Vornado Realty Trust
Annual Report 2016

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VORNADO REALTY TRUST 2016 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: Continuing Business (“RemainCo”): • 20.2 million square feet of Manhattan office space in 36 properties; • 2.7 million square feet of Manhattan flagship street retail space in 70 properties; • 2,004 units in twelve 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 2,587 associates; • The 3.7 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 5.4% interest in Urban Edge Properties (NYSE:UE); an 8.0% interest in Pennsylvania Real Estate Investment Trust (NYSE:PEI); a 7.8% interest in Lexington Realty Trust (NYSE:LXP); and a 32.5% interest in Toys “R” Us, Inc.; • 220 Central Park South, a 950-foot-tall luxury residential for-sale condominium tower containing 400,000 salable square feet, currently under construction for 2018 delivery. Businesses We Will Spin (Washington) and Wind Down (Real Estate Fund): Washington:(2) • 11.1 million square feet of office space in 44 properties; • 3,156 units in nine residential properties; and Real Estate Fund • 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. Vornado’s common shares are listed on the New York Stock Exchange and are traded under the symbol: VNO. theMART and 555 California Street are reported in the Other Segment. They are operated by the New York Division. 1 2 As announced in October 2016, Vornado’s Board of Trustees approved the tax-free spin-off of our Washington, DC segment and we entered into a definitive agreement to merge it with the management business and certain select assets of The JBG Companies (“JBG”), a Washington, DC real estate company. The transaction is expected to be completed in the second quarter of 2017. There can be no assurance that this transaction will be completed. 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 sharebasic Net income per sharediluted Total assets Total equity EBITDA (before noncontrolling interest and gains on sale of real estate) Funds from operations Funds from operations per share % increase in funds from operations per share Year Ended December 31, 2016 2,506,202,000 823,606,000 4.36 4.34 2015 2,502,267,000 679,856,000 3.61 3.59 $ $ $ $ 20,814,847,000 $ 21,143,293,000 7,618,496,000 2,161,137,000 1,457,583,000 7.66 39.8% $ $ $ $ 7,476,078,000 1,576,150,000 1,039,035,000 5.48 13.4% $ $ $ $ $ $ $ $ $ In various sections throughout this letter, we present materials that exclude Washington, DC (which is expected to be spun off in the second quarter of 2017) and the Real Estate Fund (which is in wind down) so as to better represent RemainCo, our continuing business. As Adjusted and excluding Washington, DC and the Real Estate Fund Revenues Net income Net income per sharebasic Net income per sharediluted Total assets EBITDA Funds from operations Funds from operations per share % increase in funds from operations per share Year Ended December 31, 2016 1,978,131,000 193,026,000 1.02 1.02 2015 1,905,124,000 213,628,000 1.13 1.13 $ $ $ $ 19,172,679,000 $ 18,384,434,000 1,251,835,000 690,655,000 3.63 4.9% $ $ $ 1,174,267,000 656,093,000 3.46 20.1% $ $ $ $ $ $ $ $ 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, total assets, EBITDA and Funds from Operations, all as adjusted and excluding Washington, DC and the Real Estate Fund as well as Funds from Operations and EBITDA before gains on sale of real estate. 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 (an apples-to-apples comparison of our continuing business, eliminating certain one-timers, formerly called Comparable Funds from Operations) for the year ended December 31, 2016 was $886.8 million, $4.66 per diluted share, compared to $900.9 million, $4.75 per diluted share, for the previous year, a 1.9% decrease per share. Funds from Operations, as Adjusted and excluding Washington, DC and the Real Estate Fund (which represents RemainCo, our continuing business) for the year ended December 31, 2016 was $690.7 million, $3.63 per diluted share, compared to $656.1 million, $3.46 per diluted share, for the previous year, a 4.9% increase per share. Funds from Operations, as Reported (apples-to-apples plus one-timers) for the year ended December 31, 2016 was $1,457.6 million, $7.66 per diluted share, compared to $1,039.0 million, $5.48 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 and excluding Washington, DC and the Real Estate Fund.) Net Income attributable to common shares for the year ended December 31, 2016 was $823.6 million, $4.34 per diluted share, versus $679.9 million, $3.59 per diluted share, for the previous year. After we complete the tax-free spin-off of our Washington, DC business, Our Business, (RemainCo) will be 89% concentrated in New York, the most important city in the world, and overall is 69% office and 30% high street flagship retail. Here are our financial results (presented in EBITDA format) by business unit: ($ IN MILLIONS) EBITDA: New York: Office Street Retail Alexander’s Hotel Pennsylvania Total New York theMART 555 California Street EBITDA 2016 Same Store % Increase/ (Decrease) Cash GAAP 10.5% 9.5% 14.2% 6.7% 10.3% 4.4% (56.1%) (56.5%) 8.6% 6.3% 13.3% 14.0% (13.1%) (9.3%) % of 2016 EBITDA Increase/ (Decrease) 2016/2015 2016 2015 2014 EBITDA 53.7% 30.7% 3.7% 0.8% 88.9% 7.4% 3.7% 100% 20.6 24.4 3.3 (13.0) 35.3 12.7 (4.2) 43.8 668.4 381.5 46.2 10.0 1,106.1 91.9 45.8 1,243.8 647.8 357.1 42.9 23.0 1,070.8 79.2 609.3 277.3 41.7 30.7 959.0 79.0 50.0 1,200.0 48.9 1,086.9 Other (see page 3 for details) EBITDA before Washington, DC and the Real Estate Fund 647.8 51.8 337.2 1,891.6 1,251.8 1,424.1 Washington, DC Real Estate Fund 3.8% 2.8% -- (54.9) 290.5 (21.0) 290.5 33.9 290.4 70.3 EBITDA before noncontrolling interest and gains on sale of real estate 2,161.1 1,576.2 1,784,8 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, 2016, a copy of which accompanies this letter or can be viewed at www.vno.com. 2 Other EBITDA is comprised of: ($ IN MILLIONS) Net gain on extinguishment of Skyline properties debt Income from repayment of loans to and preferred equity in 85 Tenth Avenue 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 Other, net Total 2016 487.9 160.8 (100.6 ) (26.0 ) 84.3 22.5 30.2 1.0 2.0 (14.3 ) 647.8 2015 -- -- (106.4 ) (35.2 ) 43.2 26.4 110.0 6.7 2.5 4.6 51.8 2014 -- -- (94.9 ) (31.3 ) 9.4 31.7 299.7 13.6 103.6 5.4 337.2 3 The following chart reconciles Funds from Operations, as Reported to Funds from Operations, as Adjusted and excluding Washington, DC and the Real Estate Fund: ($ IN MILLIONS, EXCEPT PER SHARE) Funds from Operations, as Reported Less adjustments for certain items that impact FFO: Net gain on extinguishment of Skyline properties debt FFO of Washington, DC, Urban Edge pre spin-off and real estate sold Income from repayment of loans to and preferred equity in 85 Tenth Avenue Real Estate Fund Acquisition related costs Impairment loss – India Reversal of deferred tax allowance Toys “R” Us FFO Write-off of deferred financing and defeasance costs Other, primarily noncontrolling interests’ share of above adjustments Total adjustments 2016 1,457.6 2015 1,039.0 2014 911.1 487.9 241.3 160.8 (21.0 ) (26.0 ) (14.0 ) -- -- -- (62.1 ) 766.9 -- 290.8 -- 33.9 (12.5 ) -- 90.0 -- -- (19.3 ) 382.9 -- 424.6 -- 70.3 (16.4 ) -- -- (66.4 ) (22.7 ) (21.8 ) 367.6 Funds from Operations as Adjusted and excluding Washington, DC and the Real Estate Fund Funds from Operations as Adjusted and excluding Washington, DC and the Real Estate Fund per share 690.7 656.1 543.5 3.63 3.46 2.88 Funds from Operations, as Adjusted and excluding Washington, DC and the Real Estate Fund, increased by $34.6 million in 2016, to $3.63 from $3.46 per share, an increase of $0.17 per share, or 4.9%. ($ IN MILLIONS, EXCEPT PER SHARE) Same Store Operations: New York Office New York Street Retail New York Hotel Penn theMART 555 California Street Properties placed back into service Acquisitions, net of interest expense Interest expense Other Increase in FFO as Adjusted and excluding Washington, DC Amount Per Share 44.1 34.5 (13.0) 12.1 (4.7) 6.2 12.8 (34.0) (23.4) 0.22 0.17 (0.05) 0.06 (0.02) 0.03 0.06 (0.17) (0.13) and the Real Estate Fund 34.6 0.17 4 Report Card We manage the business for long-term wealth creation. We cannot directly influence share price, but surely our share price over time is a report card on our performance. Since I have run Vornado from 1980, total shareholder returns have been 16.5%(3) per annum. Dividends have represented 3.6 percentage points of Vornado’s annual return. Here is a chart that shows Vornado’s total return to shareholders compared to the Office REIT and MSCI indices for various periods ending December 31, 2016 and for 2017 year-to-date: 2017 YTD One-year Three-year Five-year Ten-year Fifteen-year Twenty-year Office REIT Index 2.4 % 13.2 % 42.8 % 72.1 % 31.0 % 233.0 % 434.7 % MSCI Index 1.2 % 8.6 % 45.2 % 75.2 % 62.3 % 361.1 % 520.5 % Vornado (1.9 )% 7.3 % 40.6 % 76.0 % 36.9 % 425.0 % 986.7 % 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: As Adjusted Excluding Washington, DC and the Real Estate Fund (RemainCo)(4) FFO EBITDA 1,251.8 1,174.3 1,057.5 1,011.5 882.4 868.1 823.8 787.4 852.2 862.4 Amount 690.7 656.1 543.5 503.0 385.4 370.3 352.4 230.5 341.9 378.9 Per Share 3.63 3.46 2.88 2.68 2.07 1.93 1.86 1.33 2.09 2.31 Shares Outstanding 200.5 199.9 198.5 197.8 197.3 196.5 195.7 194.1 168.9 167.7 ($ AND SHARES IN MILLIONS, EXCEPT PER SHARE DATA) 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 RemainCo FFO increased this year by 5.3% (4.9% on a per share basis), 13.3% per year over five years (13.5% on a per share basis) and 10.9% per year over ten years (8.7% on a per share basis). 3 More recent shareholder returns have been 12.6% for 5 years and 3.5% for 10 years. 4 EBITDA and FFO including Washington, DC and the Real Estate Fund are as follows: ($ AND SHARES IN MILLIONS, EXCEPT PER SHARE DATA) 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 EBITDA 1,521.3 1,498.8 1,418.2 1,357.3 1,211.3 1,215.5 1,161.0 1,095.3 1,139.4 1,130.4 5 FFO Per Share 4.66 4.75 4.33 4.02 3.27 3.20 3.11 2.62 3.31 3.42 Amount 886.8 900.9 816.5 754.8 610.5 613.9 590.7 453.9 541.6 561.6 Shares Outstanding 200.5 199.9 198.5 197.8 197.3 196.5 195.7 194.1 168.9 167.7 Acquisitions/Dispositions 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 2013 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 that are off-the-fairway, non-strategic or over-priced. Since 2012, our disposition activity has increased four-fold as we have implemented our strategic simplification; we have sold much more than we have acquired. We have executed over $5.7 billion of asset sales in 70 transactions, recognizing $2.4 billion of gains. In addition, we will have distributed $9.7 billion to shareholders by way of a tax- free spin-off of Urban Edge Properties (our strip shopping center business) and the pending spin-off of our Washington, DC business. Importantly, we have also significantly upgraded the mix and quality of our assets. For example, trading: • • • • the Green Acres B+ mall for the retail block at 666 Fifth Avenue (Uniqlo); 866 UN Plaza for 655 Fifth Avenue (Ferragamo); 1740 Broadway, a B office building, for the St. Regis retail on Fifth Avenue (Harry Winston); and 1750 Pennsylvania Avenue for Old Navy on 34th Street. Here is a ten-year schedule of acquisitions and dispositions. Acquisitions(5) Dispositions(5) ($ IN MILLIONS) 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Number of Transactions 5 13 6 6 10 12 15 -- 3 38 Asset Cost 128.3 955.8 648.1 813.3 1,365.2 1,499.1 542.4 -- 31.5 4,063.6 108 10,047.3 Number of Transactions 5 11 11 20 23 7 5 16 6 5 109 (6) Proceeds 1,022.5 972.9 1,060.4 1,429.8 1,222.3 389.2 137.8 262.8 493.2 186.3 7,177.2 (6) Net Gain 664.4 316.7 523.4 434.1 454.0 137.8 56.8 43.0 171.1 60.1 2,861.4 The action here takes place on the 45th floor where our acquisitions/dispositions teams reside. Special thanks to EVP - CIO Michael Franco and EVP Mark Hudspeth and to SVPs Cliff Broser, Mario Ramirez, Adam Green, GauRav Khanna and the rest of the team; and to SVP Ernie Wittich in Washington. Michael in the lead, with Adam, Michael Schnitt and Darren Chan were our JBG deal team. 5 Excludes spin-offs and marketable securities. 6 Includes the disposition of the Skyline properties, Fairfax, Virginia, which were placed in receivership in August 2016. In December of 2016, the final disposition of the Skyline properties was completed by the receiver. In connection therewith, the Skyline properties’ assets (approximately $236 million) and liabilities (approximately $724 million) were removed from our balance sheet which resulted in a net gain of $488 million. One could look at this transaction as a $724 million sale which resulted in a $488 million gain. 6 Capital Markets At year-end we had $4.2 billion of liquidity comprised of $1.8 billion of cash, restricted cash and marketable securities and $2.4 billion available on our $2.5 billion revolving credit facilities. Today, we have the same $4.2 billion of liquidity available. Since January 1, 2016, we have executed the following capital markets transactions: • • • • • • • • • • • In December, the joint venture, in which we have a 45.1% ownership interest, obtained a $90 million construction loan on 61 Ninth Avenue. The loan matures in December 2020 with two six-month extension options. The interest rate is LIBOR plus 3.05%. As of March 31, 2017, there was nothing drawn on the loan. In December, we completed a $400 million refinancing of 350 Park Avenue, a 571,000 square foot Manhattan office building. The ten-year loan is interest only and has a fixed rate of 3.92%. We realized net proceeds of approximately $111 million. The property was previously encumbered by a 3.75%, $284 million mortgage which was scheduled to mature in January 2017. In November, we extended one of our two $1.25 billion unsecured revolving credit facilities from June 2017 to February 2021 with two six-month extension options. The interest rate on the extended facility was lowered from LIBOR plus 115 basis points to LIBOR plus 100 basis points. The facility fee remains unchanged at 20 basis points. In September, we completed a $675 million refinancing of theMART, a 3,652,000 square foot commercial building in Chicago. The five-year loan is interest only and has a fixed rate of 2.70%. We realized net proceeds of approximately $124 million. The property was previously encumbered by a 5.57%, $550 million mortgage which was scheduled to mature in December 2016. In September, we redeemed all of the outstanding 6.875% Series J cumulative redeemable preferred shares at their redemption price of $25.00 per share, or $246 million in the aggregate, plus accrued and unpaid dividends through the date of redemption. In August, the joint venture, in which we have a 49.9% ownership interest, completed an $80 million refinancing of 50-70 West 93rd Street, a 326 unit Manhattan residential complex. The three-year loan with two one-year extensions is interest only at LIBOR plus 1.70% (2.68% at March 31, 2017). The property was previously encumbered by a $45 million first mortgage at LIBOR plus 1.90% and an $18.5 million second mortgage at LIBOR plus 1.65%, which were scheduled to mature in September 2016. In May, we completed a $300 million recourse financing of 7 West 34th Street, a 479,000 square foot Manhattan office building. The ten-year loan is interest only at a fixed rate of 3.65% and matures in June 2026. In June, we sold a 47% interest in the building. We retained all of the net proceeds from the financing, as well as $127 million from the sale. In May, the joint venture, in which we have a 50% ownership interest, completed a $900 million refinancing of 280 Park Avenue, a 1,249,000 square foot Manhattan office building. The three-year loan with four one- year extensions is interest only at LIBOR plus 2.00% (2.80% at March 31, 2017). The property was previously encumbered by a 6.35%, $721 million mortgage which was scheduled to mature in June 2016. In May, the joint venture, in which we have a 55% ownership interest completed a $273 million refinancing of The Warner Building, a 622,000 square foot Washington, DC office building. The loan matures in June 2023, has a fixed rate of 3.65%, is interest only for the first two years and amortizes based on a 30-year schedule beginning in year three. The property was previously encumbered by a 6.26%, $293 million mortgage which matured in May 2016. In March, the joint venture, in which we have a 55% ownership interest, completed a $300 million refinancing of One Park Avenue, a 949,000 square foot Manhattan office building. The loan matures in March 2021 and is interest only at LIBOR plus 1.75% (2.58% at March 31, 2017). The property was previously encumbered by a 4.995%, $250 million mortgage which matured in March 2016. In February, 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 plus 1.75% (2.53% at March 31, 2017), 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. Our Triple A capital markets team was responsible for over $5.0 billion of transactions in this very active year. Thank you to EVP Mark Hudspeth and SVPs Richard Reczka and Jan LaChapelle. 7 Below is the right hand side of our balance sheet at December 31, 2016: (7) ($ IN MILLIONS) Secured debt Unsecured debt Pro rata share of non-consolidated debt (excluding Toys “R” Us) Noncontrolling interests’ share of consolidated debt Total debt To be transferred to JBG SMITH 220 Central Park South(8) 666 Fifth Avenue office debt, at share Cash, restricted cash and marketable securities Net debt EBITDA as adjusted(9) Net debt/EBITDA as adjusted 9,374 1,341 3,229 (598) 13,346 (1,470) (1,325) (691) (1,768) 8,092 1,203 6.7x Fixed rate debt accounted for 73% of debt with a weighted average interest rate of 3.7% and a weighted average term of 5.0 years; floating rate debt accounted for 27% of debt with a weighted average interest rate of 2.3% and a weighted average term of 4.5 years. We have $11 billion of unencumbered Class A assets in New York. Vornado remains committed to maintaining our investment grade rating. 7 In my 2014 annual letter to shareholders (on page 10), I laid out our debt philosophy. Relevant paragraphs are reprinted below; the numbers have been updated and exclude Washington, DC. 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. We calculate that Vornado has about $19 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 $5 billion of assets, a worthy goal. 8 We exclude 220 Central Park South since it is for sale property and the debt will self liquidate from the proceeds of executed sales contracts. 9 Excluding Washington, DC, the Real Estate Fund and 666 Fifth Avenue office. 8 Focus, Focus, Focus A few years ago, in response to a persistently undervalued stock price and an admittedly too complex and diffused collection of assets and businesses, we began a program to simplify and focus the Company, all with an objective of daylighting our treasure trove of assets and creating shareholder value. As I said at that time, everything was on the table and that we would leave no stone unturned. We have since exited business lines and non-core investments, gotten out of the mall business and sold out of the showroom business, retaining, of course, the giant 3.7 million square foot Chicago MART building. We spun off our shopping center business into Urban Edge Properties. We will shortly spinoff our Washington business to form JBG SMITH Properties. All told, this activity will total $15.4 billion, $5.7 billion in asset sales (recognizing $2.4 billion of gains) and $9.7 billion of distributions to shareholders by way of tax-free spin-offs. Of course, along the way we acquired and developed assets into our core, all the while upgrading the mix and quality of our portfolio. Upon completion of the DC spin-merger, we will have created three best-in-class, highly focused REITs: URBAN EDGE PROPERTIES, a focused, pure play Northeastern shopping center business with a strong growth profile and an irreplaceable portfolio of properties concentrated in dense, high barrier to entry markets with leading demographics. UE has embedded growth opportunities from redevelopment and repositioning projects and a proven management team headed by CEO Jeff Olson, supported by an experienced and engaged Board. JBG SMITH PROPERTIES will be the largest, pure-play, mixed-use operator focused solely on Washington, DC, with a premier portfolio of mixed-use assets in the best Metro-served, urban infill submarkets. JBG SMITH has a best-in-class sharpshooter management team with a proven record of success, significant near-term embedded growth prospects as well as an enormous pipeline of future development opportunities. VORNADO REALTY TRUST (RemainCo) is a peerless NYC focused real estate company with premier office assets and the only publicly investable high street retail portfolio of unique quality and scale. RemainCo has trophy assets in the best submarkets, attractive built-in growth from recently signed leases, a best-in-class management team with a proven record of value creation and a fortress balance sheet. Urban Edge Properties Urban Edge Properties celebrated its second anniversary as a public company 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 shopping center CEO, and launched it with a strong balance sheet (low leverage and $225 million of cash). UE is producing the exact result we had expected… focus and performance. UE’s total shareholder return for the 26 months since the spin-off is 18% versus negative 9% for the Bloomberg Shopping Center Index, outperformance of 27 percentage points. 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. Please visit the Urban Edge website, www.uedge.com, for Jeff’s must-read annual shareholder letter, describing UE’s results, strategy and prospects. JBG SMITH Properties In October, we announced that we would spin off our Washington, DC business and simultaneously merge with The JBG Companies in what is known as a tax-free spin-merge transaction, or technically a Reverse Morris Trust. A little history here. We acquired our Washington business, then known as Charles E. Smith Commercial Realty, in 2002 at the right time in the cycle and at a great price.(10) We have since built it through acquisitions and developments to be the largest owner in the region. In 2011, we suffered a double whammy when the Department of Defense and related contractors began vacating what would total 2.5 million square feet under the BRAC statute, just as the Washington office market was softening. At the nadir, we suffered a $70 million hit to annual income. Even though our flagship New York business powered through and its growth well exceeded the hit from Washington, our stock price suffered. What to do? For various reasons selling the Washington business was not an option. But we did believe the best strategy was to separate Washington and New York. A tax-free spin-off was the perfect solution. Spinning our Washington business, as is, would have been an okay execution, but combining it with the market leader, JBG, would be a blockbuster. At that point, we initiated an approach to JBG and began a courtship. 10 In acquiring Smith, we used units valued at the time at $600 million. These units today are worth $1.8 billion, so that $1.2 billion of appreciation went to the sellers rather than our shareholders. 9 Three things happened. One, we got to know each other very well. Two, the JBG gang began to appreciate that the permanent capital and scale of the public company format may be an even better business model than their private fund model. And three, I decided at that time not to proceed. I simply could not get comfortable with serving two masters, their private limited partners and our public shareholders. JBG, having caught the bug, pursued an IPO, pursued a merger with several other already public candidates and finally made a deal with NYRT. Maybe the JBG guys stubbed their toes on the NYRT deal, maybe not. Whatever. There were lessons learned there and these guys are very fast learners. But, I can assure you that the JBG team are great real-estaters and great money-makers and, after all, that’s what I was after. I cannot emphasize enough, the capability of the JBG team; this is the real prize in the deal. This time around, we have it exactly correct. There will be no new funds and the existing funds will be run off. We all, management, the Board and shareholders will worship at the altar of stock price, standing shoulder to shoulder. Vornado shareholders are expected to own approximately 74% of the combined company, JBG limited partners are expected to own approximately 20%, and JBG management is expected to own approximately 6%, all percentages subject to closing adjustments. The combined company will be led by JBG’s management team. Critically, management’s interests will be perfectly aligned with shareholders’ interests; they will be large equity-holders with appropriate vesting and lockup periods. Management will certainly be eating its own cooking. We very carefully selected which JBG assets would be included, always with an eye towards future growth. Valuations were determined fairly and symmetrically. JBG SMITH’s Board of Trustees will consist of 12 members, a majority of whom will be independent. Vornado and JBG will each designate six trustees. I will be Chairman of the Board. Matt Kelly will be Chief Executive Officer and a member of the Board. We expect to complete the distribution and combination in the second quarter of 2017. This is a great deal for Vornado and its shareholders. This transformative transaction was very carefully constructed and it accomplishes many of our important goals. It creates two highly focused pure-plays in Washington and in New York, each with its own stock price, which I view as a report card. And, each will be the largest and the leader in its market. Investors will be free to invest in New York or Washington or both as they choose. JBG SMITH will be the market- leading powerhouse with an unrivaled portfolio and substantial growth opportunities. In fact, I believe the new JBG SMITH has the potential to be the fastest growing real estate company in the nation. This deal is the big fix for Washington. And, the math works. At its simplest, pure play New York unburdened by Washington has to trade much better. And Washington with JBG management has to perform and trade much better. Simply stated that’s what this deal is all about. Vornado Realty Trust (RemainCo) The main event for us is, and has always been, our flagship New York business which is more than four times the size of Washington. Separating Washington from New York will daylight New York’s treasure trove of assets and superior performance. 10 Operating Platforms…Lease, Lease, Lease The mission of our business is to create value for shareholders by growing our asset base through the addition of carefully selected properties and by adding value through intensive and efficient management. Our operating platforms are where the rubber meets the road. In our business, leasing is the main event. In New York, theMART and 555 California Street, we leased 2.8 million square feet; and in Washington we leased 1.4 million square feet. As is our practice, we present below leasing and occupancy statistics for our businesses. This year we have beefed up disclosure by adding initial rents, theMART and 555 California Street. (SQUARE FEET IN THOUSANDS) New York Office Street Retail theMART 555 California St. Washington 2016 Square feet leased Initial Rent GAAP Mark-to-Market Number of transactions 2015 Square feet leased Initial Rent GAAP Mark-to-Market Number of transactions 2014 Square feet leased Initial Rent GAAP Mark-to-Market Number of transactions Occupancy rate: 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2,241 78.97 (12) 19.7 % 148 2,276 78.55 22.8 % 165 4,151 66.78 18.8 % 158 96.3 % 96.3 % 96.9 % 96.6 % 95.8 % 96.2 % 96.1 % 95.5 % 96.7 % 97.6 % 111 285.17 23.4 % 27 91 917.59 99.6 % 20 119 327.38 62.3 % 30 97.1 % 96.2 % 96.5 % 97.4 % 96.8 % 95.6 % 96.4 % (14) (14) (14) 270 48.16 25.5 % 64 766 38.64 25.3 % 86 372 40.30 11.6 % 57 98.9 % 98.6 % 94.7 % 96.4 % 95.2 % 90.3 % 93.7 % 94.0 % 96.5 % 96.1 % 152 77.25 25.4 % 9 98 83.59 32.4 % 4 351 67.38 23.8 % 11 92.4 % 93.3 % 97.6 % 94.5 % 93.1 % 93.1 % 93.0 % 94.8 % 94.0 % 95.0 % 1,427 (11) 40.41 (13) (2.5 )% 145 1,987 (11) 40.20 (13) (8.2 )% 180 1,817 (11) 38.57 (13) (3.3 )% 192 90.5 % 91.6 % 89.5 % 87.6 % 88.8 % 93.5 % 95.2 % 93.1 % 93.7 % 92.3 % We are full and achieving record high rents. Of all the many numbers on this table, my personal favorite is that theMART achieved $48 initial rent in 2016. This is the result of a major repurposing and releasing program that created what I believe to be the best example of creative office space this side of Silicon Valley. This building, which has its own zip code, is a unique franchise, created by David, Myron and their teams. Year in and year out, our New York Office occupancy rate is in the high 90s. That’s some performance. Thanks to our all-star leasing captains: Glen Weiss and Ed Hogan. Also thanks to the New York leasing machine: Josh Glick, Jared Solomon, Andy Ackerman, Jared Silverman, Edward Riguardi, Ryan Levy, Lucy Phillips and Jason Morrison. Paul Heinen is the all-star who runs leasing at theMART and 555 California Street. Kudos as well to Jim Creedon and the Washington leasing team. 11 Excludes 79 square feet in 2016, 161 square feet in 2015 and 247 square feet in 2014 of retail leases. 12 Excludes Long Island City; including Long Island City would be $72.56. 13 Initial rent in Crystal City is $39.92 in 2016, $37.35 in 2015 and $39.01 in 2014. Included in New York Office. 14 11 Leasing highlights this year include: New York: PWC at 90 Park Avenue – 240,000 square feet; • • Bloomberg at 731 Lexington Avenue – 192,000 square feet; • GSA at 85 Tenth Avenue – 171,000 square feet; • Metropolitan Transit Authority at 33-00 Northern Boulevard – 169,000 square feet; • City of New York at 33-00 Northern Boulevard – 149,000 square feet; • Alston & Bird at 90 Park Avenue – 110,000 square feet; • Facebook at 770 Broadway – 80,000 square feet; • Robert A.M. Stern Architects at One Park – 62,000 square feet; • • Antares Capital at 280 Park Avenue – 57,000 square feet; • • • AOL at 692 Broadway – 11,000 square feet; • Dyson at 640 Fifth Avenue – 3,000 square feet; Level 3 Communications at 85 Tenth Avenue – 60,000 square feet; Four Seasons at 280 Park Avenue – 18,000 square feet; Starbucks at 61 Ninth Avenue – 20,000 square feet; theMART: • Allstate – 41,000 square feet; • PayPal – 28,000 square feet; • Bosch – 18,000 square feet; • Kellogg’s – 15,000 square feet; 555 California Street: • McKinsey & Company – 54,000 square feet; • Ripple Labs – 29,000 square feet; • Bay Club Financial District – 20,000 square feet; • Norton Rose Fulbright – 18,000 square feet; Washington: Lockheed Martin at 2121 Crystal Drive – 142,000 square feet; • • US Citizenship and Immigration Services at 2200 Crystal Drive – 102,000 square feet; • Chemonics International at 251 18th Street – 53,000 square feet; • Deloitte at 2200 Crystal Drive – 24,000 square feet; and • SAIC at 2231 Crystal Drive – 25,000 square feet. Business is good; David and Glen say so, the market says so and most importantly the numbers say so. New York is the capital of the world. It is where talent, business and investors want to be. The resilience of New York surprises even me, with tenants in every major industry coming to New York and expanding in New York (for sure New York is no longer only a finance industry town). David’s team has been putting up record breaking numbers year in and year out. 12 Here are the principles by which we run our office business: We invest in the best buildings in the best locations. We are a fully-integrated real estate operating company. We have the best leasing, operating and development teams in the business. We seek to acquire value-add assets where our unique skills will create shareholder value. We invest in our buildings to maintain, modernize and transform. The front of the house and the back of the house of our assets are as good as new (and are in locations where new could not be created). Our transformations have produced increased rent of over $20 per square foot, yielding attractive double digit returns. By the way, David also measures our success here by the quality of tenants we have been able to attract.(15) We have transformed almost all of our fleet; Penn Plaza is on deck. We are patient and prepared to let flat 4% cap rate deals pass by, while we wait for the fat pitch. We believe vacancy at the right price is an opportunity and that buildings, in whatever condition (that we can reimagine) in great locations are also an opportunity. While we have many million plus square foot buildings, we shy away from 500,000 square foot tenants who seem to always get the better of the deal, in strong markets or in weak. Our sweet spot is the 50,000 to 200,000 square foot tenant. We coined the phrase that “New York is tilting to the West and tilting to the South” and, of late, we have been investing aggressively in Chelsea and the neighborhoods surrounding the Penn Plaza District. We have a hospitality approach, treating our tenants as the valued customers that they are. This attitude begins at the leasing table (although that process can at times be contentious), through tenant fit up, to greeting at the front door. We are gratified how many of our existing tenants refer new tenant prospects to us. We treat the real estate brokerage community as if they are our customers, because they are. Brokers prefer dealing with us, we know what it takes to make a deal, we treat their clients well and we deliver every time. We are in the amenity business. Our amenity poster child is the giant MART in Chicago, where we have large, state of the art, dining, workout, congregating and meeting spaces, etc. Tenant mix is really important; companies and their employees care who they co-tenant with. The design and location of each of our buildings has a target market in mind. For example our new-builds in Chelsea are targeting the creative class and boutique financials (an interesting combination). 