 15
million of annual earnings.
Well chosen Manhattan real estate has a history of doubling in value every ten years. In fact, we have a handful of
properties (770 Broadway, 640 Fifth Avenue, etc.) that have appreciated ten times in the past 15 years. This kind of
appreciation is never linear or predictable and therefore, assets of this quality are in the never-sell category. By the
way, theMART has appreciated six times since we have owned it, mostly in the last three years.
Thinking about the future and planning for it is a big part of our job description. Some years ago, I coined the phrase
Manhattan is tilting to the West and to the South. We are moving South and we were the early mover in Penn Plaza.
Anticipating secular change in retail, we decided to exit the mall business. We spend a fair amount of time in our
council rooms debating such issues as trends, demographics and neighborhoods. Also, what is the office of the future?
How will people want to live; what is the apartment of the future? What will shopping be like in 10 years? And so on.
To my mind, credit markets are a very sensitive barometer of economic health (even more sensitive than the stock
market), sort of like an early warning signal (the proverbial canary in a coal mine). Today, the credit markets are
clogged and choppy…and selective. When you think about it, this creates a competitive advantage for a blue-chip,
low-levered, well-capitalized, established sponsor such as Vornado.
It’s too early to tell what effect the recent volatility in the financial markets will have on leasing or on asset valuations.
My guess is not all that much. We have been long overdue for a correction and after all…a swoon in economic
activity and volatility in the debt and equity markets seem a sure recipe for continued easy money and low interest
rates. I see no hiccups in the New York Class A office market. Vornado’s office business continues to perform at
very high levels. 2015 GAAP mark-to-market was a very strong 22.8%, and is continuing at a similar pace in the first
quarter of 2016.
Urban Edge Properties celebrated its first anniversary in January and we couldn’t be more delighted with its
performance. We gave birth to UE ... seeding it with our unique, high-barrier, Northeastern shopping center assets, and
with our management and staff. We recruited Jeff Olson, a best-in-class CEO, and launched it with a strong balance
sheet (low leverage and $225 million of cash) supported by an experienced and engaged Board. UE is producing the
exact result we had expected… focus, focus, focus. And, investors, the final report card, are rewarding UE with an
appropriate stock price. UE’s total shareholder return for the 15 months since it was spun off is 11.3%. UE’s stock has
held rock solid in the recent months of volatility. And think about it, if the UE assets were still bundled inside of
Vornado, they probably would be valued at a discount, just like Vornado. Given the success of UE, the concept of
laser-focused, smaller entities may well be a template for the future.
17
Sustainability
Vornado continues to lead the industry in sustainability – it’s important to our tenants and investors, and it is important to us.
From energy conservation, to healthy indoor environments, to sustainable new construction, we continuously improve our
programs each year.
We recognize that a portfolio of our size carries a big responsibility to manage energy, and we work hard to monitor, control,
and reduce our consumption. Our energy efficiency capital projects continue to save energy and modernize our existing
buildings. We are an active participant in demand response and contribute significantly to reducing electricity grid constraints
in each of our markets.
Our tenants spend the majority of their week working in our buildings, and we recognize our responsibility to provide a
healthy indoor environment for them. We are focused on maintaining healthy air and water supplies, and our cleaning
company leads the industry in least-toxic cleaning policies.
We have also incorporated sustainable design into our new buildings, both in New York and in Washington. Our pipeline of
new office buildings will be among the greenest in the industry.
Our programs deliver results: in 2015, we reduced our energy consumption by 34,000 megawatt hours and recycled and
composted over 17,000 tons of waste. We were named ENERGY STAR Partner of the Year (3rd year in a row), we won
NAREIT’s Leader in the Light Award (6th year in a row) and we again earned the Global Real Estate Sustainability
Benchmark (GRESB) Green Star ranking (3rd year in a row).
For more details on our 2015 sustainability efforts, including our Global Reporting Initiative (GRI) Index, please see our
sustainability report at www.vno.com.
18
We continually broaden our leadership team through promotions from within our Company. Please join me in congratulating
this year’s class; they deserve it.
Ed Hogan was promoted to Executive Vice President, Head of Retail Leasing;
Brian Kurtz was promoted to Executive Vice President, Financial Administration;
Craig Stern was promoted to Executive Vice President, Tax & Compliance;
Jan LaChapelle was promoted to Senior Vice President, Acquisitions & Capital Markets;
Geoff Smith was promoted to Senior Vice President, Development;
Stacia O’Connor was promoted to Senior Vice President, Operations;
Gordon Fraley was promoted to Senior Vice President, Development;
Chris Kennedy was promoted to Senior Vice President, SEC Reporting and Corporate Investments;
Cathy Creswell was promoted to Senior Vice President, Investor Relations;
Errol Labosky was promoted to Senior Vice President, Internal Audit;
Niles Llolla was promoted to Vice President, Senior Property Manager;
Nick DeCicco was promoted to Vice President, Retail Financial Officer;
Bridget Cunningham was promoted to Vice President, Operations;
Joanne Porrazzo was promoted to Vice President, Operations;
Maulik Shah was promoted to Vice President, Construction;
Andrew Abramson was promoted to Vice President, GSA Leasing;
Michael Novotny was promoted to Vice President, Development;
Dave Barattin was promoted to Vice President, Financial Planning and Analysis; and
Dana Fulton was promoted to Vice President, Property Accounting.
Welcome Ed Hogan, EVP, Head of Retail Leasing; Jessica Burriss, SVP, Financial Planning and Analysis; Melissa Calkins,
SVP, Residential; Gary Hansen, VP, Alexander’s Controller; Michael Sadowski, VP, Application Development; Claude
Koniuch, VP, Design and Construction; Robyn Neff, VP, Leasing Counsel; Frank Bonura, VP, Development; Mitchell
Dearman, VP, Retail Leasing and Michael Tangredi, VP, Design and Construction.
Year-after-year, 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.
We are fortunate to have in our New York, Washington and Finance Divisions, a group of super leaders, our exceptional
Division Executive Vice Presidents. They deserve special recognition and our thanks: Glen Weiss, Leasing – New York
Office; Ed Hogan, Leasing – New York Retail; Mark Hudspeth, Capital Markets; Barry Langer, Development – New York;
Tom Sanelli, Chief Financial Officer – New York; Gaston Silva, Chief Operating Officer – New York; Myron Maurer, Chief
Operating Officer – theMART; James Creedon, Leasing – Washington, DC; Laurie Kramer, Finance – Washington, DC;
Patrick Tyrrell, Chief Operating Officer – Washington, DC; Robert Entin, Chief Information Officer; Matthew Iocco, Chief
Accounting Officer; Brian Kurtz, Financial Administration; and Craig Stern, Tax & Compliance.
Thank you as well to our very talented and hardworking 46 Senior Vice Presidents and 80 Vice Presidents who make the
trains run on time, every day.
19
Our Vornado Family has grown with 11 marriages and 35 births this year, 19 girls and 16 boys, but who’s counting.
On behalf of Vornado’s Board, senior management and 4,083 associates, we thank our shareholders, analysts and other
stakeholders for their continued support.
Steven Roth
Chairman and CEO
April 4, 2016
Again this year, I offer to assist shareholders with tickets to my wife’s productions on Broadway – the still-going-strong,
Tony award-winning Best Musical Kinky Boots, as well as Fuerza Bruta and The Robber Bride Groom. Please call if I can
be of help.
20
21
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
2015
2014
2013
2012
2011
2010
760.4
469.8
864.9
654.4
476.0
758.8
617.3
760.5
662.3
797.9
647.9
828.1
2009
106.2
826.8
2008
359.3
821.9
2007
541.5
853.5
2006
554.8
698.4
579.3
710.2
759.1
742.3
782.2
706.4
739.0
568.1
680.9
530.7
1,809.5
2,229.5
1,993.9
2,120.1
2,242.4
2,182.4
1,672.0
1,749.3
2,075.9
1,783.9
(293.6)
(518.8)
(412.1)
(471.4)
(61.4)
(63.0)
(46.7)
(67.0)
(80.5)
(45.9)
17.0
43.3
26.5
47.6
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
gains on sale of real estate
1,576.2
1,784.8
1,650.4
1,825.8
2,265.7
2,283.6
1,673.6
1,737.7
2,065.2
1,817.9
Non-comparable items
(43.5)
(338.0)
(264.3)
(576.2)
(994.1)
(1,061.0)
(501.0)
(541.8)
(879.0)
(931.8)
EBITDA adjusted for comparability
1,532.7
1,446.8
1,386.1
1,249.6
1,271.6
1,222.6
1,172.6
1,195.9
1,186.2
886.1
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
2012
617.3
2011
662.3
(67.9)
(60.5)
549.4
504.4
601.8
530.1
(245.8)
(51.6)
130.0
28.8
154.7
170.9
(241.6)
(9.8)
(27.5)
(24.6)
11.6
--
(16.6)
(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
818.6
1,231.2
1,251.5
$4.39
$6.42
$6.59
2009
106.2
(57.1)
49.1
508.6
(45.3)
23.2
2008
359.3
2007
541.5
(57.1)
(57.1)
302.2
509.4
484.4
451.3
(57.5)
(60.8)
--
--
140.6
115.9
(1.4)
(22.9)
--
(9.5)
(23.2)
--
134.0
(15.5)
(28.8)
--
2006
554.8
(57.5)
497.3
337.7
(33.8)
--
105.6
(13.2)
(21.0)
--
(47.0)
(49.7)
(46.7)
(39.8)
--
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
$5.51
Below is a reconciliation of Revenues to Revenues as adjusted for comparability:
Below is a reconciliation of Total Assets to Total Assets as adjusted for comparability:
($ IN MILLIONS)
Revenues
Non-comparable items:
Assets related to sold properties
Other
Revenues, adjusted for comparability
2015
2,502.3
(48.4 )
(2.3 )
2,451.6
2014
2,312.5
(37.8 )
--
2,274.7
($ IN MILLIONS)
Total Assets
Non-comparable items:
2015
21,143.3
2014
21,158.0
Assets related to sold properties
Cash available to repay revolving credit facilities
Accumulated depreciation
Total assets, adjusted for comparability
(37.0 )
(550.0 )
3,418.3
23,974.6
(2,348.8 )
--
3,161.6
21,970.8
22
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, 2015
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 $16,366,466,000 at June 30, 2015.
As of December 31, 2015, there were 188,576,853 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 19, 2016.
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
5
9
20
21
30
30
31
33
35
88
89
139
139
141
141
142
142
142
142
143
144
(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, 2015, portions of which are incorporated by reference herein.
3
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.
4
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 93.7% of the common limited partnership interest in the Operating Partnership
at December 31, 2015. All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its
consolidated subsidiaries, including the Operating Partnership.
On January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers,
three malls, a warehouse park and $225 million of cash to Urban Edge Properties (“UE”) (NYSE: UE). As part of this transaction, we
received 5,717,184 UE operating partnership units (5.4% ownership interest).
We currently own all or portions of:
New York:
•
•
•
21.3 million square feet of Manhattan office space in 35 properties;
2.6 million square feet of Manhattan street retail space in 65 properties;
1,711 units in eleven residential properties;
• The 1,700 room Hotel Pennsylvania located on Seventh Avenue at 33rd Street in the heart of the Penn Plaza district;
• A 32.4% interest in Alexander’s, Inc. (NYSE: ALX), which owns seven 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:
•
•
15.8 million square feet of office space in 57 properties;
2,414 units in seven residential properties;
Other Real Estate and Related Investments:
• The 3.6 million square foot Mart (“theMart”) 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 32.5% interest in Toys “R” Us, Inc.; and
• Other real estate and other investments.
5
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 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, 2015, we acquired assets aggregating $845.8 million. Below is the summary of the significant acquisitions.
150 West 34th Street for approximately $355 million
•
• The Center Building, located at 33-00 Northern Boulevard in Long Island City, NY for $142 million
•
260 Eleventh Avenue for 813,900 newly issued Vornado Operating Partnership units valued at approximately $80
million
265 West 34th Street for approximately $28.5 million
•
• 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
• We entered into a joint venture in which we have a 55% ownership interest to develop a Class-A office building at 512
West 22nd Street
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, 2015, we sold eleven assets for an aggregate of $1.044 billion, with net proceeds of approximately $980 million.
Below is a summary of these sales.
20 Broad Street for an aggregate consideration of $200 million resulting in net proceeds of $193.2 million
1750 Pennsylvania Avenue, NW in Washington, DC for $182 million resulting in net proceeds of $177.6 million
• We completed the spin-off of substantially all of our retail segment to Urban Edge Properties
•
•
• Our 50% interest in the Monmouth Mall in Eatontown, NJ for $38 million
• Our Geary Street, CA lease for $35.3 million resulting in net proceeds of $34.2 million
• We transferred the redeveloped Springfield Town Center, located in Springfield, VA to PREIT Associates, L.P. for
$485.3 million resulting in net proceeds of $463.5 million.
• Five residual retail assets for an aggregate of $11.4 million resulting in net proceeds of $10.7 million
•
520 Broadway for $91.7 million resulting in net proceeds of $62.9 million
Additional details about our dispositions are provided in the “Overview” of Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
6
FINANCINGS
Since January 1, 2015, we completed the following financing transactions:
• Entered into an unsecured delayed-draw term loan facility in the maximum amount of $750 million ($187.5 million
outstanding at December 31, 2015)
• Completed $700 million refinancing of 770 Broadway for net proceeds of approximately $330 million.
• Completed $580 million refinancing of 100 West 33rd Street for net proceeds of approximately $242 million
• Redeemed $500 million 4.25% senior unsecured notes due April 2015
• Completed $450 million financing of the retail condominium of the St. Regis Hotel and the adjacent retail town house
• Completed $375 million refinancing of 888 Seventh Avenue for net proceeds of approximately $49 million
• Upsized loan on 220 Central Park South development by $350 million to $950 million
• Completed $308 million refinancing of RiverHouse Apartments for net proceeds of approximately $43 million
•
$205 million of financing in connection with acquisition of 150 West 34th Street
Additional details about our financings are provided in the “Overview” of Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
DEVELOPMENT AND REDEVELOPMENT EXPENDITURES
We are constructing a residential condominium tower containing 392,000 salable square feet on our 220 Central Park South
development site. The incremental development cost of this project is approximately $1.3 billion, of which $293 million has been
expended as of December 31, 2015.
We are developing The Bartlett, a 699-unit residential project in Pentagon City, which is expected to be completed in 2016. The
project includes a 40,000 square foot Whole Foods Market at the base of the building. The incremental development cost of this
project is approximately $250 million, of which $166 million has been expended as of December 31, 2015.
On June 24, 2015, we entered into a joint venture, in which we own a 55% interest, to develop a 173,000 square foot Class-A
office building, located along the western edge of the High Line at 512 West 22nd Street in the West Chelsea submarket of Manhattan.
The development cost of this project is approximately $235 million. On November 24, 2015, the joint venture obtained a $126 million
construction loan. The loan matures in November 2019 with two six-month extension options. The interest rate is LIBOR plus 2.65%
(3.07% at December 31, 2015). As of December 31, 2015, the outstanding balance of the loan was $44.1 million, of which $24.2
million is our share.
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 the West Chelsea submarket of Manhattan. The venture’s current
plans are to construct an office building, with retail at the base, of approximately 167,000 square feet. Total development costs are
currently estimated to be approximately $150 million.
We plan to demolish two adjacent Washington, DC office properties, 1726 M Street and 1150 17th Street in the first half of 2016
and replace them in the future with a new 335,000 square foot Class A office building, to be addressed 1700 M Street. The
incremental development cost of the project is approximately $170 million.
We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including
the Penn Plaza District, and in Washington, including Crystal City, Rosslyn and Pentagon City.
There can be no assurance that any of our development or redevelopment projects will commence, or if commenced, be
completed, or completed on schedule or within budget.
7
SEGMENT DATA
We operate in the following business segments: New York and Washington, DC. Financial information related to these business
segments for the years ended December 31, 2015, 2014 and 2013 is set forth in Note 24 – 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 New York and Washington,
DC segments have historically experienced higher utility costs in the first and third quarters of the year.
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, 2015, 2014 and
2013.
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, 2015, we have approximately 4,089 employees, of which 298 are corporate staff. The New York segment
has 3,242 employees, including 2,566 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 487 employees at the
Hotel Pennsylvania. The Washington, DC segment and theMart properties have 462 and 87 employees, respectively. 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.
8
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 4.
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;
•
•
•
•
•
•
•
•
•
changes in space utilization by our tenants due to technology, economic conditions and business environment;
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.
9
Real estate is a competitive business.
We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower
returns on their investments. Principal factors of competition are rents charged, sales prices, attractiveness of location, the quality of
the property and the breadth and the quality of services provided. Our success depends upon, among other factors, trends of the global,
national, regional and local economies, the financial condition and operating results of current and prospective tenants and customers,
availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population and
employment trends.
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.
We may be unable to renew leases or relet space as leases expire.
When our tenants decide not to renew their leases upon their expiration, we may not be able to relet the space. Even if tenants do
renew or we can relet the space, the terms of renewal or reletting, taking into account among other things, the cost of improvements to
the property and leasing commissions, may be less favorable than the terms in the expired leases. In addition, changes in space
utilization by our tenants may impact our ability to renew or relet space without the need to incur substantial costs in renovating or
redesigning the internal configuration of the relevant property. If we are unable to promptly renew the leases or relet the space at
similar rates or if we incur substantial costs in renewing or reletting the space, our cash flow and ability to service debt obligations and
pay dividends and distributions to security holders could be adversely affected.
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.
10
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.
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.
We are required to comply with OFAC and related requirements and may be required to terminate or otherwise amend our leases,
loans and other agreements. 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 or reputation, all of which could negatively impact our financial results.
We face risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware,
computer viruses, attachments to e-mails, persons who access our systems from inside or outside our organization, and other
significant disruptions of our IT networks and related systems. The risk of a security breach or disruption, particularly through cyber
attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the
number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our IT networks and
related systems are essential to the operation of our business and our ability to perform day-to-day operations (including managing our
building systems) and, in some cases, may be critical to the operations of certain of our tenants. Although we make efforts to maintain
the security and integrity of these types of IT networks and related systems, and we have implemented various measures to manage the
risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that
attempted security breaches or disruptions would not be successful or damaging. Even the most well protected information, networks,
systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and
generally are not recognized until launched against a target, and in some cases are designed to not be detected and, in fact, may not be
detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other
preventative measures, and thus it is impossible for us to entirely mitigate this risk.
A security breach or other significant disruption involving our IT networks and related systems could disrupt the proper
functioning of our networks and systems and therefore our operations and/or those of certain of our tenants; result in the unauthorized
access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable
information of ours or others, which others could use to compete against us or which could expose us to damage claims by third-
parties for disruptive, destructive or otherwise harmful purposes and outcomes; result in our inability to maintain the building systems
relied upon by our tenants for the efficient use of their leased space; require significant management attention and resources to remedy
any damages that result; subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other
agreements; or damage our reputation among our tenants and investors generally. Any or all of the foregoing could have a material
adverse effect on our results of operations, financial condition and cash flows.
11
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 per property, and all risk property and
rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as flood and earthquake. Our
California properties have earthquake insurance with coverage of $180,000,000 per occurrence and in the annual aggregate, subject to
a deductible in the amount of 5% of the value of the affected property. We maintain coverage for terrorism acts with limits of $4.0
billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear,
biological, chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization
Act of 2015, which expires in December 2020.
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a
portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for
coverage for acts of terrorism including NBCR acts. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third
party insurance companies and the Federal government with no exposure to PPIC. For NBCR acts, PPIC is responsible for a
deductible of $3,200,000 ($2,400,000 effective January 1, 2016) per occurrence 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.
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.
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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 2015, approximately 92% 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:
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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 response to a terrorist attack or the perceived threat of terrorism, 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 and the effects of climate change 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.
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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, Inc. (“Toys”), Lexington Realty Trust (“Lexington”),
Urban Edge Properties (“UE”), Pennsylvania Real Estate Investment Trust (“PREIT”), and other equity and loan 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.
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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,
2015, our marketable securities have an aggregate carrying amount of $150,997,000, at market. Significant declines in the value of
these investments due to, among other reasons, operating performance or economic or market conditions, may result in the recognition
of impairment losses which could be material.
OUR ORGANIZATIONAL AND FINANCIAL STRUCTURE GIVES RISE TO OPERATIONAL AND FINANCIAL RISKS.
We may not be able to obtain capital to make investments.
We depend primarily on external financing to fund the growth of our business. This is because one of the requirements of the
Internal Revenue Code of 1986, as amended, for a REIT is that it distributes 90% of its taxable income, excluding net capital gains, to
its shareholders. There is a separate requirement to distribute net capital gains or pay a corporate level tax in lieu thereof. Our access
to debt or equity financing depends on the willingness of third parties to lend or make equity investments and on conditions in the
capital markets generally. Although we believe that we will be able to finance any investments we may wish to make in the
foreseeable future, there can be no assurance that new financing will be available or available on acceptable terms. For information
about our available sources of funds, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations
— Liquidity and Capital Resources” and the notes to the consolidated financial statements in this Annual Report on Form 10-K.
Vornado Realty Trust (“Vornado”) depends on dividends and distributions from its direct and indirect subsidiaries. The
creditors and preferred security holders of these subsidiaries are entitled to amounts payable to them by the subsidiaries before the
subsidiaries may pay any dividends or distributions to Vornado.
Substantially all of Vornado’s assets are held through its Operating Partnership that holds substantially all of its properties and
assets through subsidiaries. The Operating Partnership’s cash flow is dependent on cash distributions to it by its subsidiaries, and in
turn, substantially all of Vornado’s cash flow is dependent on cash distributions to it by the Operating Partnership. The creditors of
each of Vornado’s direct and indirect subsidiaries are entitled to payment of that subsidiary’s obligations to them, when due and
payable, before distributions may be made by that subsidiary to its equity holders. Thus, the Operating Partnership’s ability to make
distributions to holders of its units depends on its subsidiaries’ ability first to satisfy their obligations to their creditors and then to
make distributions to the Operating Partnership. Likewise, Vornado’s ability to pay dividends to holders of common and preferred
shares depends on the Operating Partnership’s ability first to satisfy its obligations to its creditors and make distributions payable to
holders of preferred units and then to make distributions to Vornado.
Furthermore, the holders of preferred units of the Operating Partnership are entitled to receive preferred distributions before
payment of distributions to holders of Class A units of the Operating Partnership, including Vornado. Thus, Vornado’s ability to pay
cash dividends to its shareholders and satisfy its debt obligations depends on the Operating Partnership’s ability first to satisfy its
obligations to its creditors and make distributions to holders of its preferred units and then to holders of its Class A units, including
Vornado. As of December 31, 2015, there were four series of preferred units of the Operating Partnership not held by Vornado with a
total liquidation value of $56,007,000.
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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 a substantial amount of indebtedness that could affect our future operations.
As of December 31, 2015, our consolidated mortgages and unsecured indebtedness, excluding related premium, discount and
deferred financing costs, net, totaled $11.2 billion. We are subject to the risks normally associated with debt financing, including the
risk that our cash flow from operations will be insufficient to meet required debt service. Our debt service costs generally will not be
reduced if developments at the property, such as the entry of new competitors or the loss of major tenants, cause a reduction in the
income from the property. Should such events occur, our operations may be adversely affected. If a property is mortgaged to secure
payment of indebtedness and income from such property is insufficient to pay that indebtedness, the property could be foreclosed
upon by the mortgagee resulting in a loss of income and a decline in our total asset value.
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.
A downgrade in our credit ratings could materially adversely affect our business and financial condition.
Our credit rating and the credit ratings assigned to our debt securities and our preferred shares could change based upon, among
other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating
agencies, and any rating could be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant
such action. Moreover, these credit ratings are not recommendations to buy, sell or hold our common shares or any other securities. If
any of the credit rating agencies that have rated our securities downgrades or lowers its credit rating, or if any credit rating agency
indicates that it has placed any such rating on a “watch list” for a possible downgrading or lowering, or otherwise indicates that its
outlook for that rating is negative, such action could have a material adverse effect on our costs and availability of funding, which
could in turn have a material adverse effect on our financial condition, results of operations, cash flows, the trading price of our
securities and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.
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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 not be required to make distributions to shareholders in that taxable year and in
future years until we were able to qualify as a REIT. 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.
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.
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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:
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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.
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, 2015, Interstate Properties, a New Jersey general partnership, and its partners owned an aggregate of
approximately 7.1% 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 annual 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.
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There may be conflicts of interest between Alexander’s and us.
As of December 31, 2015, we owned 32.4% of the outstanding common stock of Alexander’s. Alexander’s is a REIT that has
seven properties, which are located in the greater New York metropolitan area. In addition to the 2.3% 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, 2015. 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.
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, 2015, we
had authorized but unissued, 61,423,147 common shares of beneficial interest, $.04 par value and 57,266,023 preferred shares of
beneficial interest, no par value; of which 19,923,393 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.
19
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.
20
ITEM 2.
PROPERTIES
We operate in two business segments: New York and Washington, DC. The following pages provide details of our real estate
properties as of December 31, 2015.
%
Ownership
Type
%
Occupancy
In Service
Square Feet
Under
Development
or Not
Available
for Lease
Total
Property
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)
Independence Plaza, Tribeca
(3 buildings) (1,327 units)(1)
280 Park Avenue(1)
770 Broadway
Eleven Penn Plaza
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 2149)
85 Tenth Avenue(1)
650 Madison Avenue(1)
350 Park Avenue
150 East 58th Street
7 West 34th Street
33-00 Northern Boulevard (Center Building)
595 Madison Avenue
640 Fifth Avenue
50-70 W 93rd Street (326 units)(1)
Manhattan Mall
40 Fulton Street
4 Union Square South
260 Eleventh Avenue (2 buildings)
(ground leased through 2114)
512 W 22nd Street(1)
825 Seventh Avenue(1)
61 Ninth Avenue(1)
1540 Broadway
608 Fifth Avenue (ground leased through 2033)
Paramus
666 Fifth Avenue Retail Condominium
1535 Broadway (Marriott Marquis - retail and signage)
(ground and building leased through 2032)
57th Street (5 buildings)(1)
689 Fifth Avenue
478-486 Broadway (2 buildings) (10 units)
150 West 34th Street
510 Fifth Avenue
655 Fifth Avenue
155 Spring Street
3040 M Street
435 Seventh Avenue
692 Broadway
697-703 Fifth Avenue (St. Regis - retail)
715 Lexington Avenue
1131 Third Avenue
40 East 66th Street (5 units)
828-850 Madison Avenue
443 Broadway
100.0%
70.0%
100.0%
49.5%
100.0%
Office / Retail
Office / Retail
Office / Retail
Office / Retail
Office
50.1% Residential / Retail
Office / Retail
50.0%
Office / Retail
100.0%
Office / Retail
100.0%
Office / Retail
55.0%
Office / Retail
100.0%
Office / Retail
100.0%
100.0%
Office
Office / Retail
25.0%
Office / Retail
100.0%
Office / Retail
49.9% (3)
Office / Retail
20.1%
Office / Retail
100.0%
Office / Retail
100.0%
Office / Retail
100.0%
100.0%
Office
Office / Retail
100.0%
Office / Retail
100.0%
Residential
49.9%
100.0%
Retail
Office / Retail
100.0%
Retail
100.0%
100.0%
55.0%
51.2%
50.1%
100.0%
100.0%
100.0%
100.0%
Office
Office
Office / Retail
Office
Retail
Office / Retail
Office
Retail
Retail / Theatre
100.0%
Office / Retail
50.0%
100.0%
Office / Retail
100.0% Retail/Residential
Retail
100.0%
Retail
100.0%
Retail
92.5%
Retail
100.0%
Retail
100.0%
Retail
100.0%
Retail
100.0%
Retail
74.3%
Retail
100.0%
100.0%
Retail
100.0% Residential/Retail
Retail
100.0%
Retail
100.0%
21
97.5%
99.3%
98.7%
77.8%
100.0%
100.0% (2)
100.0%
100.0%
99.1%
96.7%
76.6%
91.3%
100.0%
97.1%
100.0%
100.0%
93.8%
100.0%
98.2%
100.0%
95.5%
98.7%
93.5%
97.5%
87.9%
94.6%
100.0%
100.0%
n/a
100.0%
n/a
100.0%
96.9%
94.7%
100.0%
100.0%
100.0%
100.0%
100.0% (2)
100.0%
64.4%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0% (2)
100.0%
100.0%
2,526,000
2,107,000
1,632,000
1,415,000
1,346,000
1,244,000
1,067,000
1,158,000
1,151,000
947,000
946,000
884,000
855,000
842,000
602,000
617,000
556,000
570,000
545,000
478,000
446,000
322,000
315,000
283,000
256,000
250,000
206,000
184,000
-
169,000
-
160,000
132,000
129,000
114,000
72,000
103,000
100,000
85,000
78,000
65,000
57,000
49,000
44,000
43,000
35,000
26,000
23,000
23,000
23,000
18,000
16,000
-
-
-
-
-
2,526,000
2,107,000
1,632,000
1,415,000
1,346,000
12,000
176,000
-
-
-
-
-
-
-
128,000
-
39,000
-
-
-
-
-
-
-
-
-
-
-
173,000
-
167,000
-
-
-
-
36,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,256,000
1,243,000
1,158,000
1,151,000
947,000
946,000
884,000
855,000
842,000
730,000
617,000
595,000
570,000
545,000
478,000
446,000
322,000
315,000
283,000
256,000
250,000
206,000
184,000
173,000
169,000
167,000
160,000
132,000
129,000
114,000
108,000
103,000
100,000
85,000
78,000
65,000
57,000
49,000
44,000
43,000
35,000
26,000
23,000
23,000
23,000
18,000
16,000
ITEM 2.
PROPERTIES - CONTINUED
%
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%
50.0%
100.0%
100.0%
81.4%
100.0%
32.4%
32.4%
32.4%
32.4%
32.4%
32.4%
32.4%
Retail
Retail/Residential
Retail/Residential
Retail/Residential
Retail
Retail
Retail
Retail/Residential
Retail
Retail
Retail
Retail
Retail
Retail
Residential/Retail
n/a
n/a
-
100.0%
100.0%
82.4%
100.0%
100.0% (2)
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
-
-
-
14,000
13,000
10,000
8,000
7,000
7,000
7,000
6,000
6,000
6,000
3,000
3,000
86,000
16,000
15,000
-
-
-
-
-
-
-
-
-
-
-
-
-
16,000
15,000
14,000
13,000
10,000
8,000
7,000
7,000
7,000
6,000
6,000
6,000
3,000
3,000
86,000
Hotel
n/a
1,400,000
-
1,400,000
Office / Retail
Retail
Retail
Residential
Retail
100.0%
99.0%
100.0%
25.6%
100.0%
1,063,000
608,000
343,000
238,000
167,000
-
-
-
1,063,000
608,000
343,000
17,000
-
255,000
167,000
Retail
n/a
100.0%
n/a
96.3%
-
-
29,309,000
-
-
779,000
-
-
30,088,000
96.4%
23,056,000
482,000
23,538,000
Property
NEW YORK - continued:
484 Eighth Avenue
304 Canal Street (4 units)
334 Canal Street (4 units)
677-679 Madison Avenue (8 units)
431 Seventh Avenue
138-142 West 32nd Street
148 Spring Street
150 Spring Street (1 unit)
966 Third Avenue
488 Eighth Avenue
267 West 34th Street
968 Third Avenue (1)
265 West 34th Street
137 West 33rd Street
Other (34 units)
Hotel Pennsylvania
Alexander's, Inc.:
731 Lexington Avenue(1)
Rego Park II, Queens(1)
Rego Park I, Queens(1)
The Alexander Apartment Tower, Queens
(312 units)(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
See notes on page 24.
22
%
Ownership
Type
Occupancy
In Service
%
Square Feet
Under
Development
or Not
Available
for Lease
Total
Property
Office
Office
Residential
Office
Office
Office
Office
Office
50.1%
92.1%
96.2%
85.1%
89.1%
88.7%
97.8%
56.9%
2,648,000
2,326,000
1,802,000
1,547,000
1,460,000
506,000
816,000
495,000
-
-
-
-
2,648,000
2,326,000
1,802,000
1,547,000
20,000
363,000
-
243,000
1,480,000
869,000
816,000
738,000
Office
99.0%
686,000
-
686,000
Office
93.3%
638,000
-
638,000
88.4%
100.0%
66.4%
100.0%
96.0%
99.0%
100.0%
96.1%
96.6%
100.0%
94.9%
68.6%
100.0%
100.0%
95.9%
91.7%
100.0%
100.0%
59.8%
n/a
100.0%
95.1%
68.0%
96.0%
100.0%
100.0%
85.4%
620,000
40,000
559,000
529,000
400,000
380,000
379,000
273,000
269,000
266,000
253,000
241,000
231,000
215,000
214,000
204,000
171,000
170,000
162,000
-
109,000
129,000
92,000
80,000
57,000
11,000
18,978,000
-
580,000
-
-
19,000
-
-
-
-
-
-
-
-
-
620,000
620,000
559,000
529,000
419,000
380,000
379,000
273,000
269,000
266,000
253,000
241,000
231,000
215,000
-
-
-
-
-
147,000
20,000
-
-
-
-
-
1,392,000
214,000
204,000
171,000
170,000
162,000
147,000
129,000
129,000
92,000
80,000
57,000
11,000
20,370,000
84.8%
16,481,000
1,255,000
17,736,000
ITEM 2.
PROPERTIES - CONTINUED
Property
WASHINGTON, DC:
Skyline Properties (8 buildings)
2011-2451 Crystal Drive (5 buildings)
RiverHouse Apartments (3 buildings) (1,670 units)
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)
2200 / 2300 Clarendon Blvd (Courthouse Plaza)
(ground leased through 2062) (2 buildings)
1299 Pennsylvania Avenue, NW
(Warner Building)(1)
The Bartlett
Fairfax Square (3 buildings)(1)
2100 / 2200 Crystal Drive (2 buildings)
Commerce Executive (3 buildings)
2101 L Street, NW
1501 K Street, NW(1)
West End 25 (283 units)
220 20th Street (265 units)
Crystal City Hotel
Rosslyn Plaza (196 units)
1150 17th Street, NW
875 15th Street, NW (Bowen Building)
1101 17th Street, NW(1)
Democracy Plaza One
(ground leased through 2084)
1730 M Street, NW
2221 South Clark Street
Washington Tower (1)
2001 Jefferson Davis Highway
223 23rd Street
Met Park/Warehouses
1399 New York Avenue, NW
1726 M Street, NW
Crystal City Shops at 2100
Crystal Drive Retail
Other (3 buildings)
Total Washington, DC
Vornado's Ownership Interest
See notes on page 24.
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
7.5%
46.2%
100.0%
100.0%
55.0%
100.0%
20.0%
100.0%
100.0% `
100.0%
5.0%
100.0%
100.0%
100.0%
43.7%
100.0%
100.0%
55.0%
7.5%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Office
Residential/Retail
Office
Office
Office
Office
Office
Residential
Residential
Residential
Residential
Office
Office
Office
100.0%
Office
100.0%
Office
100.0% Residential/Office
Office
Office
Office
Warehouses
Office
Office
Office
Office
Other
23
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
98.6%
95.4%
98.5%
98.5%
98.4%
60.4%
n/a
93.3%
93.3%
3,639,000
19,000
3,658,000
3,649,000
-
-
-
3,639,000
19,000
3,658,000
-
3,649,000
1,504,000
232,000
-
1,736,000
-
-
64,000
64,000
1,504,000
232,000
64,000
1,800,000
1,215,000
45,000
1,260,000
Property
OTHER (Mart ("theMart")):
theMart, Chicago
Other(1)
Total theMart
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 ("Fund")) (4) :
100.0%
800 Corporate Pointe, Culver City, CA (2 buildings)
Crowne Plaza Times Square, NY
Lucida, 86th Street and Lexington Avenue, NY
(ground leased through 2082) (39 units)
1100 Lincoln Road, Miami, FL
11 East 68th Street Retail, NY
501 Broadway, NY
Total Real Estate Fund Properties
Vornado's Ownership Interest
OTHER (Other Properties):
Wayne Town Center, Wayne
(ground leased through 2064)
Annapolis
(ground leased through 2042)
Total Other Properties
Vornado's Ownership Interest
Office
57.0%
Office / Retail /
Hotel
87.9%
75.3%
100.0%
100.0%
100.0%
100.0%
Retail / Residential
Retail / Theatre
Retail
Retail
100.0% (2)
100.0%
100.0%
100.0%
80.9%
82.1%
243,000
235,000
154,000
128,000
8,000
9,000
777,000
213,000
-
243,000
-
235,000
-
-
3,000
-
3,000
154,000
128,000
11,000
9,000
780,000
1,000
214,000
100.0%
100.0%
Retail
100.0%
635,000
20,000
655,000
Retail
100.0%
100.0%
100.0%
128,000
763,000
763,000
-
20,000
128,000
783,000
20,000
783,000
(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) Excludes residential occupancy statistics, which are shown on page 25.
(3) As of December 31, 2015, we own junior and senior mezzanine loans of 85 Tenth Avenue with an accreted balance of $164.6 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% equity 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 $24.8 million on our consolidated balance sheets.
(4) We own a 25% interest in the Fund. The ownership percentage in this section represents the Fund's ownership in the underlying asset.
24
NEW YORK
As of December 31, 2015, our New York segment consisted of 29.3 million square feet in 84 properties. The 29.3 million square
feet is comprised of 21.3 million square feet of office space in 35 properties, 2.6 million square feet of retail space in 65 properties,
1,711 units in eleven residential properties, the 1.4 million square foot Hotel Pennsylvania, and our 32.4% interest in Alexander’s, Inc.
(“Alexander’s”), which owns seven properties in the greater New York metropolitan area. The New York segment also includes 11
garages totaling 1.7 million square feet (4,980 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, 2015, the occupancy rate for our New York segment was 96.4%.
Occupancy and weighted average annual rent per square foot:
Office:
Retail:
Residential:
As of December 31,
2015
2014
2013
2012
2011
Total
Property
Square Feet
21,288,000
20,154,000
18,744,000
18,319,000
18,164,000
Square Feet
17,627,000
16,622,000
15,303,000
15,338,000
15,191,000
Vornado's Ownership Interest
Occupancy
Rate
96.3 %
96.9 %
96.4 %
95.6 %
96.0 %
Weighted
Average Annual
Rent Per
Square Foot
$
66.62
65.34
62.20
60.45
58.96
As of December 31,
2015
2014
2013
2012
2011
Total
Property
Square Feet
2,641,000
2,469,000
2,349,000
2,171,000
2,213,000
Square Feet
2,418,000
2,173,000
2,126,000
2,011,000
1,954,000
Vornado's Ownership Interest
Occupancy
Rate
96.2 %
96.5 %
97.4 %
96.8 %
95.6 %
Weighted
Average Annual
Rent Per
Square Foot
$
202.85
173.19
162.92
148.71
105.36
As of December 31,
2015
2014
2013
2012
Number of Units
(in service)
1,711
1,678
1,672
1,673
Occupancy
Rate
94.1 %
95.2 %
94.8 %
96.5 %
Average Monthly
Rent Per Unit
$
3,491
3,163
2,864
2,672
25
NEW YORK – CONTINUED
Tenants accounting for 2% or more of revenues:
Tenant
IPG and affiliates
AXA Equitable Life Insurance
Square Feet
Leased
2015
Revenues
830,000
481,000
$
43,910,000
39,751,000
Percentage of
New York
Revenues
2.9 %
2.6 %
Percentage
of Total
Revenues
1.9 %
1.8 %
2015 rental revenue by tenants’ industry:
Industry
Office:
Financial Services
Communications
Real Estate
Family Apparel
Legal Services
Advertising / Marketing
Insurance
Technology
Publishing
Government
Banking
Engineering, Architect & Surveying
Home Entertainment & Electronics
Pharmaceutical
Health Services
Other
Retail:
Family Apparel
Women's Apparel
Luxury Retail
Restaurants
Banking
Department Stores
Discount Stores
Other
Total
Percentage
11%
7%
7%
6%
6%
5%
4%
4%
3%
3%
3%
2%
2%
1%
1%
9%
74%
7%
6%
3%
2%
2%
1%
1%
4%
26%
100%
26
NEW YORK – CONTINUED
Lease expirations as of December 31, 2015, assuming none of the tenants exercise renewal options:
Year
Office:
Month to month
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Retail:
Month to month
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
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
12
48
109
100
109
117
94
58
57
65
43
17
24
11
24
25
25
11
10
13
17
13
17,000
802,000 (1)
980,000
1,029,000 (2)
970,000
1,549,000
1,180,000
530,000
1,717,000
1,214,000
805,000
16,000
78,000 (3)
34,000
170,000
181,000
63,000
38,000
35,000
81,000
161,000
43,000
0.1 %
4.9 %
6.0 %
6.3 %
5.9 %
9.4 %
7.2 %
3.2 %
10.4 %
7.4 %
4.9 %
0.8 %
4.1 %
1.8 %
8.9 %
9.4 %
3.3 %
2.0 %
1.8 %
4.2 %
8.4 %
2.2 %
$
$
908,000 $
52,052,000
57,581,000
78,969,000
67,005,000
95,144,000
77,595,000
31,568,000
127,573,000
91,671,000
55,706,000
1,703,000 $
19,818,000
9,260,000
42,406,000
32,081,000
9,987,000
7,544,000
4,261,000
19,367,000
58,724,000
19,329,000
53.41
64.90 (1)
58.76
76.74
69.08
61.42
65.76
59.56
74.30
75.51
69.20
106.44
254.08 (3)
272.35
249.45
177.24
158.52
198.53
121.74
239.10
364.75
449.51
(1) Based on current market conditions, we expect to re-lease this space at weighted average rents between $75 to $80 per square foot.
(2) 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 $11.42 per square foot.
(3) Based on current market conditions, we expect to re-lease this space at weighted average rents between $325 to $350 per square foot.
Alexander’s
As of December 31, 2015, we own 32.4% of the outstanding common stock of Alexander’s, which owns seven 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 $1.05 billion of outstanding debt, net at December 31, 2015, of which our
pro rata share was $341.3 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.
2015
Year Ended December 31,
2013
2012
2014
2011
Hotel Pennsylvania:
Average occupancy rate
Average daily rate
Revenue per available room
90.7 %
147.46 $
133.69 $
92.0 %
162.01 $
149.04 $
93.4 %
158.01 $
147.63 $
89.1 %
152.79 $
136.21 $
89.1 %
152.53
135.87
$
$
27
WASHINGTON, DC
As of December 31, 2015, our Washington, DC segment consisted of 71 properties aggregating 19.0 million square feet
comprised of 15.8 million square feet of office space in 57 properties, seven residential properties containing 2,414 units and a hotel
property. In addition, we are developing a 699-unit residential project with a 40,000 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 55 garages totaling approximately
8.8 million square feet (29,322 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 fixed percentage 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, 2015, the occupancy rate for our Washington DC segment was 84.8%, and 25.0% of the occupied space was
leased to various agencies of the U.S. Government.
Occupancy and weighted average annual rent per square foot:
Office:
Residential:
Vornado's Ownership Interest
As of December 31,
2015
2014
2013
2012
2011
Total
Property
Square Feet
15,784,000
15,832,000
15,954,000
15,829,000
16,362,000
Square Feet
13,429,000
13,454,000
13,524,000
13,360,000
13,901,000
Occupancy
Rate
82.1 %
80.7 %
80.5 %
81.1 %
89.1 %
Weighted
Average Annual
Rent Per
Square Foot
42.65
$
42.55
42.34
41.46
40.74
As of December 31,
2015
2014
2013
2012
2011
Number of
Units
2,414
2,414
2,414
2,414
2,414
Occupancy
Rate
96.1 %
97.4 %
96.3 %
97.9 %
96.6 %
Average Monthly
Rent Per Unit
$
2,068
2,078
2,101
2,145
2,056
Tenants accounting for 2% or more of revenues:
Tenant
U.S. Government
Family Health International
Lockheed Martin
Arlington County
Paul Hastings LLP
Square Feet
Leased
3,505,000
341,000
313,000
240,000
126,000
$
2015
Revenues
117,035,000
16,622,000
14,917,000
10,747,000
10,631,000
Percentage of
Washington, DC
Revenues
22.0 %
3.1 %
2.8 %
2.0 %
2.0 %
Percentage
of Total
Revenues
5.2 %
0.7 %
0.7 %
0.5 %
0.5 %
28
WASHINGTON, DC – CONTINUED
2015 rental revenue by tenants’ industry:
Industry
Percentage
U.S. Government
Government Contractors
Membership Organizations
Legal Services
Business Services
Manufacturing
Management Consulting Services
State and Local Government
Computer and Data Processing
Health Services
Food
Real Estate
Education
Communication
Television Broadcasting
Other
28%
12%
10%
5%
4%
3%
3%
2%
2%
2%
2%
2%
1%
1%
1%
22%
100%
Lease expirations as of December 31, 2015, assuming none of the tenants exercise renewal options:
Year
Month to month
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Number of
Square Feet of
Expiring Leases Expiring Leases
475,000
1,304,000 (1)
608,000
1,050,000
1,652,000
943,000
655,000
941,000
178,000
462,000
332,000
44
179
91
113
92
81
45
44
13
36
27
$
Percentage of
Washington, DC
Square Feet
4.6 %
12.6 %
5.9 %
10.1 %
15.9 %
9.1 %
6.3 %
9.1 %
1.7 %
4.4 %
3.2 %
Weighted Average Annual
Rent of Expiring Leases
Total
15,980,000 $
55,319,000
25,193,000
47,036,000
70,602,000
44,517,000
28,854,000
41,906,000
8,411,000
18,545,000
13,022,000
Per Square Foot
33.63
42.42 (1)
41.43
44.78
42.75
47.19
44.03
44.51
47.13
40.17
39.27
(1) Based on current market conditions, we expect to re-lease this space at weighted average rents between $37 to $42 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 45
for the status of BRAC related move-outs.
29
OTHER INVESTMENTS
theMart
As of December 31, 2015, we own the 3.6 million square foot theMart in Chicago, whose largest tenant is Motorola Mobility at
608,000 square feet, the lease of which is guaranteed by Google. theMart 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, 2015, theMart had an occupancy rate of 98.6%
and a weighted average annual rent per square foot of $38.72.
555 California Street
As of December 31, 2015, 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 $589,063,000 mortgage loan that bears interest at a fixed rate of 5.10%
and matures in September 2021. As of December 31, 2015, 555 California Street had an occupancy rate of 93.3% and a weighted
average annual rent per square foot of $65.57.
Vornado Capital Partners Real Estate Fund (the “Fund”)
As of December 31, 2015, we own a 25.0% interest in the Fund. We are the general partner and investment manager of the Fund.
At December 31, 2015, the Fund had six investments which are carried at an aggregate fair value of $574,761,000. Our share of
unfunded commitments is $25,553,000.
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.
30
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, 2015 and 2014 were as follows:
Quarter
High
Year Ended
December 31, 2015
Low
Dividends (1)
High
Year Ended
December 31, 2014
Low
Dividends
1st
2nd
3rd
4th
$
$
126.62 (2)
113.12
98.96
103.41
$
104.11
94.55
84.60
89.32
0.63
0.63
0.63
0.63
$
$
100.02
109.01
109.12
120.23
$
87.82
96.93
99.26
93.09
0.73
0.73
0.73
0.73
(1) Post spin-off of Urban Edge Properties (NYSE: UE) on January 15, 2015.
(2) Achieved on January 15, 2015, prior to the spin-off of UE.
As of February 1, 2016, there were 1,065 holders of record of our common shares.
Recent Sales of Unregistered Securities
During the fourth quarter of 2015, we issued 8,477 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
In January 2015, we received 61,476 Vornado common shares at a weighted average price of $120.22 per share as payment for
the exercise price of certain employee stock options.
31
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, 2010 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.
Comparison of Five-Year Cumulative Return
$200
$175
$150
$125
$100
$75
2010
2011
2012
2013
2014
2015
Vornado Realty Trust
S&P 500 Index
The NAREIT All Equity Index
2010
2011
2012
2013
2014
2015
Vornado Realty Trust
S&P 500 Index
The NAREIT All Equity Index
$
100 $
100
100
95 $
102
108
104 $
118
130
119 $
157
133
163 $
178
171
156
181
176
32
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
Total expenses
Operating income
Income from real estate fund investments
(Loss) income from partially owned entities
Interest and other investment income (loss), net
Interest and debt expense
Net gain on disposition of wholly owned and partially
owned assets
Income (loss) before income taxes
Income tax benefit (expense)
Income (loss) from continuing operations
Income from discontinued operations
Net income
Less net income attributable to noncontrolling interests in:
Consolidated subsidiaries
Operating Partnership
Net income attributable to Vornado
Preferred share dividends
Preferred unit and share redemptions
Net income attributable to common shareholders
2015
Year Ended December 31,
2013
2012
2014
2011
$ 2,076,586 $
260,976
-
164,705
2,502,267
1,011,249
542,952
175,307
-
12,511
1,742,019
760,248
74,081
(12,630)
26,978
(378,025)
251,821
722,473
84,695
807,168
52,262
859,430
(55,765)
(43,231)
760,434
(80,578)
-
$
679,856 $
1,911,487
245,819
-
155,206
2,312,512
953,611
481,303
169,270
-
18,435
1,622,619
689,893
163,034
(59,861)
38,752
(412,755)
13,568
432,631
(9,281)
423,350
585,676
1,009,026
(96,561)
(47,613)
864,852
(81,464)
-
783,388
1.23
1.22
4.18
4.15
2.92
$ 1,880,405 $ 1,771,264 $
226,831
36,369
155,571
2,299,176
207,149
235,234
119,077
2,332,724
928,565
461,627
177,366
32,210
24,857
1,624,625
674,551
102,898
(340,882)
(24,887)
(425,782)
2,030
(12,072)
8,717
(3,355)
568,095
564,740
891,637
435,545
167,194
226,619
17,386
1,738,381
594,343
63,936
421,668
(261,200)
(431,235)
4,856
392,368
(8,132)
384,236
310,305
694,541
(63,952)
(24,817)
475,971
(82,807)
(1,130)
392,034 $
(32,018)
(45,263)
617,260
(76,937)
8,948
549,271 $
1,802,871
213,200
154,080
123,452
2,293,603
878,777
441,223
163,238
145,824
34,930
1,663,992
629,611
22,886
115,912
148,540
(453,420)
10,856
474,385
(23,891)
450,494
289,506
740,000
(21,786)
(55,912)
662,302
(65,531)
5,000
601,771
(0.75) $
(0.75)
2.10
2.09
2.92
1.37 $
1.37
2.95
2.94
3.76 (2)
1.79
1.77
3.26
3.23
2.76
$
$
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
$
3.35
3.33
3.61
3.59
2.52
(1)
Balance Sheet Data:
Total assets
Real estate, at cost
Accumulated depreciation
Debt, net
Total equity
$ 21,143,293 $ 21,157,980
16,822,358
(3,161,633)
9,530,337
7,489,382
18,090,137
(3,418,267)
11,091,010
7,476,078
$ 20,018,210 $ 21,978,802 $ 20,377,616
13,383,927
15,287,078
(2,346,498)
(2,524,718)
8,381,908
9,714,819
7,508,447
7,904,144
15,392,968
(2,829,862)
8,708,414
7,594,744
(1) Post spin-off of Urban Edge Properties (NYSE: UE) on January 15, 2015.
(2) Includes a special long-term capital gain dividend of $1.00 per share.
33
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 income of
$
2015
Year Ended December 31,
2013
2014
2012
2011
760,434 $
514,085
(289,117)
256
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
partially owned entities 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
Noncontrolling interests' share of above adjustments
FFO attributable to Vornado
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)
143,960
(4,513)
16,758
-
(22,342)
1,119,521
(80,578)
-
1,038,943
92
-
117,766
(11,580)
-
(7,287)
(8,073)
992,497
(81,464)
-
911,033
97
-
157,270
(465)
6,552
(26,703)
(15,089)
724,866
(82,807)
(1,130)
640,929
108
-
154,680
(241,602)
11,673
(27,493)
(16,649)
886,441
(76,937)
8,948
818,452
113
-
170,875
(9,767)
-
(24,634)
(40,957)
1,265,108
(65,531)
5,000
1,204,577
124
26,272
$
1,039,035 $
911,130 $
641,037 $
818,565 $ 1,230,973
________________________________
(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 and
other specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per
diluted share are non-GAAP financial measures used by management, investors and analysts to facilitate meaningful comparisons
of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and
amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate
diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash
generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be
considered as an alternative to net income as a performance measure or cash flows as a liquidity measure. FFO may not be
comparable to similarly titled measures employed by other companies.
34
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, 2015, 2014 and 2013
Results of Operations:
Year Ended December 31, 2015 Compared to December 31, 2014
Year Ended December 31, 2014 Compared to December 31, 2013
Supplemental Information:
Net Income and EBITDA by Segment for the Three Months Ended
December 31, 2015 and 2014
Three Months Ended December 31, 2015 Compared to December 31, 2014
Three Months Ended December 31, 2015 Compared to September 30, 2015
Related Party Transactions
Liquidity and Capital Resources
Financing Activities and Contractual Obligations
Certain Future Cash Requirements
Cash Flows for the Year Ended December 31, 2015
Cash Flows for the Year Ended December 31, 2014
Cash Flows for the Year Ended December 31, 2013
Funds From Operations for the Three Months and Years Ended
December 31, 2015 and 2014
Page Number
36
41
46
49
53
60
67
70
72
74
75
75
78
81
83
85
87
35
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 93.7% of the common limited partnership interest in the Operating Partnership
at December 31, 2015. All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its
consolidated subsidiaries, including the Operating Partnership.
On January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers,
three malls, a warehouse park and $225,000,000 of cash to Urban Edge Properties (“UE”) (NYSE: UE). As part of this transaction, we
retained 5,717,184 UE operating partnership units (5.4% ownership interest). We are providing transition services to UE for an initial
period of up to two years, primarily for information technology support. UE is providing us with leasing and property management
services for (i) certain small retail properties that we plan to sell, and (ii) our affiliate, Alexander’s, Inc. (NYSE: ALX) Rego Park
retail assets. Steven Roth, our Chairman and Chief Executive Officer, is a member of the Board of Trustees of UE. The spin-off
distribution was effected by Vornado distributing one UE common share for every two Vornado common shares. The historical
financial results of UE are reflected in our consolidated financial statements as discontinued operations for all periods presented.
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 seven properties in the greater New York metropolitan area, a 32.5% 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 MSCI US REIT Index
(“MSCI”) for the following periods ended December 31, 2015:
Three-months
One-year
Three-year
Five-year
Ten-year
Vornado
11.3%
(3.9%)
50.3%
56.5%
92.9%
Total Return(1)
Office REIT
7.2%
0.3%
33.3%
51.0%
68.0%
MSCI(2)
7.1%
2.5%
37.0%
75.3%
103.2%
(1)
(2)
Past performance is not necessarily indicative of future performance.
Formerly known as the Morgan Stanley REIT Index.
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 asset sales and by
accessing the public and private capital markets. We may also offer Vornado common or preferred shares or Operating Partnership
units in exchange for property and may repurchase or otherwise reacquire these securities in the future.
We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower
returns on their investments. Principal factors of competition are rents charged, sales prices, attractiveness of location, the quality of
the property and the breadth and the quality of services provided. Our success depends upon, among other factors, trends of the global,
national, regional and local economies, the financial condition and operating results of current and prospective tenants and customers,
availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population and
employment trends. See “Risk Factors” in Item 1A for additional information regarding these factors.