15 Such as: Amazon 470,000 square feet; Neuberger Berman 405,000 square feet; Facebook 355,000 square feet; AOL/Verizon 308,000 square feet; Ziff Brothers 295,000 square feet; PricewaterhouseCoopers 240,000 square feet; Guggenheim Partners 230,000 square feet; Cushman & Wakefield 170,000 square feet; PJT Partners 150,000 square feet; FootLocker 135,000 square feet; Alston & Bird 125,000 square feet; TPG 100,000 square feet; JLL 80,000 square feet and Robert A.M. Stern 60,000 square feet. 13 We, and our partners Related and Skanska, are hard at work towards a closing of the Farley Post Office/Moynihan Train Station expected in the next couple of months. This landmark project will be the best creative office space in town. Our Penn Plaza assets continue to be the focus of intense activity in our shop, the office buildings, hotel and retail. We will make announcements at the appropriate time. We all work on Penn Plaza; Barry Langer, Executive Vice President – Development, together with David Bellman, Marc Ricks and Judy Kessler are our team leaders here. Quality really matters. In the office business, the A buildings rent better and sell better, ditto for street retail. We recently published a 342-page coffee table book, 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 is on our website at www.vno.com. Please take a look. Thank you Lisa Vogel, SVP – Marketing and her team who created this book. I cannot say often enough that Vornado and its management team are one of only a very small handful of firms that 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. Thank you to our professionals and staff, 586 strong, for a job well done this year and every year.(16) 16 Vornado’s wholly owned subsidiary, BMS, provides cleaning and security services. Thank you as well to the team of 1,942 personnel under the very able leadership of Mike Doherty, President-BMS. BMS provides both great services to our tenants and profit to our shareholders. 14 What’s Going on with Retail (and it’s not the weather) Disruption in retail is the topic du jour, the eye of the storm so to speak (both retail tenants’ and retail landlords’ stocks have been battered), so it is appropriate that we get into a fulsome discussion of retail this year. In the be-careful-what-you-wish-for department, we made the prescient call four years ago that retail was in secular decline and acted on that by selling our malls,(17) spinning our strips into Urban Edge Properties, while retaining and even growing our flagship street retail in Manhattan. So what’s wrong with retail:(18) • The U.S. is grossly over-stored. ICSC publishes 24 square feet of shopping center space per capita.(19) • The struggles and failure (or near failure) of many household names in the anchor and chain store business. • Traffic in shopping centers, while difficult to measure, is clearly declining and has been for years and so that makes a trend. • Shopping preferences and how we shop have changed, especially among millennials. • Most brands have become ubiquitous and, therefore, less differentiated and important. • Price and on sale is the only strategy which seems to work. • And then, of course, there is Amazon and the Internet. I do not believe we can grow our way out of this mess. I believe the only fix for brick and mortar retailing is rightsizing by the closing and evaporation of, you pick the number, 10%, 20%, 30% of the weakest space. This very painful process will surely take more than five years. It will also create enormous opportunity for those with the capital and management platforms to feed on the carnage. So if we were so prescient as to predict the secular decline in retail, and sell our malls, and spin our strips, why did we keep our Manhattan flagship street retail? We believe Upper Fifth Avenue is enduring (read forever). We believe Times Square is enduring and unique. We believe in the handful of world cities. And, we believe the quality and scale of our Manhattan flagship portfolio is unique, irreplaceable and commands a premium. Of course, even we are not immune. It’s only to be expected when a tenant’s basic business model is being threatened that they hunker down rather than step up. For flagship retail (and for A+ malls), this is a pause, a cyclical bump. For everybody else, it is secular disruption. Interestingly, several fast fashion retailers have told me that their 10-year plan is for smaller fleets (fewer stores), but with more and larger flagships. That strategy makes eminent sense to me. ______________ 17 We sold the malls (into a very strong market) and spun off the strips in half measure anticipating secular decline (note the current softness in retail) and recognizing that with only a handful of malls, we were in no man’s land, and in half measure to de-conglomerate i.e., there is no real benefit in having $50 million shopping centers in New Jersey, no matter how great they may be, together with million square foot office towers in Manhattan. I believe the decision to exit the mall business will look better and better as each year goes by. Retailing stinks, right? Well, maybe not… note that the richest people in Europe are all retailers, the founders of: Zara, H&M, Ikea, LVMH and that the richest in the US is a retailer, if you aggregate the wealth of Sam Walton’s heirs. 19 The next highest country is Canada with 17 square feet per capita, Norway is next with 10 square feet, all the mature European countries are in 18 single digits. Further, the 24 per square foot number is not credible. There are 17.7 billion square feet of total retail establishments (both in and out of shopping centers) versus a population of 323 million or a startling 54.9 square feet per capita. Granted this larger number now includes car dealerships and the like, but it also includes all the freestanding Walmarts, Costcos, etc. 15 We own the best-in-class 70-property, 2.7 million square foot flagship street retail business in Manhattan, concentrated on the best high streets – Fifth Avenue, Times Square, Madison Avenue, Penn Plaza, Union Square and Soho. While the street retail portfolio accounts for 9% of our total Manhattan square footage, it generates 30% of RemainCo EBITDA. High street retail is the most unique, scarce, lowest cap rate real estate asset class. It exists only in Manhattan and a handful of other gateway cities.(20) This is a growing business: ($ IN MILLIONS) 2016 2015 2014 2013 2012 Here is our 2016 retail math by submarket: ($ IN MILLIONS, EXCEPT %) Fifth Avenue Times Square Madison Avenue Penn Plaza Union Square SoHo Other Total Number of Properties 70 65 57 54 47 EBITDA 381.5 357.1 277.3 244.1 189.0 % 29.3 17.1 12.2 21.9 4.2 4.3 11.0 100.0 2016 Actual Cash NOI 90.4 52.8 37.6 67.7 13.0 13.3 34.0 Signed Leases 43.3 -- -- -- -- -- -- 308.8 43.3 Vacancy 0.5 19.5 3.4 8.6 -- -- 0.8 32.8 2016 Fully Leased Cash NOI 134.2 72.3 41.0 76.3 13.0 13.3 34.8 384.9 Half our flagship retail income comes from Upper Fifth Avenue(21) and Times Square. As David says, both Upper Fifth Avenue and Times Square are pretty much locked up for term with great tenants.(22) Here are the lease expiries: Upper Fifth Avenue Times Square Tenant Harry Winston Swatch MAC Cosmetics Zara Uniqlo Hollister Tissot Ferragamo Dyson Victoria's Secret Tenant MAC Cosmetics Year of Expiration 2031 2031(23) Disney 2024 2019 2026 2024 2026 2028 2027 2032 Forever 21 US Polo Sunglass Hut Planet Hollywood T-Mobile Laline Invicta Swatch Nederlander Theater Year of Expiration 2025 2026 2031 2023 2023 2023 2025 2026 2025 2030 2050 ________________ 20 21 In my 2014 annual letter to shareholders (on pages 14-15), I discussed the extraordinary rent growth and value creation that this asset class has had over the last 10 years. In Upper Fifth Avenue, we completed $80 million of leasing in the last five quarters, including our deals with Victoria’s Secret, Harry Winston, Swatch and Dyson. In the same timeframe, our brethren on Upper Fifth Avenue completed deals with Under Armour, Nike, Coach and Longchamp. All this activity is indicative of a super-strong, must-have submarket. 22 David also says that the Victoria’s Secret and Swatch leases are equivalent in value to a million square foot office tower. 23 Tenant has the right to cancel in 2023. 16 About half the income of Penn Plaza comes from anchors, the balance from 75 different tenants, many of whom we keep on relatively short leases to facilitate development. Anchor Tenant JCPenney Kmart Old Navy H&M Year of Expiration 2029 2021 2019 2018 For the complete lease expiration schedule, please see page 29 of our 2016 Annual Report on Form 10-K, which can be viewed at www.vno.com. 2016 cash NOI for our street retail business was $308.8 million. We guesstimate that 2017 same store cash NOI will be about $330 million. Annual rent steps in our retail portfolio are over $8 million per year. If business is as usual, and we were to keep the portfolio at stable occupancy, in the mid-90s%, this same-store portfolio would achieve about $400 million of cash NOI by 2020. On the other hand, if every expiry that we expect to vacate were to vacate and we did not re-let a single square foot (and, of course, we will), we guesstimate the portfolio would produce no less than approximately $325 million each year through 2020. 17 Some Thoughts, 2016 Version Our strategy is simple: • Selling, pruning and cleaning up, sort of a spring cleaning, which is pretty much done. • Determining which businesses we want to be in and can win in and investing with conviction - malls no, flagship retail yes, and great New York office buildings, 555 California and theMART, of course. • Focusing on only a few business units, each with truly outstanding management… and here we have gone so far as to actually create three separate companies. • Relentlessly pursuing quality. • Maintaining a fortress balance sheet with industry leading liquidity. • All in the relentless pursuit of shareholder value. So how have we done? We are an NAV-focused management team. When we began this campaign five years ago our shares were trading at a discount to NAV which we calculated to be about 9%.(24) After all we have done, our discount to NAV is today about 21%.(24) The fact that all but one of our peers and most of the industry blue chips have fared even worse on a relative basis, makes us feel no better at all. So in the end, what is NAV and what does it mean? NAV is basically a calculation of private market value, asset-by- asset. It involves one hard number, NOI, multiplied by a softer number, a guestimated market cap rate. While the number should be reasonably accurate for a single asset, it can only be an approximation of the value of an entire company; it excludes taxes, transaction costs, platform value and strategic value, etc. Here is a graph showing our NAV compared to our trading price over 20 years. Clearly, stock price and NAV move in tandem.(25) But look at the end points…there is a, say, $25 dollar per share gap between NAV and stock price, in our case that’s $5 billion of shareholder value and, as Joe would say, “that’s not nothing.” We included an NAV schedule for the first time in our 2016 year-end Supplemental which can be viewed at www.vno.com; we intend to update this annually. 24 Calculated using Green Street’s NAV. 25 Interestingly, most times stock price leads NAV, both up and down. 18 Some Thoughts, 2016 Version (Continued) I say again 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. Each year in my annual letter, I try to inform shareholders using as many numbers as words. This year’s report is particularly dense with lots of important and interesting information. I want to single out the last sentence on page 5, which has been italicized for emphasis. RemainCo is the main event. RemainCo unburdened by Washington, DC and other noise has put up truly outstanding numbers - growth in FFO per share: 4.9% in 2016; 13.5% per year for the past five years and 8.7% per year for the past 10 years. Further, since 2005, RemainCo has delivered industry leading same- store NOI growth of 5.2% annually. I urge you to review the comparative financial material on pages 7, 8, 9 and 10 contained in our presentation from the Citi 2017 Global Property CEO Conference which can be viewed at www.vno.com. It is difficult and lonely to be early and contrarian. Examples are our call, four years ago, on the secular decline of retail, our preference for project-level secured debt rather than corporate level unsecured debt and my recent call that this is the time when the smart guys start to build cash. Of course, the best early and contrarian call we made was buying Mendik’s see-through buildings and platform in 1997 for $165 per square foot. It’s debatable whether it’s better to have 30% full recourse financing on all of one’s assets or 60% non-recourse financing on half of one’s assets. Further, while I am currently agnostic as to interest rates, I observe that there is no place to hide from rising rates. Fixed rate financing which always costs more, almost never protects equity value. There has been much press recently about 666 Fifth Avenue. Vornado owns 125 linear feet of the retail block front consisting of the Uniqlo, Tissot and Hollister stores; the remaining 75 feet is owned and operated by Zara. Vornado also owns half of the 1.4 million square foot office building, together with the Kushner family. This is an ongoing, complex, dynamic, and unpredictable situation… and it is the rare case when we may be sellers. Can WeWork be worth $18 billion, or even $16 billion? Maybe it’s that over 20% of America’s work force is temporary. Maybe it’s that we are a startup nation. Maybe it’s their capital-lite business model where they lease at wholesale and then sublease desk-by-desk at retail, and do not incur TI and leasing commissions every time a tenant moves in or out. Maybe it’s their membership/clubby culture. Or, maybe it’s that they have a brand and model which seems to be expandable worldwide. We’ll see. Tax reform is in the air. Tax rates will undoubtedly change and there is much talk out of Washington of simplification and structural change of the tax code. All of this will affect our business in ways that we cannot yet predict. We will keep a keen eye. Are we now an in-the-box, New York only company? What does this mean for concentration risk? That may be a serious issue for me, our management and our families, but no issue at all for our shareholders who can own our stock and diversify by owning any other real estate stock, in whatever asset classes or geographies they choose. 220 Central Park South continues its record setting success. In his annual letter, the greatest investor hawks candy, furniture, jewelry and insurance. So, I guess it is okay for me to remind shareholders here that we are developing 220 Central Park South, the best apartment house in town. Give us a call, we have a few good ones left. Jeff Olson, 49, and Matt Kelly, 44, have taken up 30% of my succession. I expect them to do a better job than I would have. We are convinced that a focused and independent UE and JBG SMITH will be outstanding performers, better than if they were all bundled up in one company. 19 Some Thoughts, 2016 Version (Continued) Vornado owns the only two Kmarts in Manhattan, both at the bottom of our office buildings. Both have term and options for 19 years. The rents are under market, which may or may not create equity in the leaseholds. We have wrangled with Sears over the years, but have not yet been able to make a deal. Sears has a 195,000 square foot store in Rego Park, Queens owned by our affiliate, Alexander’s. The volume here has declined from $86.8 million in 1997 to $28.7 million currently. The operating losses must now exceed the carry empty rent, for Sears has decided to close this unit. This lease is also under market, but since it expires in three years all the equity in the lease clearly belongs to the landlord. We are now hard at work on redevelopment plans. Alexander’s, in which we own a 32.4% interest, has $1 billion of property at this intersection in Queens, NY. To honor America, the crown atop 731 Lexington Avenue, the Bloomberg tower, is now brightly flying the red, white and blue. The colors are prominent in the evening skyline and are best seen from the northwest. Take a look. 20 Some Accounting Updates In various sections throughout this letter we present materials which exclude Washington, DC and the Real Estate Fund so as to better represent RemainCo, our continuing business. The Washington, DC segment will be accounted for as a Discontinued Operation after the date of the spin-off. Beginning in 2017 the Real Estate Fund, which is in wind down, will be treated as noncomparable. We have excluded 666 Fifth Avenue office from our leasing metrics. Beginning in 2017, for office buildings with retail at the base, we will adjust the allocation of real estate taxes as between our retail and office subsegments. This will have no effect on our consolidated financial statements, but will result in a reallocation of slightly more than $16 million of income from retail to office. It will therefore have a minor effect on NAV, resulting from the difference in retail versus office cap rates. Corporate Governance Last year we de-staggered our Board, adopted a trustee resignation policy, elected Candace Beinecke as Lead Trustee and fulfilled our commitment to add a new independent Trustee to the Board. This year, we have adopted proxy access and have provided additional disclosure in our proxy statement on executive compensation and sustainability initiatives. For a complete summary, 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. 21 Sustainability Vornado continues to lead the industry in sustainability – it’s important to our tenants and to our 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. We also recognize the need to not only report on our past accomplishments, but also to put forth our future commitments. In 2016, we set goals to reduce landlord-controlled carbon emissions 40% by 2026, below a 2009 base year. To stand by this commitment, we have enrolled our New York portfolio in the NYC Carbon Challenge for Commercial Landlords and Tenants. 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 delivering healthy air and healthy water, and our cleaning company leads the industry in least-toxic cleaning policies. We lead a robust tenant engagement program that in 2016 included our first roundtable seminar, attended by participants from over 4 million square feet of our tenant base. We have also incorporated sustainable design into our new buildings. Our pipeline of new office buildings will be among the greenest in the industry. Our programs deliver results: in 2016, we reduced our energy consumption by 73,734 megawatt hours and recycled and composted over 17,000 tons of waste. We won NAREIT’s Leader in the Light Award (7th year in a row), we achieved Energy Star Partner of the Year with Sustained Excellence (2nd time with this distinction), and we again earned the Global Real Estate Sustainability Benchmark (GRESB) Green Star ranking (4th year in a row). Finally, we extend our commitment to making our buildings more sustainable to benefit the communities that surround us. As a corporate citizen, Vornado upholds its commitment to give back by encouraging all of our employees to volunteer. As a landlord, Vornado recognizes its role as a community steward. Through Vornado Volunteers, our employees give back to communities through participation in causes that support vulnerable populations, protect and improve the environment, and promote a healthy lifestyle. For more detail on our 2016 sustainability efforts, including our Global Reporting Initiative (GRI) Index, please see our sustainability report at www.vno.com. 22 On February 15, 2017, we permanently transferred Steve Theriot to be CFO of JBG SMITH. Steve is the perfect candidate for this important job. He knows our assets, systems and people (which will make up 74% of JBG SMITH), he is an expert at SEC reporting and he is the right executive to combine the accounting and control function of these two companies. We thank Steve for his very productive four years as Vornado’s CFO. Joe Macnow, who has been Vornado’s CFO for over 30 years, has been appointed Vornado’s interim CFO while we conduct a search. Even when Steve was here, Joe was always here too. Joe is well known to all of our constituents and is recognized by all as being one of the best in the business. Our finance department is deep and we used this occasion to promote Matthew Iocco, Executive Vice President – Chief Accounting Officer and Tom Sanelli, Executive Vice President – Chief Financial Officer, New York Division. Congratulations to Matt and Tom. We continually broaden our leadership team through promotions from within our Company. Please join me in congratulating this year’s class; they deserve it. * * * Thomas Sanelli was promoted to Executive Vice President, Chief Financial Officer, New York Division; Gaurav Khanna was promoted to Senior Vice President, Acquisitions & Capital Markets; Laura Sperber was promoted to Senior Vice President, Financial Systems; Michael Schnitt was promoted to Vice President, Acquisitions and Capital Markets; Jason Morrison was promoted to Vice President, New York Retail; Christina Herrick was promoted to Vice President, Human Resources DC of BMS; Nikola Sopov was promoted to Vice President, Information Security; Ana May Alagao was promoted to Vice President, SEC Reporting; Jay Beckoff was promoted to Vice President, Tax Counsel; and Mark Roszkowski was promoted to Vice President, Finance/Financial Reporting. We welcome Mandakini Puri, who joined the Board in December. Mandi brings great judgement and expertise in private equity and finance from her work at BlackRock and Merrill Lynch. Her full bio can be accessed on our website at www.vno.com. Mandi joins a Board whose guidance and counsel is invaluable to our Company. Welcome also to Benjamin Genocchio; Executive Director of The Armory Show; Lucy Phillips, VP, Retail Leasing; Michael Worthman, SVP, Retail Leasing; and James Iervolino, VP, Risk Management. We mourn the passing of Neil Underberg, a life-long, valued counselor of mine and a director of Alexander’s since 1980. Year-after-year, I am fortunate to work every day, with the gold medal team. Our operating platform heads are the best in the business. Thanks again to my partners David Greenbaum, Michael Franco, Joe Macnow and to Mitchell Schear. We are fortunate to have in our New York 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; Barry Langer, Development – New York; Ed Hogan, Leasing – New York Retail; Michael Doherty – BMS; Robert Entin, Chief Information Officer; Mark Hudspeth, Capital Markets; Matthew Iocco, Chief Accounting Officer; Brian Kurtz, Financial Administration; Myron Maurer, Chief Operating Officer – theMART; Tom Sanelli, Chief Financial Officer – New York; Gaston Silva, Chief Operating Officer – New York; and Craig Stern, Tax & Compliance. 23 Same goes for the Executive Vice Presidents in our Washington Division: James Creedon, Leasing; Laurie Kramer, Finance; and Patrick Tyrrell, Chief Operating Officer. Thank you as well to our very talented and hardworking 41 Senior Vice Presidents and 86 Vice Presidents who make the trains run on time, every day. Our Vornado Family has grown with 18 marriages and 27 births this year, 20 girls and 7 boys, but who’s counting. Many thanks to Joe Macnow and LouAnn Bell who have been helping me with my letter forever. And, to Rich Famularo, Carolyn Williams and Diane Sudzinski for their special help this year. On behalf of Vornado’s Board, senior management and 4,225 associates, we thank our shareholders, analysts and other stakeholders for their continued support. Steven Roth Chairman and CEO April 4, 2017 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 Indecent, an important new play. Please call if I can be of help. Welcome Levi Emanuel Roth, the son of my son; congratulations to the big–hearted, new–hearted super–girl Emi, a daughter of my daughter. 24 25 Below is a reconciliation of Net Income to EBITDA: ($ IN MILLIONS) Net Income attributable to the Operating Partnership Interest and debt expense Depreciation, amortization, and income taxes 2016 960.6 507.3 706.1 2015 2014 2013 2012 2011 2010 2009 2008 2007 803.7 469.8 579.3 912.5 654.4 710.2 500.8 758.8 759.1 662.5 760.5 742.3 718.2 797.9 782.2 703.1 131.3 828.1 826.8 706.4 739.0 414.7 822.0 568.1 611.3 853.5 680.9 EBITDA Gains on sale of real estate Real estate impairment loss 2,174.0 1,852.8 2,277.1 2018.7 2,165.3 2,298.3 2,237.6 1,697.1 1,804.8 2,145.7 (179.9) (293.6) (518.8) (412.1) (471.4) (61.4) (63.0) (46.6) (67.0) (80.5) 167.0 17.0 26.5 43.7 131.8 28.8 109.0 23.2 -- -- EBITDA before gains on sale of real estate 2,161.1 1,576.2 1,784.8 1,650.3 1,825.7 2,265.7 2,283.6 1,673.7 1,737.8 2,065.2 Adjustments for items that impact EBITDA (639.8) (77.5) (366.6) (293.0) (614.4) (1,050.2) (1,122.6) (578.4) (598.4) (934.8) EBITDA As Adjusted Less: Washington, DC Real Estate Fund 1,521.3 1,498.7 1,418.2 1,357.3 1,211.3 1,215.5 1,161.0 1,095.3 1,139.4 1,130.4 290.5 290.5 290.4 296.3 304.3 338.1 336.7 307.9 287.2 268.0 (21.0) 33.9 70.3 49.5 24.6 9.3 0.5 -- -- -- EBITDA as Adjusted Excluding Washington, DC and the Real Estate Fund 1,251.8 1,174.3 1,057.5 1,011.5 882.4 868.1 823.8 787.4 852.2 862.4 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 Real estate impairment losses Partially-owned entities adjustments: Depreciation of real property Net gains on sale of real estate Income tax effect of adjustments Real estate impairment losses Noncontrolling interests’ share adustments Interest on exchangeable senior debentures Preferred share dividends 2016 906.9 2015 2014 2013 2012 2011 2010 2009 2008 2007 760.4 864.9 476.0 617.3 662.3 647.9 106.2 359.3 541.5 (83.3) (80.6) (81.5) (84.0) (67.9) (60.5) (51.2) (57.1) (57.1) (57.1) 823.6 531.6 679.8 514.1 783.4 517.5 392.0 501.8 549.4 504.4 601.8 530.1 596.7 505.8 49.1 508.6 302.2 509.4 484.4 451.3 (177.0) (289.1) (507.2) (411.6) (245.8) (51.6) (57.2) (45.3) (57.5) (60.8) 160.7 0.3 26.5 37.1 130.0 28.8 97.5 23.2 -- -- 154.8 144.0 117.8 157.3 154.7 170.9 148.3 140.6 115.9 134.0 (2.9) (4.5) (11.6) (0.5) (241.6) (9.8) (5.8) (1.4) (9.5) 6.3 -- 16.8 -- (41.1) (22.4) -- 1.6 -- -- (7.3) (8.0) -- -- -- (26.7) (27.5) (24.6) (24.6) (22.9) (23.2) 6.6 11.6 -- 11.5 -- -- (15.1) (16.6) (41.0) (46.8) (47.0) (49.7) (46.7) -- 0.1 -- -- 26.1 0.3 25.9 0.2 -- 0.2 (15.5) (28.8) -- 25.3 0.2 813.1 $4.97 25.0 0.3 943.2 $5.75 Funds From Operations Funds From Operations per share 1,457.6 1,039.0 911.1 641.0 818.6 1,231.0 1,251.5 605.1 7.66 5.48 4.83 $3.41 $4.39 $ 6.42 $6.59 $ 3.49 Below is a reconciliation of Net Income to Net Income as Adjusted: Below is a reconciliation of Total Assets to Total Assets as Adjusted: ($ IN MILLIONS) Net Income applicable to common shares Certain items that impact net income Washington, DC Real Estate Fund Net income, as Adjusted 2016 823.6 (569.7) (80.7) 19.8 193.0 2015 679.8 (369.5) (64.7) (32.0) 213.6 ($ IN MILLIONS) Total Assets Adjustments: Assets related to sold properties Washington, DC Real Estate Fund 2016 20,814.8 2015 21,143.3 (5.6) (4,572.4) (462.1) (115.6) 3,513.6 19,172.7 (580.2) (4,472.2) (574.8) (550.0) 3,418.3 18,384.4 Cash available to repay revolving credit facilities Accumulated depreciation Total Assets, as Adjusted Below is a reconciliation of Revenues to Revenues as Adjusted: ($ IN MILLIONS) Revenues Adjustments: Assets related to sold properties Washington, DC Other Revenues, as Adjusted 2016 2,506.2 2015 2,502.3 (48.9) (479.2) -- 1,978.1 (117.6) (477.2) (2.4) 1,905.1 Below is a reconciliation of EBITDA to EBITDA as Adjusted ( as shown on page 8): ($ IN MILLIONS) EBITDA as Adjusted Excluding Washington, DC 2016 and the Real Estate Fund Real Estate Fund 666 Fifth Avenue EBITDA as Adjusted (as shown on page 8) 1,251.8 (21.0) (28.0) 1,202.8 Below is a reconciliation of EBITDA to Cash NOI – New York Street Retail: ($ IN MILLIONS) EBITDA as Adjusted Excluding Washington, DC 2016 and the Real Estate Fund Operations other than New York Street Retail Non cash adjustments Cash NOI – New York Street Retail 1,251.8 (870.3) (72.7) 308.8 26 UNITED STATES UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: December 31, 2016 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: Commission File Number: 001-11954 (Vornado Realty Trust) 001-34482 (Vornado Realty L.P.) Vornado Realty Trust Vornado Realty L.P. (Exact name of Registrants as specified in its charter) Vornado Realty Trust Vornado Realty L.P. Maryland (State or other jurisdiction of incorporation or organization) 22-1657560 (I.R.S. Employer Identification Number) Delaware (State or other jurisdiction of incorporation or organization) 13-3925979 (I.R.S. Employer Identification Number) 888 Seventh Avenue, New York, New York, 10019 (Address of principal executive offices) (Zip Code) (212) 894-7000 (Registrants’ telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Registrant Vornado Realty Trust Vornado Realty Trust Vornado Realty Trust Vornado Realty Trust Vornado Realty Trust Title of Each Class Common Shares of beneficial interest, $.04 par value per share Cumulative Redeemable Preferred Shares of beneficial interest, no par value: 6.625% Series G 6.625% Series I 5.70% Series K 5.40% Series L Name of Exchange on Which Registered 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: Registrant Vornado Realty L.P. Title of Each Class Class A Units of Limited Partnership Interest Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Vornado Realty Trust: YES  NO  Vornado Realty L.P.: 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. Vornado Realty Trust: YES  NO  Vornado Realty L.P.: 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. Vornado Realty Trust: YES  NO  Vornado Realty L.P.: YES  NO  Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Vornado Realty Trust: YES  NO  Vornado Realty L.P.: YES  NO  Indicate by check mark 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. Vornado Realty Trust:  Large Accelerated Filer  Non-Accelerated Filer (Do not check if smaller reporting company)  Accelerated Filer  Smaller Reporting Company Vornado Realty L.P.: 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). Vornado Realty Trust: YES  NO  Vornado Realty L.P.: YES  NO  The aggregate market value of the voting and non-voting common shares held by non-affiliates of Vornado Realty Trust, i.e. by persons other than officers and trustees of Vornado Realty Trust, was $17,294,426,000 at June 30, 2016. As of December 31, 2016, there were 189,100,876 common shares of beneficial interest outstanding of Vornado Realty Trust. There is no public market for the Class A units of limited partnership interest of Vornado Realty L.P. Based on the June 30, 2016 closing share price of Vornado Realty Trust’s common shares, which are issuable upon redemption of the Class A units, the aggregate market value of the Class A units held by non-affiliates of Vornado Realty L.P., i.e. by persons other than Vornado Realty Trust and its officers and trustees, was $984,737,000 at June 30, 2016. Documents Incorporated by Reference Part III: Portions of Proxy Statement for Annual Meeting of Vornado Realty Trust’s Shareholders to be held on May 18, 2017. 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. EXPLANATORY NOTE This report combines the Annual Reports on Form 10-K for the fiscal year ended December 31, 2016 of Vornado Realty Trust and Vornado Realty L.P. Unless stated otherwise or the context otherwise requires, references to “Vornado” refer to Vornado Realty Trust, a Maryland real estate investment trust (“REIT”), and references to the “Operating Partnership” refer to Vornado Realty L.P., a Delaware limited partnership. References to the “Company,” “we,” “us” and “our” mean collectively Vornado, the Operating Partnership and those entities/subsidiaries consolidated by Vornado. The Operating Partnership is the entity through which we conduct substantially all of our business and own, either directly or through subsidiaries, substantially all of our assets. Vornado is the sole general partner and also a 93.7% limited partner of the Operating Partnership. As the sole general partner of the Operating Partnership, Vornado has exclusive control of the Operating Partnership’s day-to-day management. Under the limited partnership agreement of the Operating Partnership, unitholders may present their Class A units for redemption at any time (subject to restrictions agreed upon at the time of issuance of the units that may restrict such right for a period of time). Class A units may be tendered for redemption to the Operating Partnership for cash; Vornado, at its option, may assume that obligation and pay the holder either cash or Vornado common shares on a one-for-one basis. Because the number of Vornado common shares outstanding at all times equals the number of Class A units owned by Vornado, the redemption value of each Class A unit is equivalent to the market value of one Vornado common share, and the quarterly distribution to a Class A unitholder is equal to the quarterly dividend paid to a Vornado common shareholder. This one-for-one exchange ratio is subject to specified adjustments to prevent dilution. Vornado generally expects that it will elect to issue its common shares in connection with each such presentation for redemption rather than having the Operating Partnership pay cash. With each such exchange or redemption, Vornado’s percentage ownership in the Operating Partnership will increase. In addition, whenever Vornado issues common shares other than to acquire Class A units of the Operating Partnership, Vornado must contribute any net proceeds it receives to the Operating Partnership and the Operating Partnership must issue to Vornado an equivalent number of Class A units of the Operating Partnership. This structure is commonly referred to as an umbrella partnership REIT, or UPREIT. The Company believes that combining the Annual Reports on Form 10-K of Vornado and the Operating Partnership into this single report provides the following benefits: • enhances investors’ understanding of Vornado and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business; • eliminates duplicative disclosure and provides a more streamlined and readable presentation because a substantial portion of the disclosure applies to both Vornado and the Operating Partnership; and • creates time and cost efficiencies in the preparation of one combined report instead of two separate reports. The Company believes it is important to understand the few differences between Vornado and the Operating Partnership in the context of how Vornado and the Operating Partnership operate as a consolidated company. The financial results of the Operating Partnership are consolidated into the financial statements of Vornado. Vornado does not have any other significant assets, liabilities or operations, other than its investment in the Operating Partnership. The Operating Partnership, not Vornado, generally executes all significant business relationships other than transactions involving the securities of Vornado. The Operating Partnership holds substantially all of the assets of Vornado. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from equity offerings by Vornado, which are contributed to the capital of the Operating Partnership in exchange for Class A units of partnership in the Operating Partnership, as applicable, the Operating Partnership generates all remaining capital required by the Company’s business. These capital sources may include working capital, net cash provided by operating activities, borrowings under the revolving credit facility, the issuance of secured and unsecured debt and equity securities and proceeds received from the disposition of certain properties. To help investors better understand the key differences between Vornado and the Operating Partnership, certain information for Vornado and the Operating Partnership in this report has been separated, as set forth below: • Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities; • Item 6. Selected Financial Data; • • Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations includes information specific to each entity, where applicable; and Item 8. Financial Statements and Supplementary Data which includes the following specific disclosures for Vornado Realty Trust and Vornado Realty L.P.: • Note 9. Redeemable Noncontrolling Interests/Redeemable Partnership Units • Note 10. Shareholders’ Equity/Partners’ Capital • Note 13. Stock-based Compensation • Note 17. Income Per Share/Income Per Class A Unit • Note 22. Summary of Quarterly Results (Unaudited) This report also includes separate Part II, Item 9A. Controls and Procedures sections, separate Exhibit 12 computation of ratios, and separate Exhibits 31 and 32 certifications for each of Vornado and the Operating Partnership in order to establish that the requisite certifications have been made and that Vornado and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350. Item Financial Information: Page Number INDEX PART I. PART II. 1. 1A. 1B. 2. 3. 4. 5. 6. 7. 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 7A. Quantitative and Qualitative Disclosures about Market Risk 8. 9. 9A. 9B. 10. 11. 12. 13. 14. 15. PART III. PART IV. Signatures 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 7 11 22 23 33 33 34 36 39 94 95 159 159 163 163 164 164 164 164 165 166 (1) These items are omitted in whole or in part because Vornado, the Operating Partnership’s sole general partner, 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, 2016, portions of which are incorporated by reference herein. 5 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. 6 ITEM 1. BUSINESS PART I Vornado is a fully-integrated REIT and conducts its business through, and substantially all of its interests in properties are held by, the Operating Partnership, a Delaware limited 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, 2016. On October 31, 2016, Vornado’s Board of Trustees approved the tax-free spin-off of our Washington, DC segment and we entered into a definitive agreement to merge it with the business and certain select assets of The JBG Companies (“JBG”), a Washington, DC real estate company. Steven Roth, the Chairman of the Board of Trustees and Chief Executive Officer of Vornado, will be Chairman of the Board of Trustees of the new company, which will be named JBG SMITH Properties. Mitchell Schear, President of our Washington, DC business, will be a member of the Board of Trustees of the new company. The pro rata distribution to Vornado common shareholders and Class A Operating Partnership unitholders is intended to be treated as a tax-free spin-off for U.S. federal income tax purposes. It is expected to be made on a pro rata 1:2 basis. The initial Form 10 registration statement relating to the spin-off and merger was filed with the SEC on January 23, 2017 and the distribution and combination are expected to be completed in the second quarter of 2017. The distribution and combination are subject to certain conditions, including the SEC declaring the Form 10 registration statement effective, filing and approval of the new company’s listing application, receipt of regulatory approvals and third party consents by each of the Company and JBG, and formal declaration of the distribution by Vornado’s Board of Trustees. The distribution and combination are not subject to a vote by Vornado’s shareholders or Operating Partnership unitholders. Vornado’s Board of Trustees has approved the transaction. JBG has obtained all requisite approvals from its investment funds for this transaction. There can be no assurance that this transaction will be completed. We currently own all or portions of: New York: • • • 20.2 million square feet of Manhattan office space in 36 properties; 2.7 million square feet of Manhattan street retail space in 70 properties; 2,004 units in twelve 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. (“Alexander’s”) (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: • • 11.1 million square feet of office space in 44 properties; 3,156 units in nine residential properties; Other Real Estate and Related Investments: • The 3.7 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. 7 OBJECTIVES AND STRATEGY Our business objective is to maximize Vornado 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, where we believe there is a high likelihood of capital appreciation; acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents; investing in retail properties in select under-stored locations such as the New York City metropolitan area; developing and redeveloping our existing properties to increase returns and maximize value; and investing in operating companies that have a significant real estate component. • • • • We expect to finance our growth, acquisitions and investments using internally generated funds, proceeds from 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 There were no significant acquisitions during 2016. DISPOSITIONS On May 27, 2016, we sold a 47% ownership interest in 7 West 34th Street for net proceeds of $127.4 million. On August 24, 2016, the Skyline properties, located in Fairfax, Virginia, were placed in receivership. On December 21, 2016, the final disposition of the Skyline properties was completed by the receiver. In connection therewith, the Skyline properties’ assets (approximately $236.5 million) and liabilities (approximately $724.4 million), were removed from our consolidated balance sheet which resulted in a net gain of $487.9 million. There was no taxable income related to this transaction. On December 19, 2016, we sold a 20% ownership interest in Fairfax Square for $15.5 million. FINANCINGS We completed the following financing transactions during 2016: • • • • • • • • • $900 million refinancing of 280 Park Avenue (50% owned); $700 million refinancing of 770 Broadway for net proceeds of approximately $330 million; $675 million refinancing of theMART for net proceeds of approximately $124 million; $400 million refinancing of 350 Park Avenue for net proceeds of approximately $111 million; $300 million refinancing of One Park Avenue (55% owned); $300 million financing of 7 West 34th Street (53% owned as of May 27, 2016); $273 million refinancing of The Warner Building (55% owned); $ 80 million refinancing of 50-70 West 93rd Street (49.9% owned); and $247 million redemption of all of the outstanding 6.875% Series J cumulative redeemable preferred shares We also extended one of our two $1.25 billion unsecured revolving credit facilities to February 2021 with two six-month extension options, lowering the interest rate from LIBOR plus 115 basis points to LIBOR plus 100 basis points. The facility fee remains unchanged at 20 basis points. 8 DEVELOPMENT AND REDEVELOPMENT EXPENDITURES We are constructing a residential condominium tower containing 397,000 salable square feet on our 220 Central Park South development site. The incremental development cost of this project is estimated to be approximately $1.3 billion, of which $609,420,000 has been expended as of December 31, 2016. We are developing a 173,000 square foot Class-A office building at 512 West 22nd Street, along the western edge of the High Line in the West Chelsea submarket of Manhattan (55.0% owned). The incremental development cost of this project is estimated to be approximately $130,000,000, of which our share is $72,000,000. As of December 31, 2016, $30,143,000 has been expended, of which our share is $16,579,000. We are developing a 170,000 square foot office and retail building at 61 Ninth Avenue, located on the southwest corner of Ninth Avenue and 15th Street in the West Chelsea submarket of Manhattan. In February 2016, the venture purchased an adjacent five story loft building and air rights in exchange for a 10% common and preferred equity interest in the venture valued at $19,400,000, which reduced our ownership interest to 45.1% from 50.1%. On December 21, 2016, the venture obtained a $90,000,000 construction loan. The loan matures in December 2020 with two six-month extension options. The interest rate is LIBOR plus 3.05%. As of December 31, 2016, there was nothing drawn on this loan. The incremental development cost of this project is estimated to be approximately $150,000,000, of which our share is $68,000,000. As of December 31, 2016, $38,499,000 has been expended, of which our share is $17,363,000. We are developing a 34,000 square foot office and retail building at 606 Broadway, located on the northeast corner of Broadway and Houston Street in Manhattan (50.0% owned). At closing, the joint venture obtained a $65,000,000 construction loan, of which approximately $25,800,000 was outstanding as of December 31, 2016. The loan, which bears interest at LIBOR plus 3.00% (3.66% at December 31, 2016), matures in May 2019 with two one-year extension options. The venture’s incremental development cost of this project is estimated to be approximately $60,000,000, of which our share is $30,000,000. As of December 31, 2016, $20,833,000 has been expended, of which our share is $10,417,000. We are in the process of demolishing two adjacent Washington, DC office properties, 1726 M Street and 1150 17th Street, and will replace them in the future with a new 335,000 square foot Class A office building, to be addressed 1700 M Street. The incremental development cost of the project is estimated to be approximately $170,000,000, of which $10,500,000 has been expended as of December 31, 2016. In September 2016, a joint venture between the Related Companies and Vornado was designated by New York State to redevelop the historic Farley Post Office building. The building will include a new Moynihan Train Hall and approximately 850,000 rentable square feet of office space and ancillary train hall retail. The joint venture will enter into a 99-year, triple-net lease and make a $230,000,000 contribution towards the construction of the train hall. Total costs for the redevelopment of the office and retail space are yet to be determined. We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including, in particular, the Penn Plaza District. There can be no assurance that any of our development or redevelopment projects will commence, or if commenced, be completed, or completed on schedule or within budget. 9 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, 2016, 2015 and 2014 is set forth in Note 23 – 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, 2016, 2015 and 2014. 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 Vornado’s Board of Trustees without the vote of our shareholders or Operating Partnership unitholders. EMPLOYEES As of December 31, 2016, we have approximately 4,225 employees, of which 284 are corporate staff. The New York segment has 3,265 employees, including 2,634 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 459 employees at the Hotel Pennsylvania. The Washington, DC segment and theMART properties have 456 and 220 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, 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. 10 ITEM 1A. RISK FACTORS Material factors that may adversely affect our business, operations and financial condition are summarized below. We refer to the equity and debt securities of both Vornado and the Operating Partnership as our “securities” and the investors who own shares or units, or both, as our “equity holders.” 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 6. 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 equity holders. 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 securities. 11 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 equity holders 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 equity 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 equity holders. We may incur significant costs to comply with environmental laws and environmental contamination may impair our ability to lease and/or sell real estate. Our operations and properties are subject to various federal, state and local laws and regulations concerning the protection of the environment, including air and water quality, hazardous or toxic substances and health and safety. Under some environmental laws, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property. The owner or operator may also be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by those parties because of the contamination. These laws often impose liability without regard to whether the owner or operator knew of the release of the substances or caused the release. The presence of contamination or the failure to remediate contamination may impair our ability to sell or lease real estate or to borrow using the real estate as collateral. Other laws and regulations govern indoor and outdoor air quality including those that can require the abatement or removal of asbestos-containing materials in the event of damage, demolition, renovation or remodeling and also govern emissions of and exposure to asbestos fibers in the air. The maintenance and removal of lead paint and certain electrical equipment containing polychlorinated biphenyls (PCBs) are also regulated by federal and state laws. We are also subject to risks associated with human exposure to chemical or biological contaminants such as molds, pollens, viruses and bacteria which, above certain levels, can be alleged to be connected to allergic or other health effects and symptoms in susceptible individuals. Our predecessor companies may be subject to similar liabilities for activities of those companies in the past. We could incur fines for environmental compliance and be held liable for the costs of remedial action with respect to the foregoing regulated substances or related claims arising out of environmental contamination or human exposure to contamination at or from our properties. Each of our properties has been subject to varying degrees of environmental assessment. To date, these environmental assessments have not revealed any environmental condition material to our business. However, identification of new compliance concerns or undiscovered areas of contamination, changes in the extent or known scope of contamination, human exposure to contamination or changes in clean-up or compliance requirements could result in significant costs to us. 12 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. In addition, our leases, loans and other agreements may require us to comply with OFAC and related requirements, and any failure to do so may result in a breach of such agreements. If a tenant or other party with whom we conduct business is placed on the OFAC list or is otherwise a party with whom 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. 13 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 $1,622,000 ($1,976,000 for 2017) and 16% (17% for 2017) of the balance of a covered loss and the Federal government is responsible for the remaining portion of a covered loss. We are ultimately responsible for any loss incurred by PPIC. We continue to monitor the state of the insurance market and the scope and 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 equity holders. 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. 14 OUR INVESTMENTS ARE CONCENTRATED CURRENTLY IN THE NEW YORK CITY METROPOLITAN AREA AND WASHINGTON, DC/NORTHERN VIRGINIA AREA AND CIRCUMSTANCES AFFECTING THESE AREAS GENERALLY COULD ADVERSELY AFFECT OUR BUSINESS. UPON COMPLETION OF OUR PROPOSED SPIN-OFF OF OUR WASHINGTON, DC SEGMENT, OUR BUSINESS AND INVESTMENTS WILL BE LESS DIVERSIFIED AND MORE CONCENTRATED IN THE NEW YORK CITY METROPOLITAN AREA. A significant portion of our properties are located currently 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 2016, approximately 91% of our EBITDA, as adjusted, came from properties located in the New York City metropolitan area and the Washington, DC/Northern Virginia area. We may continue to concentrate a significant portion of our future acquisitions in these areas or in other geographic real estate markets in the United States or abroad. Real estate markets are subject to economic downturns and we cannot predict how economic conditions will impact these markets in either the short or long term. Declines in the economy or declines in real estate markets in these areas could hurt our financial performance and the value of our properties. In addition to the factors affecting the national economic condition generally, the factors affecting economic conditions in these regions include: • financial performance and productivity of the media, advertising, financial, technology, retail, insurance and real estate industries; • • • • • • • with respect to our Washington, DC segment, 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; changes in the number of domestic and international tourists to our markets (including, as a result of changes in the relative strengths of world currencies); infrastructure quality; and any oversupply of, or reduced demand for, real estate. • • Assuming we complete the spin-off of our Washington, DC segment as expected, our real estate investments will be more concentrated in New York City and less diversified than prior to the spin-off. After giving effect to the spin-off and assuming it was completed as of January 1, 2016, 89% of our EBITDA, as adjusted, came from properties located in the New York City metropolitan area. 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. 15 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 securities. 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 securities. 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, change in relative strengths of world currencies, the threat of terrorism, increasing competition from retailers, outlet malls, retail websites and catalog companies and the impact of technological change upon the retail environment generally. 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. 16 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. As of December 31, 2016, our marketable securities have an aggregate carrying amount of $203,704,000, 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. We may be unable to achieve some or all of the benefits that we expect to achieve from the spin-off. Although we believe that separating our Washington, DC segment will provide benefits to us and our shareholders, the spin-off may not provide such results on the scope or scale we anticipate, and neither we nor JBG SMITH may realize the intended benefits of the spin-off. In addition, we will incur one-time costs in connection with the spin-off that may exceed our estimates and negate some of the benefits we expect to achieve. Further, if the proposed spin-off is completed, our operational and financial profile will change upon the separation of the Washington, DC segment from us. As a result, our diversification of revenue sources will diminish, and our results of operations, cash flows, working capital, and financing requirements may be subject to increased volatility. 17 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. This, in turn, requires the Operating Partnership to make distributions to its unitholders. 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. We depend on dividends and distributions from our direct and indirect subsidiaries. The creditors and preferred equity holders of these subsidiaries are entitled to amounts payable to them by the subsidiaries before the subsidiaries may pay any dividends or distributions to us. 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 its equity holders 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 its 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 the Operating Partnership’s equity holders, including Vornado. Thus, Vornado’s ability to pay cash dividends to its equity holders 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 its equity holders, including Vornado. As of December 31, 2016, there were four series of preferred units of the Operating Partnership not held by Vornado with a total liquidation value of $56,047,000. In addition, Vornado’s participation in any distribution of the assets of any of its direct or indirect subsidiaries upon the liquidation, reorganization or insolvency, is only after the claims of the creditors, including trade creditors and preferred equity holders, are satisfied. We have a substantial amount of indebtedness that could affect our future operations. As of December 31, 2016, our consolidated mortgages and unsecured indebtedness, excluding related premium, discount and deferred financing costs, net, totaled $10.7 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. 18 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/redemption price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our equity holders. 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 Vornado will remain organized and will continue to operate so as to qualify as a REIT for federal income tax purposes, Vornado 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, Vornado fails to maintain its qualification as a REIT and does not qualify under statutory relief provisions, Vornado could not deduct distributions to shareholders in computing our taxable income and would have to pay federal income tax on its taxable income at regular corporate rates. The federal income tax payable would include any applicable alternative minimum tax. If Vornado had to pay federal income tax, the amount of money available to distribute to equity holders and pay its indebtedness would be reduced for the year or years involved, and Vornado would not be required to make distributions to shareholders in that taxable year and in future years until it was able to qualify as a REIT. In addition, Vornado would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost, unless Vornado 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 and distributions. 19 Loss of our key personnel could harm our operations and adversely affect the value of our common shares and Operating Partnership Class A units. 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 securities. VORNADO’S CHARTER DOCUMENTS AND APPLICABLE LAW MAY HINDER ANY ATTEMPT TO ACQUIRE US. Vornado’s Amended and Restated Declaration of Trust (the “declaration of trust”) sets limits on the ownership of its 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 equity holders. The Maryland General Corporation Law (the “MGCL”) contains provisions that may reduce the likelihood of certain takeover transactions. The MGCL imposes conditions and restrictions on certain “business combinations” (including, among other transactions, a merger, consolidation, share exchange, or, in certain circumstances, an asset transfer or issuance of equity securities) between a Maryland REIT and certain persons who beneficially own at least 10% of the corporation’s stock (an “interested shareholder”). Unless approved in advance by the board of trustees of the trust, or otherwise exempted by the statute, such a business combination is prohibited for a period of five years after the most recent date on which the interested shareholder became an interested shareholder. After such five-year period, a business combination with an interested shareholder must be: (a) recommended by the board of trustees of the trust, and (b) approved by the affirmative vote of at least (i) 80% of the trust’s outstanding shares entitled to vote and (ii) two- thirds of the trust’s outstanding shares entitled to vote which are not held by the interested shareholder with whom the business combination is to be effected, unless, among other things, the trust’s common shareholders receive a “fair price” (as defined by the statute) for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for his or her shares. In approving a transaction, Vornado’s Board of Trustees 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 of Trustees. Vornado’s Board of Trustees 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 our equity holders. 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 our equity holders. The business combination statute may discourage others from trying to acquire control of Vornado and increase the difficulty of consummating any offer. Until 2019, Vornado has a classified Board of Trustees and that may reduce the likelihood of certain takeover transactions. Vornado’s Board of Trustees is divided currently into three classes of trustees. Commencing this year, each class of trustees that is up for election will be elected for a one-year term with all trustees forming a single class elected annually commencing in 2019. Historically trustees of each class have been 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 our equity holders. 20 Vornado may issue additional shares in a manner that could adversely affect the likelihood of certain takeover transactions. Vornado’s declaration of trust authorizes the Board of Trustees to: • • • • cause Vornado to issue additional authorized but unissued common shares or preferred shares; classify or reclassify, in one or more series, any unissued preferred shares; set the preferences, rights and other terms of any classified or reclassified shares that Vornado issues; and increase, without shareholder approval, the number of shares of beneficial interest that Vornado may issue. Vornado’s Board of Trustees could establish a series of preferred shares whose terms could delay, deter or prevent a change in control of Vornado, and therefore of the Operating Partnership, or other transaction that might involve a premium price or otherwise be in the best interest of our equity holders, although Vornado’s 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 equity holders. We may change our policies without obtaining the approval of our equity holders. Our operating and financial policies, including our policies with respect to acquisitions of real estate or other companies, growth, operations, indebtedness, capitalization, dividends and distributions, are exclusively determined by Vornado’s Board of Trustees. Accordingly, our equity holders 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 Vornado’s other trustees and officers have interests or positions in other entities that may compete with us. As of December 31, 2016, 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, which is described below. Steven Roth, David Mandelbaum and Russell B. Wight, Jr. are the three partners of Interstate Properties. Mr. Roth is the Chairman of the Board of Trustees and Chief Executive Officer of Vornado, the managing general partner of Interstate Properties, and the Chairman of the Board of Directors 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 therefore over the Operating Partnership, 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 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 Note 21 – Related Party Transactions to our consolidated financial statements in this Annual Report on Form 10-K for additional information. There may be conflicts of interest between Alexander’s and us. As of December 31, 2016, 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, 2016. Mr. Roth is the Chairman of the Board of Trustees and Chief Executive Office of Vornado, the managing general partner of Interstate Properties, and the Chairman of the Board of Directors 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. 21 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 Note 21 – Related Party Transactions to our 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 Vornado’s common shares has been volatile and may fluctuate. The trading price of Vornado’s 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 Vornado’s common shares and the redemption price of the Operating Partnership’s Class A units. Among those factors 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 Vornado 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 Vornado’s stock price could result in substantial losses for our equity holders. Vornado has many shares available for future sale, which could hurt the market price of its shares and the redemption price of the Operating Partnership’s units. The interests of equity holders could be diluted if we issue additional equity securities. As of December 31, 2016, Vornado had authorized but unissued, 60,899,124 common shares of beneficial interest, $.04 par value and 67,116,023 preferred shares of beneficial interest, no par value; of which 19,538,084 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 Vornado’s common and preferred shares or Operating Partnership Class A and preferred units will have on the market prices of our securities. In addition, under Maryland law, Vornado’s Board of Trustees has the authority to increase the number of authorized shares without shareholder approval. ITEM 1B. UNRESOLVED STAFF COMMENTS There are no unresolved comments from the staff of the Securities Exchange Commission as of the date of this Annual Report on Form 10-K. 22 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, 2016. NEW YORK SEGMENT Property 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 90 Park Avenue One Park Avenue(1) 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 (ground leased through 2114) 512 W 22nd Street(1) 61 Ninth Avenue (ground leased through 2115)(1) 825 Seventh 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 (2 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 606 Broadway 697-703 Fifth Avenue (St. Regis - retail) 715 Lexington Avenue % Ownership 100.0% 70.0% 100.0% 49.5% 100.0% Type Office/Retail Office/Retail Office/Retail Office/Retail Office % Occupancy 92.7% 99.5% 98.9% n/a 100.0% In Service 2,522,000 2,110,000 1,631,000 - 1,346,000 Square Feet Under Development or Not Available for Lease - - - 1,448,000 - 100.0% (2) 92.3% 98.3% 99.1% 95.9% 93.4% 94.6% 98.2% 89.1% 87.2% 100.0% 95.5% 100.0% 97.9% 100.0% 99.5% 97.3% 91.8% 95.4% 97.6% 92.7% 100.0% 100.0% n/a n/a 100.0% 100.0% 96.6% 94.7% 100.0% 77.2% 94.3% 91.8% 100.0% (2) 100.0% 100.0% 100.0% 100.0% 86.7% 100.0% 100.0% n/a 100.0% 100.0% 1,245,000 1,249,000 1,158,000 1,151,000 959,000 949,000 885,000 855,000 842,000 718,000 626,000 552,000 571,000 545,000 479,000 471,000 323,000 313,000 283,000 256,000 250,000 206,000 184,000 - - 169,000 160,000 137,000 129,000 114,000 108,000 103,000 100,000 85,000 78,000 66,000 57,000 50,000 44,000 43,000 36,000 - 26,000 23,000 12,000 - - - - - - - - - - 40,000 - - - - - - - - - - - 173,000 170,000 - - - - - - - - - - - - - - - - 34,000 - - 50.1% Retail/Residential Office/Retail 50.0% Office/Retail 100.0% Office/Retail 100.0% Office/Retail 100.0% Office/Retail 55.0% Office/Retail 100.0% Office 100.0% Office/Retail 25.0% Office/Retail 100.0% Office/Retail 49.9% Office/Retail 20.1% Office/Retail 100.0% Office/Retail 100.0% Office/Retail 53.0% Office 100.0% Office/Retail 100.0% Office/Retail 100.0% Residential 49.9% Retail 100.0% Office/Retail 100.0% Retail 100.0% 100.0% 55.0% 45.1% 51.2% 100.0% 100.0% 100.0% 100.0% Office Office Office/Retail Office/Retail 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% Office/Retail 50.0% Retail 74.3% Retail 100.0% 23 Total Property 2,522,000 2,110,000 1,631,000 1,448,000 1,346,000 1,257,000 1,249,000 1,158,000 1,151,000 959,000 949,000 885,000 855,000 842,000 718,000 626,000 592,000 571,000 545,000 479,000 471,000 323,000 313,000 283,000 256,000 250,000 206,000 184,000 173,000 170,000 169,000 160,000 137,000 129,000 114,000 108,000 103,000 100,000 85,000 78,000 66,000 57,000 50,000 44,000 43,000 36,000 34,000 26,000 23,000 ITEM 2. PROPERTIES - CONTINUED % Ownership Type NEW YORK SEGMENT - CONTINUED Property 1131 Third Avenue 40 East 66th Street (5 units) 131-135 West 33rd Street 828-850 Madison Avenue 443 Broadway 484 Eighth Avenue 334 Canal Street (4 units) 304 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 486 Eighth Avenue 137 West 33rd Street Other (4 buildings) (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 Segment Our Ownership Interest See notes on page 26. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 50.0% 100.0% 100.0% 100.0% 82.0% 100.0% 32.4% 32.4% 32.4% 32.4% 32.4% 32.4% 32.4% Square Feet Under Development or Not Available for Lease In Service Total Property 23,000 23,000 23,000 18,000 16,000 - 15,000 - 13,000 10,000 8,000 7,000 7,000 7,000 6,000 6,000 6,000 3,000 - 3,000 57,000 - - - - - 16,000 - 13,000 - - - - - - - - - - 3,000 - 32,000 23,000 23,000 23,000 18,000 16,000 16,000 15,000 13,000 13,000 10,000 8,000 7,000 7,000 7,000 6,000 6,000 6,000 3,000 3,000 3,000 89,000 % Occupancy 100.0% 100.0% (2) 100.0% 100.0% 100.0% n/a - (2) n/a 100.0% (2) 100.0% 67.4% 100.0% 100.0% (2) 100.0% 100.0% 100.0% 100.0% 100.0% n/a 100.0% 97.7% (2) Retail Retail/Residential Retail Retail Retail Retail Retail/Residential Retail/Residential Retail/Residential Retail Retail Retail Retail/Residential Retail Retail Retail Retail Retail Retail Retail Retail/Residential Hotel n/a 1,400,000 - 1,400,000 Office/Retail Retail Retail Residential Retail Retail n/a 100.0% 99.9% 100.0% 98.1% 100.0% 100.0% n/a 96.5 % 1,063,000 609,000 343,000 255,000 167,000 - - 28,295,000 - - - - 1,063,000 609,000 343,000 255,000 167,000 - - 1,941,000 - - 30,236,000 96.5 % 22,442,000 967,000 23,409,000 24 ITEM 2. PROPERTIES - CONTINUED WASHINGTON, DC SEGMENT Property 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) 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 (699 units) 2100/2200 Crystal Drive (2 buildings) Commerce Executive (3 buildings) 1501 K Street, NW(1) 2101 L Street, NW 1700 M Street WestEnd25 (283 units) 220 20th Street (265 units) Crystal City Hotel Rosslyn Plaza (196 units)(1) 875 15th Street, NW (Bowen Building) 1101 17th Street, NW(1) Democracy Plaza One (ground leased through 2084) 1730 M Street, NW (ground leased through 2061) 2221 South Clark Street (216 units) 2001 Jefferson Davis Highway 223 23rd Street Met Park/Warehouses 1399 New York Avenue, NW Crystal City Shops at 2100 Crystal Drive Retail Other (3 buildings) Total Washington, DC Segment Our Ownership Interest See notes on page 26. % Ownership Type % Occupancy 89.7% 97.7% 83.2% Office Residential Office 100.0% 100.0% 100.0% 100.0% 100.0% 46.2% 100.0% 100.0% Office Office Office 86.8% 100.0% 64.0% 1,452,000 377,000 493,000 30,000 492,000 248,000 1,482,000 869,000 741,000 Office 99.0% 686,000 Office 94.6% 639,000 Square Feet Under Development or Not Available for Lease Total Property 2,325,000 1,802,000 1,546,000 - - - In Service 2,325,000 1,802,000 1,546,000 - - - 143,000 - 14,000 - - 333,000 - - - - - - - - 686,000 639,000 622,000 620,000 532,000 407,000 402,000 380,000 333,000 273,000 269,000 266,000 253,000 231,000 216,000 214,000 205,000 622,000 477,000 532,000 393,000 402,000 380,000 - 273,000 269,000 266,000 253,000 231,000 216,000 214,000 205,000 171,000 162,000 - 53,000 129,000 80,000 57,000 11,000 14,716,000 - - 147,000 76,000 - - - - 1,483,000 171,000 162,000 147,000 129,000 129,000 80,000 57,000 11,000 16,199,000 55.0% Office 100.0% Residential/Retail Office 100.0% Office 100.0% Office 5.0% Office 100.0% Office 100.0% Residential 100.0% Residential 100.0% Residential 100.0% Residential 43.7% Office 100.0% Office 55.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Office Office Residential/ Office Office Office Warehouses Office Office Retail Other 92.4% 100.0% (2) 73.0% 94.1% 91.5% 99.0% n/a 97.2% 97.7% 100.0% 96.9% 84.5% 99.4% 97.6% 92.3% 100.0% (2) 52.4% n/a 100.0% 75.2% 94.6% 100.0% 100.0% 90.2% 90.5% 13,556,000 1,344,000 14,900,000 25 ITEM 2. PROPERTIES - CONTINUED OTHER Property theMART: theMART, Chicago Other (2 properties)(1) Total theMART Our Ownership Interest 555 California Street: 555 California Street 315 Montgomery Street 345 Montgomery Street Total 555 California Street Our Ownership Interest Vornado Capital Partners Real Estate Fund ("the Fund")(3) : 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 Our Ownership Interest Other: Wayne Town Center, Wayne (ground leased through 2064) Annapolis (ground leased through 2042) Fashion Centre Mall(4) Washington Tower(4) Total Other Our Ownership Interest % Ownership Type % Occupancy In Service Square Feet Under Development or Not Available for Lease Total Property 100.0% 50.0% Office/Retail/Showr oom Retail 98.9% 100.0% 98.9% 3,652,000 19,000 3,671,000 98.9% 3,662,000 - - - - 3,652,000 19,000 3,671,000 3,662,000 70.0% 70.0% 70.0% Office Office/Retail Office/Retail 98.0% 55.6% n/a 92.4% 1,505,000 233,000 - 1,738,000 - - 64,000 64,000 1,505,000 233,000 64,000 1,802,000 92.4% 1,217,000 45,000 1,262,000 100.0% Office 75.3% Office/Retail/Hotel 96.0% 68.8% 100.0% Retail/Residential Retail/Theatre 100.0% Retail 100.0% Retail 100.0% 100.0% (2) 98.6% 100.0% 100.0% 89.8% 246,000 240,000 154,000 128,000 11,000 9,000 788,000 86.3% 216,000 - - - - - - - - 246,000 240,000 154,000 128,000 11,000 9,000 788,000 216,000 100.0% Retail 100.0% 644,000 12,000 656,000 100.0% 7.5% 7.5% Retail Retail Office 100.0% 96.9% 100.0% 98.5% 128,000 869,000 170,000 1,811,000 - - - 12,000 128,000 869,000 170,000 1,823,000 99.8% 850,000 12,000 862,000 (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. (3) We own a 25% interest in the Fund. The ownership percentage in this section represents the Fund's ownership in the underlying assets. (4) Reclassified to Other from Washington, DC segment. 26 NEW YORK As of December 31, 2016, our New York segment consisted of 28.3 million square feet in 86 properties. The 28.3 million square feet is comprised of 20.2 million square feet of office space in 36 properties, 2.7 million square feet of retail space in 70 properties, 2,004 units in twelve 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 (4,970 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, 2016, the occupancy rate for our New York segment was 96.5%. Occupancy and weighted average annual rent per square foot (in service): Office: Retail: As of December 31, 2016 2015 2014 2013 2012 As of December 31, 2016 2015 2014 2013 2012 Total Property Square Feet 20,227,000 21,288,000 20,154,000 18,744,000 18,319,000 Total Property Square Feet 2,672,000 2,641,000 2,469,000 2,349,000 2,171,000 Vornado's Ownership Interest Occupancy Rate 96.3 % 96.3 % 96.9 % 96.4 % 95.6 % Weighted Average Annual Rent Per Square Foot $ 68.90 66.62 65.34 62.20 60.45 Square Feet 16,962,000 17,412,000 16,408,000 15,303,000 15,338,000 Vornado's Ownership Interest Occupancy Rate 97.1 % 96.2 % 96.5 % 97.4 % 96.8 % Weighted Average Annual Rent Per Square Foot 213.85 202.85 173.19 162.92 148.71 $ Square Feet 2,464,000 2,408,000 2,162,000 2,116,000 2,001,000 Occupancy and average monthly rent per unit (in service): Residential: As of December 31, 2016 (1) 2015 2014 2013 2012 Number of Units 2,004 1,711 1,678 1,672 1,673 Number of Units Vornado's Ownership Interest Occupancy Rate 977 886 855 847 847 95.7 % 95.0 % 95.2 % 94.8 % 96.5 % Average Monthly Rent Per Unit $ 3,576 3,495 3,146 2,920 2,770 (1) Includes The Alexander (32.4% ownership) from the date of stabilization in the third quarter of 2016. 27 NEW YORK – CONTINUED Tenants accounting for 2% or more of revenues: Tenant IPG and affiliates Swatch Group USA AXA Equitable Life Insurance Macy's Neuberger Berman Group LLC 2016 rental revenue by tenants’ industry: Square Feet Leased 2016 Revenues 924,000 32,000 481,000 646,000 412,000 $ 53,666,000 53,263,000 40,955,000 40,886,000 33,487,000 Percentage of New York Total Revenues 3.1 % 3.1 % 2.4 % 2.4 % 2.0 % Percentage of Total Revenues 2.1 % 2.1 % 1.6 % 1.6 % 1.3 % Industry Office: Financial Services Real Estate Communications Family Apparel Legal Services Advertising/Marketing Technology Insurance Publishing Engineering, Architect & Surveying Government Banking Home Entertainment & Electronics Health Services Pharmaceutical Other Retail: Family Apparel Women's Apparel Luxury Retail Restaurants Banking Department Stores Discount Stores Other Total Percentage 11% 7% 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% 2% 1% 1% 9% 71% 7% 6% 6% 2% 2% 2% 1% 3% 29% 100% 28 NEW YORK – CONTINUED Lease expirations as of December 31, 2016, assuming none of the tenants exercise renewal options: Year Office: Month to month 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Retail: Month to month 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 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 72 106 95 121 124 68 57 71 40 66 12 14 30 26 21 16 8 14 18 12 19 25,000 489,000 (1) 1,153,000 (2) 826,000 1,466,000 1,242,000 688,000 1,725,000 1,227,000 742,000 1,298,000 50,000 28,000 (3) 171,000 202,000 72,000 52,000 33,000 81,000 151,000 38,000 136,000 0.2 % 3.0 % 7.2 % 5.1 % 9.1 % 7.7 % 4.3 % 10.7 % 7.6 % 4.6 % 8.1 % 2.6 % 1.4 % 8.8 % 10.4 % 3.7 % 2.7 % 1.7 % 4.2 % 7.8 % 2.0 % 7.0 % $ 1,254,000 $ 31,770,000 85,505,000 57,322,000 99,053,000 86,776,000 37,809,000 132,048,000 93,797,000 53,343,000 92,625,000 $ 2,509,000 $ 13,374,000 44,423,000 34,039,000 10,588,000 10,283,000 3,855,000 20,523,000 59,881,000 18,428,000 42,233,000 50.16 64.97 (1) 74.16 69.40 67.57 69.87 54.95 76.55 76.44 71.89 71.36 50.18 477.64 (3) 259.78 168.51 147.06 197.75 116.82 253.37 396.56 484.95 310.54 (1) Based on current market conditions, we expect to re-lease this space at weighted average rents between $65 to $75 per square foot. (2) Excludes 492,000 square feet leased at 909 Third Avenue to the U.S. Post Office through 2038 (including four 5-year renewal options) for which the annual escalated rent is $11.70 per square foot. (3) Based on current market conditions, we expect to re-lease this space at weighted average rents between $550 to $600 per square foot. Alexander’s As of December 31, 2016, we own 32.4% of the outstanding common stock of Alexander’s, which owns seven properties in the greater New York metropolitan area aggregating 2.4 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, 2016, of which our pro rata share was $341.0 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 at 33rd Street in the heart of the Penn Plaza district 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. Hotel Pennsylvania: Average occupancy rate Average daily rate Revenue per available room 2016 Year Ended December 31, 2014 2015 2013 2012 84.7 % $ $ 134.38 113.84 $ $ 90.7 % 147.46 133.69 $ $ 92.0 % 93.4 % 89.1 % 162.01 149.04 $ $ 158.01 147.63 $ $ 152.79 136.21 29 WASHINGTON, DC On October 31, 2016, Vornado’s Board of Trustees approved the tax-free spin-off of our Washington, DC segment and we entered into a definitive agreement to merge it with the business and certain select assets of The JBG Companies (“JBG”), a Washington, DC real estate company. Steven Roth, the Chairman of the Board of Trustees and Chief Executive Officer of Vornado, will be Chairman of the Board of Trustees of the new company, which will be named JBG SMITH Properties. Mitchell Schear, President of our Washington, DC business, will be a member of the Board of Trustees of the new company. The pro rata distribution to Vornado common shareholders and Class A Operating Partnership unitholders is intended to be treated as a tax-free spin-off for U.S. federal income tax purposes. It is expected to be made on a pro rata 1:2 basis. The initial Form 10 registration statement relating to the spin-off and merger was filed with the SEC on January 23, 2017 and the distribution and combination are expected to be completed in the second quarter of 2017. The distribution and combination are subject to certain conditions, including the SEC declaring the Form 10 registration statement effective, filing and approval of the new company’s listing application, receipt of regulatory approvals and third party consents by each of the Company and JBG, and formal declaration of the distribution by Vornado’s Board of Trustees. The distribution and combination are not subject to a vote by Vornado’s shareholders or Operating Partnership unitholders. Vornado’s Board of Trustees has approved the transaction. JBG has obtained all requisite approvals from its investment funds for this transaction. There can be no assurance that this transaction will be completed. On August 24, 2016, the Skyline properties, located in Fairfax, Virginia, were placed in receivership. On December 21, 2016, the final disposition of the Skyline properties was completed by the receiver. In connection therewith, the Skyline properties’ assets (approximately $236,535,000) and liabilities (approximately $724,412,000), were removed from our consolidated balance sheet which resulted in a net gain of $487,877,000. There was no taxable income related to this transaction. On December 19, 2016, we completed the sale of our 20% interest in Fairfax Square to our joint venture partner for $15,500,000, which resulted in a net gain of approximately $15,302,000. 30 WASHINGTON, DC – CONTINUED As of December 31, 2016, our Washington, DC segment consisted of 58 properties aggregating 14.7 million square feet including 11.1 million square feet of office space in 44 properties, nine residential properties containing 3,156 units and a hotel property. The Washington, DC segment also includes 45 garages totaling approximately 7.0 million square feet (22,110 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, 2016, the occupancy rate for our Washington DC segment was 90.5%, and 22.4% of the occupied space was leased to various agencies of the U.S. Government. Occupancy and weighted average annual rent per square foot (in service): Office: Vornado's Ownership Interest As of December 31, 2016 2015 2014 2013 2012 Total Property Square Feet 11,141,000 11,592,000 11,635,000 11,753,000 11,665,000 Square Feet 10,123,000 10,597,000 10,620,000 10,686,000 10,538,000 Occupancy Rate 88.3 % 90.1 % 87.3 % 85.2 % 86.2 % Weighted Average Annual Rent Per Square Foot $ 44.05 43.99 44.03 44.03 42.91 Occupancy and average monthly rent per unit (in service): Residential: As of December 31, 2016 2015 2014 2013 2012 Number of Units Number of Units Vornado's Ownership Interest Occupancy Rate Average Monthly Rent Per Unit $ 3,156 2,630 2,414 2,414 2,414 3,046 2,520 2,304 2,304 2,304 97.8 % 96.4 % 97.4 % 96.3 % 97.9 % 2,064 2,044 2,053 2,075 2,122 Tenants accounting for 2% or more of revenues: Tenant U.S. Government Family Health International Arlington County Square Feet Leased 2,748,000 323,000 241,000 $ 2016 Revenues 79,185,000 15,199,000 11,388,000 Percentage of Washington, DC Total Revenues 15.3 % 2.9 % 2.2 % Percentage of Total Revenues 3.4 % 0.7 % 0.5 % 31 WASHINGTON, DC – CONTINUED 2016 rental revenue by tenants’ industry: Industry Percentage U.S. Government Government Contractors Membership Organizations Legal Services Real Estate Business Services Management Consulting Services State and Local Government Health Services Food Computer and Data Processing Education Television Broadcasting Manufacturing Other 21% 13% 9% 5% 4% 4% 3% 3% 2% 2% 2% 1% 1% 1% 29% 100% Lease expirations as of December 31, 2016, assuming none of the tenants exercise renewal options: Year Month to month 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Number of Square Feet of Expiring Leases Expiring Leases 93,000 955,000 (1) 943,000 1,143,000 845,000 793,000 1,149,000 225,000 377,000 319,000 192,000 32 108 105 94 85 60 59 20 35 26 16 $ Percentage of Washington, DC Square Feet 1.1 % 11.5 % 11.3 % 13.7 % 10.1 % 9.5 % 13.8 % 2.7 % 4.5 % 3.8 % 2.3 % Weighted Average Annual Rent of Expiring Leases Total 2,516,000 $ Per Square Foot 27.05 37.97 (1) 46.30 45.05 50.86 44.55 45.44 45.34 42.02 39.76 47.68 36,265,000 43,658,000 51,492,000 42,980,000 35,331,000 52,207,000 10,202,000 15,840,000 12,685,000 9,154,000 (1) Based on current market conditions, we expect to re-lease this space at weighted average rents between $38 to $42 per square foot. 32 OTHER INVESTMENTS theMART As of December 31, 2016, we own the 3.7 million square foot theMART in Chicago, whose largest tenant is Motorola Mobility at 609,000 square feet, the lease of which is guaranteed by Google. theMART is encumbered by a $675,000,000 mortgage loan that bears interest at a fixed rate of 2.70% and matures in September 2021. As of December 31, 2016, theMART had an occupancy rate of 98.9% and a weighted average annual rent per square foot of $40.39. 555 California Street As of December 31, 2016, 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 $579,795,000 mortgage loan that bears interest at a fixed rate of 5.10% and matures in September 2021. As of December 31, 2016, 555 California Street had an occupancy rate of 92.4% and a weighted average annual rent per square foot of $68.43. Vornado Capital Partners Real Estate Fund (the “Fund”) and Crowne Plaza Times Square Hotel Joint Venture (the “Crowne Plaza Joint Venture”) As of December 31, 2016, we own a 25.0% interest in the Fund which currently has six investments, one of which is the Crowne Plaza Times Square Hotel in which we also own an additional interest through a joint venture. We are the general partner and investment manager of the Fund. As of December 31, 2016, these six investments are carried on our consolidated balance sheet at an aggregate fair value of $462,132,000, including the Crowne Plaza Joint Venture. As of December 31, 2016, our share of unfunded commitments was $34,422,000. 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. 33 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 Vornado’s common shares and dividends paid per common share for the years ended December 31, 2016 and 2015 were as follows: Quarter High Year Ended December 31, 2016 Low Dividends High Year Ended December 31, 2015 Low Dividends 1st 2nd 3rd 4th $ 99.97 100.13 108.69 105.91 $ 78.91 90.13 97.18 86.35 $ 0.63 0.63 0.63 0.63 $ 126.62 (1) 113.12 98.96 103.41 $ 104.11 94.55 84.60 89.32 $ 0.63 0.63 0.63 0.63 (1) Achieved on January 15, 2015, prior to the spin-off of Urban Edge Properties (NYSE: UE). As of February 1, 2017, there were 1,051 holders of record of Vornado common shares. There is no established trading market for Class A units of the Operating Partnership. As of February 1, 2017, there were 997 Class A unitholders of record. Recent Sales of Unregistered Securities During 2016, the Operating Partnership issued 491,920 Class A units in connection with equity awards issued pursuant to Vornado’s omnibus share plan, including with respect to grants of restricted Vornado common shares and restricted units of the Operating Partnership and upon conversion, surrender or exchange of the Operating Partnership’s units or Vornado stock options, and consideration received included $8,540,019 in cash proceeds. Such units were issued in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. Information relating to compensation plans under which Vornado’s 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 December 2016, we received 2,755 Vornado common shares at a weighted average price of $103.62 per share as payment for the exercise price of certain employees’ stock options. 34 Performance Graph The following graph is a comparison of the five-year cumulative return of Vornado’s 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, 2011 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 2011 2012 2013 2014 2015 2016 Vornado Realty Trust S&P 500 Index The NAREIT All Equity Index Vornado Realty Trust S&P 500 Index The NAREIT All Equity Index $ 100 $ 100 100 109 $ 116 120 125 $ 154 123 171 $ 175 158 163 $ 177 162 174 198 176 2011 2012 2013 2014 2015 2016 35 ITEM 6. SELECTED FINANCIAL DATA Vornado Realty Trust (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 Skyline properties impairment loss Acquisition and transaction related costs Total expenses Operating income (Loss) income from real estate fund investments Income (loss) from partially owned entities Interest and other investment income (loss), net Interest and debt expense Net gain on extinguishment of Skyline properties debt Net gain on disposition of wholly owned and partially owned assets Income (loss) before income taxes Income tax (expense) benefit Income (loss) from continuing operations Income 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 Per Share Data: 2016 Year Ended December 31, 2014 2013 2015 2012 $ 2,103,728 $ 2,076,586 260,976 - 164,705 2,502,267 260,667 - 141,807 2,506,202 $ 1,911,487 245,819 - 155,206 2,312,512 $ 1,880,405 $ 1,771,264 207,149 235,234 119,077 2,332,724 226,831 36,369 155,571 2,299,176 1,024,336 565,059 179,279 - 160,700 26,037 1,955,411 550,791 (23,602) 165,389 29,546 (402,674) 487,877 175,735 983,062 (8,312) 974,750 7,172 981,922 (21,351) (53,654) 906,917 (75,903) (7,408) $ 823,606 $ 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) - 679,856 953,611 481,303 169,270 - - 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 $ 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 $ 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 (32,018) (45,263) 617,260 (76,937) 8,948 549,271 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 $ $ 4.32 4.30 4.36 4.34 2.52 $ 3.35 3.33 3.61 3.59 2.52 (1) $ 1.23 1.22 4.18 4.15 2.92 (0.75) $ (0.75) 2.10 2.09 2.92 1.37 1.37 2.95 2.94 3.76 (2) Balance Sheet Data: Total assets Real estate, at cost Accumulated depreciation and amortization Debt, net Total equity $ 20,814,847 $ 21,143,293 18,090,137 18,339,958 (3,418,267) (3,513,574) 11,091,010 10,611,685 7,476,078 7,618,496 $ 21,157,980 16,822,358 (3,161,633) 9,530,337 7,489,382 $ 20,018,210 $ 21,978,802 15,287,078 (2,524,718) 9,714,819 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. Includes a special long-term capital gain dividend of $1.00 per share. (2) 36 ITEM 6. SELECTED FINANCIAL DATA - CONTINUED Vornado Realty Trust (Amounts in thousands) Other Data: Funds From Operations ("FFO")(1): Net income attributable to common shareholders FFO adjustments: 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 (loss) 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 adjustments, net $ 2016 Year Ended December 31, 2014 2013 2015 2012 $ 823,606 $ 679,856 $ 783,388 $ 392,034 $ 549,271 $ 531,620 $ (177,023) 160,700 514,085 $ (289,117) 256 517,493 $ (507,192) 26,518 501,753 $ (411,593) 37,170 504,407 (245,799) 129,964 154,795 (2,853) 6,328 - 673,567 (41,267) 632,300 $ 143,960 (4,513) 16,758 - 381,429 (22,342) 359,087 $ 117,766 (11,580) - (7,287) 135,718 (8,073) 127,645 $ 157,270 (465) 6,552 (26,703) 263,984 (15,089) 248,895 $ 154,680 (241,602) 11,673 (27,493) 285,830 (16,649) 269,181 FFO attributable to common shareholders Convertible preferred share dividends Earnings allocated to Out-Performance Plan units FFO attributable to common shareholders plus assumed conversions(1) $ 1,455,906 $ 1,038,943 $ 911,033 $ 86 1,591 92 - 97 - 640,929 $ 108 - 818,452 113 - $ 1,457,583 $ 1,039,035 $ 911,130 $ 641,037 $ 818,565 (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 gains from sales of depreciated real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are non-GAAP financial measures used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. 37 ITEM 6. SELECTED FINANCIAL DATA Vornado Realty L.P. (Amounts in thousands, except per unit 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 Skyline properties impairment loss Acquisition and transaction related costs Total expenses Operating income (Loss) income from real estate fund investments Income (loss) from partially owned entities Interest and other investment income (loss), net Interest and debt expense Net gain on extinguishment of Skyline properties debt Net gain on disposition of wholly owned and partially owned assets Income (loss) before income taxes Income tax (expense) benefit Income (loss) from continuing operations Income from discontinued operations Net income Less net income attributable to noncontrolling interests in consolidated subsidiaries Net income attributable to Vornado Realty L.P. Preferred unit distributions Preferred unit redemptions Net income attributable to Class A unitholders Per Unit Data: 2016 Year Ended December 31, 2014 2015 2013 2012 $ 2,103,728 $ 2,076,586 260,976 - 164,705 2,502,267 260,667 - 141,807 2,506,202 $ 1,911,487 245,819 - 155,206 2,312,512 $ 1,880,405 $ 1,771,264 207,149 235,234 119,077 2,332,724 226,831 36,369 155,571 2,299,176 1,024,336 565,059 179,279 - 160,700 26,037 1,955,411 550,791 (23,602) 165,389 29,546 (402,674) 487,877 175,735 983,062 (8,312) 974,750 7,172 981,922 (21,351) 960,571 (76,097) (7,408) $ 877,066 $ 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) 803,665 (80,736) - 722,929 953,611 481,303 169,270 - - 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) 912,465 (81,514) - 830,951 $ 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) 500,788 (83,965) (1,130) $ 415,693 $ 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 (32,018) 662,523 (86,873) 8,948 584,598 Income (loss) from continuing operations, net - basic Income (loss) from continuing operations, net - diluted Net income per Class A unit - basic Net income per Class A unit - diluted Distributions per Class A unit $ $ 4.32 4.29 4.36 4.32 2.52 $ 3.35 3.31 3.61 3.57 2.52 (1) $ 1.22 1.21 4.17 4.14 2.92 (0.79) $ (0.78) 2.09 2.08 2.92 1.37 1.37 2.95 2.93 3.76 (2) Balance Sheet Data: Total assets Real estate, at cost Accumulated depreciation and amortization Debt, net Total equity $ 20,814,847 $ 21,143,293 18,090,137 18,339,958 (3,418,267) (3,513,574) 11,091,010 10,611,685 7,476,078 7,618,496 $ 21,157,980 16,822,358 (3,161,633) 9,530,337 7,489,382 $ 20,018,210 $ 21,978,802 15,287,078 (2,524,718) 9,714,819 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. Includes a special long-term capital gain distribution of $1.00 per unit. (2) 38 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, 2016, 2015 and 2014 Results of Operations: Year Ended December 31, 2016 Compared to December 31, 2015 Year Ended December 31, 2015 Compared to December 31, 2014 Supplemental Information: Net Income and EBITDA by Segment for the Three Months Ended December 31, 2016 and 2015 Three Months Ended December 31, 2016 Compared to December 31, 2015 Three Months Ended December 31, 2016 Compared to September 30, 2016 Related Party Transactions Liquidity and Capital Resources Financing Activities and Contractual Obligations Certain Future Cash Requirements Cash Flows for the Year Ended December 31, 2016 Cash Flows for the Year Ended December 31, 2015 Cash Flows for the Year Ended December 31, 2014 Funds From Operations for the Three Months and Years Ended December 31, 2016 and 2015 Page Number 40 47 51 54 58 65 72 76 78 80 81 82 84 87 89 91 93 39 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 as of December 31, 2016. All references to the “Company,” “we,” “us” and “our” mean collectively Vornado, the Operating Partnership and those entities/subsidiaries consolidated by Vornado. On October 31, 2016, Vornado’s Board of Trustees approved the tax-free spin-off of our Washington, DC segment and we entered into a definitive agreement to merge it with the business and certain select assets of The JBG Companies (“JBG”), a Washington, DC real estate company. Steven Roth, the Chairman of the Board of Trustees and Chief Executive Officer of Vornado, will be Chairman of the Board of Trustees of the new company, which will be named JBG SMITH Properties. Mitchell Schear, President of our Washington, DC business, will be a member of the Board of Trustees of the new company. The pro rata distribution to Vornado common shareholders and Class A Operating Partnership unitholders is intended to be treated as a tax-free spin-off for U.S. federal income tax purposes. It is expected to be made on a pro rata 1:2 basis. The initial Form 10 registration statement relating to the spin-off and merger was filed with the SEC on January 23, 2017 and the distribution and combination are expected to be completed in the second quarter of 2017. The distribution and combination are subject to certain conditions, including the SEC declaring the Form 10 registration statement effective, filing and approval of the new company’s listing application, receipt of regulatory approvals and third party consents by each of the Company and JBG, and formal declaration of the distribution by Vornado’s Board of Trustees. The distribution and combination are not subject to a vote by Vornado’s shareholders or Operating Partnership unitholders. Vornado’s Board of Trustees has approved the transaction. JBG has obtained all requisite approvals from its investment funds for this transaction. There can be no assurance that this transaction will be completed. We own and operate office and retail properties 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. (“Alexander’s”) (NYSE: ALX), 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 Vornado shareholder value, which we measure by the total return provided to our shareholders. Below is a table comparing Vornado’s performance to the FTSE NAREIT Office Index (“Office REIT”) and the MSCI US REIT Index (“MSCI”) for the following periods ended December 31, 2016: Three-month One-year Three-year Five-year Ten-year Vornado 3.9% 7.3% 40.6% 76.0% 36.9% Total Return(1) Office REIT 0.6% 13.2% 42.8% 72.1% 31.0% MSCI (3.0%) 8.6% 45.2% 75.2% 62.3% (1) Past performance is not necessarily indicative of future performance. 40 Overview – continued 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, where we believe there is a high likelihood of capital appreciation; acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents; investing in retail properties in select under-stored locations such as the New York City metropolitan area; developing and redeveloping our existing properties to increase returns and maximize value; and investing in operating companies that have a significant real estate component. • • • • We expect to finance our growth, acquisitions and investments using internally generated funds, proceeds from 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. Vornado Realty Trust Year Ended December 31, 2016 Financial Results Summary Net income attributable to common shareholders for the year ended December 31, 2016 was $823,606,000, or $4.34 per diluted share, compared to $679,856,000, or $3.59 per diluted share, for the year ended December 31, 2015. The years ended December 31, 2016 and 2015 include certain items that impact net income attributable to common shareholders, which are listed in the table on the following page. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders by $569,725,000 and $369,455,000, or $3.00 and $1.95 per diluted share, for the years ended December 31, 2016 and 2015, respectively. Funds From Operations attributable to common shareholders plus assumed conversions (“FFO”) for the year ended December 31, 2016 was $1,457,583,000, or $7.66 per diluted share, compared to $1,039,035,000, or $5.48 per diluted share, for the year ended December 31, 2015. The years ended December 31, 2016 and 2015 include certain items that impact FFO, which are listed in the table on page 43. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO by $570,780,000 and $138,158,000, or $3.00 and $0.73 per diluted share, for the years ended December 31, 2016 and 2015, respectively. Net income as adjusted and FFO as adjusted for the year ended December 31, 2016 include $41,373,000, or $0.20 per diluted share, for our 33.0% share of a non-cash unrealized loss and related reduction in our carried interest accrual, resulting from the fourth quarter mark-to-market fair value adjustment of our real estate funds’ investment in the Crowne Plaza Times Square Hotel. 41 Overview – continued Vornado Realty Trust – continued Quarter Ended December 31, 2016 Financial Results Summary Net income attributable to common shareholders for the quarter ended December 31, 2016 was $651,181,000, or $3.43 per diluted share, compared to $230,742,000, or $1.22 per diluted share, for the prior year’s quarter. The quarters ended December 31, 2016 and 2015 include certain items that impact net income attributable to common shareholders, which are listed in the table below. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders by $594,473,000 and $144,301,000, or $3.13 and $0.76 per diluted share, for the quarters ended December 31, 2016 and 2015, respectively. FFO for the quarter ended December 31, 2016 was $797,734,000, or $4.20 per diluted share, compared to $259,528,000, or $1.37 per diluted share, for the prior year’s quarter. The quarters ended December 31, 2016 and 2015 include certain items that impact FFO, which are listed in the table on the following page. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO by $582,996,000 and $21,469,000, or $3.07 and $0.11 per diluted share, for the quarters ended December 31, 2016 and 2015, respectively. Net income as adjusted and FFO as adjusted for the quarter ended December 31, 2016 include $41,373,000, or $0.20 per diluted share, for our 33.0% share of a non-cash unrealized loss and related reduction in our carried interest accrual, resulting from the fourth quarter mark-to-market fair value adjustment of our real estate funds’ investment in the Crowne Plaza Times Square Hotel. For the Year Ended December 31, For the Three Months Ended December 31, 2016 2015 2016 2015 $ 487,877 $ - $ 487,877 $ - 160,843 (160,700) 159,511 (26,037) 15,302 (7,823) (7,408) 1,730 714 - - - - 255,964 (12,511) - - - 32,419 6,724 90,030 33,153 160,843 - - (14,743) 15,302 (2,480) - (117) - - - (20,290) 2,854 183 606,756 (37,031) 569,725 $ (21,260) 4,513 3,004 392,036 (22,581) 369,455 $ (14,754) 13 208 632,149 (37,676) 594,473 $ - - 142,693 (4,951) - - - 13,943 4,231 - - (4,141) - 1,671 153,446 (9,145) 144,301 (Amounts in thousands) Certain items that impact net income attributable to common shareholders: Net gain on extinguishment of Skyline properties debt Income from the repayment of our investments in 85 Tenth Avenue loans and preferred equity Skyline properties impairment loss Net gains on sale of real estate Acquisition and transaction related costs Net gain on sale of our 20% interest in Fairfax Square Default interest on Skyline properties mortgage loan Preferred share issuance costs (Series J redemption) Net income (loss) from discontinued operations and sold properties Net gains on sale of residential condominiums Reversal of allowance for deferred tax assets (re: taxable REIT subsidiary's ability to utilize NOLs) Net gain on sale of our interest in Monmouth Mall Our share of partially owned entities: Real estate impairment losses Net gains on sale of real estate Other Noncontrolling interests' share of above adjustments Certain items that impact net income attributable to common shareholders, net $ 42 Overview – continued Vornado Realty Trust – continued (Amounts in thousands) Certain items that impact FFO: Net gain on extinguishment of Skyline properties debt Income from the repayment of our investments in 85 Tenth Avenue loans and preferred equity Acquisition and transaction related costs FFO from discontinued operations and sold properties Default interest on Skyline properties mortgage loan Preferred share issuance costs (Series J redemption) Net gains on sale of residential condominiums Reversal of allowance for deferred tax assets (re: taxable REIT subsidiary's ability to utilize NOLs) Our share of partially owned entities: Real estate impairment losses Other Noncontrolling interests' share of above adjustments Certain items that impact FFO, net Vornado Realty L.P. Year Ended December 31, 2016 Financial Results Summary For the Year Ended December 31, For the Three Months Ended December 31, 2016 2015 2016 2015 $ 487,877 $ - $ 487,877 $ - 160,843 (26,037) 11,923 (7,823) (7,408) 714 - (12,511) 64,263 - - 6,724 160,843 (14,743) 2,202 (2,480) - - - (4,951) 22,137 - - 4,231 - 90,030 - - (13,962) 183 606,310 (35,530) 570,780 $ (4,502) 3,004 147,008 (8,850) 138,158 $ (13,962) 208 619,945 (36,949) 582,996 $ - 1,671 23,088 (1,619) 21,469 $ Net income attributable to Class A unitholders for the year ended December 31, 2016 was $877,066,000, or $4.32 per diluted Class A unit, compared to $722,929,000, or $3.57 per diluted Class A unit, for the year ended December 31, 2015. The year ended December 31, 2016 and 2015 include certain items that impact net income attributable to Class A unitholders which are listed in the table on the following page. The aggregate of these items increased net income attributable to Class A unitholders by $606,756,000, or $3.00 per diluted Class A unit, and $392,036,000, or $1.95 per diluted Class A unit, for the years ended December 31, 2016 and 2015, respectively. Net income as adjusted for the year ended December 31, 2016 includes $41,373,000, or $0.20 per diluted Class A unit, for our 33.0% share of a non-cash unrealized loss and related reduction in our carried interest accrual, resulting from the fourth quarter mark- to-market fair value adjustment of our real estate funds’ investment in the Crowne Plaza Times Square Hotel. Quarter Ended December 31, 2016 Financial Results Summary Net income attributable to Class A unitholders for the quarter ended December 31, 2016 was $693,377,000, or $3.43 per diluted Class A unit, compared to $245,735,000, or $1.21 per diluted Class A unit, for the prior year’s quarter. The quarters ended December 31, 2016 and 2015 include certain items that impact net income attributable to Class A unitholders, which are listed in the table on the following page. The aggregate of these items increased net income attributable to Class A unitholders by $632,149,000, or $3.13 per diluted Class A unit, and $153,446,000, or $0.76 per diluted Class A unit, for the quarters ended December 31, 2016 and 2015, respectively. Net income, as adjusted for the quarter ended December 31, 2016 includes $41,373,000, or $0.20 per diluted Class A unit, for our 33.0% share of a non-cash unrealized loss and related reduction in our carried interest accrual, resulting from the fourth quarter mark- to-market fair value adjustment of our real estate funds’ investment in the Crowne Plaza Times Square Hotel. 43 Overview – continued Vornado Realty L.P. – continued (Amounts in thousands) Certain items that impact net income attributable to Class A unitholders: Net gain on extinguishment of Skyline properties debt Income from the repayment of our investments in 85 Tenth Avenue loans and preferred equity Skyline properties impairment loss Net gains on sale of real estate Acquisition and transaction related costs Net gain on sale of our 20% interest in Fairfax Square Default interest on Skyline properties mortgage loan Preferred unit issuance costs (Series J redemption) Net income (loss) from discontinued operations and sold properties Net gains on sale of residential condominiums Reversal of allowance for deferred tax assets (re: taxable REIT subsidiary's ability to utilize NOLs) Net gain on sale of our interest in Monmouth Mall Our share of partially owned entities: Real estate impairment losses Net gains on sale of real estate Other Certain items that impact net income attributable to Class A unitholders $ Vornado Realty Trust and Vornado Realty L.P. Same Store EBITDA and Cash Basis Same Store EBITDA For the Year Ended December 31, For the Three Months Ended December 31, 2016 2015 2016 2015 $ 487,877 $ - $ 487,877 $ - 160,843 (160,700) 159,511 (26,037) 15,302 (7,823) (7,408) 1,730 714 - - - - 255,964 (12,511) - - - 32,419 6,724 90,030 33,153 160,843 - - (14,743) 15,302 (2,480) - (117) - - - - - 142,693 (4,951) - - - 13,943 4,231 - - (20,290) 2,854 183 606,756 $ (21,260) 4,513 3,004 392,036 $ (14,754) 13 208 632,149 $ (4,141) - 1,671 153,446 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 are summarized below. Same store EBITDA % increase (decrease): Year ended December 31, 2016 vs. December 31, 2015 Year ended December 31, 2015 vs. December 31, 2014 Three months ended December 31, 2016 vs. December 31, 2015 Three months ended December 31, 2016 vs. September 30, 2016 Cash basis same store EBITDA % increase (decrease): Year ended December 31, 2016 vs. December 31, 2015 Year ended December 31, 2015 vs. December 31, 2014 Three months ended December 31, 2016 vs. December 31, 2015 Three months ended December 31, 2016 vs. September 30, 2016 New York Washington, DC 6.3 % (1) 1.5 % (2) 7.8 % (3) 4.1 % (4) 8.6 % (1) 0.3 % (2) 17.6 % (3) 8.2 % (4) 2.8 % (0.1 %) 2.3 % (3.7 %) 3.8 % (4.5 %) 4.4 % (2.3 %) (1) Excluding Hotel Pennsylvania, same store EBITDA increased by 7.7% and by 10.3% on a cash basis. (2) Excluding Hotel Pennsylvania, same store EBITDA increased by 2.4% and by 1.3% on a cash basis. (3) Excluding Hotel Pennsylvania, same store EBITDA increased by 9.2% and by 19.8% on a cash basis. (4) Excluding Hotel Pennsylvania, same store EBITDA increased by 3.6% and by 7.6% 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. 44 Overview – continued Washington, DC Segment Excluding the Skyline Properties which were disposed of on December 21, 2016, our Washington, DC segment EBITDA as adjusted was $290,500,000 for the year ended December 31, 2016, which is flat to 2015 as a result of an increase in EBITDA from the core business of $3,100,000, offset by a decline in EBITDA from properties taken out-of-service of $3,100,000. These results are slightly ahead of the guidance we published for 2016. We expect to complete the spin-off of our Washington, DC segment in the second quarter of 2017. We expect that Washington, DC’s EBITDA as adjusted during the first half of 2017 will be lower than the first half of 2016 by approximately $1,000,000 to $5,000,000, comprised of: (i) (ii) core business approximately $2,000,000 to $6,000,000 higher than 2016, offset by, reduction in EBITDA of approximately $6,000,000 to $8,000,000 from 1700 M Street, 1800 South Bell and 1750 Crystal Drive being taken out-of-service for redevelopment. Investments On March 17, 2016, we entered into a joint venture, in which we own a 33.3% interest, which owns a $150,000,000 mezzanine loan with an interest rate of LIBOR plus 8.88% and an initial maturity date in November 2016, with two three-month extension options. On November 9, 2016, the mezzanine loan was extended to May 2017 with an interest rate of LIBOR plus 9.42% (10.08% at December 31, 2016) during the extension period. As of December 31, 2016, the joint venture has fully funded its commitments. The joint venture’s investment is subordinate to $350,000,000 of third party debt. We account for our investment in the joint venture under the equity method. On May 20, 2016, we contributed $19,650,000 for a 50.0% equity interest in a joint venture that will develop 606 Broadway, a 34,000 square foot office and retail building, located on Houston Street in Manhattan. The development cost of this project is estimated to be approximately $104,000,000. At closing, the joint venture obtained a $65,000,000 construction loan, of which approximately $25,800,000 was outstanding at December 31, 2016. The loan, which bears interest at LIBOR plus 3.00% (3.66% at December 31, 2016), matures in May 2019 with two one-year extension options. Because this joint venture is a VIE and we determined we are the primary beneficiary, we consolidate the accounts of this joint venture from the date of our investment. Dispositions On May 27, 2016, we sold a 47% ownership interest in 7 West 34th Street, a 479,000 square foot Manhattan office building leased to Amazon, and retained the remaining 53% interest. This transaction was based on a property value of approximately $561,000,000 or $1,176 per square foot. We received net proceeds of $127,382,000 from the sale and realized a net gain of $203,324,000, of which $159,511,000 was recognized in the second quarter of 2016 and is included in “net gain on disposition of wholly owned and partially owned assets” in our consolidated statements of income. The remaining net gain of $43,813,000 has been deferred until our guarantee of payment of loan principal and interest is removed or the loan is repaid. We realized a net tax gain of $90,017,000. We continue to manage and lease the property. We share control over major decisions with our joint venture partner. Accordingly, this property is accounted for under the equity method from the date of sale. On December 19, 2016, we completed the sale of our 20% interest in Fairfax Square to our joint venture partner for $15,500,000, which resulted in a net gain of approximately $15,302,000. On August 24, 2016, the Skyline properties, located in Fairfax, Virginia, were placed in receivership. On December 21, 2016, the final disposition of the Skyline properties was completed by the receiver. In connection therewith, the Skyline properties’ assets (approximately $236,535,000) and liabilities (approximately $724,412,000), were removed from our consolidated balance sheet which resulted in a net gain of $487,877,000. There was no taxable income related to this transaction. 45 Overview – continued Financings Unsecured Revolving Credit Facility On November 7, 2016, we extended one of our two $1.25 billion unsecured revolving credit facilities from June 2017 to February 2021 with two six-month extension options. The interest rate on the extended facility was lowered from LIBOR plus 115 basis points to LIBOR plus 100 basis points. The facility fee remains unchanged at 20 basis points. Secured Debt 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% (2.40% at December 31, 2016), which was swapped for four and a half years to a fixed rate of 2.56%. The Company realized net proceeds of approximately $330,000,000. The property was previously encumbered by a 5.65%, $353,000,000 mortgage which was scheduled to mature in March 2016. On May 16, 2016, we completed a $300,000,000 recourse financing of 7 West 34th Street. The ten-year loan is interest only at a fixed rate of 3.65% and matures in June 2026. On September 6, 2016, we completed a $675,000,000 refinancing of theMART, a 3,652,000 square foot commercial building in Chicago. The five-year loan is interest only and has a fixed rate of 2.70%. The Company realized net proceeds of approximately $124,000,000. The property was previously encumbered by a 5.57%, $550,000,000 mortgage which was scheduled to mature in December 2016. On December 2, 2016, we completed a $400,000,000 refinancing of 350 Park Avenue, a 571,000 square foot Manhattan office building. The ten-year loan is interest only and has a fixed rate of 3.92%. The Company realized net proceeds of approximately $111,000,000. The property was previously encumbered by a 3.75%, $284,000,000 mortgage which was scheduled to mature in January 2017. Preferred Securities On September 1, 2016, we redeemed all of the outstanding 6.875% Series J cumulative redeemable preferred shares/units at their redemption price of $25.00 per share/unit, or $246,250,000 in the aggregate, plus accrued and unpaid dividends/distributions through the date of redemption. In connection therewith, we expensed $7,408,000 of issuance costs, which reduced net income attributable to common shareholders and net income attributable to Class A unitholders in the twelve months ended December 31, 2016. These costs had been initially recorded as a reduction of shareholders’ equity and partners’ capital. 46 Overview - continued Leasing Activity The leasing activity and related statistics in the tables below are based on leases signed during the period and are not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Second generation relet space represents square footage that has not been vacant for more than nine months and tenant improvements and leasing commissions are based on our share of square feet leased during the period. (Square feet in thousands) New York Office Manhattan Long Island City (Center Building) New York Retail Washington, DC Office Quarter Ended December 31, 2016: Total square feet leased Our share of square feet leased Initial rent(1) Weighted average lease term (years) Second generation relet space: Square feet GAAP basis: Straight-line rent(2) Prior straight-line rent Percentage increase Percentage increase inclusive of 3 square foot Dyson lease at 640 Fifth(3) Cash basis: Initial rent(1) Prior escalated rent Percentage increase (decrease) Percentage increase inclusive of 3 square foot Dyson lease at 640 Fifth(3) Tenant improvements and leasing commissions: Per square foot Per square foot per annum: Percentage of initial rent (Square feet in thousands) Year Ended December 31, 2016: Total square feet leased Our share of square feet leased Initial rent(1) Weighted average lease term (years) Second generation relet space: Square feet GAAP basis: Straight-line rent(2) Prior straight-line rent Percentage increase (decrease) Percentage increase inclusive of 3 square foot Dyson lease at 640 Fifth(3) Cash basis: Initial rent(1) Prior escalated rent Percentage increase (decrease) Percentage increase inclusive of 3 square foot Dyson lease at 640 Fifth(3) Tenant improvements and leasing commissions: Per square foot Per square foot per annum: Percentage of initial rent See notes on the following page. $ $ $ $ $ $ $ $ $ $ $ $ $ $ 609 432 78.29 7.8 358 77.10 71.95 7.2% 77.16 72.41 6.6% 73.69 9.45 12.1% $ $ $ $ $ $ $ 17 17 35.41 9.8 - - - - - - - 75.81 7.74 21.8% $ $ $ $ $ $ $ 10 10 906.91 9.8 7 178.19 164.21 8.5% 515.6% 160.47 170.45 (5.9%) 396.4% 813.04 82.96 9.1% $ $ $ $ $ $ $ 329 311 41.59 4.6 272 40.43 39.11 3.4% 41.91 41.12 1.9% 23.20 5.04 12.1% New York Office Manhattan Long Island City (Center Building) New York Retail Washington, DC Office 302 302 39.84 6.0 285 38.68 28.69 34.8% 40.10 30.53 31.4% 21.66 3.61 9.1% $ $ $ $ $ $ $ 111 90 285.17 9.1 69 204.95 166.14 23.4% 94.9% 194.35 173.70 11.9% 70.1% 184.74 20.30 7.1% $ $ $ $ $ $ $ 1,427 1,350 40.41 4.2 1,072 38.56 39.53 (2.5%) 41.08 42.47 (3.3%) 19.62 4.67 11.6% $ $ $ $ $ $ $ 1,939 1,541 78.97 9.3 1,382 78.30 66.15 18.4% 78.37 68.03 15.2% 72.81 7.83 9.9% 47 Overview - continued Leasing Activity - continued (Square feet in thousands) 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 GAAP basis: Straight-line rent(2) Prior straight-line rent Percentage increase (decrease) Cash basis: Initial rent(1) Prior escalated rent Percentage increase (decrease) Tenant improvements and leasing commissions: Per square foot Per square foot per annum: Percentage of initial rent New York Washington, DC Office Retail Office $ $ $ $ $ $ $ 2,276 1,838 78.55 9.2 1,297 77.03 62.73 22.8% 78.89 66.21 19.1% 69.36 7.54 9.6% $ $ $ $ $ $ $ 91 82 917.59 13.7 74 1,056.66 529.31 99.6% 907.49 364.56 148.9% 688.42 50.25 5.5% $ $ $ $ $ $ $ 1,987 1,847 40.20 8.6 1,322 39.57 (4) 43.08 (4) (8.2%) (4) 40.12 (4) 43.99 (4) (8.8%) (4) 55.14 6.41 15.9% (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) The Dyson lease was signed after this space had been vacant for greater than nine months and therefore, by company policy, does not qualify as "second generation" relet space. (4) Excluding 371 square feet of leasing activity with the U.S. Marshals Service (of which 293 square feet is second generation relet space), the initial rent and prior escalated rent on a GAAP basis was $42.30 and $43.89 per square foot, respectively (3.6% decrease), and the initial rent and prior escalated rent on a cash basis was $42.43 and $43.96 per square foot, respectively (3.5% decrease). 48 Overview - continued Square footage (in service) and Occupancy as of December 31, 2016: (Square feet in thousands) New York: Office Retail Residential - 1,692 units Alexander's, including 312 residential units Hotel Pennsylvania Washington, DC: Office Residential - 3,156 units Other Other: theMART 555 California Street Other Number of properties Square Feet (in service) Our Share Total Portfolio Occupancy % 36 70 11 7 1 44 9 5 3 3 4 20,227 2,672 1,559 2,437 1,400 28,295 11,141 3,245 330 14,716 3,671 1,738 1,811 7,220 16,962 2,464 826 790 1,400 22,442 10,123 3,103 330 13,556 3,662 1,217 850 5,729 96.3% 97.1% 95.7% 99.8% 96.5% 88.3% 97.8% 100.0% 90.5% 98.9% 92.4% 99.8% Total square feet at December 31, 2016 50,231 41,727 49 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, including 296 residential units Hotel Pennsylvania Washington, DC: Office Residential - 2,630 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 44 9 5 3 3 4 21,288 2,641 1,561 2,419 1,400 29,309 11,592 2,808 386 14,786 3,658 1,736 1,749 7,143 17,412 2,408 827 784 1,400 22,831 10,597 2,666 386 13,649 3,649 1,215 837 5,701 96.3% 96.2% 95.0% 99.7% 96.4% 90.1% 96.4% 100.0% 91.6% 98.5% 93.3% 99.8% Total square feet at December 31, 2015 51,238 42,181 50 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 – Basis of Presentation and Significant Accounting Policies to our 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 that meets the criteria of a business under ASU 2017-01, 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, 2016 and 2015, the carrying amounts of real estate, net of accumulated depreciation, were $14.8 billion and $14.7 billion, respectively. As of December 31, 2016 and 2015, the carrying amounts of identified intangible assets (including acquired above-market leases, tenant relationships and acquired in-place leases) were $192,731,000 and $227,901,000, respectively, and the carrying amounts of identified intangible liabilities, a component of “deferred revenue” on our consolidated balance sheets, were $263,786,000 and $318,148,000, 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. 51 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 whether 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, 2016 and 2015, the carrying amounts of investments in partially owned entities were $1.4 billion and $1.6 billion, respectively. Allowance for Doubtful Accounts We periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts ($10,920,000 and $11,908,000 as of December 31, 2016 and 2015, 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 ($2,227,000 and $2,751,000 as of December 31, 2016 and 2015, 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. 52 Critical Accounting Policies – continued Revenue Recognition We have the following revenue sources and revenue recognition policies: • Base Rent — income arising from tenant leases. These rents are recognized over the non-cancelable term of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements under the leases. We commence rental revenue recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. In addition, in circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease. • Percentage Rent — income arising from retail tenant leases that is contingent upon tenant sales exceeding defined thresholds. These rents are recognized only after the contingency has been removed (i.e., when tenant sales thresholds have been achieved). • Hotel Revenue — income arising from the operation of the Hotel Pennsylvania which consists of rooms revenue, food and beverage revenue, and banquet revenue. Income is recognized when rooms are occupied. Food and beverage and banquet revenue 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 recognized 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 collectability. If our assessment of the collectability of revenue changes, the impact on our consolidated financial statements could be material. Income Taxes Vornado operates in a manner intended to enable it 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. Vornado distributes to its shareholders 100% of its taxable income and therefore, no provision for Federal income taxes is required. If Vornado fails to distribute the required amount of income to its shareholders, or fails to meet other REIT requirements, it may fail to qualify as a REIT which may result in substantial adverse tax consequences. Recent Accounting Pronouncements See Note 2 – Basis of Presentation and Significant Accounting Policies to our consolidated financial statements in this Annual Report on Form 10-K for a discussion concerning recent accounting pronouncements. 53 Net Income and EBITDA by Segment for the Years Ended December 31, 2016, 2015 and 2014 Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the years ended December For the Year Ended December 31, 2016 Total New York 31, 2016 and 2015. (Amounts in thousands) Total revenues Total expenses Operating income (loss) Income (loss) from partially owned entities Loss from real estate fund investments Interest and other investment income (loss), net Interest and debt expense Net gain on extinguishment of Skyline properties debt Net gain on disposition of wholly owned and partially owned assets Income before income taxes Income tax expense Income from continuing operations Income from discontinued operations Net income Less net income attributable to noncontrolling interests in consolidated subsidiaries Net income attributable to the Operating Partnership Interest and debt expense(2) Depreciation and amortization(2) Income tax 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 (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 in consolidated subsidiaries Net income attributable to the Operating Partnership Interest and debt expense(2) Depreciation and amortization(2) Income tax (benefit) expense(2) EBITDA(1) ____________________________ See notes on pages 56 and 57. $ $ $ $ 1,713,374 1,093,587 619,787 (2,379) - 5,093 (216,685) - $ Washington, DC 518,117 528,863 (10,746) (7,227) - (2) (72,434) 487,877 159,511 565,327 (5,508) 559,819 - 559,819 15,302 412,770 (1,083) 411,687 - 411,687 $ Other 274,711 332,961 (58,250) 174,995 (23,602) 24,455 (113,555) - 922 4,965 (1,721) 3,244 7,172 10,416 (13,558) 546,261 280,563 435,961 5,911 1,268,696 (3) $ - 411,687 81,723 158,720 2,979 655,109 (4) $ (7,793) 2,623 145,076 99,533 2,948 250,180 (5) $ 1,695,925 1,032,015 663,910 655 - 7,722 (194,278) $ Washington, DC 532,812 390,921 141,891 (6,020) - (262) (68,727) 142,693 620,702 (4,379) 616,323 - 616,323 (13,022) 603,301 248,724 394,028 4,766 1,250,819 (3) $ 102,404 169,286 (317) 168,969 - 168,969 - 168,969 80,795 178,021 (1,610) 426,175 (4) $ Other 273,530 319,083 (45,553) (7,265) 74,081 19,518 (115,020) 6,724 (67,515) 89,391 21,876 52,262 74,138 (42,743) 31,395 140,324 92,588 (88,535) 175,772 (5) For the Year Ended December 31, 2015 Total New York 2,506,202 1,955,411 550,791 165,389 (23,602) 29,546 (402,674) 487,877 175,735 983,062 (8,312) 974,750 7,172 981,922 (21,351) 960,571 507,362 694,214 11,838 2,173,985 $ $ 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 (55,765) 803,665 469,843 664,637 (85,379) 1,852,766 $ $ 54 Net Income and EBITDA by Segment for the Years Ended December 31, 2016, 2015 and 2014 - continued Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the year ended December 31, 2014. (Amounts in thousands) For the Year Ended December 31, 2014 Total New York 1,520,845 946,466 574,379 20,701 - 6,711 (183,427) $ Washington, DC 537,151 358,019 179,132 (4,767) - 183 (75,395) - 418,364 (4,305) 414,059 463,163 877,222 - 99,153 (242) 98,911 - 98,911 $ Other 254,516 318,134 (63,618) (75,795) 163,034 31,858 (153,933) 13,568 (84,886) (4,734) (89,620) 122,513 32,893 (8,626) 868,596 241,959 324,239 4,395 1,439,189 (3) $ - 98,911 87,778 144,124 288 331,101 (4) $ (87,935) (55,042) 324,661 217,610 19,565 506,794 (5) 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 in consolidated subsidiaries Net income (loss) attributable to the Operating Partnership Interest and debt expense(2) Depreciation and amortization(2) Income tax expense(2) EBITDA(1) ____________________________ See notes on the following pages. $ $ 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 (96,561) 912,465 654,398 685,973 24,248 2,277,084 $ $ 55 Net Income and EBITDA by Segment for the Years Ended December 31, 2016, 2015 and 2014 - continued Notes to preceding tabular information: (1) We calculate EBITDA on an Operating Partnership basis which is before allocation to the noncontrolling interest of the Operating Partnership. 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. Our 7.5% interest in Fashion Centre Mall/Washington Tower will not be included in the spin-off of our Washington, DC segment and have been reclassified to Other. The prior year's presentation has been conformed to the current year. (2) Interest and debt expense, depreciation and amortization and income tax expense (benefit) in the reconciliation of net income to EBITDA includes our share of these items from partially owned entities. (3) The elements of "New York" EBITDA are summarized below. (Amounts in thousands) Office Retail Residential Alexander's Hotel Pennsylvania Total New York EBITDA Certain items that impact EBITDA: Net gains on sale of real estate EBITDA from discontinued operations and sold properties Other Certain items that impact EBITDA Total New York EBITDA, as adjusted For the Year Ended December 31, 2015 2014 2016 805,708 381,739 25,060 46,182 10,007 1,268,696 (159,511) (3,120) - (162,631) 1,106,065 $ $ 804,272 358,379 22,266 42,858 23,044 1,250,819 (142,693) (35,985) (1,300) (179,978) 1,070,841 $ $ 1,063,355 281,428 21,907 41,746 30,753 1,439,189 (440,537) (39,743) (171) (480,451) 958,738 $ $ (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 EBITDA Certain items that impact EBITDA: Net gain on extinguishment of Skyline properties debt Skyline properties impairment loss EBITDA from discontinued operations and sold properties Net gains on sale of real estate and a land parcel Other Certain items that impact EBITDA Total Washington, DC EBITDA, as adjusted For the Year Ended December 31, 2015 2016 2014 $ $ 260,436 348,016 608,452 46,657 655,109 (487,877) 160,700 (22,131) (15,302) - (364,610) 290,499 $ $ 359,063 26,325 385,388 40,787 426,175 - - (33,605) (102,404) 405 (135,604) 290,571 $ $ 260,270 29,250 289,520 41,581 331,101 - - (38,876) (1,800) - (40,676) 290,425 56 Net Income and EBITDA by Segment for the Years Ended December 31, 2016, 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 (loss) gain Net realized/unrealized (loss) gain Carried interest Total (loss) income from real estate fund investments theMART (including 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) Income from the repayment of our investments in 85 Tenth Avenue loans and preferred equity Acquisition and transaction related costs Our share of impairment losses on India real estate ventures Discontinued operations(d) Net gains on sale of real estate Impairment loss and loan loss reserve on investment in Suffolk Downs Total Other For the Year Ended December 31, 2015 2016 2014 $ $ 8,607 (16,270) (13,379) (21,042) 91,845 45,827 3,685 2,000 77,240 199,555 (100,594) 22,501 160,843 (26,062) (13,962) 7,185 714 - 250,180 $ $ $ 8,611 14,657 10,696 33,964 79,159 49,975 3,933 2,500 42,436 211,967 (106,416) 26,385 - (12,511) (14,806) 28,314 44,390 (1,551) 175,772 $ 8,056 37,535 24,715 70,306 79,636 48,844 6,434 103,632 21,385 330,237 (94,929) 31,665 - (16,392) (5,771) 245,679 26,568 (10,263) 506,794 (a) As a result of our investment being reduced to zero, we suspended equity method accounting in 2014. The year ended December 31, 2014 includes an impairment loss of $75,196. (b) The amounts in these captions (for this table only) exclude the results of the mark-to-market of our deferred compensation plan of $5,213, $111, and $11,557 of income, respectively. (c) The year ended December 31, 2015 includes a cumulative catch up of $4,542 from the acceleration of recognition of compensation expense related to the modification of the 2012-2014 Out-Performance Plans. (d) The years ended December 31, 2015 and 2014 include $22,684 and $14,956, respectively, of transaction costs related to the spin-off of our strip shopping centers and malls. EBITDA by Region Below is a summary of the percentages of EBITDA by geographic region, excluding gains on sale of real estate, non-cash impairment losses, and operations of sold properties. For the Year Ended December 31, 2015 2016 2014 Region: New York City metropolitan area Washington, DC/Northern Virginia area Chicago, IL San Francisco, CA 72% 19% 6% 3% 100% 72% 20% 5% 3% 100% 70% 21% 6% 3% 100% 57 Results of Operations – Year Ended December 31, 2016 Compared to December 31, 2015 Revenues Our revenues, which consist of property rentals (including hotel and trade show revenues), tenant expense reimbursements, and fee and other income, were $2,506,202,000 in the year ended December 31, 2016, compared to $2,502,267,000 in the prior year, an increase of $3,935,000. Below are the details of the increase (decrease) by segment: (Amounts in thousands) Increase (decrease) due to: Property rentals: Acquisitions, dispositions and other Development and redevelopment Hotel Pennsylvania Trade shows Same store operations Tenant expense reimbursements: Acquisitions, dispositions 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 $ (48,446) 2,151 (12,837) (852) 87,126 27,142 (5,074) 244 4,521 (309) (3,193) 4,060 (16,717) (7,048) (22,898) (33,841) (1) $ (150) (12,837) (3) - 77,676 30,848 (4,698) (3) 10,170 5,469 (3,233) 1,105 (13,878) (4) (2,862) (18,868) (14,605) (2) $ (195) - - 6,622 (8,178) (377) (796) (1,960) (3,133) - 2,023 (3,118) (2,289) (3,384) - 2,496 - (852) 2,828 4,472 1 1,043 (3,689) (2,645) 40 932 279 (1,897) (646) Total increase (decrease) in revenues $ 3,935 $ 17,449 $ (14,695) $ 1,181 (1) Primarily due to (i) $20,515 from the write-off of New York office straight-line rents recorded in 2016, (ii) $18,014 from the disposition of 20 Broad Street and (iii) $14,238 of income in 2015 from the acceleration of amortization of acquired below-market lease liabilities at 697-703 Fifth Avenue (St. Regis - retail), partially offset by asset acquisitions. (2) Primarily from the disposition of 1750 Pennsylvania Avenue and higher vacancies at the Skyline properties. On December 21, 2016, the disposition of the Skyline properties was completed by the receiver. (3) Average occupancy and revenue per available room were 84.7% and $113.84, respectively, for 2016 as compared to 90.7% and $133.69, respectively, for 2015. (4) Primarily from a lease termination fee received from a tenant at 20 Broad Street in the fourth quarter of 2015. 58 Results of Operations – Year Ended December 31, 2016 Compared to December 31, 2015 - continued Expenses Our expenses, which consist primarily of operating (including hotel and trade show expenses), depreciation and amortization and general and administrative expenses, were $1,955,411,000 in the year ended December 31, 2016, compared to $1,742,019,000 in the prior year, an increase of $213,392,000. Below are the details of the increase by segment: (Amounts in thousands) Increase (decrease) due to: Operating: Acquisitions, dispositions 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, dispositions and other Development and redevelopment Same store operations General and administrative: Mark-to-market of deferred compensation plan liability Same store operations Skyline properties impairment loss Acquisition and transaction related costs Total New York Washington, DC Other $ (3,098) (701) $ 2,527 (99) $ (5,625) (1) $ (2,090) (1,975) 322 456 (3,019) 21,102 13,087 (4,077) (22,207) 48,391 22,107 5,102 (1,130) 3,972 160,700 13,526 (2,296) 322 - (3,152) 25,224 22,526 3,229 (296) 35,275 38,208 - 838 838 - - - 1,488 (230) - 456 133 (3,963) (2,116) - 1,321 1,691 3,012 551 - - - (159) (7,323) (7,306) (1) (23,232) (2) 11,425 (19,113) - 3,678 3,678 5,102 (3) (5,646) (4) (544) 160,700 (5) - - 13,526 Total increase in expenses $ 213,392 $ 61,572 $ 137,942 $ 13,878 (1) Primarily from the disposition of 1750 Pennsylvania Avenue and higher vacancies at the Skyline properties. On December 21, 2016, the disposition of the Skyline properties was completed by the receiver. (2) Primarily due to the demolition of two adjacent office properties, 1726 M Street and 1150 17th Street. (3) This increase in expense is entirely offset by a corresponding decrease in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment income, net” on our consolidated statements of income. (4) Results primarily from the acceleration of the recognition of compensation expense in 2015 of $4,542 related to 2012-2014 Out-Performance Plans due to the modification of the vesting criteria of awards such that they fully vest at age 65. (5) On March 15, 2016, we notified the servicer of the $678,000 non-recourse mortgage loan on the Skyline properties in Virginia that cash flow will be insufficient to service the debt and pay other property related costs and expenses and that we were not willing to fund additional cash shortfalls. Accordingly, at our request, the loan was transferred to the special servicer. Consequently, based on the shortened holding period for the underlying assets, we concluded that the excess of carrying amount over our estimate of fair value was not recoverable and recognized a $160,700 non-cash impairment loss in the first quarter of 2016. 