36
Overview - continued
Year Ended December 31, 2015 Financial Results Summary
Net income attributable to common shareholders for the year ended December 31, 2015 was $679,856,000, or $3.59 per diluted
share, compared to $783,388,000, or $4.15 per diluted share, for the year ended December 31, 2014. Net income for the years ended
December 31, 2015 and 2014 includes $293,630,000 and $518,772,000, respectively, of net gains on sale of real estate, and
$17,014,000 and $26,518,000, respectively, of real estate impairment losses. In addition, the years ended December 31, 2015 and
2014 includes 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 years ended December 31, 2015 and 2014 by $374,404,000, or $1.98 per
diluted share, and $477,133,000, or $2.53 per diluted share, respectively.
Funds from operations attributable to common shareholders plus assumed conversions (“FFO”) for the year ended December 31,
2015 was $1,039,035,000, or $5.48 per diluted share, compared to $911,130,000, or $4.83 per diluted share, for the prior year. FFO
for the years ended December 31, 2015 and 2014 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, increased FFO for the years ended December 31,
2015 and 2014 by $123,740,000, or $0.65 per diluted share, and $85,854,000, or $0.46 per diluted share, respectively.
(Amounts in thousands)
Items that affect comparability income (expense):
Reversal of allowance for deferred tax assets (re: taxable REIT subsidiary's
ability to use NOLs)
FFO from discontinued operations and sold properties
Acquisition and transaction related costs
Net gain on sale of residential condominiums and a land parcel in 2014
Our share of impairment loss on India real estate venture's non-depreciable real estate
Toys "R" Us FFO (negative FFO) (including an impairment loss of $75,196 in 2014)
Impairment loss and loan reserve on investment in Suffolk Downs
Write-off of deferred financing costs and defeasance costs in connection with refinancings
Other, net
Noncontrolling interests' share of above adjustments
Items that affect comparability, net
For the Year Ended December 31,
2015
2014
$
$
90,030
46,423
(12,511)
6,724
(4,502)
2,500
(1,551)
-
4,555
131,668
(7,928)
123,740
$
$
-
188,932
(16,392)
13,568
-
(60,024)
(10,263)
(22,660)
(2,097)
91,064
(5,210)
85,854
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, 2015 over the year ended December
31, 2014 is summarized below.
Same Store EBITDA:
December 31, 2015 vs. December 31, 2014
Same store EBITDA
Cash basis same store EBITDA
New York
Washington, DC
1.5 % (1)
0.3 % (1)
(1.1 %)
(6.3 %)
(1) Excluding Hotel Pennsylvania, same store EBITDA increased by 2.4% and by 1.3% on a cash basis.
37
Overview - continued
Quarter Ended December 31, 2015 Financial Results Summary
Net income attributable to common shareholders for the quarter ended December 31, 2015 was $230,742,000, or $1.22 per diluted
share, compared to $513,238,000, or $2.72 per diluted share, for the quarter ended December 31, 2014. Net income for the quarters
ended December 31, 2015 and 2014 includes $142,693,000 and $460,216,000, respectively, of net gains on sale of real estate and
$4,141,000 and $5,676,000, respectively, of real estate impairment losses. In addition, the quarters ended December 31, 2015 and
2014 includes certain other items that affect comparability which are listed in the table below. The aggregate of net gains on sale of
real estate, real estate impairment losses and the items in the table below, net of amounts attributable to noncontrolling interests,
increased net income attributable to common shareholders for the quarters ended December 31, 2015 and 2014 by $147,009,000, or
$0.78 per diluted share, and $433,823,000, or $2.30 per diluted share, respectively.
FFO for the quarter ended December 31, 2015 was $259,528,000, or $1.37 per diluted share, compared to $230,143,000, or $1.22
per diluted share, for the prior year’s quarter. FFO for the quarters ended December 31, 2015 and 2014 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, increased FFO for the quarters ended December 31, 2015 and 2014 by $19,418,000, or $0.10 per diluted share, and
$13,033,000, or $0.07 per diluted share, respectively.
(Amounts in thousands)
Items that affect comparability income (expense):
FFO from discontinued operations and sold properties
Acquisition and transaction related costs
Net gain on sale of residential condominiums
Write-off of deferred financing costs and defeasance costs in connection with refinancings
Other, net
Noncontrolling interests' share of above adjustments
Items that affect comparability, net
For the Three Months Ended December 31,
2015
2014
$
$
19,251
(4,951)
4,231
-
2,171
20,702
(1,284)
19,418
$
$
44,474
(12,763)
363
(16,747)
(1,491)
13,836
(803)
13,033
The percentage increase (decrease) in same store EBITDA and cash basis same store EBITDA of our operating segments for the
quarter ended December 31, 2015 over the quarter ended December 31, 2014 and the trailing quarter ended September 30, 2015 are
summarized below.
Same Store EBITDA:
December 31, 2015 vs. December 31, 2014
Same store EBITDA
Cash basis same store EBITDA
December 31, 2015 vs. September 30, 2015
Same store EBITDA
Cash basis same store EBITDA
New York
Washington, DC
0.1 % (1)
(5.6 %) (1)
0.4 % (2)
(0.9 %) (2)
(0.4 %)
(4.9 %)
0.8 %
1.2 %
(1) Excluding Hotel Pennsylvania, same store EBITDA increased by 1.4% and decreased by 4.4% on a cash basis.
(2) Excluding Hotel Pennsylvania, same store EBITDA was flat and decreased by 1.5% on a cash basis.
Calculations of same store EBITDA, reconciliations of our net income to EBITDA and FFO and the reasons we consider these
non-GAAP financial measures useful are provided in the following pages of Management’s Discussion and Analysis of the Financial
Condition and Results of Operations.
38
Overview – continued
Acquisitions
On January 20, 2015, we and one of our real estate fund’s limited partners co-invested with the Fund to buy out the Fund’s joint
venture partner’s 57% interest in the Crowne Plaza Times Square Hotel. The purchase price for the 57% interest was approximately
$95,000,000 (our share $39,000,000) which valued the property at approximately $480,000,000. The property is encumbered by a
$310,000,000 mortgage loan bearing interest at LIBOR plus 2.80% which matures in December 2018 with a one-year extension
option. Our aggregate ownership interest in the property increased to 33% from 11%.
On March 18, 2015, we acquired the Center Building, a 437,000 square foot office building, located at 33-00 Northern Boulevard
in Long Island City, New York, for $142,000,000, including the assumption of an existing $62,000,000, 4.43% mortgage maturing in
October 2018.
On June 2, 2015, we completed the acquisition of 150 West 34th Street, a 78,000 square foot retail property leased to Old Navy
through May 2019, and 226,000 square feet of additional zoning air rights, for approximately $355,000,000. At closing we completed
a $205,000,000 financing of the property.
On June 24, 2015, we entered into a joint venture, in which we own a 55% interest, to develop a 173,000 square foot Class-A
office building, located along the western edge of the High Line at 512 West 22nd Street. The development cost of this project is
approximately $235,000,000. The development commenced during the fourth quarter of 2015 and is expected to be completed in
2018. We account for our investment in the joint venture under the equity method.
On July 31, 2015, we acquired 260 Eleventh Avenue, a 235,000 square foot office property leased to the City of New York
through 2021 with two five-year renewal options, a 10,000 square foot parking lot and additional air rights. The transaction is
structured as a 99-year ground lease with an option to purchase the land for $110,000,000. The $3,900,000 annual ground rent and the
purchase option price escalate annually at the lesser of 1.5% or CPI. The buildings were purchased for 813,900 newly issued Vornado
Operating Partnership units valued at approximately $80,000,000.
On September 25, 2015, we acquired 265 West 34th Street, a 1,700 square foot retail property and 15,200 square feet of
additional zoning air rights, for approximately $28,500,000.
Dispositions
On January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers,
three malls, a warehouse park and $225,000,000 of cash to Urban Edge Properties (“UE”) (NYSE: UE). As part of this transaction,
we retained 5,717,184 UE operating partnership units (5.4% ownership interest). We are providing transition services to UE for an
initial period of up to two years, primarily for information technology support. UE is providing us with leasing and property
management services for (i) certain small retail properties that we plan to sell, and (ii) our affiliate, Alexander’s, Inc. (NYSE: ALX)
Rego Park retail assets. Steven Roth, our Chairman and Chief Executive Officer, is a member of the Board of Trustees of UE. The
spin-off distribution was effected by Vornado distributing one UE common share for every two Vornado common shares.
On March 13, 2015, we sold our Geary Street, CA lease for $34,189,000, which resulted in a net gain of $21,376,000.
On March 25, 2015, the Fund completed the sale of 520 Broadway in Santa Monica, CA for $91,650,000. The Fund realized a
$23,768,000 net gain over the holding period.
On March 31, 2015, we transferred the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield,
Fairfax County, Virginia, to PREIT Associates, L.P., which is the operating partnership of Pennsylvania Real Estate Investment Trust
(NYSE: PEI) (collectively, “PREIT”). The financial statement gain was $7,823,000, of which $7,192,000 was recognized in the first
quarter of 2015 and the remaining $631,000 was deferred based on our ownership interest in PREIT. In the first quarter of 2014, we
recorded a non-cash impairment loss of $20,000,000 on Springfield Town Center which is included in “income from discontinued
operations” on our consolidated statements of income.
On August 6, 2015, we sold our 50% interest in the Monmouth Mall in Eatontown, NJ to our joint venture partner for
$38,000,000, valuing the property at approximately $229,000,000, which resulted in a net gain of $33,153,000.
On September 9, 2015, we completed the sale of 1750 Pennsylvania Avenue, NW, a 278,000 square foot office building in
Washington, DC for $182,000,000, resulting in a net gain of approximately $102,000,000 which is included in “net gain on
disposition of wholly owned and partially owned assets” on our consolidated statement of income. The tax gain of approximately
$137,000,000 was deferred as part of a like-kind exchange. We are managing the property on behalf of the new owner.
39
Overview – continued
Dispositions – continued
On December 22, 2015, we completed the sale of 20 Broad Street, a 473,000 square foot office building in Manhattan for an
aggregate consideration of $200,000,000. The total income from this transaction was approximately $157,000,000 comprised of
approximately $142,000,000 from the gain on sale and $15,000,000 of lease termination income.
We also sold five residual retail properties, in separate transactions, for an aggregate of $10,731,000, which resulted in net gains
of $3,675,000.
Financings
Secured Debt
On April 1, 2015, we completed a $308,000,000 refinancing of RiverHouse Apartments, a three building, 1,670 unit rental
complex located in Arlington, VA. The loan is interest only at LIBOR plus 1.28% (1.52% at December 31, 2015) and matures in
2025. We realized net proceeds of approximately $43,000,000. The property was previously encumbered by a 5.43%, $195,000,000
mortgage maturing in April 2015 and a $64,000,000 mortgage at LIBOR plus 1.53% maturing in 2018.
On June 2, 2015, we completed a $205,000,000 financing in connection with the acquisition of 150 West 34th Street. The loan
bears interest at LIBOR plus 2.25% (2.52% at December 31, 2015) and matures in 2018 with two one-year extension options.
On July 28, 2015, we completed a $580,000,000 refinancing of 100 West 33rd Street, a 1.1 million square foot property
comprised of 855,000 square feet of office space and the 256,000 square foot Manhattan Mall. The loan is interest only at LIBOR
plus 1.65% (1.92% at December 31, 2015) and matures in July 2020. We realized net proceeds of approximately $242,000,000.
On September 22, 2015, we upsized the loan on our 220 Central Park South development by $350,000,000 to $950,000,000. The
interest rate on the loan is LIBOR plus 2.00% (2.42% at December 31, 2015) and the final maturity date is 2020. In connection with
the upsizing, the standby commitment for a $500,000,000 mezzanine loan for this development has been terminated by payment of a
$15,000,000 contractual termination fee, which was capitalized as a component of “development costs and construction in progress”
on our consolidated balance sheet as of December 31, 2015.
On December 11, 2015, we completed a $375,000,000 refinancing of 888 Seventh Avenue, a 882,000 square foot Manhattan
office building. The five-year loan is interest only at LIBOR plus 1.60% (1.92% at December 31, 2015) which was swapped for the
term of the loan to a fixed rate of 3.15% and matures in December 2020. We realized net proceeds of approximately $49,000,000.
On December 21, 2015, we completed a $450,000,000 financing of the retail condominium of the St. Regis Hotel and the adjacent
retail town house located on Fifth Avenue at 55th Street. The loan matures in December 2020, with two one-year extension options.
The loan is interest only at LIBOR plus 1.80% (2.19% at December 31, 2015) for the first three years, LIBOR plus 1.90% for years
four and five, and LIBOR plus 2.00% during the extension periods. We own a 74.3% controlling interest in the joint venture which
owns the property.
Senior Unsecured Notes
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 Term Loan
On October 30, 2015, we entered into an unsecured delayed-draw term loan facility in the maximum amount of $750,000,000.
The facility matures in October 2018 with two one-year extension options. The interest rate is LIBOR plus 1.15% (1.40% at
December 31, 2015) with a fee of 0.20% per annum on the unused portion. At closing, we drew $187,500,000. The facility provides
that the maximum amount available is twice the amount outstanding on April 29, 2016, limited to $750,000,000, and all draws must
be made by October 2017. This facility, together with the $950,000,000 development loan mentioned above, provides the funding for
our 220 Central Park South development.
40
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
Washington, DC
Office
Retail
Office
Quarter Ended December 31, 2015:
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
Per square foot
Per square foot per annum:
Percentage of initial rent
Tenant improvements and leasing commissions:
Year Ended December 31, 2015:
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)
Per square foot
Per square foot per annum:
Percentage of initial rent
Tenant improvements and leasing commissions:
See notes on the following page.
610
555
74.99
10.1
444
75.52
61.69
22.4%
74.06
58.94
25.7%
70.05
6.94
9.2%
2,276
1,838
78.55
9.2
1,297
78.89
66.21
19.1%
77.03
62.73
22.8%
69.36
7.54
9.6%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3
3
1,185.79
1.5
3
1,185.79
1,021.71
16.1%
1,189.25
877.69
35.5%
47.69
31.79
2.7%
91
82
917.59
13.7
74
907.49
364.56
148.9%
1,056.66
529.31
99.6%
688.42
50.25
5.5%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
407
355
43.96
6.8
284
44.54
45.30
(1.7%)
50.99
50.62
0.7%
34.39
5.06
11.5%
1,987
1,847
40.20
8.6
1,322
40.12 (3)
43.99 (3)
(8.8%) (3)
39.57 (3)
43.08 (3)
(8.2%) (3)
55.14
6.41
15.9%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
41
Overview - continued
Leasing Activity - continued
(Square feet in thousands)
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)
Per square foot
Per square foot per annum:
Percentage of initial rent
Tenant improvements and leasing commissions:
New York
Washington, DC
Office
Retail
Office
$
$
$
$
$
$
$
3,973
3,416
66.78
11.3
2,550
68.18
60.50
12.7%
67.44
56.76
18.8%
75.89
6.72
10.1%
$
$
$
$
$
$
$
119
114
327.38
11.2
92
289.74
206.62
40.2%
331.33
204.15
62.3%
110.60
9.88
3.0%
$
$
$
$
$
$
$
1,817
1,674
38.57
8.2
1,121
38.57
41.37
(6.8%)
36.97
38.25
(3.3%)
46.77
5.70
14.8%
(1) Represents the cash basis weighted average starting rent per square foot, which is generally indicative of market rents. Most leases include free
rent and periodic step-ups in rent which are not included in the initial cash basis rent per square foot but are included in the GAAP basis
straight-line rent per square foot.
(2) Represents the GAAP basis weighted average rent per square foot that is recognized over the term of the respective leases, and includes the
effect of free rent and periodic step-ups in rent.
(3) Excluding 371 square feet of leasing activity with the U.S. Marshals Service (of which 293 square feet are second generation relet space), the
initial rent and prior escalated rent on a cash basis was $42.43 and $43.96 per square foot, respectively (3.5% decrease), and the initial rent and
prior escalated rent on a GAAP basis was $42.30 and $43.89 per square foot, respectively (3.6% decrease).
42
Overview - continued
Square footage (in service) and Occupancy as of December 31, 2015:
(Square feet in thousands)
New York:
Office
Retail
Residential - 1,711 units
Alexander's - 296 units
Hotel Pennsylvania
Washington, DC:
Office, excluding the Skyline Properties
Skyline Properties
Total Office
Residential - 2,414 units
Other
Other:
theMart
555 California Street
Other
Number of
properties
Square Feet (in service)
Our
Total
Share
Portfolio
Occupancy %
35
65
11
7
1
49
8
57
7
7
2
3
2
21,288
2,641
1,561
2,419
1,400
29,309
13,136
2,648
15,784
2,597
597
18,978
3,658
1,736
763
6,157
17,627
2,418
827
784
1,400
23,056
10,781
2,648
13,429
2,455
597
16,481
3,649
1,215
763
5,627
96.3%
96.2%
94.1%
99.7%
96.4%
90.0%
50.1%
82.1%
96.1%
100.0%
84.8%
98.5%
93.3%
100.0%
Total square feet at December 31, 2015
54,444
45,164
43
Overview - continued
Square footage (in service) and Occupancy as of December 31, 2014:
(Square feet in thousands)
New York:
Office
Retail
Residential - 1,678 units
Alexander's
Hotel Pennsylvania
Washington, DC:
Office, excluding the Skyline Properties
Skyline Properties
Total Office
Residential - 2,414 units
Other
Other:
theMart
555 California Street
Other
Number of
properties
Square Feet (in service)
Our
Total
Share
Portfolio
Occupancy %
30
56
9
6
1
50
8
58
7
6
1
3
2
20,154
2,469
1,518
2,178
1,400
27,719
13,184
2,648
15,832
2,597
384
18,813
3,587
1,801
672
6,060
16,622
2,173
785
706
1,400
21,686
10,806
2,648
13,454
2,455
384
16,293
3,578
1,261
672
5,511
96.9%
96.5%
95.2%
99.7%
96.9%
87.4%
53.5%
80.7%
97.4%
100.0%
83.6%
94.7%
97.6%
100.0%
Total square feet at December 31, 2014
52,592
43,490
44
Overview - continued
Washington, DC Segment
Comparable EBITDA for the year ended December 31, 2015, was $3,467,000 behind last year.
We expect that Washington’s 2016 comparable EBITDA will be approximately $7,000,000 to $11,000,000 lower than 2015,
comprised of:
core business being flat to $4,000,000 higher, offset by,
occupancy of Skyline properties declining further, decreasing EBITDA by approximately $6,500,000, and
(i)
(ii)
(iii) 1726 M Street and 1150 17th Street being taken out of service (to prepare for the development in the future of a new Class
A trophy office building) decreasing EBITDA by approximately $4,500,000.
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 1,372,000 square feet has been leased or is pending. The table below summarizes
the status of the BRAC space as of December 31, 2015.
Resolved:
Relet as of December 31, 2015
Leases pending
Taken out of service for redevelopment
To be resolved:
Vacated as of December 31, 2015
Expiring in 2016
Rent Per
Square Foot
$
37.67
39.98
Total
Crystal City
Skyline
Rosslyn
Square Feet
1,337,000
35,000
393,000
1,765,000
864,000
25,000
393,000
1,282,000
389,000
10,000
-
399,000
84,000
-
-
84,000
34.89
41.87
610,000
20,000
630,000
134,000
20,000
154,000
412,000
-
412,000
64,000
-
64,000
Total square feet subject to BRAC
2,395,000
1,436,000
811,000
148,000
45
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, 2015 and 2014, the carrying amounts of real estate, net of accumulated depreciation, were $14.7 billion and
$13.7 billion, respectively. As of December 31, 2015 and 2014, the carrying amounts of identified intangible assets (including
acquired above-market leases, tenant relationships and acquired in-place leases) were $227,901,000 and $225,155,000, respectively,
and the carrying amounts of identified intangible liabilities, a component of “deferred revenue” on our consolidated balance sheets,
were $318,148,000 and $328,201,000, 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.
46
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, 2015 and 2014, the carrying amounts of investments in partially owned entities were $1.6 billion and $1.2
billion, respectively.
47
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
($11,908,000 and $12,210,000 as of December 31, 2015 and 2014, 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 ($2,751,000 and $3,188,000 as of December 31, 2015 and 2014, 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.
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.
48
Net Income and EBITDA by Segment for the Years Ended December 31, 2015, 2014 and 2013
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the years ended December
31, 2015, 2014 and 2013.
(Amounts in thousands)
Total revenues
Total expenses
Operating income (loss)
(Loss) income from partially owned entities
Income from real estate fund investments
Interest and other investment income (loss), net
Interest and debt expense
Net gain on disposition of wholly owned and partially
owned assets
Income (loss) before income taxes
Income tax benefit (expense)
Income from continuing operations
Income from discontinued operations
Net income
Less net income attributable to noncontrolling interests
Net income (loss) attributable to Vornado
Interest and debt expense(2)
Depreciation and amortization(2)
Income tax (benefit) expense(2)
EBITDA(1)
(Amounts in thousands)
Total revenues
Total expenses
Operating income (loss)
(Loss) income from partially owned entities
Income from real estate fund investments
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
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 51 and 52.
$
$
$
$
Other
273,530
319,083
(45,553)
(8,202)
74,081
19,518
(115,020)
6,724
(68,452)
89,391
20,939
52,262
73,201
(85,974)
(12,773)
138,733
90,821
(88,535)
128,246 (5)
Other
254,516
318,134
(63,618)
(76,885)
163,034
31,858
(153,933)
13,568
(85,976)
(4,734)
(90,710)
122,513
31,803
(135,548)
(103,745)
322,991
215,881
19,565
454,692 (5)
For the Year Ended December 31, 2015
Washington, DC
New York
1,695,925 $
1,032,015
663,910
655
-
7,722
(194,278)
142,693
620,702
(4,379)
616,323
-
616,323
(13,022)
603,301
248,724
394,028
4,766
1,250,819 (3) $
532,812 $
390,921
141,891
(5,083)
-
(262)
(68,727)
102,404
170,223
(317)
169,906
-
169,906
-
169,906
82,386
179,788
(1,610)
430,470 (4) $
For the Year Ended December 31, 2014
Washington, DC
New York
1,520,845 $
946,466
574,379
20,701
-
6,711
(183,427)
-
418,364
(4,305)
414,059
463,163
877,222
(8,626)
868,596
241,959
324,239
4,395
1,439,189 (3) $
537,151 $
358,019
179,132
(3,677)
-
183
(75,395)
-
100,243
(242)
100,001
-
100,001
-
100,001
89,448
145,853
288
335,590 (4) $
Total
2,502,267 $
1,742,019
760,248
(12,630)
74,081
26,978
(378,025)
251,821
722,473
84,695
807,168
52,262
859,430
(98,996)
760,434
469,843
664,637
(85,379)
1,809,535 $
Total
2,312,512 $
1,622,619
689,893
(59,861)
163,034
38,752
(412,755)
13,568
432,631
(9,281)
423,350
585,676
1,009,026
(144,174)
864,852
654,398
685,973
24,248
2,229,471 $
49
Net Income and EBITDA by Segment for the Years Ended December 31, 2015, 2014 and 2013 - continued
(Amounts in thousands)
Total revenues
Total expenses
Operating income (loss)
(Loss) income from partially owned entities
Income from real estate fund investments
Interest and other investment (loss) 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 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)
____________________________
See notes on pages 51 and 52.
$
$
For the Year Ended December 31, 2013
Washington, DC
New York
1,470,907 $
910,498
560,409
15,527
-
5,357
(181,966)
-
399,327
(2,794)
396,533
160,314
556,847
(10,786)
546,061
236,645
293,974
3,002
1,079,682 (3) $
541,161 $
347,686
193,475
(6,968)
-
129
(102,277)
-
84,359
14,031
98,390
-
98,390
-
98,390
116,131
142,409
(15,707)
341,223 (4) $
Other
287,108
366,441
(79,333)
(349,441)
102,898
(30,373)
(141,539)
2,030
(495,758)
(2,520)
(498,278)
407,781
(90,497)
(77,983)
(168,480)
406,005
296,374
39,076
572,975 (5)
Total
2,299,176 $
1,624,625
674,551
(340,882)
102,898
(24,887)
(425,782)
2,030
(12,072)
8,717
(3,355)
568,095
564,740
(88,769)
475,971
758,781
732,757
26,371
1,993,880 $
50
Net Income and EBITDA by Segment for the Years Ended December 31, 2015, 2014 and 2013 - continued
Notes to preceding tabular information:
(1) EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a non-GAAP
financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return
on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize
this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA
should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by
other companies.
(2) Interest and debt expense, depreciation and amortization and income tax expense in the reconciliation of net income to EBITDA
includes our share of these items from partially owned entities.
(3) The elements of "New York" EBITDA are summarized below.
(Amounts in thousands)
Office(a)
Retail(b)
Residential
Alexander's
Hotel Pennsylvania
Net gains on sale of real estate(c)
Total New York
For the Year Ended December 31,
2014
2015
2013
$
$
661,579 $
358,379
22,266
42,858
23,044
142,693
1,250,819
$
622,818 $
281,428
21,907
41,746
30,753
440,537
1,439,189
$
612,009
246,808
20,420
42,210
30,723
127,512
1,079,682
(a) 2015, 2014, and 2013 includes EBITDA from discontinued operations and other items that affect comparability, aggregating $28,846,
$34,520, and $48,975, respectively. Excluding these items, EBITDA was $632,733, $588,298, and $563,034, respectively.
(b) 2014 and 2013 includes EBITDA from discontinued operations and other items that affect comparability, aggregating $1,751 and
$934, respectively. Excluding these items, EBITDA was $279,677 and $245,874, respectively.
(c) Net gains on sale of real estate are related to 20 Broad Street in 2015, 1740 Broadway in 2014, and 866 UN Plaza in 2013.
(4) The elements of "Washington, DC" EBITDA are summarized below.
(Amounts in thousands)
Office, excluding the Skyline properties
Skyline properties
Net gain on sale of 1750 Pennsylvania Avenue
Total Office
Residential
Total Washington, DC
For the Year Ended December 31,
2014
2015
2013
264,864 $
24,224
102,404
391,492
38,978
430,470
$
266,859 $
27,150
-
294,009
41,581
335,590
$
268,373
29,499
-
297,872
43,351
341,223
$
$
51
Net Income and EBITDA by Segment for the Years Ended December 31, 2015, 2014 and 2013 - continued
Notes to preceding tabular information:
(5) The elements of "Other" EBITDA are summarized below.
(Amounts in thousands)
Our share of real estate fund investments:
Income before net realized/unrealized gains
Net realized/unrealized gains on investments
Carried interest
Total
Mart ("theMart") and trade shows
555 California Street
India real estate ventures
Our share of Toys(a)
Other investments
Corporate general and administrative expenses(b)(c)
Investment income and other, net(b)
Gains on sale of partially owned entities and other
UE and residual retail properties discontinued operations
Our share of impairment loss on India real estate ventures
Acquisition and transaction related costs
Net gain on sale of marketable securities, land parcels and residential condominiums
Impairment loss and loan loss reserve on investment in Suffolk Downs
Losses from the disposition of investment in J.C. Penney
Severance costs (primarily reduction in force at theMart)
Net income attributable to noncontrolling interests in the Operating Partnership
For the Year Ended December 31,
2014
2015
2013
$
$
8,611 $
14,657
10,696
33,964
79,159
49,975
3,933
2,500
38,141
207,672
(106,416)
26,385
37,666
28,314
(14,806)
(12,511)
6,724
(1,551)
-
-
(43,231)
128,246 $
8,056 $
37,535
24,715
70,306
79,636
48,844
6,434
103,632
16,896
325,748
(94,929)
31,665
13,000
245,679
(5,771)
(16,392)
13,568
(10,263)
-
-
(47,613)
454,692 $
7,752
23,489
18,230
49,471
74,270
42,667
5,841
(12,081)
45,856
206,024
(94,904)
46,525
-
541,516
-
(24,857)
56,868
-
(127,888)
(5,492)
(24,817)
572,975
(a) As a result of our investment being reduced to zero, we suspended equity method accounting in the third quarter of 2014. The years
ended December 31, 2014 and 2013 include an impairment loss of $75,196 and $240,757, respectively.
(b) The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred compensation plan
of $111, $11,557 and $10,636 for the years ended December 31, 2015, 2014 and 2013, respectively.
(c) The year ended December 31, 2015 includes $6,217 from the acceleration of the recognition of compensation expense related to 2013-
2015 Out-Performance Plans due to the modification of the vesting criteria of awards such that they will fully vest at age 65. The
accelerated expense will result in lower general and administrative expense for 2016 of $2,940 and $3,277 thereafter.
EBITDA by Region
Below is a summary of the percentages of EBITDA by geographic region, excluding discontinued operations and other items that
affect comparability.
For the Year Ended December 31,
2014
2013
2015
Region:
New York City metropolitan area
Washington, DC / Northern Virginia area
Chicago, IL
San Francisco, CA
71%
21%
5%
3%
100%
68%
23%
6%
3%
100%
66%
25%
6%
3%
100%
52
Results of Operations – Year Ended December 31, 2015 Compared to December 31, 2014
Revenues
Our revenues, which consist of property rentals (including hotel and trade show revenues), tenant expense reimbursements, and
fee and other income, were $2,502,267,000 in the year ended December 31, 2015, compared to $2,312,512,000 in the prior year, an
increase of $189,755,000. Below are the details of the increase (decrease) by segment:
(Amounts in thousands)
Increase (decrease) due to:
Property rentals:
Acquisitions and other
Development and redevelopment
Hotel Pennsylvania
Trade shows
Same store operations
Tenant expense reimbursements:
Acquisitions and other
Development and redevelopment
Same store operations
Fee and other income:
BMS cleaning fees
Management and leasing fees
Lease termination fees
Other income
Total
New York
Washington, DC
Other
$
$
60,671
55,559
(6,501)
2,195
53,175
165,099
62,316 (1) $
52,547 (2)
(6,501)
-
46,024
154,386
$
(1,645)
142
-
-
(625)
(2,128)
4,867
2,863
7,427
15,157
(3,545)
(3,123)
10,307
5,860
9,499
5,098 (1)
2,904 (2)
4,046
12,048
(4,271)
(2,509)
12,207
3,219
8,646
(231)
(41)
(289)
(561)
-
(480)
(1,900)
730
(1,650)
-
2,870
-
2,195
7,776
12,841
-
-
3,670
3,670
726
(134)
-
1,911
2,503
Total increase (decrease) in revenues
$
189,755
$
175,080
$
(4,339)
$
19,014
(1)
Includes the acquisitions of 33-00 Northern Boulevard (Center Building), 260 Eleventh Avenue, 697-703 Fifth Avenue (St. Regis - retail) and
150 West 34th Street.
(2) Primarily 330 West 34th Street, 7 West 34th Street and 1535 Broadway (Marriott Marquis - retail and signage).
53
Results of Operations – Year Ended December 31, 2015 Compared to December 31, 2014 - continued
Expenses
Our expenses, which consist primarily of operating (including hotel and trade show expenses), depreciation and amortization and
general and administrative expenses, were $1,742,019,000 in the year ended December 31, 2015, compared to $1,622,619,000 in the
prior year, an increase of $119,400,000. Below are the details of the increase by segment:
(Amounts in thousands)
Increase (decrease) due to:
Operating:
Acquisitions and other
Development and redevelopment
Non-reimbursable expenses, including
bad-debt reserves
Hotel Pennsylvania
Trade shows
BMS expenses
Same store operations
Depreciation and amortization:
Acquisitions and other
Development and redevelopment
Same store operations
General and administrative:
Mark-to-market of deferred compensation
plan liability
Same store operations
Acquisition and transaction related costs
Total
New York
Washington, DC
Other
$
10,242
19,760
$
11,729 (1) $
14,289 (2)
(1,487)
1,449
$
(3,397)
915
249
(2,963)
32,831
57,638
34,262
17,014
10,373
61,649
(11,446)
17,483
6,037
(5,924)
(3,026)
915
-
(4,229)
22,719
42,396
34,816 (1)
(6,120) (2)
7,910
36,606
-
6,547 (4)
6,547
(538)
-
-
-
1,337
761
(554)
30,599
3,384
33,429
-
(1,288)
(1,288)
-
4,023
167
-
249
1,266
8,776
14,481
-
(7,465)
(921)
(8,386)
(11,446) (3)
12,224 (5)
778
-
-
(5,924)
Total increase in expenses
$
119,400
$
85,549
$
32,902
$
949
(1)
Includes the acquisitions of 33-00 Northern Boulevard (Center Building), 260 Eleventh Avenue, 697-703 Fifth Avenue (St. Regis - retail) and
150 West 34th Street.
(2) Primarily 330 West 34th Street, 7 West 34th Street and 1535 Broadway (Marriott Marquis - retail and signage).
(3) This decrease in expense is entirely offset by a corresponding decrease in income from the mark-to-market of the deferred compensation plan
assets, a component of “interest and other investment income (loss), net” on our consolidated statements of income.
(4) Results primarily from (i) the acceleration of the recognition of compensation expense of $1,555 related to 2013-2015 Out-Performance Plans
due to the modification of the vesting criteria of awards such that they fully vest at age 65. The accelerated expense will result in lower general
and administrative expense for 2016 of $706 and $849 thereafter; and (ii) higher payroll and related costs.
(5) Results primarily from (i) the acceleration of the recognition of compensation expense of $6,217 related to 2013-2015 Out-Performance Plans
due to the modification of the vesting criteria of awards such that they fully vest at age 65. The accelerated expense will result in lower general
and administrative expense for 2016 of $2,940 and $3,277 thereafter; (ii) higher payroll and related costs of $2,900; and (iii) higher
professional fees and other of $2,400.
54
Results of Operations – Year Ended December 31, 2015 Compared to December 31, 2014 - continued
Loss from Partially Owned Entities
Summarized below are the components of loss from partially owned entities for the years ended December 31, 2015 and 2014.
(Amounts in thousands)
Equity in Net Income (Loss):
Alexander's
Partially owned office buildings (1)
India real estate ventures (2)
PREIT
UE
Toys (3)
Other investments (4)
Percentage
Ownership at
December 31, 2015
32.4%
Various
4.1%-36.5%
8.1%
5.4%
32.5%
Various
For the Year Ended December 31,
2015
2014
$
$
31,078
(23,556)
(18,746)
(7,450)
4,394
2,500
(850)
(12,630)
$
$
30,009
93
(8,309)
-
-
(73,556)
(8,098)
(59,861)
(1)
Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue, 512 West
22nd Street and others. In 2015, we recognized net losses of $39,600 from our 666 Fifth Avenue (Office) joint venture as a result of our share
of depreciation expense. Also in 2015, we recognized our $12,800 share of a write-off of a below market lease liability related to a tenant
vacating at 650 Madison Avenue. In 2014, we recognized our $14,500 share of accelerated depreciation from our West 57th Street joint
ventures in connection with the change in estimated useful life of those properties.
Includes a $14,806 and $5,771 non-cash impairment loss in 2015 and 2014, respectively.
(2)
(3) For the year ended December 31, 2015, we recognized net income of $2,500 from our investment in Toys, representing management fees
earned and received, compared to a net loss of $73,556 for the year ended December 31, 2014, which was primarily due to a $75,196 non-cash
impairment loss.
Includes interests in Independence Plaza, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others. In 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)
55
Results of Operations – Year Ended December 31, 2015 Compared to December 31, 2014 - continued
Income from Real Estate Fund Investments
Below are the components of the income from our real estate fund investments for the years ended December 31, 2015 and 2014.
(Amounts in thousands)
Net investment income
Net realized gains on exited investments
Net unrealized gains on held investments
Income from real estate fund investments
Less income attributable to noncontrolling interests
Income from real estate fund investments attributable to Vornado (1)
For the Year Ended December 31,
2015
2014
$
16,329
2,757
54,995
74,081
(40,117)
33,964 $
12,895
76,337
73,802
163,034
(92,728)
70,306
$
$
(1) Excludes management and leasing fees of $2,939 and $2,562 in the years ended December 31, 2015 and 2014, respectively, which are included
as a component of "fee and other income" on our consolidated statements of income.
Interest and Other Investment Income, net
Interest and other investment income, net was $26,978,000 in the year ended December 31, 2015, compared to $38,752,000 in
the prior year, a decrease in income of $11,774,000. This decrease resulted primarily from a decrease in the value of investments in
our deferred compensation plan (offset by a corresponding decrease in the liability for plan assets in “general and administrative”
expenses on our consolidated statements of income).
Interest and Debt Expense
Interest and debt expense was $378,025,000 in the year ended December 31, 2015, compared to $412,755,000 in the prior year, a
decrease of $34,730,000. This decrease was primarily due to (i) $26,652,000 of interest savings from the redemption of the
$445,000,000 principal amount of the outstanding 7.875% senior unsecured notes during the fourth quarter of 2014, (ii) $21,375,000
of interest savings from the redemption of the $500,000,000 principal amount of the outstanding 4.25% senior unsecured notes on
January 1, 2015, partially offset by (iii) $5,297,000 of interest expense from the issuance of $450,000,000 of 2.50% senior unsecured
notes in June 2014, (iv) $5,182,000 of interest expense from the current year’s financings of 150 West 34th Street and the Center
Building, and (v) $3,481,000 of lower capitalized interest.
Net Gain on Disposition of Wholly Owned and Partially Owned Assets
Net gain on disposition of wholly owned and partially owned assets was $251,821,000 in the year ended December 31, 2015,
$142,693,000 from the net gain on sale of 20 Broad Street, $102,404,000 from the net gain on sale of 1750 Pennsylvania Avenue and
$6,724,000 from the sale of residential condominiums, compared to $13,568,000 in the year ended December 31, 2014, from the sale
of residential condominiums and a land parcel.
Income Tax Benefit (Expense)
In the year ended December 31, 2015, we had an income tax benefit of $84,695,000, compared to an expense of $9,281,000 in
the prior year, a decrease in expense of $93,976,000. This decrease in expense resulted primarily from the reversal of the valuation
allowances against certain of our deferred tax assets, as we have concluded that it is more-likely than not that we will generate
sufficient taxable income from the sale of 220 Central Park South residential condominium units to realize the deferred tax assets.
56
Results of Operations – Year Ended December 31, 2015 Compared to December 31, 2014 - 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, 2015 and 2014.
(Amounts in thousands)
Total revenues
Total expenses
Net gains on sales of real estate
Transaction related costs (primarily UE spin off)
Impairment losses
Pretax income from discontinued operations
Income tax expense
Income from discontinued operations
For the Year Ended December 31,
2014
2015
27,831
17,651
10,180
65,396
(22,972)
(256)
52,348
(86)
52,262
$
$
395,786
274,107
121,679
507,192
(14,956)
(26,518)
587,397
(1,721)
585,676
$
$
Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries
Net income attributable to noncontrolling interests in consolidated subsidiaries was $55,765,000 in the year ended December 31,
2015, compared to $96,561,000 in the prior year, a decrease of $40,796,000. This decrease resulted primarily from lower net income
allocated to the noncontrolling interests, including noncontrolling interests of our real estate fund investments.
Net Income Attributable to Noncontrolling Interests in the Operating Partnership
Net income attributable to noncontrolling interests in the Operating Partnership was $43,231,000 in the year ended December 31,
2015, compared to $47,613,000 in the prior year, a decrease of $4,382,000. This decrease resulted primarily from lower net income
subject to allocation to unitholders.
Preferred Share Dividends
Preferred share dividends were $80,578,000 in the year ended December 31, 2015, compared to $81,464,000 in the prior year, a
decrease of $886,000.
57
Results of Operations – Year Ended December 31, 2015 Compared to December 31, 2014 - continued
Same Store EBITDA
Same store EBITDA represents EBITDA from property level operations which are owned by us in both the current and prior year
reporting periods. Same store EBITDA excludes segment-level overhead expenses, which are expenses that we do not consider to be
property-level expenses, as well as other non-operating items. We also present same store EBITDA on a cash basis (which excludes
income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash
adjustments). We present these non-GAAP financial 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, 2015,
compared to the year ended December 31, 2014.
(Amounts in thousands)
EBITDA for the year ended December 31, 2015
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, 2015
EBITDA for the year 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 year ended December 31, 2014
Increase (decrease) in same store EBITDA -
Year ended December 31, 2015 vs. December 31, 2014
% increase (decrease) in same store EBITDA
See notes on following page.
New York
Washington, DC
$
1,250,819
$
430,470
35,026
26,051
(61,369)
(169,362)
(71,705)
(17,692)
965,717
1,439,189
28,479
(4,141)
(476,465)
(26,832)
(8,815)
951,415
$
$
$
-
(108,015)
2,271
(5,747)
345,030
335,590
27,339
-
(9,302)
621
(5,445)
348,803
14,302 (1) $
(3,773) (3)
1.5% (2)
(1.1%)
$
$
$
$
58
Results of Operations – Year Ended December 31, 2015 Compared to December 31, 2014 - continued
Notes to preceding tabular information:
New York:
(1) The $14,302,000 increase in New York same store EBITDA resulted primarily from increases in Office and Retail EBITDA of
$13,688,000 and $6,519,000, respectively, partially offset by a decrease in Hotel Pennsylvania EBITDA of $7,709,000. The
Office and Retail EBITDA increases resulted primarily from higher rents, including signage, partially offset by lower
management and leasing fees and higher operating expenses, net of reimbursements.
(2) Excluding Hotel Pennsylvania, same store EBITDA increased by 2.4%.
Washington, DC:
(3) The $3,773,000 decrease in Washington, DC same store EBITDA resulted primarily from higher net operating expenses of
$2,088,000, lower fee and other income of $942,000, and lower management and leasing fees of $480,000.
Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA
(Amounts in thousands)
Same store EBITDA for the year ended December 31, 2015
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, 2015
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
Increase (decrease) in cash basis same store EBITDA -
Year ended December 31, 2015 vs. December 31, 2014
% increase (decrease) in cash basis same store EBITDA
(1) Excluding Hotel Pennsylvania, same store EBITDA increased by 1.3% on a cash basis.
$
$
$
$
$
New York
Washington, DC
965,717
$
345,030
(131,561)
834,156
951,415
(119,842)
831,573
$
$
$
(25,617)
319,413
348,803
(7,828)
340,975
2,583
$
(21,562)
0.3% (1)
(6.3%)
59
Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013
Revenues
Our revenues, which consist primarily of property rentals, tenant expense reimbursements, and fee and other income, were
$2,312,512,000 in the year ended December 31, 2014, compared to $2,299,176,000 in the year ended December 31, 2013, an increase
of $13,336,000. Excluding decreases of $36,369,000 related to the Cleveland Medical Mart development project in 2013 and
$23,992,000 from the deconsolidation of Independence Plaza, revenues increased by $73,697,000. Below are the details of the
increase (decrease) by segment:
(Amounts in thousands)
Increase (decrease) due to:
Property rentals:
Acquisitions and other
Deconsolidation of Independence Plaza(1)
Development and redevelopment
Same store operations
Tenant expense reimbursements:
Acquisitions and other
Development and redevelopment
Same store operations
Total
New York
Washington, DC
Other
$
15,600 $
(23,992)
(9,229)
48,703
31,082
18,232 $
(23,992)
229
37,288
31,757
1,448
(2,123)
19,663
18,988
768
(1,650)
17,367
16,485
(1,353) $
-
(2,274)
(2,913)
(6,540)
874
94
(944)
24
(1,279)
-
(7,184)
14,328
5,865
(194)
(567)
3,240
2,479
Cleveland Medical Mart development project
(36,369) (2)
-
-
(36,369) (2)
Fee and other income:
BMS cleaning fees
Management and leasing fees
Lease termination fees
Other income
19,152
(3,167)
(16,267)
(83)
(365)
19,358
(862)
(17,093) (4)
293
1,696
-
(2,769)
4,138
1,137
2,506
(206) (3)
464
(3,312)
(1,513)
(4,567)
Total increase (decrease) in revenues
$
13,336 $
49,938 $
(4,010) $
(32,592)
(1) 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.
(2) 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 61.
(3) Represents the change in the elimination of intercompany fees from operating segments upon consolidation. See note (3) on page 61.
(4) Primarily due to a $19,500 termination fee from a tenant at 1290 Avenue of the Americas recognized during 2013.
60
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 $1,622,619,000 in the year ended December 31, 2014, compared to $1,624,625,000 in the
year ended December 31, 2013, a decrease of $2,006,000. 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 $56,103,000.
Below are the details of the (decrease) increase by segment:
(Amounts in thousands)
(Decrease) increase due to:
Operating:
Acquisitions and other
Deconsolidation of Independence Plaza(1)
Development and redevelopment
Non-reimbursable expenses, including
bad-debt reserves
BMS expenses
Same store operations
Depreciation and amortization:
Acquisitions and other
Deconsolidation of Independence Plaza(1)
Development and redevelopment
Same store operations
General and administrative:
Mark-to-market of deferred compensation
plan liability (2)
Non-same store
Same store operations
Cleveland Medical Mart development project
Impairment losses, acquisition related costs
and tenant buy-outs
Total
New York
Washington, DC
Other
$
334 $
(9,592)
(12,124)
99
11,813
34,516
25,046
10,660
(16,307)
19,672
5,651
19,676
921
(5,408)
(3,609)
(8,096)
(32,210) (4)
336 $
(9,592)
(4,374)
1,301
12,019
27,118
26,808
9,836
(16,307)
23,488
(7,130)
9,887
-
-
(727)
(727)
-
1,466 $
-
(1,113)
-
-
4,469
4,822
835
-
(649)
5,046
5,232
-
(5)
284
279
(1,468)
-
(6,637)
(1,202)
(206) (3)
2,929
(6,584)
(11)
-
(3,167)
7,735
4,557
921
(5,403)
(3,166)
(7,648)
-
(32,210) (4)
(6,422)
-
-
(6,422)
Total (decrease) increase in expenses
$
(2,006) $
35,968 $
10,333 $
(48,307)
(1) 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.
(2) 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 60.
(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 60.
61
Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - continued
Loss from Partially Owned Entities
Summarized below are the components of loss from partially owned entities for the years ended December 31, 2014 and 2013.
(Amounts in thousands)
Equity in Net (Loss) Income:
Toys(1)
Alexander's
India real estate ventures(2)
Partially owned office buildings(3)
LNR(4)
Lexington(5)
Other investments(6)
Percentage
Ownership at
December 31, 2014
32.6%
32.4%
4.1%-36.5%
Various
n/a
n/a
Various
For the Year Ended December 31,
2014
2013
$
$
(73,556)
30,009
(8,309)
93
-
-
(8,098)
(59,861)
$
$
(362,377)
24,402
(3,533)
(4,212)
18,731
(979)
(12,914)
(340,882)
(2)
(3)
(1) For the year ended December 31, 2014, we recognized a net loss of $73,556, which was primarily due to a $75,196 non-cash impairment loss,
compared to a net loss of $362,377 for the year ended December 31, 2013, which includes our $128,919 share of Toys’ net loss and $240,757
of non-cash impairment losses.
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.
In 2014, we recognized our $14,500 share of accelerated depreciation from our West 57th Street joint ventures in connection with the change in
estimated useful life of those properties.
In 2013, we recognized net income of $18,731, comprised of (i) $42,186 for our share of LNR’s net income and (ii) a $27,231 non-cash
impairment loss and (iii) a $3,776 net gain on sale.
In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable security - available for sale.
Includes interests in Independence Plaza, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others. In 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.
(5)
(6)
(4)
62
Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - continued
Income from Real Estate Fund Investments
Below are the components of the income from our real estate fund investments for the years ended December 31, 2014 and 2013.
(Amounts in thousands)
Net investment income
Net realized gains on exited investments
Net unrealized gains on held investments
Income from real estate fund investments
Less income attributable to noncontrolling interests
Income from real estate fund investments 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 $2,562 and $2,721 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 $38,752,000 in the year ended December 31, 2014, compared to a
loss of $24,887,000 in the prior year, an increase in income of $63,639,000. This increase resulted from:
(Amounts in thousands)
Losses from the disposition of investment in J.C. Penney in 2013
Lower average 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
(14,576)
1,261
921
3,059
63,639
Interest and debt expense was $412,755,000 in the year ended December 31, 2014, compared to $425,782,000 in the year ended
December 31, 2013, a decrease of $13,027,000. This decrease was primarily due to (i) $20,483,000 of higher capitalized interest 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 2.50% senior 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 year ended December 31, 2014,
primarily from the sale of residential condominiums and a land parcel, compared to $2,030,000 in the year ended December 31, 2013,
primarily from net gains from the sale of marketable securities, land parcels (including Harlem Park), and residential condominiums
aggregating $56,868,000, partially offset by a $54,914,000 net loss on sale of J.C. Penney common shares.
63
Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - continued
Income Tax Benefit (Expense)
In the year ended December 31, 2014, we had an income tax expense of $9,281,000, compared to a benefit of $8,717,000 in the
year ended December 31, 2013, an increase in expense of $17,998,000. 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.
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, 2014 and 2013.
(Amounts in thousands)
Total revenues
Total expenses
Net gains on sales of real estate
Impairment losses
Transaction related costs (primarily UE spin off)
Net gain on sale of asset other than real estate
Pretax income from discontinued operations
Income tax expense
Income from discontinued operations
For the Year Ended December 31,
2013
2014
$
$
395,786
274,107
121,679
507,192
(26,518)
(14,956)
-
587,397
(1,721)
585,676
$
$
502,061
310,364
191,697
414,502
(37,170)
-
1,377
570,406
(2,311)
568,095
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 year ended December 31, 2013, 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 investments.
Net Income Attributable to Noncontrolling Interests in the Operating Partnership
Net income attributable to noncontrolling interests in the Operating Partnership was $47,613,000 in the year ended December
31, 2014, compared to $24,817,000 in the year ended December 31, 2013, an increase of $22,796,000. This increase resulted
primarily from higher net income subject to allocation to unitholders.
Preferred Share Dividends
Preferred share dividends were $81,464,000 in the year ended December 31, 2014, compared to $82,807,000 in the year ended
December 31, 2013, 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, 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.
64
Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - 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, 2014,
compared to the year ended December 31, 2013.
(Amounts in thousands)
EBITDA for the year 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 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
% increase (decrease) in same store EBITDA
See notes on following page.
New York
Washington, DC
$
1,439,189
$
335,590
28,479
27,339
(33,917)
(476,247)
(26,056)
(9,013)
922,435
1,079,682
29,206
(4,764)
(172,693)
(20,013)
(31,522)
879,896
$
$
$
-
(9,302)
(1,432)
(5,446)
346,749
341,223
27,060
-
(7,388)
(4,056)
(1,129)
355,710
42,539 (1) $
(8,961) (3)
4.8% (2)
(2.5%)
$
$
$
$
65
Results of Operations – Year Ended December 31, 2014 Compared to December 31, 2013 - continued
Notes to preceding tabular information:
New York:
(1) The $42,539,000 increase in New York same store EBITDA resulted primarily from increases in Office and Retail EBITDA of
$29,324,000 and $13,159,000. The Office and Retail EBITDA increases resulted primarily from higher rents, including signage,
partially offset by higher operating expenses, net of reimbursements.
(2) Excluding Hotel Pennsylvania, same store EBITDA increased by 5.0%.
Washington, DC:
(3) The $8,961,000 decrease in Washington, DC same store EBITDA resulted primarily from lower rental revenue of $2,913,000,
lower management and leasing fee income of $2,769,000 and higher operating expenses of $4,534,000, partially offset by an
increase in other income of $1,541,000.
Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA
(Amounts in thousands)
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
% increase (decrease) in cash basis same store EBITDA
(1) Excluding Hotel Pennsylvania, same store EBITDA increased by 8.0% on a cash basis.
$
$
$
$
$
New York
Washington, DC
922,435
$
346,749
(105,955)
816,480
879,896
(121,271)
758,625
$
$
$
(7,770)
338,979
355,710
(5,883)
349,827
57,855
$
(10,848)
7.6% (1)
(3.1%)
66
Supplemental Information
Net Income and EBITDA by Segment for the Three Months Ended December 31, 2015 and 2014
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended
December 31, 2015 and 2014.
(Amounts in thousands)
Total revenues
Total expenses
Operating income (loss)
Loss from partially owned entities
Income from real estate fund investments
Interest and other investment income (loss), net
Interest and debt expense
Net gain on disposition of wholly owned and partially owned
$
owned assets
Income (loss) before income taxes
Income tax benefit (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 (benefit) expense(2)
EBITDA(1)
(Amounts in thousands)
Total revenues
Total expenses
Operating income (loss)
Income from partially owned entities
Income from real estate fund investments
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 68 and 69.
$
$
$
For the Three Months Ended December 31, 2015
Total
New York
Washington, DC
Other
651,581 $
443,878
207,703
(3,921)
21,959
7,360
(98,915)
146,924
281,110
450
281,560
1,984
283,544
(32,437)
251,107
121,118
170,733
(30)
542,928 $
452,717 $
265,152
187,565
(868)
-
2,080
(51,274)
142,693
280,196
(1,194)
279,002
-
279,002
(6,382)
272,620
64,347
105,131
1,398
443,496 (3) $
131,284 $
97,149
34,135
(1,500)
-
(322)
(16,504)
-
15,809
(238)
15,571
-
15,571
-
15,571
19,973
43,101
246
78,891 (4) $
67,580
81,577
(13,997)
(1,553)
21,959
5,602
(31,137)
4,231
(14,895)
1,882
(13,013)
1,984
(11,029)
(26,055)
(37,084)
36,798
22,501
(1,674)
20,541 (5)
For the Three Months Ended December 31, 2014
Total
New York
Washington, DC
Other
597,010 $
423,765
173,245
18,815
20,616
9,938
(111,713)
363
111,264
(2,498)
108,766
467,220
575,986
(42,383)
533,603
143,674
155,921
2,759
835,957 $
400,159 $
243,739
156,420
4,329
-
1,822
(48,457)
-
114,114
(1,308)
112,806
445,762
558,568
(1,423)
557,145
61,809
83,199
1,326
703,479 (3) $
133,506 $
92,720
40,786
1,248
-
90
(18,703)
-
23,421
(196)
23,225
-
23,225
-
23,225
21,979
37,486
200
82,890 (4) $
63,345
87,306
(23,961)
13,238
20,616
8,026
(44,553)
363
(26,271)
(994)
(27,265)
21,458
(5,807)
(40,960)
(46,767)
59,886
35,236
1,233
49,588 (5)
67
Supplemental Information – continued
Net Income and EBITDA by Segment for the Three Months Ended December 31, 2015 and 2014 - continued
Notes to preceding tabular information:
(1) EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a non-GAAP
financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on
assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize
this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA
should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by
other companies.
(2) Interest and debt expense, depreciation and amortization and income tax expense in the reconciliation of net income to EBITDA
includes our share of these items from partially owned entities.
(3) The elements of "New York" EBITDA are summarized below.
(Amounts in thousands)
Office(a)
Retail
Residential
Alexander's
Hotel Pennsylvania
Net gains on sale of real estate(b)
Total New York
For the Three Months Ended December 31,
2015
2014
$
$
181,072 $
93,319
6,011
11,708
8,693
142,693
443,496 $
159,231
75,959
5,214
10,658
11,880
440,537
703,479
(a) 2015 and 2014 includes EBITDA from discontinued operations and other items that affect comparability, aggregating
$17,265 and $7,955, respectively. Excluding these items, EBITDA was $163,807 and $151,276, respectively.
(b) Net gains on sale of real estate are related to 20 Broad Street in 2015 and 1740 Broadway in 2014.
(4) The elements of "Washington, DC" EBITDA are summarized below.
(Amounts in thousands)
Office, excluding the Skyline properties
Skyline properties
Total Office
Residential
Total Washington, DC
For the Three Months Ended December 31,
2015
2014
$
$
64,233 $
5,187
69,420
9,471
78,891 $
66,641
5,880
72,521
10,369
82,890
68
Supplemental Information – continued
Net Income and EBITDA by Segment for the Three Months Ended December 31, 2015 and 2014 - continued
Notes to preceding tabular information:
(5) The elements of "Other" EBITDA are summarized below.