59 Results of Operations – Year Ended December 31, 2016 Compared to December 31, 2015 - continued (Loss) Income from Real Estate Fund Investments Below are the components of the (loss) income from our real estate fund investments for the years ended December 31, 2016 and 2015. (Amounts in thousands) Net investment income Net realized gain on exited investments Previously recorded unrealized gain on exited investment Net unrealized (loss) gain on held investments (Loss) income from real estate fund investments Less loss (income) attributable to noncontrolling interests in consolidated subsidiaries (Loss) income from real estate fund investments attributable to the Operating Partnership(1) Less loss (income) attributable to noncontrolling interests in the Operating Partnership (Loss) income from real estate fund investments attributable to Vornado $ $ For the Year Ended December 31, 2016 2015 17,053 14,761 (14,254) (41,162) (23,602) 2,560 (21,042) 1,270 (19,772) $ $ 16,329 26,036 (23,279) 54,995 74,081 (40,117) 33,964 (2,011) 31,953 (1) Excludes $3,831, and $2,939 of management and leasing fees in the years ended December 31, 2016 and 2015, respectively, which are included as a component of "fee and other income" on our consolidated statements of income. Income (Loss) from Partially Owned Entities Summarized below are the components of income (loss) from partially owned entities for the years ended December 31, 2016 and 2015. (Amounts in thousands) Equity in Net Income (Loss): 85 Tenth Avenue (1) Alexander's Partially owned office buildings (2) India real estate ventures (3) Urban Edge Properties ("UE") PREIT Toys (4) Other investments (5) Percentage Ownership at December 31, 2016 For the Year Ended December 31, 2016 2015 49.9% 32.4% Various 4.1%-36.5% 5.4% 8.0% 32.5% Various $ $ 178,072 34,240 (42,100) (18,122) 5,839 (5,213) 2,000 10,673 165,389 $ $ (1,015) 31,078 (23,556) (18,746) 4,394 (7,450) 2,500 165 (12,630) (2) (1) On December 1, 2016, the owner of 85 Tenth Avenue completed a 10-year, 4.55% $625,000 refinancing of the property and we received net proceeds of $191,779 in repayment of our existing loans and preferred equity investments. We recognized $160,843 of income as a result of this transaction. 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 2016 and 2015, we recognized net losses of $47,000 and $39,600, respectively, from our 666 Fifth Avenue (Office) joint venture as a result of our share of depreciation expense. In addition, 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. Includes non-cash impairment losses of $13,962 and $14,806, respectively. (3) (4) Represents management fees earned and received from our investment in Toys. (5) Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, 50-70 West 93rd Street and others. 60 Results of Operations – Year Ended December 31, 2016 Compared to December 31, 2015 - continued Interest and Other Investment Income, net Interest and other investment income, net was $29,546,000 in the year ended December 31, 2016, compared to $26,978,000 in the prior year, an increase of $2,568,000. This increase resulted primarily from an increase in the value of investments in our deferred compensation plan (offset by a corresponding decrease in the liability for plan assets in general and administrative expenses). Interest and Debt Expense Interest and debt expense was $402,674,000 in the year ended December 31, 2016, compared to $378,025,000 in the prior year, an increase of $24,649,000. This increase was primarily due to (i) $23,205,000 of higher interest expense from the full year effect of 2015 financings of the St. Regis Retail, 150 West 34th Street, 100 West 33rd Street, and from the $375,000,000 drawn on our $750,000,000 delayed draw term loan, (ii) $10,208,000 of lower capitalized interest, and (iii) $7,823,000 of default interest on our Skyline properties mortgage loan, partially offset by (iv) $13,127,000 of interest savings from the re-financings of 888 7th Avenue and 770 Broadway and (v) $4,177,000 of interest savings from the repayment of the Bowen Building loan. Net Gain on Extinguishment of Skyline Properties Debt In the year ended December 31, 2016, upon the final disposition of the Skyline properties, all assets (approximately $236,535,000) and liabilities (approximately $724,412,000), were removed from our consolidated balance sheet which resulted in a net gain of $487,877,000. Net Gain on Disposition of Wholly Owned and Partially Owned Assets The net gain of $175,735,000 in the year ended December 31, 2016, consists primarily of a $159,511,000 net gain on sale of our 47% ownership interest in 7 West 34th Street and a $15,302,000 net gain on sale of our 20% ownership interest in Fairfax Square. The net gain of $251,821,000 in the prior year, consists of a $142,693,000 net gain on sale of 20 Broad Street, a $102,404,000 net gain on sale of 1750 Pennsylvania Avenue and $6,724,000 from the sale of residential condominiums. Income Tax (Expense) Benefit In the year ended December 31, 2016, we had an income tax expense of $8,312,000, compared to a benefit of $84,695,000 in the prior year, an increase in expense of $93,007,000. This increase in expense resulted primarily from the prior year reversal of $90,030,000 of valuation allowances against certain of our deferred tax assets, as we concluded that it was 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. Income from Discontinued Operations We have reclassified the revenues and expenses of our strip shopping center and mall business which was spun off to UE on January 15, 2015 and other related retail assets 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, 2016 and 2015. (Amounts in thousands) Total revenues Total expenses Net gains on sale of real estate and a lease position Impairment losses UE spin-off transaction related costs Pretax income from discontinued operations Income tax expense Income from discontinued operations For the Year Ended December 31, 2015 2016 3,998 1,435 2,563 5,074 (465) - 7,172 - 7,172 $ $ 27,831 17,651 10,180 65,396 (256) (22,972) 52,348 (86) 52,262 $ $ 61 Results of Operations – Year Ended December 31, 2016 Compared to December 31, 2015 - continued Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries Net income attributable to noncontrolling interests in consolidated subsidiaries was $21,351,000 in the year ended December 31, 2016, compared to $55,765,000 in the prior year, a decrease of $34,414,000. This decrease resulted primarily from lower net income allocated to the noncontrolling interests of our real estate fund investments. Net Income Attributable to Noncontrolling Interests in the Operating Partnership (Vornado Realty Trust) Net income attributable to noncontrolling interests in the Operating Partnership was $53,654,000 in the year ended December 31, 2016, compared to $43,231,000 in the prior year, an increase of $10,423,000. This increase resulted primarily from higher net income subject to allocation to unitholders. Preferred Share Dividends of Vornado Realty Trust Preferred share dividends were $75,903,000 in the year ended December 31, 2016, compared to $80,578,000 in the prior year, a decrease of $4,675,000. This decrease resulted primarily from the redemption of the 6.875% Series J cumulative redeemable preferred shares on September 1, 2016. Preferred Unit Distributions of Vornado Realty L.P. Preferred unit distributions were $76,097,000 in the year ended December 31, 2016, compared to $80,736,000 in the prior year, a decrease of $4,639,000. This decrease resulted primarily from the redemption of the 6.875% Series J cumulative redeemable preferred units on September 1, 2016. Preferred Share Issuance Costs In the year ended December 31, 2016, we recognized a $7,408,000 expense in connection with the write-off of issuance costs upon redeeming all of the outstanding 6.875% Series J cumulative redeemable preferred shares on September 1, 2016. 62 Results of Operations – Year Ended December 31, 2016 Compared to December 31, 2015 - 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 acquired 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, 2016, compared to the year ended December 31, 2015. (Amounts in thousands) EBITDA for the year ended December 31, 2016 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 expenses Same store EBITDA for the year ended December 31, 2016 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 Increase in same store EBITDA - Year ended December 31, 2016 vs. December 31, 2015 % increase in same store EBITDA New York Washington, DC $ 1,268,696 $ 655,109 35,864 29,729 (24,809) (159,498) (26,816) 6,568 1,100,005 1,250,819 $ $ - (525,223) (3,118) 159,860 316,357 426,175 35,026 26,051 (2,840) (173,843) (21,171) (52,762) 1,035,229 $ - (135,929) (2,851) (5,746) 307,700 64,776 (1) $ 8,657 (3) 6.3% (2) 2.8% $ $ $ $ (1) The $64,776 increase in New York same store EBITDA resulted primarily from increases in Office and Retail EBITDA of $43,187 and $33,360, respectively, partially offset by a decrease in Hotel Pennsylvania EBITDA of $13,037. 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 7.7%. (3) The $8,657 increase in Washington, DC same store EBITDA resulted primarily from higher rental revenue of $8,542, higher management and leasing fees of $2,023, partially offset by higher net operating expenses of $2,351. 63 Results of Operations – Year Ended December 31, 2016 Compared to December 31, 2015 - continued Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA (Amounts in thousands) Same store EBITDA for the year ended December 31, 2016 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, 2016 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 Increase in cash basis same store EBITDA - Year ended December 31, 2016 vs. December 31, 2015 % increase in cash basis same store EBITDA (1) Excluding Hotel Pennsylvania, same store EBITDA increased by 10.3% on a cash basis. $ $ $ $ $ New York 1,100,005 Washington, DC 316,357 $ (170,920) 929,085 $ (19,446) 296,911 1,035,229 $ 307,700 (179,403) 855,826 $ (21,641) 286,059 73,259 $ 10,852 8.6% (1) 3.8% 64 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 year ended December 31, 2014, 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, dispositions and other Development and redevelopment Hotel Pennsylvania Trade shows Same store operations Tenant expense reimbursements: Acquisitions, dispositions 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 $ $ 57,430 55,559 (6,501) 2,195 56,416 165,099 4,521 2,863 7,773 15,157 (3,545) (3,089) 10,307 5,826 9,499 62,316 (1) $ 52,547 (2) (6,501) - 46,024 154,386 5,098 (1) 2,904 (2) 4,046 12,048 (4,271) (2,509) 12,207 3,219 8,646 $ (4,886) 142 - - 2,616 (2,128) (577) (41) 57 (561) - (480) (1,900) 730 (1,650) - 2,870 - 2,195 7,776 12,841 - - 3,670 3,670 726 (100) - 1,877 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). 65 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 year ended December 31, 2014, an increase of $119,400,000. Below are the details of the increase by segment: (Amounts in thousands) Increase (decrease) due to: Operating: Acquisitions, dispositions 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, dispositions 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 $ 9,518 19,761 $ 11,729 (1) $ 14,289 (2) (2,211) 1,449 $ (3,397) 915 249 (2,963) 33,555 57,638 34,960 17,014 9,675 61,649 (11,446) 17,483 6,037 (5,924) (3,026) 915 - (4,229) 22,718 42,396 34,816 (1) (6,120) (2) 7,910 36,606 - 6,547 (4) 6,547 (538) - - - 2,061 761 144 30,599 2,686 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, 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, 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, (ii) higher payroll and related costs of $2,900 and (iii) higher professional fees and other of $2,400. 66 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 gain on exited investments Previously recorded unrealized gain on exited investment Net unrealized gain on held investments Income from real estate fund investments Less income attributable to noncontrolling interests in consolidated subsidiaries Income from real estate fund investments attributable to the Operating Partnership Less income attributable to noncontrolling interests in the Operating Partnership Income from real estate fund investments attributable to Vornado(1) For the Year Ended December 31, 2015 2014 $ 16,329 26,036 (23,279) 54,995 74,081 (40,117) 33,964 (2,011) 31,953 $ 12,895 126,653 (50,316) 73,802 163,034 (92,728) 70,306 (4,047) 66,259 $ $ (1) Excludes $2,939, and $2,562 of management and leasing fees 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. 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 (Loss) Income: 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 For the Year Ended December 31, 2015 2014 32.4% Various 4.1%-36.5% 8.0% 5.4% 32.5% Various $ $ 31,078 (24,571) (18,746) (7,450) 4,394 2,500 165 (12,630) $ $ 30,009 (6,138) (8,309) - - (73,556) (1,867) (59,861) (1) Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue, 85 Tenth 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 non-cash impairment losses of $14,806 and $5,771, 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, Fashion Centre Mall/Washington Tower, 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) 67 Results of Operations – Year Ended December 31, 2015 Compared to December 31, 2014 - continued 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 year ended December 31, 2014, a decrease 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 increase in the liability for plan assets in general and administrative expenses). 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 year ended December 31, 2014, 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 The net gain of $251,821,000 in year ended December 31, 2015, consists of a $142,693,000 net gain on sale of 20 Broad Street, a $102,404,000 net gain on sale of 1750 Pennsylvania Avenue and $6,724,000 from the sale of residential condominiums. The net gain of $13,568,000 in the year ended December 31, 2014 is 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 year ended December 31, 2014, 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 concluded that it was 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. 68 Results of Operations – Year Ended December 31, 2015 Compared to December 31, 2014 - continued 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, 2015 and 2014. (Amounts in thousands) Total revenues Total expenses Net gains on sales of real estate UE spin-off transaction related costs 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 year ended December 31, 2014, 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 (Vornado Realty Trust) 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 year ended December 31, 2014, a decrease of $4,382,000. This decrease resulted primarily from lower net income subject to allocation to unitholders. Preferred Share Dividends of Vornado Realty Trust Preferred share dividends were $80,578,000 in the year ended December 31, 2015, compared to $81,464,000 in the year ended December 31, 2014, a decrease of $886,000. Preferred Unit Distributions of Vornado Realty L.P. Preferred unit distributions were $80,736,000 in the year ended December 31, 2015, compared to $81,514,000 in the year ended December 31, 2014, a decrease of $778,000. 69 Results of Operations – Year Ended December 31, 2015 Compared to December 31, 2014 - 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, 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 New York Washington, DC $ 1,250,819 $ 426,175 35,026 26,051 (61,369) (169,362) (71,705) (17,692) 965,717 1,439,189 $ $ - (135,930) 2,271 (5,746) 312,821 331,101 28,479 27,339 (4,141) (476,465) (26,832) (8,815) 951,415 $ - (40,478) 621 (5,446) 313,137 14,302 (1) $ (316) (3) 1.5% (2) (0.1%) $ $ $ $ (1) The $14,302 increase in New York same store EBITDA resulted primarily from increases in Office and Retail EBITDA of $13,688 and $6,519, respectively, partially offset by a decrease in Hotel Pennsylvania EBITDA of $7,709. The Office and Retail EBITDA increases resulted primarily from higher rents, including signage, partially offset by lower management and leasing fees and higher net operating expenses. (2) Excluding Hotel Pennsylvania, same store EBITDA increased by 2.4%. (3) The $316 decrease in Washington, DC same store EBITDA resulted primarily from higher net operating expenses of $2,629 and lower fee and other income of $715, partially offset by higher rental revenue of $3,162. 70 Results of Operations – Year 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 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 965,717 Washington, DC 312,821 $ (131,561) 834,156 $ (19,726) 293,095 951,415 $ 313,137 (119,842) 831,573 $ (6,358) 306,779 2,583 $ (13,684) 0.3% (1) (4.5%) 71 Supplemental Information Net Income and EBITDA by Segment for the Three Months Ended December 31, 2016 and 2015 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, 2016. (Amounts in thousands) For the Three Months Ended December 31, 2016 Total New York $ Total revenues Total expenses Operating income (loss) Income (loss) from partially owned entities Loss from real estate fund investments Interest and other investment income (loss), net Interest and debt expense Net gain on extinguishment of Skyline properties debt Net gain on disposition of wholly owned and partially owned owned assets Income before income taxes Income tax benefit (expense) Income from continuing operations Income from discontinued operations Net income Less net loss (income) attributable to noncontrolling interests $ 638,260 463,156 175,104 164,860 (52,352) 9,284 (98,244) 487,877 15,510 702,039 1,493 703,532 1,012 704,544 443,910 275,168 168,742 2,764 - 1,409 (54,492) - $ Washington, DC 128,191 92,436 35,755 (1,097) - (143) (18,038) 487,877 - 118,423 (1,377) 117,046 - 117,046 15,302 519,656 (199) 519,457 - 519,457 $ Other 66,159 95,552 (29,393) 163,193 (52,352) 8,018 (25,714) - 208 63,960 3,069 67,029 1,012 68,041 in consolidated subsidiaries Net income attributable to the Operating Partnership Interest and debt expense(2) Depreciation and amortization(2) Income tax (benefit) expense(2) EBITDA(1) _________________________ See notes on pages 74 and 75. 5,010 709,554 130,464 173,071 (1,229) 1,011,860 $ (3,747) 113,299 71,880 104,513 1,487 291,179 (3) $ - 519,457 19,934 41,007 199 580,597 (4) $ 8,757 76,798 38,650 27,551 (2,915) 140,084 (5) $ 72 Supplemental Information – continued Net Income and EBITDA by Segment for the Three Months Ended December 31, 2016 and 2015 – continued 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. (Amounts in thousands) For the Three Months Ended December 31, 2015 Total New York $ 452,717 265,152 187,565 (868) - 2,080 (51,274) $ Washington, DC 131,284 97,149 34,135 (1,713) - (322) (16,504) 142,693 280,196 (1,194) 279,002 - 279,002 (6,382) 272,620 64,347 105,131 1,398 443,496 (3) $ - 15,596 (238) 15,358 - 15,358 - 15,358 19,574 42,601 246 77,779 (4) $ Other 67,580 81,577 (13,997) (1,340) 21,959 5,602 (31,137) 4,231 (14,682) 1,882 (12,800) 1,984 (10,816) (11,013) (21,829) 37,197 23,001 (1,674) 36,695 (5) 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 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 in consolidated subsidiaries Net income (loss) attributable to the Operating Partnership Interest and debt expense(2) Depreciation and amortization(2) Income tax (benefit) expense(2) EBITDA(1) _________________________ See notes on the following pages. $ $ 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 (17,395) 266,149 121,118 170,733 (30) 557,970 $ $ 73 Supplemental Information – continued Net Income and EBITDA by Segment for the Three Months Ended December 31, 2016 and 2015 - continued Notes to preceding tabular information: (1) We calculate EBITDA on an Operating Partnership basis which is before allocation to the noncontrolling interest of the Operating Partnership. 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. Our 7.5% interest in Fashion Centre Mall/Washington Tower will not be included in the spin-off of our Washington, DC segment and have been reclassified to Other. The prior year's presentation has been conformed to the current year. (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 Total New York EBITDA Certain items that impact EBITDA: Net gains on sale of 20 Broad Street EBITDA from discontinued operations and sold properties Certain items that impact EBITDA Total New York EBITDA, as adjusted (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 EBITDA Certain items that impact EBITDA: Net gain on extinguishment of Skyline properties debt Net gains on sale of Fairfax Square EBITDA from discontinued operations and sold properties Other Certain items that impact EBITDA Total Washington, DC EBITDA, as adjusted For the Three Months Ended December 31, 2016 2015 170,469 97,528 6,160 11,302 5,720 291,179 - - - 291,179 $ $ 323,765 93,319 6,011 11,708 8,693 443,496 (142,693) (18,734) (161,427) 282,069 For the Three Months Ended December 31, 2016 2015 74,242 492,964 567,206 13,391 580,597 (487,877) (15,302) (5,333) - (508,512) 72,085 $ $ 61,661 5,712 67,373 10,406 77,779 - - (6,110) 405 (5,705) 72,074 $ $ $ $ 74 Supplemental Information – continued Net Income and EBITDA by Segment for the Three Months Ended December 31, 2016 and 2015 - 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 (loss) gain Net realized/unrealized (loss) gain Carried interest Total (loss) income from real estate fund investments theMART (including trade shows) 555 California Street India real estate ventures Our share of Toys Other investments Corporate general and administrative expenses(a) Investment income and other, net(a) Income from the repayment of our investments in 85 Tenth Avenue loans and preferred equity Acquisition and transaction related costs Our share of impairment losses on India real estate ventures Discontinued operations Net gain on sale of real estate Impairment loss on loan loss reserve on investment in Suffolk Downs Total Other For the Three Months Ended December 31, 2016 2015 $ $ 2,298 (19,603) (17,399) (34,704) 21,156 10,690 1,100 500 29,238 27,980 (24,230) 3,184 160,843 (14,743) (13,962) 1,012 - - 140,084 $ $ 1,732 5,115 4,448 11,295 16,930 11,738 1,704 500 13,466 55,633 (24,373) 5,110 - (4,951) - 2,001 4,231 (956) 36,695 (a) The amounts in these captions (for this table only) exclude the results of the mark-to-market of our deferred compensation plan of $2,588 and $438 income for the three months ended December 31, 2016 and 2015, respectively. EBITDA by Region Below is a summary of the percentages of EBITDA by geographic region, excluding gains on sale of real estate, non-cash impairment losses, and operations of sold properties. Region: New York City metropolitan area Washington, DC/Northern Virginia area Chicago, IL San Francisco, CA For the Three Months Ended December 31, 2016 2015 74% 18% 5% 3% 100% 74% 19% 4% 3% 100% 75 Supplemental Information – continued Three Months Ended December 31, 2016 Compared to December 31, 2015 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 acquired 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, 2016, compared to the three months ended December 31, 2015. New York Washington, DC 580,597 $ 291,179 8,307 (2,159) (106) (6,871) (212) 290,138 443,496 6,788 (239) (161,312) (5,041) (14,560) 269,132 $ $ $ 21,006 $ 7.8% (1) 7,612 - (508,494) (1,530) 23 78,208 77,779 7,553 - (6,039) (415) (2,451) 76,427 1,781 2.3% (Amounts in thousands) EBITDA for the three months ended December 31, 2016 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) expenses Same store EBITDA for the three months ended December 31, 2016 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 Increase in GAAP basis same store EBITDA - Three months ended December 31, 2016 vs. December 31, 2015 % increase in same store EBITDA (1) Excluding Hotel Pennsylvania, same store EBITDA increased by 9.2%. $ $ $ $ $ 76 Supplemental Information – continued Three Months Ended December 31, 2016 Compared to December 31, 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, 2016 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, 2016 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 Increase in cash basis same store EBITDA - Three months ended December 31, 2016 vs. December 31, 2015 % increase in cash basis same store EBITDA (1) Excluding Hotel Pennsylvania, same store EBITDA increased by 19.8% on a cash basis. $ $ $ $ $ New York 290,138 Washington, DC 78,208 $ (35,746) (4,235) 254,392 $ 73,973 269,132 $ 76,427 (52,852) (5,546) 216,280 $ 70,881 38,112 $ 17.6% (1) 3,092 4.4% 77 Supplemental Information – continued Three Months Ended December 31, 2016 Compared to September 30, 2016 Below is the reconciliation of Net Income to EBITDA for the three months ended September 30, 2016. (Amounts in thousands) Net income attributable to Vornado for the three months ended September 30, 2016 Interest and debt expense Depreciation and amortization Income tax expense EBITDA for the three months ended September 30, 2016 $ $ New York $ Washington, DC 24,107 20,565 36,637 310 81,619 $ 96,403 66,314 111,731 2,445 276,893 Below is the reconciliation of EBITDA to same store EBITDA for each of our segments for the three months ended December 31, 2016, compared to the three months ended September 30, 2016. New York Washington, DC 580,597 $ 291,179 8,307 7,612 - (106) (7,583) (282) 291,515 276,893 9,783 - (51) (7,966) 1,286 279,945 $ $ $ - (508,494) (1,530) 23 78,208 81,619 6,858 - (5,085) (1,581) (563) 81,248 11,570 $ (3,040) 4.1% (1) (3.7%) (Amounts in thousands) EBITDA for the three months ended December 31, 2016 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) expenses Same store EBITDA for the three months ended December 31, 2016 EBITDA for the three months ended September 30, 2016 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 expenses (income) Same store EBITDA for the three months ended September 30, 2016 Increase (decrease) in same store EBITDA - Three months ended December 31, 2016 vs. September 30, 2016 % increase (decrease) in same store EBITDA (1) Excluding Hotel Pennsylvania, same store EBITDA increased by 3.6%. $ $ $ $ $ 78 Supplemental Information – continued Three Months Ended December 31, 2016 Compared to September 30, 2016 - 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, 2016 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, 2016 Same store EBITDA for the three months ended September 30, 2016 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, 2016 Increase (decrease) in cash basis same store EBITDA - Three months ended December 31, 2016 vs. September 30, 2016 % increase (decrease) in cash basis same store EBITDA (1) Excluding Hotel Pennsylvania, same store EBITDA increased by 7.6% on a cash basis. $ $ $ $ $ New York 291,515 Washington, DC 78,208 $ (36,201) (4,235) 255,314 $ 73,973 279,945 $ 81,248 (43,938) (5,505) 236,007 $ 75,743 19,307 $ (1,770) 8.2% (1) (2.3%) 79 Related Party Transactions Alexander’s, Inc. We own 32.4% of Alexander’s. Steven Roth, the Chairman of Vornado’s Board of Trustees and its 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 5 - Investments in Partially Owned Entities to our consolidated financial statements in this Annual Report on Form 10-K. Urban Edge Properties We own 5.4% of UE. During 2015, we provided transition services to UE, primarily for information technology, human resources, tax and financial planning. In 2016, we continue to provide UE transition services for information technology and human resources. UE is providing us with leasing, development and property management services for certain of our retail properties including the retail assets of Alexander’s. Fees to UE for servicing the retail assets of Alexander’s are similar to the fees that we are receiving from Alexander’s as described in Note 5 - 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, 2016, 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 $521,000, $541,000, and $535,000 of management fees under the agreement for the years ended December 31, 2016, 2015 and 2014, respectively. 80 Liquidity and Capital Resources Property rental income is our primary source of cash flow and is dependent upon the occupancy and rental rates of our properties. Our cash requirements include property operating expenses, capital improvements, tenant improvements, debt service, leasing commissions, dividends to shareholders and distributions to unitholders of the Operating Partnership, as well as acquisition and development costs. Other sources of liquidity to fund cash requirements include proceeds from debt financings, including mortgage loans, senior unsecured borrowings, unsecured term loan and unsecured revolving credit facilities; proceeds from the issuance of common and preferred equity securities; 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 preferred shares and 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 18, 2017, Vornado declared a quarterly common dividend of $0.71 per share (an indicated annual rate of $2.84 per common share). This dividend, if continued for all of 2017, would require Vornado to pay out approximately $537,000,000 of cash for common share dividends. In addition, during 2017, Vornado expects to pay approximately $65,000,000 of cash dividends on outstanding preferred shares and approximately $35,000,000 of cash distributions to unitholders of the Operating Partnership. 81 Liquidity and Capital Resources – continued 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, 2016, 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, 2016, we had $1,501,027,000 of cash and cash equivalents and $2,364,523,000 of borrowing capacity under our unsecured revolving credit facilities, net of outstanding borrowings and letters of credit of $115,630,000 and $19,847,000, respectively. A summary of our consolidated debt as of December 31, 2016 and 2015 is presented below. (Amounts in thousands) 2016 2015 Consolidated debt: Variable rate Fixed rate Total Deferred financing costs, net and other Total, net December 31, Balance $ $ 3,765,054 6,949,873 10,714,927 (103,242) 10,611,685 Weighted Average Interest Rate 2.40% 3.82% 3.32% December 31, Balance $ $ 3,995,704 7,206,634 11,202,338 (111,328) 11,091,010 Weighted Average Interest Rate 2.00% 4.21% 3.42% During 2017 and 2018, $118,585,000 and $209,208,000, 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. Below is a schedule of our contractual obligations and commitments at December 31, 2016. (Amounts in thousands) Contractual cash obligations (principal and interest(1)): Notes and mortgages payable Operating leases Purchase obligations, primarily construction commitments Unsecured revolving credit facilities Senior unsecured notes due 2022 Senior unsecured notes due 2019 Capital lease obligations Unsecured term loan Total contractual cash obligations Commitments: Less than 1 Year Total 1 – 3 Years $ 10,829,548 $ 1,791,440 771,850 118,231 500,833 489,375 372,379 392,915 3 – 5 Years Thereafter 476,269 $ 2,357,201 $ 5,446,252 $ 2,549,826 1,611,995 - - 400,833 - 309,839 - $ 15,266,571 $ 1,040,887 $ 3,762,946 $ 5,590,245 $ 4,872,493 34,871 477,074 27 20,000 11,250 12,508 8,888 71,222 294,776 118,204 40,000 472,500 25,016 384,027 73,352 - - 40,000 5,625 25,016 - Capital commitments to partially owned entities Standby letters of credit Total commitments $ $ 173,311 $ 173,311 $ 19,847 19,847 193,158 $ 193,158 $ - $ - - $ - $ - - $ - - - (1) Interest on variable rate debt is computed using rates in effect at December 31, 2016. 82 Liquidity and Capital Resources – continued Financing Activities and Contractual Obligations – continued Details of 2016 financing activities are provided in the “Overview” of Management’s Discussion and Analysis of Financial Conditions and Results of Operations. Details of 2015 financing activities are discussed below. 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% 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 which was scheduled to mature in April 2015 and a $64,000,000 mortgage at LIBOR plus 1.53% which was scheduled to mature in 2018. On June 2, 2015, we completed a $205,000,000 financing in connection with the acquisition of 150 West 34th Street. The loan bears interest at LIBOR plus 2.25% and matures in 2018 with two one-year extension options. On July 28, 2015, we completed a $580,000,000 refinancing of 100 West 33rd Street, a 1.1 million square foot property comprised of 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% and matures in July 2020. We realized net proceeds of approximately $242,000,000. On September 22, 2015, we upsized the loan on our 220 Central Park South development by $350,000,000 to $950,000,000. The interest rate on the loan is LIBOR plus 2.00% and the final maturity date is 2020. In connection with the upsizing, the standby commitment for a $500,000,000 mezzanine loan for this development has been terminated by payment of a $15,000,000 contractual termination fee, which was capitalized as a component of “development costs and construction in progress” on our consolidated balance sheet as of 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% 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% 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% 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. 83 Liquidity and Capital Resources – continued Financing Activities and Contractual Obligations – continued Acquisitions and Investments On January 20, 2015, we co-invested with the Vornado Capital Partners Real Estate Fund (“Fund”) and one of the Fund’s limited partners to buy out the Fund’s joint venture partner’s 57.1% interest in the Crowne Plaza Times Square Hotel. The purchase price for the 57.1% 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%. 