(Amounts in thousands)
Our share of real estate fund investments:
Income before net realized/unrealized gains
Net realized/unrealized gains on investments
Carried interest
Total
theMart 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
Net gain on sale of residential condominiums
UE and residual retail properties discontinued operations
Impairment loss on loan loss reserve on investment in Suffolk Downs
Gains on sale of partially owned entities and other
Our share of impairment loss on India real estate ventures
Net income attributable to noncontrolling interests in the Operating Partnership
For the Three Months Ended December 31,
2015
2014
$
$
1,732
5,115
4,448
11,295
16,930
11,738
1,704
12,854
54,521
(24,373)
5,110
(4,951)
4,231
2,001
(956)
-
-
(15,042)
20,541
$
$
1,388
4,645
3,072
9,105
18,598
13,278
1,860
3,908
46,749
(22,977)
8,901
(12,763)
363
53,147
-
13,000
(5,771)
(31,061)
49,588
(a) The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred compensation
plan of $438 and $3,425 for the three months ended December 31, 2015 and 2014, respectively.
EBITDA by Region
Below is a summary of the percentages of EBITDA by geographic region, excluding discontinued operations and other items that
affect comparability.
Region:
New York City metropolitan area
Washington, DC / Northern Virginia area
Chicago, IL
San Francisco, CA
For the Three Months Ended December 31,
2015
2014
72%
21%
4%
3%
100%
69%
22%
5%
4%
100%
69
Supplemental Information – continued
Three Months Ended December 31, 2015 Compared to December 31, 2014
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 financial 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, 2015, compared to the three months ended December 31, 2014.
(Amounts in thousands)
EBITDA for the three months ended December 31, 2015
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 expense (income)
Same store EBITDA for the three months ended December 31, 2015
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
Increase (decrease) in GAAP basis same store EBITDA -
Three months ended December 31, 2015 vs. December 31, 2014
% increase (decrease) in same store EBITDA
(1) Excluding Hotel Pennsylvania, same store EBITDA increased by 1.4%.
New York
Washington, DC
$
443,496
$
78,891
6,788
(26,545)
(159,842)
(21,515)
2,673
245,055
703,479
6,055
(4,191)
(448,915)
(9,038)
(2,467)
244,923
$
$
$
132
$
0.1% (1)
$
$
$
$
7,553
-
41
740
(2,452)
84,773
82,890
6,866
-
(3,551)
283
(1,337)
85,151
(378)
(0.4%)
70
Supplemental Information – continued
Three Months Ended December 31, 2015 Compared to December 31, 2014 - continued
Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA
(Amounts in thousands)
Same store EBITDA for the three months ended December 31, 2015
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, 2015
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
Decrease in cash basis same store EBITDA -
Three months ended December 31, 2015 vs. December 31, 2014
% decrease in cash basis same store EBITDA
(1) Excluding Hotel Pennsylvania, same store EBITDA decreased by 4.4% on a cash basis.
$
$
$
$
$
New York
Washington, DC
245,055
$
(39,466)
205,589
244,923
(27,187)
$
$
84,773
(6,755)
78,018
85,151
(3,079)
217,736
$
82,072
(12,147)
$
(5.6%) (1)
(4,054)
(4.9%)
71
Supplemental Information – continued
Three Months Ended December 31, 2015 Compared to September 30, 2015
Below is the reconciliation of Net Income to EBITDA for the three months ended September 30, 2015.
(Amounts in thousands)
Net income attributable to Vornado for the three months ended September 30, 2015
Interest and debt expense
Depreciation and amortization
Income tax expense
EBITDA for the three months ended September 30, 2015
New York
Washington, DC
$
$
117,317
64,653
99,206
1,214
282,390
$
$
114,252
20,010
48,132
294
182,688
Below is the reconciliation of EBITDA to same store EBITDA for each of our segments for the three months ended December
31, 2015, compared to the three months ended September 30, 2015.
(Amounts in thousands)
EBITDA for the three months ended December 31, 2015
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, 2015
EBITDA for the three months ended September 30, 2015
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, 2015
Increase in same store EBITDA -
Three months ended December 31, 2015 vs. September 30, 2015
% increase in same store EBITDA
(1) Excluding Hotel Pennsylvania, same store EBITDA was flat.
New York
Washington, DC
$
443,496
$
78,891
6,788
(1,469)
(159,843)
(21,515)
(9,259)
258,198
282,390
8,305
(712)
(3,161)
(19,385)
(10,347)
257,090
$
$
$
7,553
-
41
740
(2,452)
84,773
182,688
6,283
-
(104,005)
548
(1,414)
84,100
1,108
$
0.4% (1)
673
0.8%
$
$
$
$
72
Supplemental Information – continued
Three Months Ended December 31, 2015 Compared to September 30, 2015 - continued
Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA
(Amounts in thousands)
Same store EBITDA for the three months ended December 31, 2015
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, 2015
Same store EBITDA for the three months ended September 30, 2015
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, 2015
(Decrease) increase in cash basis same store EBITDA -
Three months ended December 31, 2015 vs. September 30, 2015
% (decrease) increase in cash basis same store EBITDA
(1) Excluding Hotel Pennsylvania, same store EBITDA decreased by 1.5% on a cash basis.
$
$
$
$
$
New York
Washington, DC
258,198
$
(47,577)
210,621
257,090
(44,518)
$
$
84,773
(6,840)
77,933
84,100
(7,118)
212,572
$
76,982
(1,951)
$
(0.9%) (1)
951
1.2%
73
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 general partners. As of December
31, 2015, Interstate and its partners beneficially owned an aggregate of approximately 7.1% 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 $541,000, $535,000, and
$606,000 of management fees under the agreement for the years ended December 31, 2015, 2014 and 2013.
74
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, unsecured term loan and our unsecured 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 20, 2016, 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 2016, would require us to pay out approximately $476,000,000 of cash for common share
dividends. In addition, during 2016, we expect to pay approximately $82,000,000 of cash dividends on outstanding preferred shares
and approximately $32,000,000 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 unsecured 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 unsecured 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, 2015, we are in compliance with all of the financial
covenants required by our senior unsecured notes and our unsecured revolving credit facilities.
As of December 31, 2015, we had $1,835,707,000 of cash and cash equivalents and $1,911,904,000 of borrowing capacity under
our unsecured revolving credit facilities, net of outstanding borrowings and letters of credit of $550,000,000 and $38,096,000,
respectively. A summary of our consolidated debt as of December 31, 2015 and 2014 is presented below.
(Amounts in thousands)
Consolidated debt:
Variable rate
Fixed rate
Total
Deferred financing costs, net and other
Total, net
2015
Weighted
2014
December 31,
Balance
$
$
3,995,704
7,206,634
11,202,338
(111,328)
11,091,010
Average
Interest Rate
2.00%
4.21%
3.42%
December 31,
Balance
$
$
1,763,769
7,847,286
9,611,055
(80,718)
9,530,337
Weighted
Average
Interest Rate
2.20%
4.36%
3.97%
During 2016 and 2017, $1,061,603,000 and $365,507,000, respectively, 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 unsecured 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.
75
Liquidity and Capital Resources – continued
Financing Activities and Contractual Obligations – continued
Below is a schedule of our contractual obligations and commitments at December 31, 2015.
(Amounts in thousands)
Contractual cash obligations (principal and interest(1)):
Total
Less than
1 Year
1 – 3 Years 3 – 5 Years Thereafter
$
Notes and mortgages payable
Operating leases
Purchase obligations, primarily construction commitments
Unsecured revolving credit facilities (2)
Senior unsecured notes due 2022
Senior unsecured notes due 2019
Capital lease obligations
Unsecured term loan
Total contractual cash obligations
$
11,186,625 $ 1,422,006 $ 1,377,301 $ 3,659,588 $ 4,727,730
1,733,133
1,557,541
1,096,261
-
550,084
-
520,833
420,833
489,375
-
384,792
322,292
210,802
-
16,171,905 $ 2,620,964 $ 2,072,404 $ 4,450,141 $ 7,028,396
33,265
568,012
550,084
20,000
11,250
12,500
3,847
72,179
-
-
40,000
455,625
25,000
197,749
70,148
528,249
-
40,000
22,500
25,000
9,206
Commitments:
Capital commitments to partially owned entities
Standby letters of credit
Total commitments
$
$
69,719 $
38,096
107,815 $
69,719 $
38,096
107,815 $
- $
-
- $
- $
-
- $
-
-
-
Interest on variable rate debt is computed using rates in effect at December 31, 2015.
(1)
(2) On January 5, 2016, the $550,000 outstanding balance under our unsecured revolving credit facilities was repaid.
Details of 2015 financing activities are provided in the “Overview” of Management’s Discussion and Analysis of Financial
Conditions and Results of Operations. Details of 2014 financing activities are discussed below.
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% 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 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% 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% 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% 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.
76
Liquidity and Capital Resources – continued
Financing Activities and Contractual Obligations – continued
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.
Unsecured Revolving Credit Facilities
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.
Acquisitions and Investments
Details of 2015 acquisitions and investments are provided in the “Overview” of Management’s Discussion and Analysis of
Financial Conditions and Results of Operations. Details of 2014 acquisitions and investments are discussed below.
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 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.
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.
77
Liquidity and Capital Resources – continued
Certain Future Cash Requirements
Capital Expenditures
The following table summarizes anticipated 2016 capital expenditures.
(Amounts in millions, except square foot data)
Expenditures to maintain assets
Tenant improvements
Leasing commissions
$
Total capital expenditures and leasing commissions $
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) Primarily theMart and 555 California Street.
Total
New York
Washington, DC
Other(1)
182.0 $
150.0
41.0
373.0 $
$
$
93.0 $
75.0
30.0
198.0 $
1,500
10
70.00 $
7.00 $
29.0 $
42.0
9.0
80.0 $
1,400
6
37.00
6.50
60.0
33.0
2.0
95.0
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.
78
Liquidity and Capital Resources – continued
Development and Redevelopment Expenditures
We are constructing a residential condominium tower containing 392,000 salable square feet on our 220 Central Park South
development site. The incremental development cost of this project is approximately $1.3 billion, of which $293,000,000 has been
expended as of December 31, 2015.
We are developing The Bartlett, a 699-unit residential project in Pentagon City, which is expected to be completed in 2016. The
project includes a 40,000 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 $166,000,000 has been expended as of December 31, 2015.
On June 24, 2015, we entered into a joint venture, in which we own a 55% interest, to develop a 173,000 square foot Class-A
office building, located along the western edge of the High Line at 512 West 22nd Street in the West Chelsea submarket of Manhattan.
The development cost of this project is approximately $235,000,000. On November 24, 2015, the joint venture obtained a
$126,000,000 construction loan. The loan matures in November 2019 with two six-month extension options. The interest rate is
LIBOR plus 2.65% (3.07% at December 31, 2015). As of December 31, 2015, the outstanding balance of the loan was $44,072,000,
of which $24,240,000 is our share.
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 the West Chelsea submarket of Manhattan. The venture’s current
plans are to construct an office building, with retail at the base, of approximately 167,000 square feet. Total development costs are
currently estimated to be approximately $150,000,000.
We plan to demolish two adjacent Washington, DC office properties, 1726 M Street and 1150 17th Street in the first half of 2016
and replace them in the future with a new 335,000 square foot Class A office building, to be addressed 1700 M Street. The
incremental development cost of the project is approximately $170,000,000.
We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including
the Penn Plaza District, and in Washington, including Crystal City, Rosslyn and Pentagon City.
There can be no assurance that any of our development or redevelopment projects will commence, or if commenced, be
completed, or completed on schedule or within budget.
79
Liquidity and Capital Resources – continued
Insurance
We maintain general liability insurance with limits of $300,000,000 per occurrence and per property, and all risk property and
rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as flood and earthquake. Our
California properties have earthquake insurance with coverage of $180,000,000 per occurrence and in the annual aggregate, subject to
a deductible in the amount of 5% of the value of the affected property. We maintain coverage for terrorism acts with limits of $4.0
billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear,
biological, chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization
Act of 2015, which expires in December 2020.
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a
portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for
coverage for acts of terrorism including NBCR acts. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third
party insurance companies and the Federal government with no exposure to PPIC. For NBCR acts, PPIC is responsible for a
deductible of $3,200,000 ($2,400,000 effective January 1, 2016) per occurrence 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, 2015, the aggregate dollar amount of these guarantees and master leases is approximately $427,000,000.
At December 31, 2015, $38,096,000 of letters of credit were outstanding under one of our unsecured revolving credit facilities.
Our unsecured revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and
maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below
Baa3/BBB. Our unsecured revolving credit facilities also contain customary conditions precedent to borrowing, including
representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including
such items as failure to pay interest or principal.
As of December 31, 2015, we expect to fund additional capital to certain of our partially owned entities aggregating
approximately $70,000,000.
As of December 31, 2015, we have construction commitments aggregating $873,800,000.
80
Liquidity and Capital Resources – continued
Cash Flows for the Year Ended December 31, 2015
Our cash and cash equivalents were $1,835,707,000 at December 31, 2015, a $637,230,000 increase over the balance at
December 31, 2014. Our consolidated outstanding debt, net was $11,091,010,000 at December 31, 2015, a $1,560,673,000 increase
over the balance at December 31, 2014. As of December 31, 2015 and 2014, $550,000,000 and $0, respectively, was outstanding
under our revolving credit facilities. During 2016 and 2017, $1,061,603,000 and $365,507,000, 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 $672,150,000 was comprised of (i) net income of $859,430,000, (ii) return of
capital from real estate fund investments of $91,458,000, and (iii) distributions of income from partially owned entities of
$65,018,000, partially offset by (iv) $81,654,000 of non-cash adjustments, which include depreciation and amortization expense, the
reversal of allowance for deferred tax assets, the effect of straight-lining of rental income, loss from partially owned entities and net
gains on sale of real estate and other, and (v) the net change in operating assets and liabilities of $262,102,000 (including $95,010,000
related to real estate fund investments).
Net cash used in investing activities of $678,746,000 was comprised of (i) $490,819,000 of development costs and construction
in progress, (ii) $478,215,000 of acquisitions of real estate and other, (iii) $301,413,000 of additions to real estate, (iv) $235,439,000
of investments in partially owned entities, and (v) $1,000,000 of investment in loans receivable and other, partially offset by (vi)
$573,303,000 of proceeds from sales of real estate and related investments, (vii) $200,229,000 of changes in restricted cash, (viii)
$37,818,000 of capital distributions from partially owned entities, and (ix) $16,790,000 of proceeds from sales and repayment of
mezzanine loans receivable and other.
Net cash provided by financing activities of $643,826,000 was comprised of (i) $4,468,872,000 of proceeds from borrowings,
(ii) $51,975,000 of contributions from noncontrolling interests, and (iii) $16,779,000 of proceeds received from exercise of employee
share options, partially offset by (iv) $2,936,578,000 for the repayments of borrowings, (v) $474,751,000 of dividends paid on
common shares, (vi) $225,000,000 of distributions in connection with the spin-off of UE, (vii) $102,866,000 of distributions to
noncontrolling interests, (viii) $80,578,000 of dividends paid on preferred shares, (ix) $66,554,000 of debt issuance and other costs,
and (x) $7,473,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings and other.
81
Liquidity and Capital Resources – continued
Capital Expenditures for the Year Ended December 31, 2015
Capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions.
Recurring capital expenditures include expenditures to maintain a property’s competitive position within the market and tenant
improvements and leasing commissions necessary to re-lease expiring leases or renew or extend existing leases. Non-recurring capital
improvements include expenditures to lease space that has been vacant for more than nine months and expenditures completed in the
year of acquisition and the following two years that were planned at the time of acquisition, as well as tenant improvements and
leasing commissions for space that was vacant at the time of acquisition of a property.
Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to
the cash expended in the year ended December 31, 2015.
(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
Other
125,215 $
153,696
50,081
116,875
445,867
57,752 $
68,869
35,099
81,240
242,960
25,589 $
51,497
6,761
34,428
118,275
41,874
33,330
8,221
1,207
84,632
156,753
(222,469)
380,151 $
93,105
(118,911)
217,154 $
35,805
(73,227)
80,853 $
27,843
(30,331)
82,144
8.43 $
10.8%
10.20 $
8.9%
6.41 $
15.9%
n/a
n/a
Development and Redevelopment Expenditures for the Year Ended December 31, 2015
Development and redevelopment expenditures consist of all hard and soft costs associated with the development or
redevelopment of a property, including capitalized interest, debt and operating costs until the property is substantially completed and
ready for its intended use. Our development project budgets below include initial leasing costs, which are reflected as non-recurring
capital expenditures in the table above.
Below is a summary of development and redevelopment expenditures incurred in the year ended December 31, 2015. These
expenditures include interest of $59,305,000, payroll of $6,077,000, and other soft costs (primarily architectural and engineering fees,
permits, real estate taxes and professional fees) aggregating $90,922,000, that were capitalized in connection with the development
and redevelopment of these projects.
(Amounts in thousands)
220 Central Park South
The Bartlett
330 West 34th Street
90 Park Avenue
2221 South Clark Street (residential conversion)
Marriott Marquis Times Square - retail and signage
Wayne Towne Center
640 Fifth Avenue
Penn Plaza
251 18th Street
S. Clark Street/12th Street
1700 M Street
Other
Total
New York
Washington, DC
Other
158,014 $
103,878
32,613
29,937
23,711
21,929
20,633
17,899
17,701
5,897
4,579
2,695
51,333
490,819 $
- $
-
32,613
29,937
-
21,929
-
17,899
17,701
-
-
-
8,100
128,179 $
- $
103,878
-
-
23,711
-
-
-
-
5,897
4,579
2,695
27,525
168,285 $
158,014
-
-
-
-
-
20,633
-
-
-
-
-
15,708
194,355
$
$
82
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, net was $9,530,337,000 at December 31, 2014, a $821,923,000 increase over
the balance at December 31, 2013.
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, loss from partially owned entities and net gains on sale of real estate and other, 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 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 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 and other.
83
Liquidity and Capital Resources – continued
Capital Expenditures for the Year Ended December 31, 2014
Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to
the cash expended in the 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
Other
107,728 $
205,037
79,636
122,330
514,731
48,518 $
143,007
66,369
64,423
322,317
140,490
(313,746)
341,475 $
67,577
(205,258)
184,636 $
23,425 $
37,842
5,857
37,798
104,922
45,084
(63,283)
86,723 $
35,785
24,188
7,410
20,109
87,492
27,829
(45,205)
70,116
6.53 $
10.3%
6.82 $
9.1%
5.70 $
14.8%
n/a
n/a
Development and Redevelopment Expenditures for the Year Ended December 31, 2014
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
Other
$
$
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 $
127,467
-
78,059
-
-
-
19,740
-
21,470
246,736
84
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 $8,708,414,000 at December 31, 2013, a $1,006,405,000 decrease from 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, loss from partially owned entities and net gains on sale of real estate and other, (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
mortgages 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 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 and other, 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.
85
Liquidity and Capital Resources – continued
Capital Expenditures for the Year Ended December 31, 2013
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, 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
Other
73,130 $
120,139
51,476
49,441
294,186
155,035
(150,067)
299,154 $
34,553 $
87,275
39,348
11,579
172,755
56,345
(91,107)
137,993 $
22,165 $
6,976
4,389
37,342
70,872
16,412
25,888
7,739
520
50,559
26,075
(36,702)
60,245 $
72,615
(22,258)
100,916
5.55 $
9.3%
5.89 $
8.1%
4.75 $
11.9%
n/a
n/a
Development and Redevelopment Expenditures for 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
New York
Washington, DC
Other
$
$
243,687 $
68,716
40,356
13,865
102,793
469,417 $
- $
-
40,356
13,865
31,764
85,985 $
- $
-
-
-
41,701
41,701 $
243,687
68,716
-
-
29,328
341,731
86
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 and other
specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted
share are non-GAAP financial measures used by management, investors and analysts to facilitate meaningful comparisons of
operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization
and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably
over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating
activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to
net income as a performance measure or cash flows as a liquidity measure. FFO may not be comparable to similarly titled measures
employed by other companies.
FFO attributable to common shareholders plus assumed conversions was $1,039,035,000, or $5.48 per diluted share for the year
ended December 31, 2015, compared to $911,130,000, or $4.83 per diluted share for the year ended December 31, 2014. FFO
attributable to common shareholders plus assumed conversions was $259,528,000, or $1.37 per diluted share for the three months
ended December 31, 2015, compared to $230,143,000, or $1.22 per diluted share for the three months ended December 31, 2014.
Details of certain items that affect comparability are discussed in the financial results summary of our “Overview.”
(Amounts in thousands, except per share amounts)
Reconciliation of our net income to FFO:
Net income attributable to Vornado
Depreciation and amortization of real property
Net gains on sale of real estate
Real estate impairment losses
Proportionate share of adjustments to equity in net income of
partially owned entities 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
Noncontrolling interests' share of above adjustments
FFO attributable to Vornado
Preferred share dividends
FFO attributable to common shareholders
Convertible preferred share dividends
FFO attributable to common shareholders plus assumed conversions
Reconciliation of Weighted Average Shares
Weighted average common shares outstanding
Effect of dilutive securities:
Employee stock options and restricted share awards
Convertible preferred shares
Denominator for FFO per diluted share
For The Year
Ended December 31,
2014
2015
For The Three Months
Ended December 31,
2014
2015
$
760,434 $
514,085
(289,117)
256
864,852 $
517,493
(507,192)
26,518
251,107 $
131,910
(142,693)
-
533,603
129,944
(449,396)
5,676
143,960
(4,513)
16,758
-
(22,342)
1,119,521
(80,578)
1,038,943
92
$
1,039,035 $
117,766
(11,580)
-
(7,287)
(8,073)
992,497
(81,464)
911,033
97
911,130 $
37,275
-
4,141
-
(1,869)
279,871
(20,365)
259,506
22
259,528 $
24,350
(10,820)
-
-
17,127
250,484
(20,365)
230,119
24
230,143
188,353
187,572
188,537
187,776
1,166
45
189,564
1,075
43
188,690
1,107
44
189,688
1,153
41
188,970
FFO attributable to common shareholders plus assumed conversions
per diluted share
$
5.48 $
4.83 $
1.37 $
1.22
87
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
Pro rata share of debt of non-consolidated
entities (non-recourse):
Variable rate – excluding Toys
Variable rate – Toys
Fixed rate (including $661,513 and
$674,443 of Toys debt in 2015 and 2014)
Redeemable noncontrolling interests’ share of above
Total change in annual net income
Per share-diluted
2015
Weighted
Average
Interest Rate
December 31,
Balance
$
$
$
$
3,995,704
7,206,634
11,202,338
485,160
1,164,893
2,782,025
4,432,078
2.00%
4.21%
3.42%
1.97%
6.61%
6.37%
5.95%
Effect of 1%
Change In
Base Rates
$
2014
December 31,
Balance
Weighted
Average
Interest Rate
39,957 $
-
39,957 $
1,763,769
7,847,286
9,611,055
2.20%
4.36%
3.97%
4,852 $
11,649
313,652
1,199,835
2,676,941
4,190,428
-
16,501 $
(3,387)
53,071
0.28
$
$
1.69%
6.47%
6.48%
6.12%
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, 2015, we have an interest rate swap on a $417,000,000 mortgage loan that swapped the rate from LIBOR plus 1.65%
(1.89% at December 31, 2015) to a fixed rate of 4.78% through March 2018.
In connection with the $375,000,000 refinancing of 888 Seventh Avenue, we entered into an interest rate swap from LIBOR plus
1.60% (1.92% at December 31, 2015) to a fixed rate of 3.15% through December 2020.
Fair Value of Debt
The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the
current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt. As of
December 31, 2015, the estimated fair value of our consolidated debt was $10,911,500,000.
88
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2015 and 2014
Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Changes in Equity for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
Page
Number
90
91
92
93
94
97
99
89
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, 2015
and 2014, 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, 2015. 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, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2015, 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.
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for and disclosure
of discontinued operations for the year ended December 31, 2015 due to the adoption of Accounting Standards Update 2014-08,
“Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.”
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, 2015, 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 16, 2016 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 16, 2016
90
VORNADO REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
ASSETS
December 31, 2015 December 31, 2014
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 $11,908 and $12,210
Investments in partially owned entities
Real estate fund investments
Receivable arising from the straight-lining of rents, net of allowance of $2,751 and $3,188
Deferred leasing costs, net of accumulated amortization of $218,239 and $212,339
Identified intangible assets, net of accumulated amortization of $187,360 and $199,821
Assets related to discontinued operations
Other assets
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Mortgages payable, net
Senior unsecured notes, net
Unsecured revolving credit facilities
Unsecured term loan, net
Accounts payable and accrued expenses
Deferred revenue
Deferred compensation plan
Liabilities related to discontinued operations
Other liabilities
Total liabilities
Commitments and contingencies
Redeemable noncontrolling interests:
Class A units - 12,242,820 and 11,356,550 units outstanding
Series D cumulative redeemable preferred units - 177,101 and 1 units outstanding
Total redeemable noncontrolling interests
Vornado shareholders' equity:
Preferred shares of beneficial interest: no par value per share; authorized 110,000,000
shares; issued and outstanding 52,676,629 and 52,678,939 shares
Common shares of beneficial interest: $.04 par value per share; authorized
250,000,000 shares; issued and outstanding 188,576,853 and 187,887,498 shares
Additional capital
Earnings less than distributions
Accumulated other comprehensive income
Total Vornado shareholders' equity
Noncontrolling interests in consolidated subsidiaries
Total equity
$
$
$
$
$
$
$
4,164,799
12,582,671
1,226,637
116,030
18,090,137
(3,418,267)
14,671,870
1,835,707
107,799
150,997
98,062
1,550,422
574,761
931,245
480,421
227,901
37,020
477,088
21,143,293
9,513,713
844,159
550,000
183,138
443,955
346,119
117,475
12,470
426,965
12,437,994
1,223,793
5,428
1,229,221
3,861,913
11,705,749
1,128,037
126,659
16,822,358
(3,161,633)
13,660,725
1,198,477
176,204
206,323
109,998
1,240,489
513,973
787,271
382,433
225,155
2,234,128
422,804
21,157,980
8,187,843
1,342,494
-
-
447,745
358,613
117,284
1,501,009
375,830
12,330,818
1,336,780
1,000
1,337,780
1,276,954
1,277,026
7,521
7,132,979
(1,766,780)
46,921
6,697,595
778,483
7,476,078
21,143,293
$
7,493
6,873,025
(1,505,385)
93,267
6,745,426
743,956
7,489,382
21,157,980
See notes to the consolidated financial statements.
91
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
Total expenses
Operating income
Income from real estate fund investments
Loss from partially owned entities
Interest and other investment income (loss), net
Interest and debt expense
Net gain on disposition of wholly owned and partially owned assets
Income (loss) before income taxes
Income tax benefit (expense)
Income (loss) from continuing operations
Income from discontinued operations
Net income
Less net income attributable to noncontrolling interests in:
Consolidated subsidiaries
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
2015
Year Ended December 31,
2014
2013
$
2,076,586
$
1,911,487
$
260,976
-
164,705
2,502,267
1,011,249
542,952
175,307
-
12,511
1,742,019
760,248
74,081
(12,630)
26,978
(378,025)
251,821
722,473
84,695
807,168
52,262
859,430
(55,765)
(43,231)
760,434
(80,578)
-
245,819
-
155,206
2,312,512
953,611
481,303
169,270
-
18,435
1,622,619
689,893
163,034
(59,861)
38,752
(412,755)
13,568
432,631
(9,281)
423,350
585,676
1,009,026
(96,561)
(47,613)
864,852
(81,464)
-
$
679,856
$
783,388
$
1,880,405
226,831
36,369
155,571
2,299,176
928,565
461,627
177,366
32,210
24,857
1,624,625
674,551
102,898
(340,882)
(24,887)
(425,782)
2,030
(12,072)
8,717
(3,355)
568,095
564,740
(63,952)
(24,817)
475,971
(82,807)
(1,130)
392,034
$
$
$
$
3.35
0.26
3.61
188,353
$
$
1.23
2.95
4.18
187,572
$
$
(0.75)
2.85
2.10
186,941
3.33
0.26
3.59
$
$
1.22
2.93
4.15
$
$
(0.75)
2.84
2.09
189,564
188,690
187,709
See notes to consolidated financial statements.
92
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Net income
Other comprehensive (loss) income:
$
2015
859,430
Year Ended December 31,
2014
1,009,026
$
$
2013
564,740
(Reduction) increase in unrealized net gain on available-for-sale securities
(55,326)
14,465
142,281
Amounts reclassified from accumulated other comprehensive income for
the sale of available-for-sale securities
Pro rata share of other comprehensive (loss) income of
nonconsolidated subsidiaries
Increase in value of interest rate swap and other
Comprehensive income
Less comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Vornado
-
-
(42,404)
(327)
6,441
810,218
(96,130)
714,088
$
2,509
6,079
1,032,079
(145,497)
886,582
$
(22,814)
18,716
660,519
(94,065)
566,454
$
See notes to consolidated financial statements.
93
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Preferred Shares
Shares
Amount
52,679 $ 1,277,026
-
-
Common Shares
Additional
Earnings
Less Than
Amount
Capital
6,873,025 $
Distributions
Accumulated
Other
Non-
controlling
Interests in
Comprehensive Consolidated
Income (Loss) Subsidiaries
Total
Equity
(1,505,385) $
760,434
93,267 $
-
743,956 $ 7,489,382
760,434
-
(Amounts in thousands)
Balance, December 31, 2014
Net income attributable to Vornado
Net income attributable to
noncontrolling interests in
consolidated subsidiaries
Distribution of Urban Edge
Properties
Dividends on common shares
Dividends on preferred shares
Common shares issued:
Upon redemption of Class A
units, at redemption value
Under employees' share
option plan
Under dividend reinvestment plan
Contributions:
Real estate fund investments
Other
Distributions:
Real estate fund investments
Other
Conversion of Series A preferred
shares to common shares
Deferred compensation shares
and options
Reduction in unrealized net gain on
available-for-sale securities
Pro rata share of other
comprehensive loss of
nonconsolidated subsidiaries
Increase 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, 2015
18
48,212
-
-
-
-
-
-
-
(464,262)
(474,751)
(80,578)
15,332
1,437
(2,579)
-
-
-
-
-
71
-
-
-
-
-
2,438
(359)
Shares
187,887 $
-
-
-
-
-
452
214
14
-
-
-
-
4
6
-
-
-
-
-
-
188,577 $
7,493 $
-
-
-
-
-
9
1
-
-
-
-
1
1
-
-
-
-
-
(2)
7,521 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2)
(72)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
52,677 $ 1,276,954
-
-
-
-
-
-
-
-
-
-
-
-
-
55,765
55,765
(341)
-
-
(464,603)
(474,751)
(80,578)
-
48,230
-
-
51,725
250
12,762
1,438
51,725
250
(72,114)
(525)
(72,114)
(525)
-
-
-
2,080
-
-
-
192,464
-
-
-
(55,326)
-
(55,326)
-
-
-
-
700
(327)
6,435
-
-
(327)
6,435
-
-
192,464
2,866
6
46,921 $
-
(233)
2,866
471
778,483 $ 7,476,078
7,132,979 $
(1,766,780) $
See notes to consolidated financial statements.
94
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED
Preferred Shares
Shares
Amount
52,683 $ 1,277,225
-
-
Common Shares
Additional
Earnings
Less Than
Amount
Capital
7,143,840 $
Distributions
Accumulated
Other
Non-
controlling
Interests in
Comprehensive Consolidated
Income (Loss) Subsidiaries
Total
Equity
(1,734,839) $
864,852
71,537 $
-
829,512 $ 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 employees' share
option plan
Under dividend reinvestment plan
Contributions:
Real estate fund investments
Other
Distributions:
Real estate fund investments
Other
Transfer of noncontrolling interest
in real estate fund investments
Conversion of Series A preferred
shares to common shares
Deferred compensation shares
and options
Increase in unrealized net gain on
available-for-sale securities
Pro rata share of other
comprehensive income of
nonconsolidated subsidiaries
Increase 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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27,262
17,428
1,803
-
-
-
-
-
193
-
-
-
-
(315,276)
-
(547,831)
(81,464)
-
(3,393)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
96,561
-
-
96,561
(547,831)
(81,464)
-
27,273
-
-
14,047
1,804
5,297
32,998
5,297
32,998
(182,964)
(4,463)
(182,964)
(4,463)
(33,028)
(33,028)
-
-
-
5,512
5,852
(340)
-
14,465
-
14,465
-
-
-
2,509
6,079
-
2,509
-
6,079
-
-
(315,276)
-
-
7,493 $
-
(8,077)
6,873,025 $
-
(2,370)
(1,505,385) $
(1,323)
-
93,267 $
-
43
(1,323)
(10,410)
743,956 $ 7,489,382
See notes to consolidated financial statements.
95
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED
Common Shares
Additional
Earnings
Less Than
Amount
Capital
7,195,438 $
Distributions
Accumulated
Other
Non-
controlling
Interests in
Comprehensive Consolidated
Income (Loss) Subsidiaries
Total
Equity
(1,573,275) $
475,971
(18,946) $
-
1,053,209 $ 7,904,144
475,971
-
(Amounts in thousands)
Preferred Shares
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 employees' share
option plan
Under dividend reinvestment plan
Upon acquisition of real estate
Contributions:
Real estate fund investments
Other
Distributions:
Real estate fund investments
Other
Conversion of Series A preferred
shares to common shares
Deferred compensation shares
and options
Increase in unrealized net gain on
available-for-sale securities
Amounts reclassified related to sale
of available-for-sale securities
Pro rata share of other
comprehensive loss of
nonconsolidated subsidiaries
Increase 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
-
(545,913)
(82,807)
-
-
-
(107)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
63,952
-
-
-
63,952
(545,913)
(82,807)
290,306
-
(253,269)
-
25,317
-
-
-
28,078
15,886
5,808
1,851
11,461
28,078
15,886
(47,268)
(133,153)
(47,268)
(133,153)
-
-
-
9,270
(12)
9,589
(307)
-
-
-
-
-
-
-
-
-
(108,252)
-
-
-
-
-
-
-
-
-
-
-
-
142,281
-
142,281
(42,404)
-
(42,404)
(22,814)
-
(22,814)
18,183
-
18,183
-
-
(108,252)
(5,296)
-
(5,296)
(1,130)
-
-
(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)
16,799
(6,830)
829,512 $ 7,594,744
See notes to consolidated financial statements.
96
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 gain on disposition of wholly owned and partially owned assets
Straight-lining of rental income
Return of capital from real estate fund investments
Reversal of allowance for deferred tax assets
Amortization of below-market leases, net
Net gains on sale of real estate and other
Distributions of income from partially owned entities
Net realized and unrealized gains on real estate fund investments
Other non-cash adjustments
Loss from partially owned entities
Impairment losses and tenant buy-outs
Defeasance cost in connection with the refinancing of mortgage payable
Losses from the disposition of investment in J.C. Penney
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:
Proceeds from sales of real estate and related investments
Development costs and construction in progress
Acquisitions of real estate and other
Additions to real estate
Investments in partially owned entities
Restricted cash
Distributions of capital from partially owned entities
Proceeds from sales and repayments of mortgage and mezzanine loans
receivable and other
Investments in loans receivable and other
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
Net cash (used in) provided by investing activities
Year Ended December 31,
2014
2015
2013
$
859,430
$
1,009,026
$
564,740
566,207
(251,821)
(153,668)
91,458
(90,030)
(79,053)
(65,396)
65,018
(57,752)
37,721
11,882
256
-
-
(95,010)
11,936
(14,804)
(116,157)
(33,747)
(14,320)
672,150
573,303
(490,819)
(478,215)
(301,413)
(235,439)
200,229
37,818
16,790
(1,000)
-
-
-
-
(678,746)
583,408
(13,568)
(82,800)
215,676
-
(46,786)
(507,192)
96,286
(150,139)
37,303
58,131
26,518
5,589
-
(3,392)
(8,282)
(8,786)
(123,435)
44,628
3,125
1,135,310
388,776
(544,187)
(211,354)
(279,206)
(120,639)
99,464
25,943
96,913
(30,175)
-
-
-
-
(574,465)
561,998
(3,407)
(69,391)
56,664
-
(52,876)
(414,502)
54,030
(85,771)
41,663
338,785
37,170
-
72,974
(37,817)
83,897
(2,207)
(50,856)
(41,729)
(12,576)
1,040,789
1,027,608
(469,417)
(193,417)
(260,343)
(230,300)
(26,892)
290,404
50,569
(390)
378,709
240,474
(186,079)
101,150
722,076
See notes to consolidated financial statements.
97
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Amounts in thousands)
Cash Flows from Financing Activities:
Proceeds from borrowings
Repayments of borrowings
Dividends paid on common shares
Cash included in the spin-off of Urban Edge Properties
Distributions to noncontrolling interests
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 and other
Purchase of marketable securities in connection with the defeasance of mortgage payable
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, excluding capitalized interest of $48,539, $53,139 and $42,303
Cash payments for income taxes
Non-Cash Investing and Financing Activities:
Non-cash distribution of Urban Edge Properties:
Assets
Liabilities
Equity
Adjustments to carry redeemable Class A units at redemption value
Write-off of fully depreciated assets
Transfer of interest in real estate to Pennsylvania Real Estate Investment Trust
Accrued capital expenditures included in accounts payable and accrued expenses
Like-kind exchange of real estate:
Acquisitions
Dispositions
Class A units in connection with acquisition
Financing assumed in acquisitions
Marketable securities transferred in connection with the defeasance of mortgage payable
Defeasance of mortgage payable
Elimination of a mortgage and mezzanine loan asset and liability
Transfer of interest in real estate fund to an unconsolidated joint venture
Transfer of noncontrolling interest in real estate fund
Beverly Connection seller financing
Decrease in assets and liabilities resulting from the deconsolidation of discontinued
operations and/or investments that were previously consolidated:
Real estate, net
Mortgages payable
Year Ended December 31,
2014
2015
2013
$
4,468,872 $
2,428,285 $
(2,936,578)
(474,751)
(225,000)
(102,866)
(80,578)
(66,554)
51,975
16,779
(1,312,258)
(547,831)
-
(220,895)
(81,468)
(58,336)
30,295
19,245
2,262,245
(3,580,100)
(545,913)
-
(215,247)
(83,188)
(19,883)
43,964
7,765
(7,473)
-
-
-
643,826
637,230
1,198,477
1,835,707 $
(3,811)
(198,884)
-
-
54,342
615,187
583,290
1,198,477 $
(443)
-
(299,400)
290,306
(2,139,894)
(377,029)
960,319
583,290
376,620 $
443,538 $
465,260
8,287 $
11,696 $
9,023
$
$
$
$
1,709,256 $
(1,469,659)
(239,597)
192,464
(167,250)
(145,313)
122,711
- $
-
-
(315,276)
(121,673)
-
100,528
80,269
(213,621)
80,000
62,000
-
-
-
-
-
-
606,816
(630,352)
-
-
198,884
(193,406)
59,375
(58,564)
(33,028)
13,620
-
-
-
(108,252)
(77,106)
-
72,042
66,076
(128,767)
-
79,253
-
-
-
-
-
-
-
-
-
-
(852,166)
(322,903)
See notes to consolidated financial statements.
98
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 93.7% of the common limited partnership interest in the Operating Partnership
at December 31, 2015. All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its
consolidated subsidiaries, including the Operating Partnership.
On January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers,
three malls, a warehouse park and $225,000,000 of cash to Urban Edge Properties (“UE”) (NYSE: UE). As part of this transaction, we
retained 5,717,184 UE operating partnership units (5.4% ownership interest). We are providing transition services to UE for an initial
period of up to two years, primarily for information technology support. UE is providing us with leasing and property management
services for (i) certain small retail properties that we plan to sell, and (ii) our affiliate, Alexander’s, Inc. (NYSE: ALX) Rego Park
retail assets. Steven Roth, our Chairman and Chief Executive Officer, is a member of the Board of Trustees of UE. The spin-off
distribution was effected by Vornado distributing one UE common share for every two Vornado common shares. The historical
financial results of UE are reflected in our consolidated financial statements as discontinued operations for all periods presented.
We currently own all or portions of:
New York:
•
•
•
21.3 million square feet of Manhattan office space in 35 properties;
2.6 million square feet of Manhattan street retail space in 65 properties;
1,711 units in eleven residential properties;
• The 1,700 room Hotel Pennsylvania located on Seventh Avenue at 33rd Street in the heart of the Penn Plaza district;
• A 32.4% interest in Alexander’s, Inc. (NYSE: ALX), which owns seven 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:
•
•
15.8 million square feet of office space in 57 properties;
2,414 units in seven residential properties;
Other Real Estate and Related Investments:
• The 3.6 million square foot Mart (“theMart”) 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 32.5% interest in Toys “R” Us, Inc. (“Toys”); and
• Other real estate and other investments.
99
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.
Certain prior year balances have been reclassified in order to conform to the current period presentation. Beginning in the year
ended December 31, 2015, we classified signage revenue within “property rentals”. For the years ended December 31, 2014 and
2013, $37,929,000 and $32,866,000, respectively, related to signage revenue has been reclassified from “fee and other income” to
“property rentals” to conform to the current period presentation.
On January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers,
three malls, a warehouse park and $225,000,000 of cash to UE. As part of this transaction, we received 5,717,184 UE operating
partnership units (5.4% ownership interest).
Recently Issued Accounting Literature
In April 2014, the Financial Accounting Standards Board (“FASB”) issued an update (“ASU 2014-08”) Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity to ASC Topic 205, Presentation of Financial Statements and
ASC Topic 360, Property Plant and Equipment. Under ASU 2014-08, only disposals that represent a strategic shift that has (or will
have) a major effect on the entity’s results and operations would qualify as discontinued operations. In addition, ASU 2014-08
expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose
information about disposals of individually significant components that do not meet the definition of discontinued operations. ASU
2014-08 is effective for interim and annual reporting periods in fiscal years that began after December 15, 2014. Upon adoption of this
standard on January 1, 2015, individual properties sold in the ordinary course of business are not expected to qualify as discontinued
operations. Under ASU 2014-08, operating results of disposals are included in income from continuing operations, and any associated
gains are now included in “net gain on disposition of wholly owned and partially owned assets” on our consolidated statements of
income. Gain on sales of properties classified as discontinued operations prior to January 1, 2015 are classified in “income from
discontinued operations” on our consolidated statements of income. The financial results of UE and certain other retail assets are
reflected in our consolidated financial statements as discontinued operations for all periods presented (see Note 7 – Dispositions for
further details).
In May 2014, the FASB issued an update ("ASU 2014-09") establishing ASC Topic 606, Revenue from Contracts with
Customers. ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from
contracts with customers and supersedes most of the existing revenue recognition guidance. ASU 2014-09 requires an entity to
recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. ASU 2014-09 is
effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017. We are currently evaluating the
impact of the adoption of ASU 2014-09 on our consolidated financial statements.
100
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Basis of Presentation and Significant Accounting Policies – continued
Recently Issued Accounting Literature - continued
In June 2014, the FASB issued an update (“ASU 2014-12”) to ASC Topic 718, Compensation – Stock Compensation. ASU
2014-12 requires an entity to treat performance targets that can be met after the requisite service period of a share based award has
ended, as a performance condition that affects vesting. ASU 2014-12 is effective for interim and annual reporting periods in fiscal
years that begin after December 15, 2015. We are currently evaluating the impact of the adoption of ASU 2014-12 on our
consolidated financial statements.
In February 2015, the FASB issued an update (“ASU 2015-02”) Amendments to the Consolidation Analysis to ASC Topic 810,
Consolidation. ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal
entities. Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable
interest entities ("VIEs") or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited
partnership, (iii) affect the consolidation analysis of reporting entities that are involved with VIEs, and (iv) provide a scope exception
for certain entities. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. We are
currently evaluating the impact of the adoption of ASU 2015-02 on our consolidated financial statements.
In April 2015, the FASB issued an update (“ASU 2015-03”) Simplifying the Presentation of Debt Issuance Costs to ASC Topic
835, Interest (“ASC 835”). ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction
from the carrying amount of the debt liability to which they relate, consistent with debt discounts, as opposed to being presented as
assets. ASU 2015-03 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2015. We
elected to early adopt ASU 2015-03 effective as of December 31, 2015 with retrospective application to our December 31, 2014
consolidating balance sheet. The effect of the adoption of ASU 2015-03 was to reclassify debt issuance costs of approximately
$79,987,000 as of December 31, 2014 from “deferred leasing and financing costs, net” to a contra account as a deduction from the
related debt liabilities. There was no effect on our consolidated statements of income.
In August 2015, the FASB issued an update (“ASU 2015-15”) Interest – Imputation of Interest to ASC 835. For debt issuance
costs related to line-of-credit arrangements, ASU 2015-15 allows entities to present debt issuance costs as an asset and subsequently
amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any
outstanding borrowings on the line-of-credit arrangement. We elected to early adopt ASU 2015-15 effective as of December 31, 2015
with retrospective application to our December 31, 2014 balance sheet. These debt issuance costs were $7,720,000 and $11,549,000
as of December 31, 2015 and 2014, respectively, and are included as a component of “other assets”.
In January 2016, the FASB issued an update (“ASU 2016-01”) Recognition and Measurement of Financial Assets and Financial
Liabilities to ASC Topic 825, Financial Instruments (“ASC 825”). ASU 2016-01 amends certain aspects of recognition,
measurement, presentation and disclosure of financial instruments, including the requirement to measure certain equity investments at
fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for interim and annual reporting periods in
fiscal years beginning after December 15, 2017. We are currently evaluating the impact of the adoption of ASU 2016-01 on our
consolidated financial statements.
101
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 $59,305,000 and $62,786,000 for
the years ended December 31, 2015 and 2014, 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.
.
102
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Basis of Presentation and Significant Accounting Policies – continued
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 and 2013, we recognized non-cash
impairment losses on investments in partially owned entities aggregating $85,459,000 and $281,098,000, respectively. Included in
these amounts are $75,196,000 and $240,757,000 of impairment losses related to our investment in Toys in 2014 and 2013,
respectively.
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.
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, 2015 and
2014, we had $11,908,000 and $12,210,000, respectively, in allowances for doubtful accounts. In addition, as of December 31, 2015
and 2014, we had $2,751,000 and $3,188,000, respectively, in allowances for receivables arising from the straight-lining of rents.
103
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Basis of Presentation and Significant Accounting Policies – continued
Significant Accounting Policies -continued
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.
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, 2015 and 2014, our derivative instruments consisted of two and one interest rate swaps, respectively.
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.
104
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Basis of Presentation and Significant Accounting Policies – continued
Significant Accounting Policies –continued
Income Taxes: We operate in a manner intended to enable us to continue to qualify as a REIT under Sections 856-860 of the
Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income
as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable
income which is distributed to its shareholders. We distribute to our shareholders 100% of our taxable income and therefore, no
provision for Federal income taxes is required. Dividends distributed for the year ended December 31, 2015, were characterized, for
federal income tax purposes, as long-term capital gain income. Dividends distributed for the years ended December 31, 2014 and
2013, were characterized, for federal income tax purposes, as ordinary income.
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 $8,322,000, $10,777,000 and $9,608,000 for the years ended December 31, 2015, 2014 and 2013,
respectively, and have immaterial differences between the financial reporting and tax basis of assets and liabilities.
At December 31, 2015 and 2014, our taxable REIT subsidiaries had deferred tax assets related to net operating loss carryforwards
of $97,104,000 and $94,100,000, respectively, which are included in “other assets” on our consolidated balance sheets. Prior to the
quarter ended June 30, 2015, there was a full valuation allowance against these deferred tax assets because we had not determined that
it is more-likely-than-not that we would use the net operating loss carryforwards to offset future taxable income. In our quarter ended
June 30, 2015, based upon residential condominium unit sales, among other factors, we concluded that it was more-likely-than-not
that we will generate sufficient taxable income to realize these deferred tax assets. Accordingly, we reversed $90,030,000 of the
allowance for deferred tax assets and recognized an income tax benefit in our consolidated statements of income.
The following table reconciles net income attributable to common shareholders to estimated taxable income for the years ended
December 31, 2015, 2014 and 2013.
(Amounts in thousands)
Net income attributable to common shareholders
Book to tax differences (unaudited):
Tangible Property Regulations (1)
Sale of real estate and other capital transactions
Depreciation and amortization
Straight-line rent adjustments
Stock options
Earnings of partially owned entities
Impairment losses on marketable equity securities
Other, net
Estimated taxable income (unaudited)
2015
For the Year Ended December 31,
2014
2013
679,856
$
783,388
$
392,034
(575,618)
320,326
227,297
(144,727)
(8,278)
(5,299)
-
(5,833)
487,724
$
-
(477,061)
219,403
(77,526)
(9,566)
71,960
-
1,260
511,858
$
-
(324,936)
155,401
(64,811)
4,884
339,376
37,236
36,186
575,370
$
$
(1) Represents one-time deductions pursuant to the implementation of the Tangible Property Regulations issued by the Internal Revenue Service.
The net basis of our assets and liabilities for tax reporting purposes is approximately $3.4 billion lower than the amounts reported in our
consolidated balance sheet at December 31, 2015.
105
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Real Estate Fund Investments
We are the general partner and investment manager of Vornado Capital Partners Real Estate Fund (the “Fund”), which has an
eight-year term and a three-year investment period that ended in July 2013. During the investment period, the Fund was our exclusive
investment vehicle for all investments that fit within its investment parameters, as defined. The Fund is accounted for under ASC 946,
Financial Services – Investment Companies (“ASC 946”) and its investments are reported on its balance sheet at fair value, with
changes in value each period recognized in earnings. We consolidate the accounts of the Fund into our consolidated financial
statements, retaining the fair value basis of accounting.
On 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. 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 “Co-Investment”). The purchase price for the 57% interest was
approximately $95,000,000 (our share $39,000,000) which valued the property at approximately $480,000,000. The property is
encumbered by a $310,000,000 mortgage loan bearing interest at LIBOR plus 2.80% and maturing in December 2018 with a one-year
extension option. Our aggregate ownership interest in the property increased to 33% from 11%. The Co-Investment is also
accounted for under ASC 946 and is included as a component of “real estate fund investments” on our consolidated balance sheet.
On March 25, 2015, the Fund completed the sale of 520 Broadway in Santa Monica, CA for $91,650,000. The Fund realized a
$23,768,000 net gain over the holding period.
At December 31, 2015, we had six real estate fund investments with an aggregate fair value of $574,761,000, or $208,614,000 in
excess of cost, and had remaining unfunded commitments of $102,212,000, of which our share was $25,553,000. At December 31,
2014, we had seven real estate fund investments with an aggregate fair value of $513,973,000.
Below is a summary of income from the Fund and the Co-Investment for the years ended December 31, 2015, 2014 and 2013.
(Amounts in thousands)
Net investment income
Net realized gains on exited investments
Net unrealized gains on held investments
Income from real estate fund investments
Less income attributable to noncontrolling interests
Income from real estate fund investments attributable to Vornado(1)
For the Year Ended December 31,
2014
2013
2015
16,329 $
2,757
54,995
74,081
(40,117)
33,964 $
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 $2,939, $2,562, and $2,721 of management and leasing fees in the years ended December 31, 2015, 2014 and 2013, respectively,
which are included as a component of "fee and other income" on our consolidated statements of income.
106
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Acquisitions
On January 20, 2015, we and one of our real estate fund’s limited partners co-invested with the Fund to buy out the Fund’s joint
venture partner’s 57% interest in the Crowne Plaza Times Square Hotel (see Note 3 – Real Estate Fund Investments).
On March 18, 2015, we acquired the Center Building, a 437,000 square foot office building, located at 33-00 Northern Boulevard
in Long Island City, New York, for $142,000,000, including the assumption of an existing $62,000,000, 4.43% mortgage maturing in
October 2018.
On June 2, 2015, we completed the acquisition of 150 West 34th Street, a 78,000 square foot retail property leased to Old Navy
through May 2019, and 226,000 square feet of additional zoning air rights, for approximately $355,000,000. At closing we completed
a $205,000,000 financing of the property (see Note 9 – Debt).
On July 31, 2015, we acquired 260 Eleventh Avenue, a 235,000 square foot office property leased to the City of New York
through 2021 with two five-year renewal options, a 10,000 square foot parking lot and additional air rights. The transaction is
structured as a 99-year ground lease with an option to purchase the land for $110,000,000. The $3,900,000 annual ground rent and the
purchase option price escalate annually at the lesser of 1.5% or CPI. The buildings were purchased for 813,900 newly issued Vornado
Operating Partnership units valued at approximately $80,000,000.
On September 25, 2015, we acquired 265 West 34th Street, a 1,700 square foot retail property and 15,200 square feet of
additional zoning air rights, for approximately $28,500,000.
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, 2015 and 2014.
As of December 31, 2015
GAAP
Cost
Unrealized
Gain
Fair Value
As of December 31, 2014
GAAP
Cost
Unrealized
Gain
Fair Value
Equity securities:
Lexington Realty Trust
Other
$
$
147,752 $
3,245
150,997 $
72,549 $
-
72,549 $
75,203 $
3,245
78,448 $
202,789 $
3,534
206,323 $
72,549 $
-
72,549 $
130,240
3,534
133,774
During 2013, we sold other marketable securities for aggregate proceeds of $44,209,000, resulting in net gains of $31,741,000,
which are included as a component of “net gain on disposition of wholly owned and partially owned assets” on our consolidated
statements of income.
107
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Investments in Partially Owned Entities
Toys “R” Us (“Toys”)
As of December 31, 2015, we own 32.5% 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 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. In 2013, we recognized $240,757,000 of non-cash impairment losses based on an “other-
than-temporary” decline in the fair value of our investment.
Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX)
As of December 31, 2015, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common
equity. We manage, lease and develop Alexander’s properties pursuant to agreements which expire in March of each year and are
automatically renewable.
As of December 31, 2015 the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s, based on
Alexander’s December 31, 2015 closing share price of $384.11, was $635,345,000, or $501,777,000 in excess of the carrying amount
on our consolidated balance sheet. As of December 31, 2015, 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 $40,340,000. 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) $289,000, 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.
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.
108
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Investments in Partially Owned Entities – continued
Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX) – continued
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.
During the years ended December 31, 2015, 2014 and 2013, we recognized $2,221,000, $2,318,000 and $2,036,000 of income,
respectively, for these services.
Urban Edge Properties (“UE”) (NYSE: UE)
As part of our spin-off of substantially all of our retail segment to UE on January 15, 2015 (see Note 1 – Organization and
Business), we retained 5,717,184 UE operating partnership units, representing a 5.4% ownership interest in UE. We account for our
investment in UE under the equity method and record our share of UE’s net income or loss on a one-quarter lag basis. We are
providing transition services to UE for an initial period of up to two years, primarily for information technology support. UE is
providing us with leasing and property management services for (i) certain small retail properties that we plan to sell, and (ii) our
affiliate, Alexander’s, Rego Park retail assets. As of December 31, 2015, the fair value of our investment in UE, based on UE’s
December 31, 2015 closing share price of $23.45, was $134,068,000, or $108,717,000 in excess of the carrying amount on our
consolidated balance sheet.
Pennsylvania Real Estate Investment Trust (“PREIT”) (NYSE: PEI)
On March 31, 2015, we transferred the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield,
Fairfax County, Virginia, to PREIT Associates, L.P., which is the operating partnership of PREIT, in exchange for $485,313,000;
comprised of $340,000,000 of cash and 6,250,000 PREIT operating partnership units (valued at $145,313,000 or $23.25 per PREIT
unit) (See Note 7 – Dispositions). $19,000,000 of tenant improvements and allowances was credited to PREIT as a closing
adjustment. As a result of this transaction, we own an 8.1% interest in PREIT. We account for our investment in PREIT under the
equity method and record our share of PREIT’s net income or loss on a one-quarter lag basis. As of December 31, 2015, the fair value
of our investment in PREIT, based on PREIT’s December 31, 2015 closing share price of $21.87, was $136,688,000, or $3,313,000 in
excess of the carrying amount on our consolidated balance sheet. As of December 31, 2015, the carrying amount of our investment in
PREIT exceeds our share of the equity in the net assets of PREIT by approximately $65,404,000. The majority of this basis difference
resulted from the excess of the fair value of the PREIT operating units received over our share of the book value of PREIT’s net
assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of PREIT’s assets and
liabilities, to real estate (land and buildings). We are amortizing the basis difference related to the buildings into earnings as
additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in PREIT’s
net loss. The basis difference related to the land will be recognized upon disposition of our investment.
512 West 22nd Street
On June 24, 2015, we entered into a joint venture, in which we own a 55% interest, to develop a 173,000 square foot Class-A
office building, located along the western edge of the High Line at 512 West 22nd Street. The development cost of this project is
approximately $235,000,000. The development commenced during the fourth quarter of 2015 and is expected to be completed in
2018. On November 24, 2015, the joint venture obtained a $126,000,000 construction loan. The loan matures in November 2019
with two six-month extension options. The interest rate is LIBOR plus 2.65% (3.07% at December 31, 2015). As of December 31,
2015, the outstanding balance of the loan was $44,072,000, of which $24,240,000 is our share. We account for our investment in the
joint venture under the equity method.
109
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Investments in Partially Owned Entities - continued
Below is a summary of our investments in partially owned entities.
(Amounts in thousands)
Investments:
Partially owned office buildings(1)
Alexander’s
PREIT
India real estate ventures
UE
Toys(2)
Other investments(3)
Percentage
Ownership at
December 31, 2015
As of December 31,
2015
2014
Various
32.4%
8.1%
4.1%-36.5%
5.4%
32.5%
Various
$
$
909,782
133,568
133,375
48,310
25,351
-
300,036
1,550,422
$
$
760,749
131,616
-
76,752
-
-
271,372
1,240,489
(1)
Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue, 512 West
22nd Street and others.
(2) Pursuant to Rule 4-08(g) of Regulation S-X, in 2014 Toys was considered a significant subsidiary where as in 2015 it was not. As of November
1, 2014, Toys had total assets of $11,267,000, total liabilities of $10,377,000, noncontrolling interests of $82,000 and equity of $808,000.
Includes interests in Independence Plaza, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others.
(3)
110
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Investments in Partially Owned Entities – continued
Below is a summary of our income (loss) from partially owned entities.
(Amounts in thousands)
Our Share of Net (Loss) Income:
Alexander's:
Equity in net income
Management, leasing and development fees
UE (see page 109 for details):
Equity in net earnings
Management fees
Toys:
Equity in net loss(1)
Non-cash impairment losses (see page 108 for details)
Management fees
Partially owned office buildings(2)
India real estate ventures(3)
PREIT (see page 109 for details)
LNR(4)
Lexington(5)
Other investments(6)
Percentage
Ownership at
December 31, 2015
For the Year Ended December 31,
2013
2014
2015
32.4%
$
24,209 $
6,869
31,078
$
21,287
8,722
30,009
17,721
6,681
24,402
5.4%
32.5%
2,430
1,964
4,394
-
-
-
-
-
-
-
-
2,500
2,500
(4,691)
(75,196)
6,331
(73,556)
(128,919)
(240,757)
7,299
(362,377)
Various
(23,556)
93
(4,212)
4.1%-36.5%
(18,746)
(8,309)
(3,533)
8.1%
n/a
n/a
(7,450)
-
-
-
-
-
-
18,731
(979)
Various
(850)
(8,098)
(12,914)
$
(12,630) $
(59,861) $
(340,882)
(2)
(1) Pursuant to Rule 4-08(g) of Regulation S-X, in 2014 and 2013 Toys was considered a significant subsidiary where as in 2015 it was not. For
the twelve months ended November 1, 2014, Toys’ total revenue was $12,645,000 and net loss attributable to Toys was $343,000. For the
twelve months ended November 2, 2013, Toys’ total revenue was $13,046,000 and net loss attributable to Toys was $396,000.
Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue, 512 West
22nd Street and others. In 2015, we recognized net losses of $39,600 from our 666 Fifth Avenue (Office) joint venture as a result of our share of
depreciation expense. Also in 2015, we recognized our $12,800 share of a write-off of a below market lease liability related to a tenant vacating
at 650 Madison Avenue. In 2014, we recognized our $14,500 share of accelerated depreciation from our West 57th Street joint ventures in
connection with the change in estimated useful life of those properties.
Includes a $14,806 and $5,771 non-cash impairment loss in 2015 and 2014, respectively.
In 2013, we recognized net income of $18,731, comprised of (i) $42,186 for our share of LNR’s net income and (ii) a $27,231 non-cash
impairment loss and (iii) a $3,776 net gain on sale.
In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable security - available for sale.
Includes interests in Independence Plaza, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street and others. In 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.
(3)
(4)
(5)
(6)
111
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, 2015 and 2014, none of which is recourse to
us.
(Amounts in thousands)
Toys:
Notes, loans and mortgages payable
Partially owned office buildings(1):
Mortgages payable
PREIT:
Mortgages payable
UE:
Mortgages payable
Alexander's:
Mortgages payable
Percentage
Ownership at
December 31,
2015
Maturity
Interest
Rate at
December 31,
2015
100% Partially Owned Entities’
Debt at December 31,
2014
2015
32.5%
2016-2021
7.35%
$
5,619,710 $
5,748,350
Various
2016-2023
5.57%
$
3,771,255 $
3,691,274
8.1%
2016-2025
4.04%
$
1,852,270 $
5.4%
2018-2034
4.15%
$
1,246,155 $
-
-
32.4%
2016-2022
1.69%
$
1,053,262 $
1,032,780
India Real Estate Ventures:
TCG Urban Infrastructure Holdings mortgages
payable
Other(2):
Mortgages payable
25.0%
2016-2026
12.06%
$
185,607 $
183,541
Various
2016-2023
4.27%
$
1,316,641 $
1,314,077
(1)
(2)
Includes 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue, 512 West 22nd Street
and others.
Includes Independence Plaza, 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 $4,432,078,000 and $4,190,428,000 as of December 31, 2015 and 2014, respectively.
Summary of Condensed Combined Financial Information
The following is a summary of condensed combined financial information for all of our partially owned entities, including Toys
and Alexander’s, as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013.
(Amounts in thousands)
Balance Sheet:
Assets
Liabilities
Noncontrolling interests
Equity
Income Statement:
Total revenue
Net loss
Balance as of December 31,
2015
2014
$
25,526,000 $
21,162,000
146,000
4,218,000
21,389,000
17,986,000
104,000
3,299,000
2015
For the Year Ended December 31,
2014
2013
$
13,423,000 $
(224,000)
13,620,000 $
(434,000)
14,092,000
(368,000)
112
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. Dispositions
2015 Activity:
New York
On December 22, 2015, we completed the sale of 20 Broad Street, a 473,000 square foot office building in Manhattan for an
aggregate consideration of $200,000,000. The total income from this transaction was approximately $157,000,000 comprised of
approximately $142,000,000 from the gain on sale and $15,000,000 of lease termination income set forth in Note 15 – Fee and Other
Income.
Washington, DC
On September 9, 2015, we completed the sale of 1750 Pennsylvania Avenue, NW, a 278,000 square foot office building in
Washington, DC for $182,000,000, resulting in a net gain of approximately $102,000,000 which is included in “net gain on
disposition of wholly owned and partially owned assets” on our consolidated statement of income. The tax gain of approximately
$137,000,000 was deferred as part of a like-kind exchange. We are managing the property on behalf of the new owner.
Discontinued Operations
On January 15, 2015, we completed the spin-off of substantially all of our retail segment comprised of 79 strip shopping centers,
three malls, a warehouse park and $225,000,000 of cash to UE (NYSE: UE) (see Note 1 – Organization and Business). In addition,
we completed the following retail property sales, substantially completing the exit of the retail strips and malls business.
On March 13, 2015, we sold our Geary Street, CA lease for $34,189,000, which resulted in a net gain of $21,376,000.
On March 31, 2015, we transferred the redeveloped Springfield Town Center, a 1,350,000 square foot mall located in Springfield,
Fairfax County, Virginia, to PREIT (see Note 6 – Investments in Partially Owned Entities). The financial statement gain was
$7,823,000, of which $7,192,000 was recognized in the first quarter of 2015 and the remaining $631,000 was deferred based on our
ownership interest in PREIT. On March 31, 2018, we will be entitled to additional consideration of 50% of the increase in the value
of Springfield Town Center, if any, over $465,000,000, calculated utilizing a 5.5% capitalization rate. In the first quarter of 2014, we
recorded a non-cash impairment loss of $20,000,000 on Springfield Town Center which is included in “income from discontinued
operations” on our consolidated statements of income.
On August 6, 2015, we sold our 50% interest in the Monmouth Mall in Eatontown, NJ to our joint venture partner for
$38,000,000, valuing the property at approximately $229,000,000, which resulted in a net gain of $33,153,000.
We also sold five residual retail properties, in separate transactions, for an aggregate of $10,731,000, which resulted in net gains
of $3,675,000.
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.
Discontinued Operations
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 PREIT in exchange for $485,313,000; comprised of
$340,000,000 of cash and 6,250,000 of PREIT operating partnership units (valued at $145,313,000 or $23.25 per PREIT unit). In
connection therewith, we recorded a non-cash impairment loss of $20,000,000, which is included in “income from discontinued
operations” on our consolidated statements of income.
113
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. Dispositions - continued
Discontinued Operations – continued
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.
We also 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.
Discontinued Operations
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.
We also 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.
114
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. Dispositions - continued
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, 2015 and 2014, and their combined results of operations for the years ended December 31,
2015, 2014 and 2013.
(Amounts in thousands)
Assets related to discontinued operations:
Real estate, net
Other assets
Liabilities related to discontinued operations:
Mortgages payable, net
Other liabilities (primarily deferred revenue in 2014)
(Amounts in thousands)
Income from discontinued operations:
Total revenues
Total expenses
Net gains on sales of real estate
Transaction related costs (primarily UE spin off)
Impairment losses
Net gain on sale of asset other than real estate
Pretax income from discontinued operations
Income tax expense
Income from discontinued operations
Cash flows related to discontinued operations:
Cash flows from operating activities
Cash flows from investing activities
Balance as of
December 31, 2015 December 31, 2014
$
$
$
$
29,561 $
7,459
37,020 $
2,028,677
205,451
2,234,128
- $
12,470
12,470 $
1,278,182
222,827
1,501,009
For the Year Ended December 31,
2014
2015
2013
27,831 $
17,651
10,180
65,396
(22,972)
(256)
-
52,348
(86)
52,262 $
395,786 $
274,107
121,679
507,192
(14,956)
(26,518)
-
587,397
(1,721)
585,676 $
502,061
310,364
191,697
414,502
-
(37,170)
1,377
570,406
(2,311)
568,095
(33,462) $
346,865
123,837 $
(180,019)
279,436
(117,497)
$
$
$
115
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. 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, 2015 and 2014.
(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,
2014
2015
$
$
$
$
415,261 $
(187,360)
227,901 $
643,488 $
(325,340)
318,148 $
424,976
(199,821)
225,155
657,976
(329,775)
328,201
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of
$78,749,000, $37,516,000 and $41,970,000 for the years ended December 31, 2015, 2014 and 2013, respectively. Estimated annual
amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing
January 1, 2016 is as follows:
(Amounts in thousands)
2016
2017
2018
2019
2020
$
52,359
44,501
43,028
31,011
23,320
Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $36,659,000,
$28,275,000 and $61,915,000 for the years ended December 31, 2015, 2014 and 2013, respectively. Estimated annual amortization of
all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the
five succeeding years commencing January 1, 2016 is as follows:
(Amounts in thousands)
2016
2017
2018
2019
2020
$
29,349
24,427
20,063
15,779
12,345
We are a tenant under ground leases at certain properties. Amortization of these acquired below-market leases, net of above-
market leases, resulted in an increase to rent expense of $1,832,000, $1,832,000, and $2,745,000 for the years ended December 31,
2015, 2014 and 2013. Estimated annual amortization of these below-market leases, net of above-market leases, for each of the five
succeeding years commencing January 1, 2016 is as follows:
(Amounts in thousands)
2016
2017
2018
2019
2020
$
1,832
1,832
1,832
1,832
1,832
116
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Debt
Secured Debt
On April 1, 2015, we completed a $308,000,000 refinancing of RiverHouse Apartments, a three building, 1,670 unit rental
complex located in Arlington, VA. The loan is interest only at LIBOR plus 1.28% (1.52% at December 31, 2015) and matures in
2025. We realized net proceeds of approximately $43,000,000. The property was previously encumbered by a 5.43%, $195,000,000
mortgage maturing in April 2015 and a $64,000,000 mortgage at LIBOR plus 1.53% maturing in 2018.
On June 2, 2015, we completed a $205,000,000 financing in connection with the acquisition of 150 West 34th Street (see Note 4 –
Acquisitions). The loan bears interest at LIBOR plus 2.25% (2.52% at December 31, 2015) and matures in 2018 with two one-year
extension options.
On July 28, 2015, we completed a $580,000,000 refinancing of 100 West 33rd Street, a 1.1 million square foot property
comprised of 855,000 square feet of office space and the 256,000 square foot Manhattan Mall. The loan is interest only at LIBOR
plus 1.65% (1.92% at December 31, 2015) and matures in July 2020. We realized net proceeds of approximately $242,000,000.
On September 22, 2015, we upsized the loan on our 220 Central Park South development by $350,000,000 to $950,000,000. The
interest rate on the loan is LIBOR plus 2.00% (2.42% at December 31, 2015) and the final maturity date is 2020. In connection with
the upsizing, the standby commitment for a $500,000,000 mezzanine loan for this development has been terminated by payment of a
$15,000,000 contractual termination fee, which was capitalized as a component of “development costs and construction in progress”
on our consolidated balance sheet as of December 31, 2015.
On December 11, 2015, we completed a $375,000,000 refinancing of 888 Seventh Avenue, a 882,000 square foot Manhattan
office building. The five-year loan is interest only at LIBOR plus 1.60% (1.92% at December 31, 2015) which was swapped for the
term of the loan to a fixed rate of 3.15% and matures in December 2020. We realized net proceeds of approximately $49,000,000.
On December 21, 2015, we completed a $450,000,000 financing of the retail condominium of the St. Regis Hotel and the adjacent
retail town house located on Fifth Avenue at 55th Street. The loan matures in December 2020, with two one-year extension options.
The loan is interest only at LIBOR plus 1.80% (2.19% at December 31, 2015) for the first three years, LIBOR plus 1.90% for years
four and five, and LIBOR plus 2.00% during the extension periods. We own a 74.3% controlling interest in the joint venture which
owns the property.
Senior Unsecured Notes
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 Term Loan
On October 30, 2015, we entered into an unsecured delayed-draw term loan facility in the maximum amount of $750,000,000.
The facility matures in October 2018 with two one-year extension options. The interest rate is LIBOR plus 1.15% (1.40% at
December 31, 2015) with a fee of 0.20% per annum on the unused portion. At closing, we drew $187,500,000. The facility provides
that the maximum amount available is twice the amount outstanding on April 29, 2016, limited to $750,000,000, and all draws must
be made by October 2017. This facility, together with the $950,000,000 development loan mentioned above, provides the funding for
our 220 Central Park South development.
117
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Debt – continued
The following is a summary of our debt:
(Amounts in thousands)
Mortgages Payable:
Fixed rate
Variable rate
Total
Deferred financing costs, net and other
Total, net
Unsecured Debt:
Senior unsecured notes
Deferred financing costs, net and other
Senior unsecured notes, net
Unsecured term loan
Deferred financing costs, net and other
Unsecured term loan, net
Weighted Average
Interest Rate at
December 31, 2015
Balance at December 31,
2014
2015
4.29%
2.14%
3.56%
$
$
6,356,634 $
3,258,204
9,614,838
(101,125)
9,513,713 $
6,497,286
1,763,769
8,261,055
(73,212)
8,187,843
3.68%
$
850,000 $
(5,841)
844,159
1,350,000
(7,506)
1,342,494
1.40%
187,500
(4,362)
183,138
550,000
-
-
-
-
Unsecured revolving credit facilities
1.38%
Total, net
$
1,577,297 $
1,342,494
The net carrying amount of properties collateralizing the mortgages payable amounted to $9.6 billion at December 31, 2015. As
of December 31, 2015, the principal repayments required for the next five years and thereafter are as follows:
(Amounts in thousands)
Year Ending December 31,
2016
2017
2018
2019
2020
Thereafter
Senior Unsecured
Debt and Unsecured
Revolving Credit
Mortgages Payable
Facilities
$
$
1,095,366
411,113
441,354
379,122
2,835,451
4,452,432
550,000
-
-
450,000
187,500
400,000
118
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. 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, 2015 and 2014.
(Amounts in thousands, except units and
per unit amounts)
Balance as of
December 31,
Units Outstanding at
December 31,
Unit Series
2015
2014
2015
2014
Preferred or
Per Unit
Annual
Liquidation
Preference
Distribution
Rate
Common:
Class A
Perpetual Preferred: (1)
5.00% D-16 Cumulative
Redeemable
3.25% D-17 Cumulative
Redeemable
$
1,223,793
$
1,336,780
12,242,820
11,356,550
n/a
$
2.52
$
$
1,000 $
1,000
1
1 $ 1,000,000.00 $
50,000.00
4,428 $
-
177,100
- $
25.00 $
0.8125
(1) Holders may tender units for redemption to the Operating Partnership for cash at their stated redemption amount; we, at our option, may assume that
obligation and pay the holders either cash or Vornado preferred shares on a one-for-one basis. These units are redeemable at our option at any time.
Below is a table summarizing the activity of redeemable noncontrolling interests.
(Amounts in thousands)
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
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
Issuance of Class A units
Issuance of Series D-17 Preferred Units
Other, net
Balance at December 31, 2015
$
$
1,003,620
47,613
1,323
(33,469)
(27,273)
315,276
30,690
1,337,780
43,231
(2,866)
(30,263)
(48,230)
(192,464)
80,000
4,428
37,605
1,229,221
Redeemable noncontrolling interests exclude our Series G-1 through G-4 convertible preferred units and Series D-13 cumulative
redeemable preferred units, as they are accounted for as liabilities in accordance with ASC 480, Distinguishing Liabilities and Equity,
because of their possible settlement by issuing a variable number of Vornado common shares. Accordingly, the fair value of these
units is included as a component of “other liabilities” on our consolidated balance sheets and aggregated $50,561,000 and $55,097,000
as of December 31, 2015 and 2014, respectively. Changes in the value from period to period, if any, are charged to “interest and debt
expense” on our consolidated statements of income.
119
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. Shareholders’ Equity
Common Shares
As of December 31, 2015, there were 188,576,853 common shares outstanding. During 2015, we paid an aggregate of
$474,751,000 of common dividends comprised of quarterly common dividends of $0.63 per share.
Preferred Shares
The following table sets forth the details of our preferred shares of beneficial interest as of December 31, 2015 and 2014.
(Amounts in thousands, except share and
per share amounts)
Balance as of
December 31,
Shares Outstanding at
December 31,
Preferred Shares
2015
2014
2015
2014
Annual
Per Share
Liquidation Dividend
Preference
Rate(1)
Convertible Preferred:
6.5% Series A: authorized 83,977 shares(2)
$
1,321 $
1,393
26,629
28,939 $
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
193,135
262,379
238,842
290,971
290,306
$ 1,276,954 $ 1,277,026
8,000,000
10,800,000
9,850,000
12,000,000
12,000,000
52,676,629
8,000,000 $
10,800,000 $
9,850,000 $
12,000,000 $
12,000,000 $
52,678,939
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 1.5934 and 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 1.5934 and 1.4334
common shares per Series A Preferred Share, as of December 31, 2015 and 2014, respectively.
(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 other comprehensive income (loss) by component.
(Amounts in thousands)
Total
For the Year Ended December 31, 2015
Pro rata share of
nonconsolidated
subsidiaries' OCI
Securities
available-
for-sale
Interest
rate
swap
Other
Balance as of December 31, 2014
Net current period OCI
Balance as of December 31, 2015
$
$
93,267 $
(46,346)
46,921 $
133,774 $
(55,326)
78,448 $
(8,992) $
(327)
(9,319) $
(25,803) $
6,435
(19,368) $
(5,712)
2,872
(2,840)
12. Variable Interest Entities (“VIEs”)
Unconsolidated VIEs
As of December 31, 2015 and 2014, we have six and three unconsolidated VIEs, respectively. 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, 2015 and 2014, the net carrying
amount of our investments in these entities was $379,939,000 and $286,783,000, 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, 2015 and 2014.
120
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Fair Value Measurements
ASC 820 defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the
price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (the exit price). ASC 820 establishes a fair value hierarchy that prioritizes observable and
unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are
accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active
markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available.
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value,
we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent
possible, as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret
Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities. Accordingly, our fair value
estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon
sale or disposition of these assets.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Financial assets and liabilities that are measured at fair value on our consolidated balance sheets consist of (i) marketable
securities, (ii) real estate fund investments, (iii) the assets in our deferred compensation plan (for which there is a corresponding
liability on our consolidated balance sheet), (iv) mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred
units and Series D-13 cumulative redeemable preferred units), and (v) interest rate swaps. The tables below aggregate the fair values
of these financial assets and liabilities by their levels in the fair value hierarchy at December 31, 2015 and 2014, 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 swaps (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
As of December 31, 2015
Level 2
Level 1
Level 3
150,997
$
150,997
$
-
$
-
574,761
117,475
843,233
50,561
19,600
70,161
$
$
$
-
58,289
209,286
50,561
-
50,561
$
$
$
-
-
-
-
19,600
19,600
$
$
$
574,761
59,186
633,947
-
-
-
Total
As of December 31, 2014
Level 2
Level 1
Level 3
206,323
$
206,323
$
-
$
-
513,973
117,284
837,580
55,097
25,797
80,894
$
$
$
-
53,969
260,292
55,097
-
55,097
$
$
$
-
-
-
-
25,797
25,797
$
$
$
513,973
63,315
577,288
-
-
-
$
$
$
$
$
$
$
$
121
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Fair Value Measurements - continued
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued
Real Estate Fund Investments
At December 31, 2015, we had six real estate fund investments with an aggregate fair value of $574,761,000, or $208,614,000 in
excess of cost. These investments are classified as Level 3. We use a discounted cash flow valuation technique to estimate the fair
value of each of these investments, which is updated quarterly by personnel responsible for the management of each investment and
reviewed by senior management at each reporting period. The discounted cash flow valuation technique requires us to estimate cash
flows for each investment over the anticipated holding period, which currently ranges from 1.0 to 5.0 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, industry publications and from the experience of our Acquisitions and Capital Markets departments.
Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these real estate fund
investments at December 31, 2015.
Unobservable Quantitative Input
Discount rates
Terminal capitalization rates
Range
12.0% to 14.9%
4.8% to 6.1%
Weighted Average
(based on fair
value of investments)
13.6%
5.5%
The above inputs are subject to change based on changes in economic and market conditions and/or changes in use or timing of
exit. Changes in discount rates and terminal capitalization rates result in increases or decreases in the fair values of these investments.
The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates
and the amount and timing of cash flows. Therefore, a change in the fair value of these investments resulting from a change in the
terminal capitalization rate, may be partially offset by a change in the discount rate. It is not possible for us to predict the effect of
future economic or market conditions on our estimated fair values.
The table below summarizes the changes in the fair value of real estate fund investments that are classified as Level 3, for the
years ended December 31, 2015 and 2014.
(Amounts in thousands)
Beginning balance
Purchases
Dispositions / Distributions
Net unrealized gains
Net realized gains
Other, net
Ending balance
For The Year Ended December 31,
2015
2014
$
$
513,973
95,010
(91,450)
54,995
2,757
(524)
574,761
$
$
667,710
3,392
(307,268)
73,802
76,337
-
513,973
122
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Fair Value Measurements - continued
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued
Deferred Compensation Plan Assets
Deferred compensation plan assets that are classified as Level 3 consist of investments in limited partnerships and investment
funds, which are managed by third parties. We receive quarterly financial reports from a third-party administrator, which are
compiled from the quarterly reports provided to them from each limited partnership and investment fund. The quarterly reports
provide net asset values on a fair value basis which are audited by independent public accounting firms on an annual basis. The third-
party administrator does not adjust these values in determining our share of the net assets and we do not adjust these values when
reported in our consolidated financial statements.
The table below summarizes the changes in the fair value of deferred compensation plan assets that are classified as Level 3, for
the years ended December 31, 2015 and 2014.
(Amounts in thousands)
Beginning balance
Purchases
Sales
Realized and unrealized gains
Other, net
Ending balance
For The Year Ended December 31,
2015
2014
$
$
63,315
9,062
(13,252)
(501)
562
59,186
$
$
68,782
14,162
(24,951)
3,415
1,907
63,315
Fair Value Measurements on a Nonrecurring Basis
Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist primarily of real estate assets
required to be measured for impairment at December 31, 2014. There are no assets measured at fair value on a nonrecurring basis at
December 31, 2015. The fair values of real estate assets required to be measured for impairment were determined using widely
accepted valuation techniques, including (i) discounted cash flow analysis, which considers, among other things, leasing assumptions,
growth rates, discount rates and terminal capitalization rates, (ii) income capitalization approach, which considers prevailing market
capitalization rates, and (iii) comparable sales activity.
(Amounts in thousands)
Real estate assets
(Amounts in thousands)
Real estate assets
As of December 31, 2015
Level 2
Level 1
Level 3
- $
- $
- $
-
As of December 31, 2014
Level 2
Level 1
Level 3
Total
Total
4,848 $
- $
- $
4,848
$
$
123
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Fair Value Measurements – continued
Financial Assets and Liabilities not Measured at Fair Value
Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents
(primarily money market funds, which invest in obligations of the United States government), mezzanine loan receivable and our
secured and unsecured debt. Estimates of the fair value of these instruments are determined by the standard practice of modeling the
contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk
adjusted interest rate, which is provided by a third-party specialist. For floating rate debt, we use forward rates derived from
observable market yield curves to project the expected cash flows we would be required to make under the instrument. The fair value
of cash equivalents and borrowings under our unsecured revolving credit facilities and unsecured term loan are classified as Level 1,
and the fair value of our mezzanine loan receivable as of December 31, 2014 is classified as Level 3. There are no mezzanine loans
outstanding as of December 31, 2015. 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, 2015 and 2014.
(Amounts in thousands)
Cash equivalents
Mezzanine loan receivable (included in other assets)
Debt:
Mortgages payable
Senior unsecured notes
Unsecured term loan
Unsecured revolving credit facilities
Total
As of December 31, 2015
Fair
Value
Carrying
Amount
As of December 31, 2014
Fair
Value
Carrying
Amount
1,295,980 $
1,296,000 $
-
-
1,295,980 $
1,296,000 $
749,418 $
16,748
766,166 $
749,000
17,000
766,000
9,614,838 $
850,000
187,500
550,000
11,202,338 $
9,306,000 $
868,000
187,500
550,000
10,911,500 $
8,261,055 $
1,350,000
-
-
9,611,055 $
8,224,000
1,385,000
-
-
9,609,000
$
$
$
$
124
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. 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, 2015, we have approximately
3,570,000 shares available for future grants under the Plan, if all awards granted are Full Value Awards, as defined.
In the years ended December 31, 2015, 2014 and 2013, we recognized an aggregate of $39,846,000, $36,641,000 and
$34,914,000, respectively, of stock-based compensation expense, which is included as a component of “general and administrative”
expenses on our consolidated statements of income. The year ended December 31, 2015 includes $7,834,000 from the acceleration of
the recognition of compensation expense related to 2013-2015 Out-Performance Plans due to the modification of the vesting criteria of
awards such that they will fully vest at age 65. The accelerated expense will result in lower general and administrative expense for
2016 of $3,679,000 and $4,155,000 thereafter. 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 a class of units (“OPP units”) of the Operating Partnership 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. OPP units, if earned, become convertible into Class A common units of
the Operating Partnership (and ultimately into shares) following vesting.
Awards under the 2012 and 2013 OPP have been earned. 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.
Below is the summary of the OPP units earned through December 31, 2015 and the aggregate grant date notional and fair values.
Plan Year
2015
2014
2013
2012
Notional Amount
$
40,000,000
50,000,000
40,000,000
40,000,000
Grant-Date Fair Value(1)
9,120,000
$
8,202,000
6,814,000
12,250,000
OPP Units Earned
To be determined in 2017
To be determined in 2016
85,420
303,202
(1) 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, 2015, 2014 and 2013, we recognized $15,531,000, $6,185,000 and $3,226,000, respectively, of compensation
expense related to OPPs. As of December 31, 2015, there was $5,087,000 of total unrecognized compensation cost related to the OPPs, which
will be recognized over a weighted-average period of 1.7 years.
125
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. 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, 2015, 2014 and
2013, we recognized $1,298,000, $4,550,000 and $8,234,000, respectively, of compensation expense related to stock options that
vested during each year. As of December 31, 2015, there was $1,325,000 of total unrecognized compensation cost related to unvested
stock options, which is expected to be recognized over a weighted-average period of 1.7 years.
Below is a summary of our stock option activity for the year ended December 31, 2015.
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
60.82
112.10
82.21
100.21
60.06
4.0 $
115,796,000
Shares
2,965,968 $
35,208
(160,266)
(13,340)
2,827,570 $
2,826,685 $
2,741,863 $
60.06
59.08
4.0 $
115,788,000
3.8 $
114,653,000
Outstanding at January 1, 2015 (1)
Granted
Exercised
Cancelled or expired
Outstanding at December 31, 2015
Options vested and expected to vest at
December 31, 2015
Options exercisable at December 31, 2015
(1) Adjusted for the effect of the UE spin-off.
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, 2015, 2014 and 2013.
Expected volatility
Expected life
Risk free interest rate
Expected dividend yield
2015
35.00%
5.0 years
1.56%
3.30%
December 31,
2014
36.00%
5.0 years
1.81%
4.10%
2013
36.00%
5.0 years
0.91%
4.30%
The weighted average grant date fair value of options granted during the years ended December 31, 2015, 2014 and 2013 was
$28.85, $20.31 and $17.18, respectively. Cash received from option exercises for the years ended December 31, 2015, 2014 and 2013
was $15,343,000, $17,441,000 and $5,915,000, respectively. The total intrinsic value of options exercised during the years ended
December 31, 2015, 2014 and 2013 was $3,873,000, $18,223,000 and $3,386,000, respectively.
126
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. 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, 2015, 2014 and 2013, we recognized $837,000, $1,303,000 and
$1,344,000, respectively, of compensation expense related to restricted stock awards that vested during each year. As of December
31, 2015, there was $1,315,000 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 $58,000, $88,000 and $110,000 for the years ended December 31, 2015, 2014 and 2013, respectively.
Below is a summary of our restricted stock activity under the Plan for the year ended December 31, 2015.
Unvested Shares
Shares
Weighted-Average
Grant-Date
Fair Value
Unvested at January 1, 2015 (1)
Granted
Vested
Cancelled or expired
Unvested at December 31, 2015
(1) Adjusted for the effect of the UE spin-off.
24,478 $
8,177
(11,298)
(1,765)
19,592
78.32
110.84
78.08
88.69
91.09
Restricted stock awards granted in 2015, 2014 and 2013 had a fair value of $906,000, $1,048,000 and $857,000, respectively. The
fair value of restricted stock that vested during the years ended December 31, 2015, 2014 and 2013 was $882,000, $1,174,000 and
$1,194,000, 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, 2015, 2014 and
2013, we recognized $22,180,000, $24,603,000 and $22,110,000, respectively, of compensation expense related to OP Units that
vested during each year. As of December 31, 2015, there was $18,625,000 of total unrecognized compensation cost related to
unvested OP Units, which is expected to be recognized over a weighted-average period of 1.6 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 $2,414,000, $2,866,000 and $2,598,000 in the years ended December 31, 2015, 2014 and 2013,
respectively.
Below is a summary of restricted OP unit activity under the Plan for the year ended December 31, 2015.
Unvested Units
Units
Weighted-Average
Grant-Date
Fair Value
Unvested at January 1, 2015 (1)
Granted
Vested
Cancelled or expired
Unvested at December 31, 2015
(1) Adjusted for the effect of the UE spin-off.
721,662 $
197,497
(270,443)
(9,699)
639,017
74.38
102.75
74.22
83.89
83.07
OP Units granted in 2015, 2014 and 2013 had a fair value of $20,293,000, $19,669,000 and $31,947,000, respectively. The fair
value of OP Units that vested during the years ended December 31, 2015, 2014 and 2013 was $20,072,000, $22,758,000 and
$16,404,000, respectively.
127
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. Fee and Other Income
The following table sets forth the details of our fee and other income:
(Amounts in thousands)
BMS cleaning fees
Lease termination fees(1)
Management and leasing fees
Other income
For the Year Ended December 31,
2014
2015
2013
$
$
82,113 $
27,233
16,831
38,528
164,705 $
85,658 $
16,362
19,905
33,281
155,206 $
66,505
32,630
23,073
33,363
155,571
(1) The year ended December 31, 2015 includes $15,000 related to the New York Stock Exchange lease termination at 20 Broad Street. The year
ended December 31, 2013 includes $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 $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 “loss from partially owned entities” (see
Note 6 – Investments in Partially Owned Entities).
16. Interest and Other Investment Income (Loss), Net
The following table sets forth the details of our interest and other investment income (loss), net:
(Amounts in thousands)
Dividends on marketable securities
Interest on loans receivable
Mark-to-market of investments in our deferred compensation plan(1)
Losses from the disposition of investment in J.C. Penney
Other, net
For the Year Ended December 31,
2014
2015
2013
$
$
12,836 $
6,371
111
-
7,660
26,978 $
12,707 $
6,107
11,557
-
8,381
38,752 $
11,446
20,683
10,636
(72,974)
5,322
(24,887)
(1) This income is entirely offset by the expense resulting from the mark-to-market of the deferred compensation plan liability, which is included in
"general and administrative" expense.
17. Interest and Debt Expense
The following table sets forth the details of our interest and debt expense.
(Amounts in thousands)
Interest expense
Amortization of deferred financing costs
Capitalized interest and debt expense
128
For the Year Ended December 31,
2014
2015
2013
$
$
405,169 $
32,161
(59,305)
378,025 $
430,278 $
45,263
(62,786)
412,755 $
444,412
23,673
(42,303)
425,782
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. 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:
Income (loss) from continuing operations, net of income attributable to
noncontrolling interests
Income from discontinued operations, net of income attributable to noncontrolling
interests
Net income attributable to Vornado
Preferred share dividends
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
Year Ended December 31,
2014
2015
2013
$
711,240 $
312,700 $
(56,727)
49,194
760,434
(80,578)
-
679,856
(81)
679,775
552,152
864,852
(81,464)
-
783,388
(125)
783,263
91
97
$
679,866 $
783,360 $
532,698
475,971
(82,807)
(1,130)
392,034
(110)
391,924
-
391,924
188,353
187,572
186,941
1,166
45
1,075
43
768
-
189,564
188,690
187,709
$
$
$
$
3.35 $
0.26
3.61 $
3.33 $
0.26
3.59 $
1.23 $
2.95
4.18 $
1.22 $
2.93
4.15 $
(0.75)
2.85
2.10
(0.75)
2.84
2.09
(1) The effect of dilutive securities in the years ended December 31, 2015, 2014 and 2013 excludes an aggregate of 11,744, 11,238 and 11,752
weighted average common share equivalents, respectively, as their effect was anti-dilutive.
129
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. 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, 2015, 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:
2016
2017
2018
2019
2020
Thereafter
$
1,633,615
1,686,056
1,644,440
1,496,805
1,349,724
8,103,382
These amounts do not include percentage rentals based on tenants’ sales. These percentage rents approximated $5,760,000,
$6,343,000 and $7,344,000, for the years ended December 31, 2015, 2014 and 2013, respectively.
None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2015, 2014 and 2013.
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, 2015 are as follows:
(Amounts in thousands)
Year Ending December 31:
2016
2017
2018
2019
2020
Thereafter
$
33,265
34,831
35,317
35,826
36,353
1,557,541
Rent expense was $38,887,000, $36,315,000 and $35,913,000 for the years ended December 31, 2015, 2014 and 2013,
respectively.
130
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. 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, 2015, future
minimum lease payments under this capital lease are as follows:
(Amounts in thousands)
Year Ending December 31:
2016
2017
2018
2019
2020
Thereafter
Total minimum obligations
Interest portion
Present value of net minimum payments
$
$
12,500
12,500
12,500
12,500
12,500
322,292
384,792
(144,792)
240,000
At December 31, 2015, the gross carrying amount of the property leased under the capital lease was $424,369,000, which is a
component of “buildings and improvements” on our consolidated balance sheet.
20. 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, 2015, our subsidiaries’ participation in these plans was not significant to our consolidated financial statements.
In the years ended December 31, 2015, 2014 and 2013, our subsidiaries contributed $10,878,000, $11,431,000 and $10,223,000,
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, 2015, 2014 and 2013.
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, 2015, 2014 and 2013, our subsidiaries contributed $29,269,000, $29,073,000 and $26,262,000,
respectively, towards these plans, which is included as a component of “operating” expenses on our consolidated statements of
income.
131
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. Commitments and Contingencies
Insurance
We maintain general liability insurance with limits of $300,000,000 per occurrence and per property, and all risk property and
rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as flood and earthquake. Our
California properties have earthquake insurance with coverage of $180,000,000 per occurrence and in the annual aggregate, subject to
a deductible in the amount of 5% of the value of the affected property. We maintain coverage for terrorism acts with limits of $4.0
billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear,
biological, chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization
Act of 2015, which expires in December 2020.
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a
portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for
coverage for acts of terrorism including NBCR acts. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third
party insurance companies and the Federal government with no exposure to PPIC. For NBCR acts, PPIC is responsible for a
deductible of $3,200,000 ($2,400,000 effective January 1, 2016) per occurrence 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, 2015, the aggregate dollar amount of these guarantees and master leases is approximately $427,000,000.
At December 31, 2015, $38,096,000 of letters of credit were outstanding under one of our unsecured revolving credit facilities.
Our unsecured revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and
maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below
Baa3/BBB. Our unsecured revolving credit facilities also contain customary conditions precedent to borrowing, including
representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including
such items as failure to pay interest or principal.
As of December 31, 2015, we expect to fund additional capital to certain of our partially owned entities aggregating
approximately $70,000,000.
As of December 31, 2015, we have construction commitments aggregating $873,800,000.
132
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. 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 as 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 general partners. As of December
31, 2015, Interstate and its partners beneficially owned an aggregate of approximately 7.1% 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 $541,000, $535,000, and
$606,000 of management fees under the agreement for the years ended December 31, 2015, 2014 and 2013.
23. Summary of Quarterly Results (Unaudited)
The following summary represents the results of operations for each quarter in 2015 and 2014:
(Amounts in thousands, except per share amounts)
2015
December 31
September 30
June 30
March 31
2014
December 31
September 30
June 30
March 31
Net Income
Attributable
to Common
Net Income Per
Common Share (2)
Revenues
Shareholders (1)
Basic
Diluted
$
$
651,581 $
627,596
616,288
606,802
597,010 $
578,710
574,411
562,381
230,742 $
198,870
165,651
84,593
513,238 $
131,159
76,642
62,349
1.22 $
1.05
0.88
0.45
2.73 $
0.70
0.41
0.33
1.22
1.05
0.87
0.45
2.72
0.69
0.41
0.33
(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.
133
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. Segment Information
As a result of the spin-off of substantially all of our Retail Properties segment (see Note 7 – Dispositions), the remaining retail
properties no longer meet the criteria to be a separate reportable segment. In addition, as a result of our investment in Toys being
reduced to zero, we suspended equity method accounting for our investment in Toys (see Note 6 – Investments in Partially Owned
Entities) and the Toys segment no longer meets the criteria to be a separate reportable segment. Accordingly, effective January 1,
2015, the Retail Properties segment and Toys have been reclassified to the Other segment. Below is a summary of net income and a
reconciliation of net income to EBITDA(1) by segment for the years ended December 31, 2015, 2014 and 2013.
(Amounts in thousands)
Total revenues
Total expenses
Operating income (loss)
(Loss) income from partially owned entities
Income from real estate fund investments
Interest and other investment income (loss), net
Interest and debt expense
Net gain on disposition of wholly owned and partially
owned assets
Income (loss) before income taxes
Income tax benefit (expense)
Income from continuing operations
Income from discontinued operations
Net income
Less net income attributable to noncontrolling interests
Net income (loss) attributable to Vornado
Interest and debt expense(2)
Depreciation and amortization(2)
Income tax (benefit) expense(2)
EBITDA(1)
Balance Sheet Data:
Real estate, at cost
Investments in partially owned entities
Total assets
See notes on pages 136 and 137.
$
$
$
For the Year Ended December 31, 2015
Washington, DC
New York
Total
2,502,267 $
1,742,019
760,248
(12,630)
74,081
26,978
(378,025)
251,821
722,473
84,695
807,168
52,262
859,430
(98,996)
760,434
469,843
664,637
(85,379)
1,809,535 $
1,695,925 $
1,032,015
663,910
655
-
7,722
(194,278)
142,693
620,702
(4,379)
616,323
-
616,323
(13,022)
603,301
248,724
394,028
4,766
1,250,819 (3) $
532,812 $
390,921
141,891
(5,083)
-
(262)
(68,727)
102,404
170,223
(317)
169,906
-
169,906
-
169,906
82,386
179,788
(1,610)
430,470 (4) $
Other
273,530
319,083
(45,553)
(8,202)
74,081
19,518
(115,020)
6,724
(68,452)
89,391
20,939
52,262
73,201
(85,974)
(12,773)
138,733
90,821
(88,535)
128,246 (5)
18,090,137 $
1,550,422
21,143,293
10,577,078 $
1,195,122
12,257,774
4,544,842 $
100,511
4,536,895
2,968,217
254,789
4,348,624
134
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. Segment Information – continued
(Amounts in thousands)
Total revenues
Total expenses
Operating income (loss)
(Loss) income from partially owned entities
Income from real estate fund investments
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
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
(Amounts in thousands)
Total revenues
Total expenses
Operating income (loss)
(Loss) income from partially owned entities
Income from real estate fund investments
Interest and other investment (loss) 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 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 136 and 137.
$
$
$
$
$
$
For the Year Ended December 31, 2014
Washington, DC
New York
Total
2,312,512 $
1,622,619
689,893
(59,861)
163,034
38,752
(412,755)
13,568
432,631
(9,281)
423,350
585,676
1,009,026
(144,174)
864,852
654,398
685,973
24,248
2,229,471 $
1,520,845 $
946,466
574,379
20,701
-
6,711
(183,427)
-
418,364
(4,305)
414,059
463,163
877,222
(8,626)
868,596
241,959
324,239
4,395
1,439,189 (3) $
537,151 $
358,019
179,132
(3,677)
-
183
(75,395)
-
100,243
(242)
100,001
-
100,001
-
100,001
89,448
145,853
288
335,590 (4) $
Other
254,516
318,134
(63,618)
(76,885)
163,034
31,858
(153,933)
13,568
(85,976)
(4,734)
(90,710)
122,513
31,803
(135,548)
(103,745)
322,991
215,881
19,565
454,692 (5)
16,822,358 $
1,240,489
21,157,980
9,732,818 $
1,036,130
10,706,476
4,383,418 $
102,635
4,300,628
2,706,122
101,724
6,150,876
For the Year Ended December 31, 2013
Washington, DC
New York
Total
2,299,176 $
1,624,625
674,551
(340,882)
102,898
(24,887)
(425,782)
2,030
(12,072)
8,717
(3,355)
568,095
564,740
(88,769)
475,971
758,781
732,757
26,371
1,993,880 $
1,470,907 $
910,498
560,409
15,527
-
5,357
(181,966)
-
399,327
(2,794)
396,533
160,314
556,847
(10,786)
546,061
236,645
293,974
3,002
1,079,682 (3) $
541,161 $
347,686
193,475
(6,968)
-
129
(102,277)
-
84,359
14,031
98,390
-
98,390
-
98,390
116,131
142,409
(15,707)
341,223 (4) $
Other
287,108
366,441
(79,333)
(349,441)
102,898
(30,373)
(141,539)
2,030
(495,758)
(2,520)
(498,278)
407,781
(90,497)
(77,983)
(168,480)
406,005
296,374
39,076
572,975 (5)
15,392,968 $
1,159,803
20,018,210
8,422,297 $
904,278
9,214,055
4,243,048 $
100,543
4,098,338
2,727,623
154,982
6,705,817
135
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. Segment Information – continued
Notes to preceding tabular information:
(1) EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization." We consider EBITDA a non-GAAP
financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return
on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize
this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA
should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by
other companies.
(2) Interest and debt expense, depreciation and amortization and income tax expense in the reconciliation of net income to EBITDA
includes our share of these items from partially owned entities.
(3) The elements of "New York" EBITDA are summarized below.
(Amounts in thousands)
Office
Retail
Residential
Alexander's
Hotel Pennsylvania
Net gains on sale of real estate(a)
Total New York
For the Year Ended December 31,
2014
2015
2013
$
$
661,579 $
358,379
22,266
42,858
23,044
142,693
1,250,819
$
622,818 $
281,428
21,907
41,746
30,753
440,537
1,439,189
$
612,009
246,808
20,420
42,210
30,723
127,512
1,079,682
(a) Net gains on sale of real estate are related to 20 Broad Street in 2015, 1740 Broadway in 2014, and 866 UN Plaza in 2013.
(4) The elements of "Washington, DC" EBITDA are summarized below.
(Amounts in thousands)
Office, excluding the Skyline properties
Skyline properties
Net gain on sale of 1750 Pennsylvania Avenue
Total Office
Residential
Total Washington, DC
For the Year Ended December 31,
2014
2013
2015
$
$
264,864 $
24,224
102,404
391,492
38,978
430,470
$
266,859 $
27,150
-
294,009
41,581
335,590
$
268,373
29,499
-
297,872
43,351
341,223
136
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. Segment Information – continued
Notes to preceding tabular information:
(5) The elements of "Other" EBITDA are summarized below.
(Amounts in thousands)
Our share of real estate fund investments:
Income before net realized/unrealized gains
Net realized/unrealized gains on investments
Carried interest
Total
theMart and trade shows
555 California Street
India real estate ventures
Our share of Toys(a)
Other investments
Corporate general and administrative expenses(b)(c)
Investment income and other, net(b)
Gains on sale of partially owned entities and other
UE and residual retail properties discontinued operations
Our share of impairment loss on India real estate ventures
Acquisition and transaction related costs
Net gain on sale of marketable securities, land parcels and residential condominiums
Impairment loss and loan loss reserve on investment in Suffolk Downs
Losses from the disposition of investment in J.C. Penney
Severance costs (primarily reduction in force at theMart)
Net income attributable to noncontrolling interests in the Operating Partnership
For the Year Ended December 31,
2014
2015
2013
$
$
8,611 $
14,657
10,696
33,964
79,159
49,975
3,933
2,500
38,141
207,672
(106,416)
26,385
37,666
28,314
(14,806)
(12,511)
6,724
(1,551)
-
-
(43,231)
128,246 $
8,056 $
37,535
24,715
70,306
79,636
48,844
6,434
103,632
16,896
325,748
(94,929)
31,665
13,000
245,679
(5,771)
(16,392)
13,568
(10,263)
-
-
(47,613)
454,692 $
7,752
23,489
18,230
49,471
74,270
42,667
5,841
(12,081)
45,856
206,024
(94,904)
46,525
-
541,516
-
(24,857)
56,868
-
(127,888)
(5,492)
(24,817)
572,975
(a) As a result of our investment being reduced to zero, we suspended equity method accounting in the third quarter of 2014 (see Note 6 -
Investments in Partially Owned Entities). The years ended December 31, 2014 and 2013 include an impairment loss of $75,196 and
$240,757, respectively.
(b) The amounts in these captions (for this table only) exclude income/expense from the mark-to-market of our deferred compensation plan
of $111, $11,557 and $10,636 for the years ended December 31, 2015, 2014 and 2013, respectively.
(c) The year ended December 31, 2015 includes $6,217 from the acceleration of the recognition of compensation expense related to 2013-
2015 Out-Performance Plans due to the modification of the vesting criteria of awards such that they will fully vest at age 65. The
accelerated expense will result in lower general and administrative expense for 2016 of $2,940 and $3,277 thereafter.
137
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. Subsequent Events
2016 Out-Performance Plan
On January 14, 2016, the Compensation Committee approved the 2016 Outperformance Plan, a multi-year, performance-based
equity compensation plan and related form of award agreement (the “2016 OPP”). Awards under the 2016 OPP constitute awards
under Vornado’s shareholder approved 2010 Omnibus Share Plan. Under the 2016 OPP, participants, including our Chairman and
Chief Executive Officer, have the opportunity to earn compensation payable in the form of operating partnership units if, and only if,
we outperform a predetermined total shareholder return (“TSR”) and/or outperform the market with respect to relative total TSR
during a three-year performance period. Specifically, awards under our 2016 OPP may potentially be earned if we (i) achieve a TSR
above that of the SNL US REIT Index (the “Index”) over a three-year performance period (the “Relative Component”) and/or (ii)
achieve a TSR level greater than 7% per annum, or 21% over the three-year performance period (the “Absolute Component”). To the
extent awards would be earned under the Absolute Component but we underperform the Index, such awards earned under the
Absolute Component would be reduced (and potentially fully negated) based on the degree to which we underperform the Index. In
certain circumstances, in the event we outperform the Index but awards would not otherwise be earned under the Absolute
Component, awards may still be earned under the Relative Component. Moreover, to the extent awards would otherwise be earned
under the Relative Component but we fail to achieve at least a 3% per annum absolute TSR, such awards earned under the Relative
Component would be reduced based on our absolute TSR performance, with no awards being earned in the event our TSR during the
applicable measurement period is 0% or negative, irrespective of the degree to which it may outperform the Index. If the designated
performance objectives are achieved, OPP Units are also subject to time-based vesting requirements. Dividend payments on awards
issued accrue during the performance period and are paid to participants if, and only if, awards are ultimately earned based on the
achievement of the designated performance objectives. In addition, all of our executive officers (for the purposes of Section 16 of the
Exchange Act) are required to hold any earned OPP Units for one year following vesting.
770 Broadway Refinancing
On February 8, 2016, we completed a $700,000,000 refinancing of 770 Broadway, a 1,158,000 square foot Manhattan office
building. The five-year loan is interest-only at LIBOR plus 1.75% (2.18% at February 11, 2016) which was swapped for four and a
half years to a fixed rate of 2.56%. We realized net proceeds of approximately $330,000,000. The property was previously
encumbered by a 5.65%, $353,000,000 mortgage maturing in March 2016.
138
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, 2015, 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, 2015 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, 2015 has been audited by Deloitte & Touche
LLP, an independent registered public accounting firm, as stated in their report appearing on page 140, which expresses an unqualified
opinion on the effectiveness of our internal control over financial reporting as of December 31, 2015.
139
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, 2015, 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,
2015, 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, 2015 of the Company
and our report dated February 16, 2016 expressed an unqualified opinion on those financial statements and financial statement
schedules and included an explanatory paragraph regarding the Company’s adoption of a new accounting standard.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 16, 2016
140
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, 2015, 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
74 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
47
Executive Vice President - Chief Investment Officer since April 2015; Executive Vice President -
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
64
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
70
Mitchell N. Schear
Stephen W. Theriot
57
56
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).
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.
141
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 and related stockholder matters 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, 2015 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)
4,623,934 (1) $
-
4,623,934
$
60.06
-
60.06
3,569,694 (2)
-
3,569,694
Includes an aggregate of 1,796,364 shares/units, comprised of (i) 19,592 restricted common shares, (ii) 791,843 restricted Operating Partnership units and
(iii) 984,929 Out-Performance Plan units, which do not have an exercise price.
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 7,139,388.
Plan Category
Equity compensation plans approved
by security holders
Equity compensation awards not
approved by security holders
Total
(1)
(2)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information relating to certain relationships and related transactions, and director independence 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.
142
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, 2015, 2014 and 2013
III--Real Estate and Accumulated Depreciation as of December 31, 2015
Pages in this
Annual Report
on Form 10-K
145
146
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
143
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 16, 2016
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 16, 2016
February 16, 2016
February 16, 2016
February 16, 2016
February 16, 2016
February 16, 2016
February 16, 2016
February 16, 2016
February 16, 2016
By:
/s/Stephen W. Theriot
(Stephen W. Theriot)
Chief Financial Officer
February 16, 2016
(Principal Financial and Accounting Officer)
144
VORNADO REALTY TRUST
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
December 31, 2015
(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, 2015:
Allowance for doubtful accounts
Year Ended December 31, 2014:
Allowance for doubtful accounts
Year Ended December 31, 2013:
Allowance for doubtful accounts
$
21,209
$
(99)
$
(6,451)
$
14,659
$
24,719
$
3,076
$
(6,586)
$
21,209
$
28,675
$
9,326
$
(13,282)
$
24,719
145
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(
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,
2014
2013
2015
$
16,822,358 $ 15,392,968 $
15,287,078
281,048
1,288,136
18,391,542
301,405
225,536
1,348,153
16,966,657
144,299
18,090,137 $ 16,822,358 $
131,646
1,014,876
16,433,600
1,040,632
15,392,968
3,161,633 $
459,612
3,621,245
202,978
3,418,267 $
2,829,862 $
461,689
3,291,551
129,918
3,161,633 $
2,524,718
423,844
2,948,562
118,700
2,829,862
$
$
$
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
150
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.
151
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.
*
*
*
*
*
*
*
*
*
*
*
*
*
152
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.
*
153
*
*
*
*
*
*
*
*
*
*
*
*
*
*
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
Commission
_______________________
Incorporated by reference.
154
10.1
-
10.2
**
-
10.3
**
-
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
-
-
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
-
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
**
-
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
**
-
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.
*
**
155
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
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.
*
**
156
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
10.31
**
- Form of Vornado Realty Trust 2016 Outperformance Plan Award 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 January 21, 2016
10.32
- Term Loan Agreement dated as of October 30, 2015, 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.
Management contract or compensatory agreement.
*
**
*
*
*
*
*
*
*
*
157
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 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
158
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
RICHARD R. WEST*
Dean Emeritus, Leonard N. Stern School of Business,
New York University
RUSSELL B. WIGHT, JR.
Partner, Interstate Properties
*Members of the Audit Committee
DIVISION EXECUTIVE VICE PRESIDENTS
GLEN J.WEISS
Executive Vice President
Leasing – New York Office
ED HOGAN
Executive Vice President
Leasing – New York Retail
MARK HUDSPETH
Executive Vice President
Capital Markets
BARRY S. LANGER
Executive Vice President
Development – New York
THOMAS SANELLI
Chief Financial Officer – New York
GASTON SILVA
Chief Operating Officer – New York
MYRON MAURER
Chief Operating Officer – theMART
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
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
BRIAN KURTZ
Executive Vice President
Financial Administration
CRAIG STERN
Executive Vice President
Tax & Compliance
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, 2015. In
addition, as required by Section 303A.12(a) of
the New York Stock Exchange (NYSE) Listed
Company Manual, on July 7, 2015 the
Company’s Chief Executive Officer submitted
to the NYSE the annual CEO certification
regarding the Company’s compliance with the
NYSE’s corporate governance listing standards.
REPORT ON FORM 10-K
Shareholders may obtain a copy of the
Company’s annual report on Form 10-K as filed
with the Securities and Exchange Commission
free of charge (except for exhibits), by writing
to the Secretary, Vornado Realty Trust,
888 Seventh Avenue, New York, New York
10019; or, visit the Company’s website at
www.vno.com and refer to the Company’s SEC
filings.
ANNUAL MEETING
The annual meeting of shareholders of Vornado
Realty Trust, will be held at 11:30 AM on
Thursday, May 19, 2016 at the Saddle Brook
Marriott, Interstate 80 and the Garden State
Parkway, Saddle Brook, New Jersey 07663.
10JUL201211394241