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 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. Certain Future Cash Requirements Capital Expenditures The following table summarizes anticipated 2017 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) 168.8 $ 121.0 38.1 327.9 $ $ $ 99.0 $ 53.0 22.0 174.0 $ 1,000 10 75.00 $ 7.50 $ 29.0 $ 50.0 13.0 92.0 $ 1,217 8 51.35 6.50 40.8 18.0 3.1 61.9 The table above excludes anticipated capital expenditures of each of our partially owned non-consolidated subsidiaries, as these entities fund their capital expenditures without additional equity contributions from us. 84 Liquidity and Capital Resources – continued Development and Redevelopment Expenditures We are constructing a residential condominium tower containing 397,000 salable square feet on our 220 Central Park South development site. The incremental development cost of this project is estimated to be approximately $1.3 billion, of which $609,420,000 has been expended as of December 31, 2016. We are developing a 173,000 square foot Class-A office building at 512 West 22nd Street, along the western edge of the High Line in the West Chelsea submarket of Manhattan (55.0% owned). The incremental development cost of this project is estimated to be approximately $130,000,000, of which our share is $72,000,000. As of December 31, 2016, $30,143,000 has been expended, of which our share is $16,579,000. We are developing a 170,000 square foot office and retail building at 61 Ninth Avenue, located on the southwest corner of Ninth Avenue and 15th Street in the West Chelsea submarket of Manhattan. In February 2016, the venture purchased an adjacent five story loft building and air rights in exchange for a 10% common and preferred equity interest in the venture valued at $19,400,000, which reduced our ownership interest to 45.1% from 50.1%. On December 21, 2016, the venture obtained a $90,000,000 construction loan. The loan matures in December 2020 with two six-month extension options. The interest rate is LIBOR plus 3.05%. As of December 31, 2016, there was nothing drawn on this loan. The incremental development cost of this project is estimated to be approximately $150,000,000, of which our share is $68,000,000. As of December 31, 2016, $38,499,000 has been expended, of which our share is $17,363,000. We are developing a 34,000 square foot office and retail building at 606 Broadway, located on the northeast corner of Broadway and Houston Street in Manhattan (50.0% owned). At closing, the joint venture obtained a $65,000,000 construction loan, of which approximately $25,800,000 was outstanding as of December 31, 2016. The loan, which bears interest at LIBOR plus 3.00% (3.66% at December 31, 2016), matures in May 2019 with two one-year extension options. The venture’s incremental development cost of this project is estimated to be approximately $60,000,000, of which our share is $30,000,000. As of December 31, 2016, $20,833,000 has been expended, of which our share is $10,417,000. We are in the process of demolishing two adjacent Washington, DC office properties, 1726 M Street and 1150 17th Street, and will replace them in the future with a new 335,000 square foot Class A office building, to be addressed 1700 M Street. The incremental development cost of the project is estimated to be approximately $170,000,000, of which $10,500,000 has been expended as of December 31, 2016. In September 2016, a joint venture between the Related Companies and Vornado was designated by New York State to redevelop the historic Farley Post Office building. The building will include a new Moynihan Train Hall and approximately 850,000 rentable square feet of office space and ancillary train hall retail. The joint venture will enter into a 99-year, triple-net lease and make a $230,000,000 contribution towards the construction of the train hall. Total costs for the redevelopment of the office and retail space are yet to be determined. We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including, in particular, the Penn Plaza District. There can be no assurance that any of our development or redevelopment projects will commence, or if commenced, be completed, or completed on schedule or within budget. 85 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 $1,622,000 ($1,976,000 for 2017) and 16% (17% for 2017) of the balance of a covered loss and the Federal government is responsible for the remaining portion of a covered loss. We are ultimately responsible for any loss incurred by PPIC. We continue to monitor the state of the insurance market and the scope and 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, 2016, the aggregate dollar amount of these guarantees and master leases is approximately $737,000,000. As of December 31, 2016, $19,847,000 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, 2016, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $173,000,000, which includes our share of the commitments of the Farley Post Office redevelopment joint venture. As of December 31, 2016, we have construction commitments aggregating $653,940,000. 86 Liquidity and Capital Resources – continued Cash Flows for the Year Ended December 31, 2016 Our cash and cash equivalents were $1,501,027,000 at December 31, 2016, a $334,680,000 decrease from the balance at December 31, 2015. Our consolidated outstanding debt, net was $10,611,685,000 at December 31, 2016, a $479,325,000 decrease from the balance at December 31, 2015. As of December 31, 2016 and December 31, 2015, $115,630,000 and $550,000,000, respectively, was outstanding under our revolving credit facilities. During 2017 and 2018, $118,585,000 and $209,208,000, respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it. Net Cash Provided by Operating Activities Cash flows provided by operating activities of $1,000,667,000 was comprised of (i) net income of $981,922,000, (ii) distributions of income from partially owned entities of $217,468,000, (iii) return of capital from real estate fund investments of $71,888,000, partially offset by (iv) $197,568,000 of non-cash adjustments, which include depreciation and amortization expense, net gain on extinguishment of Skyline properties debt, net gain on the disposition of wholly owned and partially owned assets, equity in net income from partially owned entities, real estate impairment losses, the effect of straight-lining of rental income, amortization of below-market leases, net realized and unrealized loss on real estate fund investments and net gains on sale of real estate and other, and (v) the net change in operating assets and liabilities of $73,043,000. Net Cash Used in Investing Activities Net cash used in investing activities of $889,193,000 was primarily comprised of (i) $606,565,000 of development costs and construction in progress, (ii) $387,545,000 of additions to real estate, (iii) $127,608,000 of investments in partially owned entities, (iv) $61,464,000 of acquisitions of real estate and other, (v) $42,000,000 due to the net deconsolidation of 7 West 34th Street, (vi) $11,700,000 of investments in loans receivable and other, and (vii) $4,379,000 in purchases of marketable securities, partially offset by (viii) $193,967,000 of capital distributions from partially owned entities, (ix) $153,534,000 of proceeds from sales of real estate and related investments, (x) $3,937,000 of proceeds from the sale of marketable securities, and (xi) $585,000 of changes in restricted cash. Net Cash Used in Financing Activities Net cash used in financing activities of Vornado Realty Trust of $446,154,000 was comprised of (i) $1,894,990,000 for the repayments of borrowings, (ii) $475,961,000 of dividends paid on common shares, (iii) $246,250,000 for the redemption of preferred shares, (iv) $130,590,000 of distributions to noncontrolling interests, (v) $80,137,000 of dividends paid on preferred shares, (vi) $42,157,000 of debt issuance and other costs, and (vii) $186,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings and other, partially offset by (viii) $2,403,898,000 of proceeds from borrowings, (ix) $11,950,000 of contributions from noncontrolling interests and (x) $8,269,000 of proceeds received from the exercise of employee share options. Net cash used in financing activities of the Operating Partnership of $446,154,000 was comprised of (i) $1,894,990,000 for the repayments of borrowings, (ii) $475,961,000 of distributions to Vornado, (iii) $246,250,000 for the redemption of preferred units, (iv) $130,590,000 of distributions to redeemable security holders and noncontrolling interests in consolidated subsidiaries, (v) $80,137,000 of distributions to preferred unitholders, (vi) $42,157,000 of debt issuance and other costs, and (vii) $186,000 for the repurchase of Class A units related to equity compensation agreements and related tax withholdings and other, partially offset by (viii) $2,403,898,000 of proceeds from borrowings, (ix) $11,950,000 of contributions from noncontrolling interests in consolidated subsidiaries and (x) $8,269,000 of proceeds received from the exercise of Vornado stock options. 87 Liquidity and Capital Resources – continued Capital Expenditures for the Year Ended December 31, 2016 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, 2016. (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 $ 114,031 $ 86,630 38,938 55,636 295,235 67,239 $ 63,995 32,475 41,322 205,031 24,745 $ 12,712 4,067 8,725 50,249 268,101 (117,910) 445,426 $ 159,144 (100,151) 264,024 $ 71,935 (16,357) 105,827 $ 22,047 9,923 2,396 5,589 39,955 37,022 (1,402) 75,575 7.15 $ 11.0% 7.98 $ 9.7% 4.67 $ 11.6% n/a n/a Development and Redevelopment Expenditures for the Year Ended December 31, 2016 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, 2016. These expenditures include interest of $34,097,000, payroll of $12,516,000, and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $46,995,000, that were capitalized in connection with the development and redevelopment of these projects. (Amounts in thousands) 220 Central Park South The Bartlett 640 Fifth Avenue 90 Park Avenue theMART 2221 South Clark Street (residential conversion) Penn Plaza Wayne Towne Center 330 West 34th Street Other Total New York Washington, DC Other 303,974 $ 67,580 46,282 33,308 24,788 15,939 11,904 8,461 5,492 88,837 606,565 $ - $ - 46,282 33,308 - - 11,904 - 5,492 21,217 118,203 $ - $ 67,580 - - - 15,939 - - - 56,863 140,382 $ 303,974 - - - 24,788 - - 8,461 - 10,757 347,980 $ $ 88 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. Net Cash Provided by Operating Activities 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, equity in net 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 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 Net cash provided by financing activities of Vornado Realty Trust 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. Net cash provided by financing activities of the Operating Partnership 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 in consolidated subsidiaries, and (iii) $16,779,000 of proceeds received from exercise of Vornado stock options, partially offset by (iv) $2,936,578,000 for the repayments of borrowings, (v) $474,751,000 of distributions to Vornado, (vi) $225,000,000 of distributions in connection with the spin-off of UE, (vii) $102,866,000 of distributions to redeemable security holders and noncontrolling interests in consolidated subsidiaries, (viii) $80,578,000 of distributions to preferred unitholders, (ix) $66,554,000 of debt issuance and other costs, and (x) $7,473,000 for the repurchase of Class A units related to stock compensation agreements and related tax withholdings and other. 89 Liquidity and Capital Resources – continued Capital Expenditures for the Year Ended December 31, 2015 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 81,240 242,960 156,753 (222,469) 380,151 $ 93,105 (118,911) 217,154 $ 25,589 $ 51,497 6,761 34,428 118,275 35,805 (73,227) 80,853 $ 41,874 33,330 8,221 1,207 84,632 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 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 $ $ 90 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 decrease over the balance at December 31, 2013. Our consolidated outstanding debt was $9,530,337,000 at December 31, 2014, a $821,923,000 increase from the balance at December 31, 2013. Net Cash Provided by Operating Activities Cash flows provided by operating activities of $1,135,310,000 was comprised of (i) net income of $1,009,026,000, (ii) return of capital from real estate fund investments of $215,676,000, and (iii) distributions of income from partially owned entities of $96,286,000, partially offset by (iv) $89,536,000 of non-cash adjustments, which include depreciation and amortization expense, the effect of straight-lining of rental income, equity in net loss 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 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 Net cash provided by financing activities of Vornado Realty Trust 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. Net cash provided by financing activities of the Operating Partnership 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 in consolidated subsidiaries, and (iii) $19,245,000 of proceeds received from exercise of Vornado stock options, partially offset by (iv) $1,312,258,000 for the repayments of borrowings, (v) $547,831,000 of distributions to Vornado, (vi) $220,895,000 of distributions to redeemable security holders and noncontrolling interests in consolidated subsidiaries, (vii) purchase of marketable securities in connection with the defeasance of mortgage payable of $198,884,000, (viii) $81,468,000 of distributions to preferred unitholders, (ix) $58,336,000 of debt issuance and other costs, and (x) $3,811,000 for the repurchase of Class A units related to stock compensation agreements and related tax withholdings and other. 91 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 92 Funds From Operations (“FFO”) Vornado Realty Trust FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciated real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are non-GAAP financial measures used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. FFO attributable to common shareholders plus assumed conversions was $1,457,583,000, or $7.66 per diluted share for the year ended December 31, 2016, compared to $1,039,035,000, or $5.48 per diluted share for the year ended December 31, 2015. FFO attributable to common shareholders plus assumed conversions was $797,734,000, or $4.20 per diluted share for the three months ended December 31, 2016, compared to $259,528,000, or $1.37 per diluted share for the three months ended December 31, 2015. Details of certain items that impact FFO 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 common shareholders Per diluted share FFO adjustments: 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 (loss) 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 Noncontrolling interests' share of above adjustments FFO adjustments, net FFO attributable to common shareholders Convertible preferred share dividends Earnings allocated to Out-Performance Plan units FFO attributable to common shareholders plus assumed conversions Per diluted share Reconciliation of Weighted Average Shares Weighted average common shares outstanding Effect of dilutive securities: Employee stock options and restricted share awards Convertible preferred shares Out-Performance Plan units Denominator for FFO per diluted share For the Year Ended December 31, For the Three Months Ended December 31, 2016 2015 2016 2015 $ $ $ $ $ $ $ 823,606 4.34 531,620 (177,023) 160,700 154,795 (2,853) 6,328 673,567 (41,267) 632,300 1,455,906 86 1,591 1,457,583 7.66 $ $ $ $ $ $ $ 679,856 3.59 514,085 (289,117) 256 143,960 (4,513) 16,758 381,429 (22,342) 359,087 1,038,943 92 - 1,039,035 5.48 $ $ $ $ $ $ $ 651,181 3.43 133,389 (15,302) - 37,160 (12) 792 156,027 (9,495) 146,532 797,713 21 - 797,734 4.20 $ $ $ $ $ $ $ 230,742 1.22 131,910 (142,693) - 37,275 - 4,141 30,633 (1,869) 28,764 259,506 22 - 259,528 1.37 188,837 188,353 189,013 188,537 1,064 42 230 190,173 1,166 45 - 189,564 1,055 40 - 190,108 1,107 44 - 189,688 93 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have exposure to fluctuations in market interest rates. Market interest rates are sensitive to many factors that are beyond our control. Our exposure to a change in interest rates on our consolidated and non-consolidated debt (all of which arises out of non- trading activity) is as follows: (Amounts in thousands, except per share amounts) 2016 2015 December 31, Balance Weighted Average Interest Rate Effect of 1% Change In Base Rates December 31, Weighted Average Balance Interest Rate Consolidated debt: Variable rate Fixed rate Pro rata share of debt of non-consolidated entities (non-recourse): Variable rate – excluding Toys "R" Us, Inc. Variable rate – Toys "R" Us, Inc. Fixed rate (including $671,181 and $661,513 $ $ $ of Toys "R" Us, Inc. debt in 2016 and 2015) $ Noncontrolling interests’ share of consolidated subsidiaries Total change in annual net income attributable to the Operating Partnership Noncontrolling interests’ share of the Operating Partnership Total change in annual net income attributable to Vornado Total change in annual net income attributable to the Operating Partnership per diluted Class A unit Total change in annual net income attributable to Vornado per diluted share 3,765,054 6,949,873 10,714,927 1,109,376 1,162,072 2,791,249 5,062,697 2.40% 3.82% 3.32% 2.49% 6.05% 6.09% 5.30% $ 37,651 $ - 37,651 $ 3,995,704 7,206,634 11,202,338 11,094 $ 11,621 485,160 1,164,893 - 22,715 $ 2,782,025 4,432,078 2.00% 4.21% 3.42% 1.97% 6.61% 6.37% 5.95% (1,393) 58,973 (3,676) $ 55,297 $ $ 0.29 0.29 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, 2016, we have an interest rate swap on a $412,000,000 mortgage loan that swapped the rate from LIBOR plus 1.65% (2.27% at December 31, 2016) to a fixed rate of 4.78% through March 2018 and an interest swap on a $375,000,000 mortgage loan on 888 Seventh Avenue that swapped the rate from LIBOR plus 1.60% (2.22% at December 31, 2016) to a fixed rate of 3.15% through December 2020. In connection with the $700,000,000 refinancing of 770 Broadway, we entered into an interest rate swap from LIBOR plus 1.75% (2.40% at December 31, 2016) to a fixed rate of 2.56% through September 2020. Fair Value of Debt The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt. As of December 31, 2016, the estimated fair value of our consolidated debt was $10,746,000,000. 94 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Vornado Realty Trust Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 31, 2016 and 2015 Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014 Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014 Consolidated Statements of Changes in Equity for the years ended December 31, 2016, 2015 and 2014 Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014 Vornado Realty L.P. Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 31, 2016 and 2015 Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014 Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014 Consolidated Statements of Changes in Equity for the years ended December 31, 2016, 2015 and 2014 Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014 Notes to Consolidated Financial Statements Page Number 96 97 98 99 100 103 105 106 107 108 109 112 114 95 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Trustees Vornado Realty Trust New York, New York We have audited the accompanying consolidated balance sheets of Vornado Realty Trust (the “Company”) as of December 31, 2016 and 2015, 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, 2016. 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, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, 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 13, 2017 expressed an unqualified opinion on the Company’s internal control over financial reporting. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey February 13, 2017 96 VORNADO REALTY TRUST CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except unit, share and per share amounts) December 31, 2016 December 31, 2015 ASSETS Real estate, at cost: Land Buildings and improvements Development costs and construction in progress Leasehold improvements and equipment Total Less accumulated depreciation and amortization Real estate, net Cash and cash equivalents Restricted cash Marketable securities Tenant and other receivables, net of allowance for doubtful accounts of $10,920 and $11,908 Investments in partially owned entities Real estate fund investments Receivable arising from the straight-lining of rents, net of allowance of $2,227 and $2,751 Deferred leasing costs, net of accumulated amortization of $228,862 and $218,239 Identified intangible assets, net of accumulated amortization of $207,330 and $187,360 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 - 12,197,162 and 12,242,820 units outstanding Series D cumulative redeemable preferred units - 177,101 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 42,824,829 and 52,676,629 shares Common shares of beneficial interest: $.04 par value per share; authorized 250,000,000 shares; issued and outstanding 189,100,876 and 188,576,853 shares Additional capital Earnings less than distributions Accumulated other comprehensive income Total Vornado shareholders' equity Noncontrolling interests in consolidated subsidiaries Total equity See notes to the consolidated financial statements. $ $ $ $ $ $ $ 4,065,142 12,727,980 1,430,276 116,560 18,339,958 (3,513,574) 14,826,384 1,501,027 98,295 203,704 94,467 1,428,019 462,132 1,032,736 454,345 192,731 5,570 515,437 20,814,847 9,278,263 845,577 115,630 372,215 458,694 287,846 121,374 2,870 435,436 11,917,905 1,273,018 5,428 1,278,446 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 1,038,055 1,276,954 7,542 7,153,332 (1,419,382) 118,972 6,898,519 719,977 7,618,496 20,814,847 $ 7,521 7,132,979 (1,766,780) 46,921 6,697,595 778,483 7,476,078 21,143,293 97 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per share amounts) 2016 Year Ended December 31, 2015 2014 REVENUES: Property rentals Tenant expense reimbursements Fee and other income Total revenues EXPENSES: Operating Depreciation and amortization General and administrative Skyline properties impairment loss Acquisition and transaction related costs Total expenses Operating income (Loss) income from real estate fund investments Income (loss) from partially owned entities Interest and other investment income, net Interest and debt expense Net gain on extinguishment of Skyline properties debt Net gain on disposition of wholly owned and partially owned assets Income before income taxes Income tax (expense) benefit Income from continuing operations Income from discontinued operations Net income Less net income attributable to noncontrolling interests in: Consolidated subsidiaries Operating Partnership Net income attributable to Vornado Preferred share dividends Preferred share issuance costs (Series J redemption) NET INCOME attributable to common shareholders INCOME PER COMMON SHARE - BASIC: Income from continuing operations, net Income from discontinued operations, net Net income per common share Weighted average shares outstanding INCOME PER COMMON SHARE - DILUTED: Income from continuing operations, net Income from discontinued operations, net Net income per common share Weighted average shares outstanding $ $ $ $ $ $ 2,103,728 260,667 141,807 2,506,202 1,024,336 565,059 179,279 160,700 26,037 1,955,411 550,791 (23,602) 165,389 29,546 (402,674) 487,877 175,735 983,062 (8,312) 974,750 7,172 981,922 (21,351) (53,654) 906,917 (75,903) (7,408) 823,606 4.32 0.04 4.36 188,837 4.30 0.04 4.34 $ $ $ $ $ $ 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 3.35 0.26 3.61 188,353 3.33 0.26 3.59 $ $ $ $ $ $ 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 2.95 4.18 187,572 1.22 2.93 4.15 190,173 189,564 188,690 See notes to consolidated financial statements. 98 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in thousands) Net income Other comprehensive income (loss): Increase (reduction) in unrealized net gain on 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 2016 Year Ended December 31, 2015 $ 981,922 $ 859,430 $ 2014 1,009,026 52,057 (55,326) 14,465 (2,739) 27,432 1,058,672 (79,704) 978,968 $ $ (327) 6,441 810,218 (96,130) 714,088 2,509 6,079 1,032,079 (145,497) 886,582 $ See notes to consolidated financial statements. 99 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Amounts in thousands) Balance, December 31, 2015 Net income attributable to Vornado Net income attributable to noncontrolling interests in consolidated subsidiaries Dividends on common shares Dividends on preferred shares Redemption of Series J preferred shares Common shares issued: Upon redemption of Class A units, at redemption value Under employees' share option plan Under dividend reinvestment plan Contributions 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 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, 2016 Preferred Shares Shares Amount 52,677 $ 1,276,954 - - - - - - - - (9,850) (238,842) - - - - - - - - - - - - (2) (56) - - - - - - - - - - - - - (1) 42,825 $ 1,038,055 Common Shares Additional Earnings Less Than Capital Distributions Shares 188,577 $ Amount Accumulated Other Non- controlling Interests in Comprehensive Consolidated Income (Loss) Subsidiaries Total Equity (1,766,780) $ 906,917 46,921 $ - 778,483 $ 7,476,078 906,917 - - - - - - 376 123 16 - - - 3 7 - - - - - (1) 7,521 $ 7,132,979 $ - - - - - - - - - - 15 36,495 6,820 1,443 - - - 56 - (475,961) (75,903) (7,408) - - - - - - - 1,788 (186) - - - (26,251) - 2 - - - - - (61) 5 1 - - - - - - - - - - - 189,101 $ 7,542 $ 7,153,332 $ (1,419,382) $ - - - - - - - - - - - - 52,057 (2,739) 27,434 - 21,351 - - 21,351 (475,961) (75,903) - (246,250) - 36,510 - - 19,749 6,825 1,444 19,749 (62,444) (36,804) (62,444) (36,804) - - - - - - - 1,602 52,057 (2,739) 27,434 (26,251) (4,699) (2) 118,972 $ - (358) (4,699) (420) 719,977 $ 7,618,496 See notes to consolidated financial statements. 100 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (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 Preferred Shares Shares Amount 52,679 $ 1,277,026 - - - - - - - - - - - - - - - - - - - - - - - - (2) (72) - - - - - - - - - - - - - - 52,677 $ 1,276,954 Common Shares Additional Earnings Less Than Capital Distributions Shares 187,887 $ Amount 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 - - - - - - 452 214 14 - - - - 4 6 - - - - - - 7,493 $ 6,873,025 $ - - - - - - - - - - 18 48,212 9 1 - - - - 1 1 - - - - - (2) 15,332 1,437 - - - - 71 2,438 - - - 192,464 - - - (464,262) (474,751) (80,578) - (2,579) - - - - - - (359) - - - - - 700 188,577 $ 7,521 $ 7,132,979 $ (1,766,780) $ - - - - - - - - - - - - - (55,326) (327) 6,435 - 55,765 55,765 (341) - - (464,603) (474,751) (80,578) - - - 51,725 250 48,230 12,762 1,438 51,725 250 (72,114) (525) (72,114) (525) - - - - - - - 2,080 (55,326) (327) 6,435 192,464 2,866 6 46,921 $ - (233) 2,866 471 778,483 $ 7,476,078 See notes to consolidated financial statements. 101 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED (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 Preferred Shares Shares Amount 52,683 $ 1,277,225 - - - - - - - - - - - - - - - - - - - - - - - - (4) (193) - - - - - - - - - - - - - (6) 52,679 $ 1,277,026 Common Shares Additional Earnings Less Than Capital Distributions Shares 187,285 $ Amount - - - - 271 304 17 - - - - - 5 5 - - - - - - 7,469 $ 7,143,840 $ - - - - 11 12 1 - - - - - - - - - - - - - - - - - 27,262 17,428 1,803 - - - - - 193 5,852 - - - (315,276) - (8,077) 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 - - (547,831) (81,464) - (3,393) - - - - - - - (340) - - - - - - - - - - - - - - - - - 14,465 2,509 6,079 - 96,561 - - 96,561 (547,831) (81,464) - - - 5,297 32,998 27,273 14,047 1,804 5,297 32,998 (182,964) (4,463) (182,964) (4,463) (33,028) (33,028) - - - - - - 5,512 14,465 2,509 6,079 - (315,276) - (2,370) (1,505,385) $ (1,323) - 93,267 $ - 43 (1,323) (10,410) 743,956 $ 7,489,382 187,887 $ 7,493 $ 6,873,025 $ See notes to consolidated financial statements. 102 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Cash Flows from Operating Activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (including amortization of deferred financing costs) Net gain on extinguishment of Skyline properties debt Distributions of income from partially owned entities Net gain on disposition of wholly owned and partially owned assets Equity in net (income) loss of partially owned entities Real estate impairment losses Straight-lining of rental income Return of capital from real estate fund investments Amortization of below-market leases, net Net realized and unrealized loss (gain) on real estate fund investments Other non-cash adjustments Net gains on sale of real estate and other Reversal of allowance for deferred tax assets Defeasance cost in connection with the refinancing of mortgage payable Changes in operating assets and liabilities: Real estate fund investments Tenant and other receivables, net Prepaid assets Other assets Accounts payable and accrued expenses Other liabilities Net cash provided by operating activities Cash Flows from Investing Activities: Development costs and construction in progress Additions to real estate Distributions of capital from partially owned entities Proceeds from sales of real estate and related investments Investments in partially owned entities Acquisitions of real estate and other Net deconsolidation of 7 West 34th Street Investments in loans receivable and other Purchases of marketable securities Proceeds from the sale of marketable securities Restricted cash Proceeds from sales and repayments of mortgage and mezzanine loans receivable and other Net cash used in investing activities Year Ended December 31, 2015 2016 2014 $ 981,922 $ 859,430 $ 1,009,026 595,270 (487,877) 217,468 (175,735) (165,389) 161,165 (146,787) 71,888 (53,202) 40,655 39,406 (5,074) - - - (7,459) (8,023) (70,120) 32,389 (19,830) 1,000,667 (606,565) (387,545) 193,967 153,534 (127,608) (61,464) (42,000) (11,700) (4,379) 3,937 585 45 (889,193) 566,207 - 65,018 (251,821) 11,882 256 (153,668) 91,458 (79,053) (57,752) 37,721 (65,396) (90,030) - (95,010) 11,936 (14,804) (116,157) (33,747) (14,320) 672,150 (490,819) (301,413) 37,818 573,303 (235,439) (478,215) - (1,000) - - 200,229 16,790 (678,746) 583,408 - 96,286 (13,568) 58,131 26,518 (82,800) 215,676 (46,786) (150,139) 37,303 (507,192) - 5,589 (3,392) (8,282) (8,786) (123,435) 44,628 3,125 1,135,310 (544,187) (279,206) 25,943 388,776 (120,639) (211,354) - (30,175) - - 99,464 96,913 (574,465) See notes to consolidated financial statements. 103 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 Redemption of preferred shares 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 Cash included in the spin-off of Urban Edge Properties Purchase of marketable securities in connection with the defeasance of mortgage payable Net cash (used in) provided by financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period For the Year Ended December 31, 2015 2014 2016 $ 2,403,898 $ (1,894,990) (475,961) (246,250) (130,590) (80,137) (42,157) 11,950 8,269 4,468,872 $ (2,936,578) (474,751) - (102,866) (80,578) (66,554) 51,975 16,779 2,428,285 (1,312,258) (547,831) - (220,895) (81,468) (58,336) 30,295 19,245 (186) - - (446,154) (334,680) 1,835,707 1,501,027 $ (7,473) (225,000) - 643,826 637,230 1,198,477 1,835,707 $ (3,811) - (198,884) 54,342 615,187 583,290 1,198,477 $ Supplemental Disclosure of Cash Flow Information: Cash payments for interest, excluding capitalized interest of $29,584, $48,539, and $53,139 $ 368,762 $ 376,620 $ 443,538 Cash payments for income taxes $ 9,716 $ 8,287 $ 11,696 Non-Cash Investing and Financing Activities: Decrease in assets and liabilities resulting from the disposition of Skyline properties: Real estate, net Mortgages payable, net $ (189,284) $ (690,263) - $ - - - Decrease in assets and liabilities resulting from the deconsolidation of 7 West 34th Street: Real estate, net Mortgages payable, net Write-off of fully depreciated assets Accrued capital expenditures included in accounts payable and accrued expenses Change in unrealized net gain on securities available-for-sale Like-kind exchange of real estate: Acquisitions Dispositions Adjustments to carry redeemable Class A units at redemption value Non-cash distribution of Urban Edge Properties: Assets Liabilities Equity Transfer of interest in real estate to Pennsylvania Real Estate Investment Trust 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 (122,047) (290,418) (305,679) 120,564 52,057 29,639 (29,639) (26,251) - - - - - - - - - - - - - - (167,250) 122,711 (55,326) 80,269 (213,621) 192,464 1,709,256 (1,469,659) (239,597) (145,313) 80,000 62,000 - - - - - - - - (121,673) 100,528 14,465 606,816 (630,352) (315,276) - - - - - - 198,884 (193,406) 59,375 (58,564) (33,028) 13,620 See notes to consolidated financial statements. 104 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Partners Vornado Realty L.P. New York, New York We have audited the accompanying consolidated balance sheets of Vornado Realty L.P. and consolidated subsidiaries (the “Partnership”) as of December 31, 2016 and 2015, 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, 2016. 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 Partnership’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 L.P. and consolidated subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Partnership’s internal control over financial reporting as of December 31, 2016, 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 13, 2017 expressed an unqualified opinion on the Partnership’s internal control over financial reporting. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey February 13, 2017 105 VORNADO REALTY L.P. CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except unit amounts) December 31, 2016 December 31, 2015 ASSETS Real estate, at cost: Land Buildings and improvements Development costs and construction in progress Leasehold improvements and equipment Total Less accumulated depreciation and amortization Real estate, net Cash and cash equivalents Restricted cash Marketable securities Tenant and other receivables, net of allowance for doubtful accounts of $10,920 and $11,908 Investments in partially owned entities Real estate fund investments Receivable arising from the straight-lining of rents, net of allowance of $2,227 and $2,751 Deferred leasing costs, net of accumulated amortization of $228,862 and $218,239 Identified intangible assets, net of accumulated amortization of $207,330 and $187,360 Assets related to discontinued operations Other assets LIABILITIES, REDEEMABLE PARTNERSHIP UNITS 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 partnership units: Class A units - 12,197,162 and 12,242,820 units outstanding Series D cumulative redeemable preferred units - 177,101 units outstanding Total redeemable partnership units Equity: Partners' capital Earnings less than distributions Accumulated other comprehensive income Total Vornado Realty L.P. equity Noncontrolling interests in consolidated subsidiaries Total equity See notes to the consolidated financial statements. $ $ $ $ 4,065,142 12,727,980 1,430,276 116,560 18,339,958 (3,513,574) 14,826,384 1,501,027 98,295 203,704 94,467 1,428,019 462,132 1,032,736 454,345 192,731 5,570 515,437 20,814,847 9,278,263 845,577 115,630 372,215 458,694 287,846 121,374 2,870 435,436 11,917,905 1,273,018 5,428 1,278,446 8,198,929 (1,419,382) 118,972 6,898,519 719,977 7,618,496 20,814,847 $ $ $ $ 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 8,417,454 (1,766,780) 46,921 6,697,595 778,483 7,476,078 21,143,293 106 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per unit amounts) 2016 Year Ended December 31, 2015 2014 REVENUES: Property rentals Tenant expense reimbursements Fee and other income Total revenues EXPENSES: Operating Depreciation and amortization General and administrative Skyline properties impairment loss Acquisition and transaction related costs Total expenses Operating income (Loss) income from real estate fund investments Income (loss) from partially owned entities Interest and other investment income, net Interest and debt expense Net gain on extinguishment of Skyline properties debt Net gain on disposition of wholly owned and partially owned assets Income before income taxes Income tax (expense) benefit Income from continuing operations Income from discontinued operations Net income Less net income attributable to noncontrolling interests in consolidated subsidiaries Net income attributable to Vornado Realty L.P. Preferred unit distributions Preferred unit issuance costs (Series J redemption) NET INCOME attributable to Class A unitholders INCOME PER CLASS A UNIT - BASIC: Income from continuing operations, net Income from discontinued operations, net Net income per Class A unit Weighted average units outstanding INCOME PER CLASS A UNIT - DILUTED: Income from continuing operations, net Income from discontinued operations, net Net income per Class A unit Weighted average units outstanding $ $ $ $ $ $ 2,103,728 260,667 141,807 2,506,202 1,024,336 565,059 179,279 160,700 26,037 1,955,411 550,791 (23,602) 165,389 29,546 (402,674) 487,877 175,735 983,062 (8,312) 974,750 7,172 981,922 (21,351) 960,571 (76,097) (7,408) 877,066 4.32 0.04 4.36 200,350 4.29 0.03 4.32 $ $ $ $ $ $ 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) 803,665 (80,736) - 722,929 3.35 0.26 3.61 199,309 3.31 0.26 3.57 $ $ $ $ $ $ 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) 912,465 (81,514) - 830,951 1.22 2.95 4.17 198,213 1.21 2.93 4.14 202,017 201,158 199,813 See notes to consolidated financial statements. 107 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in thousands) Net income Other comprehensive income (loss): Increase (reduction) in unrealized net gain on 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 Realty L.P. 2016 Year Ended December 31, 2015 $ 981,922 $ 859,430 $ 2014 1,009,026 52,057 (55,326) 14,465 (2,739) 27,432 1,058,672 (21,351) 1,037,321 $ $ (327) 6,441 810,218 (55,765) 754,453 2,509 6,079 1,032,079 (96,561) 935,518 $ See notes to consolidated financial statements. 108 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Amounts in thousands) Balance, December 31, 2015 Net income attributable to Vornado Realty L.P. Net income attributable to redeemable partnership units Net income attributable to noncontrolling interests in consolidated subsidiaries Distributions to Vornado Distributions to preferred unitholders Redemption of Series J preferred units Class A Units issued to Vornado: Upon redemption of redeemable Class A units, at redemption value Under Vornado's employees' share option plan Under Vornado's dividend reinvestment plan Contributions Distributions: Real estate fund investments Other Conversion of Series A preferred units to Class A units Deferred compensation units and options Increase 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 partnership units' share of above adjustments Other Balance, December 31, 2016 Preferred Units Units Amount 52,677 $ 1,276,954 - - - - - - - (9,850) - - - (238,842) - - - - - - (2) - - - - - - - - - - - (56) - - - - - - - - (1) 42,825 $ 1,038,055 Class A Units Owned by Vornado Units Amount Earnings Less Than Distributions Accumulated Other Non- controlling Interests in Comprehensive Consolidated Income (Loss) Subsidiaries Total Equity (1,766,780) $ 960,571 46,921 $ - 778,483 $ 7,476,078 960,571 - 188,577 $ 7,140,500 $ - - - - - - 376 123 16 - - - 3 7 - - - - - (1) - - - - - - 36,510 6,825 1,444 - - - 56 1,788 - - - (26,251) - 2 (53,654) - (475,961) (75,903) (7,408) - - - - - - - (186) - - - - - (61) 189,101 $ 7,160,874 $ (1,419,382) $ - - - - - - - - - - - - - 52,057 (2,739) 27,434 - - (53,654) 21,351 - - - 21,351 (475,961) (75,903) (246,250) - - - 19,749 36,510 6,825 1,444 19,749 (62,444) (36,804) (62,444) (36,804) - - - - - - - 1,602 52,057 (2,739) 27,434 (26,251) (4,699) (2) 118,972 $ - (358) (4,699) (420) 719,977 $ 7,618,496 See notes to consolidated financial statements. 109 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED (Amounts in thousands) Balance, December 31, 2014 Net income attributable to Vornado Realty L.P. Net income attributable to redeemable partnership units Net income attributable to noncontrolling interests in consolidated subsidiaries Distribution of Urban Edge Properties Distributions to Vornado Distributions to preferred unitholders Class A Units issued to Vornado: Upon redemption of redeemable Class A units, at redemption value Under Vornado's employees' share option plan Under Vornado's dividend reinvestment plan Contributions: Real estate fund investments Other Distributions: Real estate fund investments Other Conversion of Series A preferred units to Class A units Deferred compensation units 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 partnership units' share of above adjustments Other Balance, December 31, 2015 Preferred Units Units Amount 52,679 $ 1,277,026 - - - - - - - - - - - - - - (2) - - - - - - - - - - - - - - - - - (72) - - - - - - - - - 52,677 $ 1,276,954 Class A Units Owned by Vornado Units Amount Earnings Less Than Distributions Accumulated Other Non- controlling Interests in Comprehensive Consolidated Income (Loss) Subsidiaries Total Equity (1,505,385) $ 803,665 93,267 $ - 743,956 $ 7,489,382 803,665 - 187,887 $ 6,880,518 $ - - - - - - - - - - - - 452 214 14 48,230 15,341 1,438 - - - - 4 6 - - - - - - - - - - 72 2,439 - - - 192,464 - (2) (43,231) - (464,262) (474,751) (80,578) - (2,579) - - - - - - (359) - - - - - 700 188,577 $ 7,140,500 $ (1,766,780) $ - - - - - - - - - - - - - - (55,326) (327) 6,435 - - (43,231) 55,765 (341) - - 55,765 (464,603) (474,751) (80,578) - - - 51,725 250 48,230 12,762 1,438 51,725 250 (72,114) (525) (72,114) (525) - - - - - - - 2,080 (55,326) (327) 6,435 192,464 2,866 6 46,921 $ - (233) 2,866 471 778,483 $ 7,476,078 See notes to consolidated financial statements. 110 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED Class A Units Owned by Vornado Units Amount Earnings Less Than Distributions Accumulated Other Non- controlling Interests in Comprehensive Consolidated Income (Loss) Subsidiaries Total Equity (1,734,839) $ 912,465 71,537 $ - 829,512 $ 7,594,744 912,465 - (Amounts in thousands) Balance, December 31, 2013 Net income attributable to Vornado Realty L.P. Net income attributable to redeemable partnership units Net income attributable to noncontrolling interests in consolidated subsidiaries Distributions to Vornado Distributions to preferred unitholders Class A Units issued to Vornado Upon redemption of redeemable Class A units, at redemption value Under Vornado's employees' share option plan Under Vornado's 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 units to Class A units Deferred compensation units 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 partnership units' share of above adjustments Other Balance, December 31, 2014 Preferred Units Units Amount 52,683 $ 1,277,225 - - - - - - - - - - - - - - (4) - - - - - - - - - - - - - - - - - (193) - - - - - - - - (6) 52,679 $ 1,277,026 187,285 $ 7,151,309 $ - - - - - - - - - - 271 304 17 27,273 17,440 1,804 - - - - - 5 5 - - - - - - - - - - - - - - (315,276) - (8,077) (47,613) - (547,831) (81,464) - (3,393) - - - - - - 193 5,852 - (340) - - - - 14,465 2,509 6,079 - - - - - - - - - - - - - - - - (47,613) 96,561 - - 96,561 (547,831) (81,464) - - - 5,297 32,998 27,273 14,047 1,804 5,297 32,998 (182,964) (4,463) (182,964) (4,463) (33,028) (33,028) - - - - - - - 5,512 14,465 2,509 6,079 (315,276) 187,887 $ 6,880,518 $ - (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. 111 VORNADO REALTY L.P. 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 extinguishment of Skyline properties debt Distributions of income from partially owned entities Net gain on disposition of wholly owned and partially owned assets Equity in net (income) loss of partially owned entities Real estate impairment losses Straight-lining of rental income Return of capital from real estate fund investments Amortization of below-market leases, net Net realized and unrealized loss (gain) on real estate fund investments Other non-cash adjustments Net gains on sale of real estate and other Reversal of allowance for deferred tax assets Defeasance cost in connection with the refinancing of mortgage payable Changes in operating assets and liabilities: Real estate fund investments Tenant and other receivables, net Prepaid assets Other assets Accounts payable and accrued expenses Other liabilities Net cash provided by operating activities Cash Flows from Investing Activities: Development costs and construction in progress Additions to real estate Distributions of capital from partially owned entities Proceeds from sales of real estate and related investments Investments in partially owned entities Acquisitions of real estate and other Net deconsolidation of 7 West 34th Street Investments in loans receivable and other Purchases of marketable securities Proceeds from the sale of marketable securities Restricted cash Proceeds from sales and repayments of mortgage and mezzanine loans receivable and other Net cash used in investing activities Year Ended December 31, 2015 2016 2014 $ 981,922 $ 859,430 $ 1,009,026 595,270 (487,877) 217,468 (175,735) (165,389) 161,165 (146,787) 71,888 (53,202) 40,655 39,406 (5,074) - - - (7,459) (8,023) (70,120) 32,389 (19,830) 1,000,667 (606,565) (387,545) 193,967 153,534 (127,608) (61,464) (42,000) (11,700) (4,379) 3,937 585 45 (889,193) 566,207 - 65,018 (251,821) 11,882 256 (153,668) 91,458 (79,053) (57,752) 37,721 (65,396) (90,030) - (95,010) 11,936 (14,804) (116,157) (33,747) (14,320) 672,150 (490,819) (301,413) 37,818 573,303 (235,439) (478,215) - (1,000) - - 200,229 16,790 (678,746) 583,408 - 96,286 (13,568) 58,131 26,518 (82,800) 215,676 (46,786) (150,139) 37,303 (507,192) - 5,589 (3,392) (8,282) (8,786) (123,435) 44,628 3,125 1,135,310 (544,187) (279,206) 25,943 388,776 (120,639) (211,354) - (30,175) - - 99,464 96,913 (574,465) See notes to consolidated financial statements. 112 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (Amounts in thousands) Cash Flows from Financing Activities: Proceeds from borrowings Repayments of borrowings Distributions to Vornado Redemption of preferred units Distributions to redeemable security holders and noncontrolling interests in consolidated subsidiaries Distributions to preferred unitholders Debt issuance and other costs Contributions from noncontrolling interests in consolidated subsidiaries Proceeds received from exercise of Vornado stock options Repurchase of Class A units related to stock compensation agreements and related tax withholdings and other Cash included in the spin-off of Urban Edge Properties Purchase of marketable securities in connection with the defeasance of mortgage payable Net cash (used in) provided by financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period For the Year Ended December 31, 2015 2014 2016 $ 2,403,898 $ (1,894,990) (475,961) (246,250) 4,468,872 $ (2,936,578) (474,751) - 2,428,285 (1,312,258) (547,831) - (130,590) (80,137) (42,157) 11,950 8,269 (102,866) (80,578) (66,554) 51,975 16,779 (220,895) (81,468) (58,336) 30,295 19,245 (186) - - (446,154) (334,680) 1,835,707 1,501,027 $ (7,473) (225,000) - 643,826 637,230 1,198,477 1,835,707 $ (3,811) - (198,884) 54,342 615,187 583,290 1,198,477 $ Supplemental Disclosure of Cash Flow Information: Cash payments for interest, excluding capitalized interest of $29,584, $48,539, and $53,139 $ 368,762 $ 376,620 $ 443,538 Cash payments for income taxes $ 9,716 $ 8,287 $ 11,696 Non-Cash Investing and Financing Activities: Decrease in assets and liabilities resulting from the disposition of Skyline properties: Real estate, net Mortgages payable, net $ (189,284) $ (690,263) - $ - - - Decrease in assets and liabilities resulting from the deconsolidation of 7 West 34th Street: Real estate, net Mortgages payable, net Write-off of fully depreciated assets Accrued capital expenditures included in accounts payable and accrued expenses Change in unrealized net gain on securities available-for-sale Like-kind exchange of real estate: Acquisitions Dispositions Adjustments to carry redeemable Class A units at redemption value Non-cash distribution of Urban Edge Properties: Assets Liabilities Equity Transfer of interest in real estate to Pennsylvania Real Estate Investment Trust 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 (122,047) (290,418) (305,679) 120,564 52,057 29,639 (29,639) (26,251) - - - - - - - - - - - - - - (167,250) 122,711 (55,326) 80,269 (213,621) 192,464 1,709,256 (1,469,659) (239,597) (145,313) 80,000 62,000 - - - - - - - - (121,673) 100,528 14,465 606,816 (630,352) (315,276) - - - - - - 198,884 (193,406) 59,375 (58,564) (33,028) 13,620 See notes to consolidated financial statements. 113 VORNADO REALTY TRUST AND VORNADO REALTY L.P. 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 as of December 31, 2016. All references to the “Company,” “we,” “us” and “our” mean collectively Vornado, the Operating Partnership and those entities/subsidiaries consolidated by Vornado. On October 31, 2016, Vornado’s Board of Trustees approved the tax-free spin-off of our Washington, DC segment and we entered into a definitive agreement to merge it with the business and certain select assets of The JBG Companies (“JBG”), a Washington, DC real estate company. Steven Roth, the Chairman of the Board of Trustees and Chief Executive Officer of Vornado, will be Chairman of the Board of Trustees of the new company, which will be named JBG SMITH Properties. Mitchell Schear, President of our Washington, DC business, will be a member of the Board of Trustees of the new company. The pro rata distribution to Vornado common shareholders and Class A Operating Partnership unitholders is intended to be treated as a tax-free spin-off for U.S. federal income tax purposes. It is expected to be made on a pro rata 1:2 basis. The initial Form 10 registration statement relating to the spin-off and merger was filed with the SEC on January 23, 2017 and the distribution and combination are expected to be completed in the second quarter of 2017. The distribution and combination are subject to certain conditions, including the SEC declaring the Form 10 registration statement effective, filing and approval of the new company’s listing application, receipt of regulatory approvals and third party consents by each of the Company and JBG, and formal declaration of the distribution by Vornado’s Board of Trustees. The distribution and combination are not subject to a vote by Vornado’s shareholders or Operating Partnership unitholders. Vornado’s Board of Trustees has approved the transaction. JBG has obtained all requisite approvals from its investment funds for this transaction. There can be no assurance that this transaction will be completed. We currently own all or portions of: New York: • • • 20.2 million square feet of Manhattan office space in 36 properties; 2.7 million square feet of Manhattan street retail space in 70 properties; 2,004 units in twelve 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. (“Alexander’s”) (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: • • 11.1 million square feet of office space in 44 properties; 3,156 units in nine residential properties; Other Real Estate and Related Investments: • The 3.7 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. 114 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Basis of Presentation and Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of Vornado and the Operating Partnership and their consolidated subsidiaries. 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 (“GAAP”), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Recently Issued Accounting Literature In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update ("ASU 2014-09") establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASU 2014-09 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. In August 2015, the FASB issued an update (“ASU 2015-14”) to ASC 606, Deferral of the Effective Date, which defers the adoption of ASU 2014-09 to interim and annual reporting periods in fiscal years that begin after December 15, 2017. In March 2016, the FASB issued an update (“ASU 2016-08”) to ASC 606, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard pursuant to ASU 2014-09. In April 2016, the FASB issued an update (“ASU 2016-10”) to ASC 606, Identifying Performance Obligations and Licensing, which clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in ASU 2014-09. In May 2016, the FASB issued an update (“ASU 2016-12”) to ASC 606, Narrow-Scope Improvements and Practical Expedients, which amends certain aspects of the new revenue recognition standard pursuant to ASU 2014-09. We are permitted to use either the retrospective or the modified retrospective method when adopting these standards. We are evaluating the impact of the adoption of these standards on our consolidated financial statements and have not yet concluded on the method of adoption. In June 2014, the FASB issued an update (“ASU 2014-12”) to ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). 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 began after December 15, 2015. The adoption of this update as of January 1, 2016, did not have any impact 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. The adoption of this update on January 1, 2016 resulted in the identification of additional VIEs, but did not have an impact on our consolidated financial statements other than additional disclosures (see Note 11 - Variable Interest Entities). 115 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Basis of Presentation and Significant Accounting Policies – continued Recently Issued Accounting Literature - continued In January 2016, the FASB issued an update (“ASU 2016-01”) Recognition and Measurement of Financial Assets and Financial Liabilities to ASC Topic 825, Financial Instruments. ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, 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. In February 2016, the FASB issued (“ASU 2016-02”) Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase. Lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. Lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases. ASU 2016-02 will more significantly impact the accounting for leases in which we are a lessee. We have a number of ground leases for which we will be required to record a right-of-use asset and lease liability upon adoption of this standard. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements, including the timing of adopting this standard. In March 2016, the FASB issued an update (“ASU 2016-09”) Improvements to Employee Share-Based Payment Accounting to ASC 718. ASU 2016-09 amends several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2016. We are currently evaluating the impact of the adoption of ASU 2016-09 on our consolidated financial statements. In August 2016, the FASB issued an update (“ASU 2016-15”) Classification of Certain Cash Receipts and Cash Payments to ASC Topic 230, Statement of Cash Flows. ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice with respect to (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions, and (viii) separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted. The adoption of this update is not expected to have a significant impact on our consolidated financial statements. In November 2016, the FASB issued an update (“ASU 2016-18”) Restricted Cash to ASC Topic 230, Statement of Cash Flows. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period balances on the statement of cash flows upon adoption of this standard. ASU 2016-18 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted. In January 2017, the FASB issued an update (“ASU 2017-01”) Clarifying the Definition of a Business to ASC Topic 805, Business Combinations. ASU 2017-01 provides a screen to determine when an asset acquired or group of assets acquired is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. ASU 2017-01 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We have elected to early adopt this standard, effective as of October 1, 2016, for all future acquisitions. The adoption of this standard will result in less real estate acquisitions qualifying as businesses and, accordingly, acquisition costs for those acquisitions that are not businesses will be capitalized rather than expensed. There was no impact of the adoption of this standard in the fourth quarter of 2016, as there have been no acquisitions. 116 VORNADO REALTY TRUST AND VORNADO REALTY L.P. 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 $34,097,000 and $59,305,000 for the years ended December 31, 2016 and 2015, respectively. Upon the acquisition of real estate that meets the criteria of a business under ASU 2017-01, 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. 117 VORNADO REALTY TRUST AND VORNADO REALTY L.P. 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 whether 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, 2016, 2015 and 2014, we recognized non-cash impairment losses on investments in partially owned entities aggregating $20,290,000, $21,260,000 and $85,459,000, respectively. Included in 2014 is a $75,196,000 impairment loss related to our investment in Toys. 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 collectability 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. These receivables arise 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, 2016 and 2015, we had $10,920,000 and $11,908,000, respectively, in allowances for doubtful accounts. In addition, as of December 31, 2016 and 2015, we had $2,227,000 and $2,751,000, respectively, in allowances for receivables arising from the straight-lining of rents. 118 VORNADO REALTY TRUST AND VORNADO REALTY L.P. 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 recognized 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, 2016 and 2015, 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. 119 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Basis of Presentation and Significant Accounting Policies – continued Significant Accounting Policies – continued Income Taxes: Vornado operates in a manner intended to enable it 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. Vornado distributes to its shareholders 100% of its taxable income and therefore, no provision for Federal income taxes is required. Dividends distributed for the year ended December 31, 2016, were characterized, for federal income tax purposes, as 83.5% ordinary income and 16.5% long-term capital gain. 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 year ended December 31, 2014, were characterized, for federal income tax purposes, as ordinary income. The Operating Partnership’s partners are required to report their respective share of taxable income on their individual tax returns. 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 $7,946,000, $8,322,000 and $10,777,000 for the years ended December 31, 2016, 2015 and 2014, respectively, and have immaterial differences between the financial reporting and tax basis of assets and liabilities. At December 31, 2016 and 2015, our taxable REIT subsidiaries had deferred tax assets related to net operating loss carryforwards of $98,013,000 and $97,104,000, 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 Vornado common shareholders to estimated taxable income for the years ended December 31, 2016, 2015 and 2014. (Amounts in thousands) Net income attributable to Vornado common shareholders Book to tax differences (unaudited): Net gain on extinguishment of Skyline properties debt Depreciation and amortization Impairment losses Earnings of partially owned entities Straight-line rent adjustments Sale of real estate and other capital transactions Vornado stock options Tangible Property Regulations Other, net 2016 For the Year Ended December 31, 2015 2014 $ 823,606 $ 679,856 $ 783,388 (457,970) 302,092 170,332 (149,094) (137,941) (39,109) (3,593) - 9,121 517,444 $ - 227,297 20,281 (5,299) (144,727) 320,326 (8,278) (575,618) (1) (26,114) 487,724 $ - 219,403 34,670 71,960 (77,526) (477,061) (9,566) - (33,410) 511,858 Estimated taxable income (unaudited) $ (1) Represents one-time deductions pursuant to the implementation of the Tangible Property Regulations issued by the Internal Revenue Service. The net basis of Vornado’s assets and liabilities for tax reporting purposes is approximately $3.7 billion lower than the amounts reported in Vornado’s consolidated balance sheet at December 31, 2016. 120 VORNADO REALTY TRUST AND VORNADO REALTY L.P. 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”) and own a 25.0% interest in the Fund, which has an eight-year term and a three-year investment period that ended in July 2013. 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. We are also the general partner and investment manager of the Crowne Plaza Times Square Hotel Joint Venture (the “Crowne Plaza Joint Venture”) and own a 57.1% interest in the joint venture which owns the 24.7% interest in the Crowne Plaza Times Square Hotel not owned by the Fund. The Crowne Plaza Joint Venture is also accounted for under ASC 946 and we consolidate the accounts of the joint venture into our consolidated financial statements, retaining the fair value basis of accounting. At December 31, 2016, we had six real estate fund investments through the Fund and the Crowne Plaza Joint Venture with an aggregate fair value of $462,132,000, or $153,197,000 in excess of cost, and had remaining unfunded commitments of $117,907,000, of which our share was $34,422,000. At December 31, 2015, we had six real estate fund investments with an aggregate fair value of $574,761,000. Below is a summary of income from the Fund and the Crowne Plaza Joint Venture for the years ended December 31, 2016, 2015 and 2014. (Amounts in thousands) Net investment income Net realized gain on exited investments Previously recorded unrealized gain on exited investment Net unrealized (loss) gain on held investments (Loss) income from real estate fund investments Less loss (income) attributable to noncontrolling interests in consolidated $ For the Year Ended December 31, 2015 2014 2016 $ 17,053 14,761 (14,254) (41,162) (23,602) 16,329 $ 26,036 (23,279) 54,995 74,081 12,895 126,653 (50,316) 73,802 163,034 subsidiaries 2,560 (40,117) (92,728) (Loss) income from real estate fund investments attributable to the Operating Partnership(1) Less loss (income) attributable to noncontrolling interests in the Operating Partnership (Loss) income from real estate fund investments attributable to Vornado $ (21,042) 33,964 70,306 1,270 (19,772) $ (2,011) 31,953 $ (4,047) 66,259 (1) Excludes $3,831, $2,939, and $2,562 of management and leasing fees in the years ended December 31, 2016, 2015 and 2014, respectively, which are included as a component of "fee and other income" on our consolidated statements of income. 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 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 57.1% interest in the Crowne Plaza Times Square Hotel. The purchase price for the 57.1% 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%. 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 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. 121 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. Marketable Securities 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, 2016 and 2015. (Amounts in thousands) Equity securities: Lexington Realty Trust Other As of December 31, 2016 GAAP Cost Unrealized Gain Fair Value As of December 31, 2015 GAAP Cost Unrealized Gain Fair Value $ $ 199,465 $ 4,239 203,704 $ 72,549 650 73,199 $ $ 126,916 $ 3,589 130,505 $ 147,752 3,245 150,997 $ $ 72,549 $ - 72,549 $ 75,203 3,245 78,448 122 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Investments in Partially Owned Entities Alexander’s, Inc. As of December 31, 2016, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common equity. We manage, develop and lease Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable. As of December 31, 2016 and 2015, Alexander’s owed us an aggregate of $1,070,000 and $8,551,000, respectively, pursuant to such agreements. As of December 31, 2016 the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s, based on Alexander’s December 31, 2016 closing share price of $426.87, was $706,072,000, or $576,748,000 in excess of the carrying amount on our consolidated balance sheet. As of December 31, 2016, the carrying amount of our investment in Alexander’s exceeds our share of the equity in the net assets of Alexander’s by approximately $39,723,000. 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, Development and Leasing 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) $297,000, 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. 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, 2016, 2015 and 2014, we recognized $2,583,000, $2,221,000 and $2,318,000 of income, respectively, for these services. 123 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Investments in Partially Owned Entities – continued Urban Edge Properties (“UE”) (NYSE: UE) On January 15, 2015, we completed the spin-off of UE as a separate public company. As of December 31, 2016, we own 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. As of December 31, 2016, the fair value of our investment in UE, based on UE’s December 31, 2016 closing share price of $27.51, was $157,280,000, or $132,757,000 in excess of the carrying amount on our consolidated balance sheet. See Note 21 – Related Party Transactions for details of our relationship with UE. Pennsylvania Real Estate Investment Trust (“PREIT”) (NYSE: PEI) As of December 31, 2016, we own 6,250,000 PREIT operating partnership units, representing an 8.0% interest in PREIT. We account for our investment in PREIT under the equity method and record our share of PREIT’s net income or loss on a one-quarter lag basis. As of December 31, 2016, the fair value of our investment in PREIT, based on PREIT’s December 31, 2016 closing share price of $18.96, was $118,500,000, or $4,383,000 below the carrying amount on our consolidated balance sheet. As of December 31, 2016, the carrying amount of our investment in PREIT exceeds our share of the equity in the net assets of PREIT by approximately $63,750,000. 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. One Park Avenue On March 7, 2016, the joint venture, in which we have a 55% ownership interest, completed a $300,000,000 refinancing of One Park Avenue, a 949,000 square foot Manhattan office building. The loan matures in March 2021 and is interest only at LIBOR plus 1.75% (2.40% at December 31, 2016). The property was previously encumbered by a 4.995%, $250,000,000 mortgage which matured in March 2016. Mezzanine Loan – New York On March 17, 2016, we entered into a joint venture, in which we own a 33.3% interest, which owns a $150,000,000 mezzanine loan with an interest rate of LIBOR plus 8.88% and an initial maturity date in November 2016, with two three-month extension options. On November 9, 2016, the mezzanine loan was extended to May 2017 with an interest rate of LIBOR plus 9.42% (10.08% at December 31, 2016) during the extension period. As of December 31, 2016, the joint venture has fully funded its commitments. The joint venture’s investment is subordinate to $350,000,000 of third party debt. We account for our investment in the joint venture under the equity method. 124 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Investments in Partially Owned Entities – continued The Warner Building On May 6, 2016, the joint venture, in which we have a 55% ownership interest, completed a $273,000,000 refinancing of The Warner Building, a 622,000 square foot Washington, DC office building. The loan matures in June 2023, has a fixed rate of 3.65%, is interest only for the first two years and amortizes based on a 30-year schedule beginning in year three. The property was previously encumbered by a 6.26%, $293,000,000 mortgage which matured in May 2016. 280 Park Avenue On May 11, 2016, the joint venture, in which we have a 50% ownership interest, completed a $900,000,000 refinancing of 280 Park Avenue, a 1,249,000 square foot Manhattan office building. The three-year loan with four one-year extensions is interest only at LIBOR plus 2.00% (2.66% at December 31, 2016). The property was previously encumbered by a 6.35%, $721,000,000 mortgage which was scheduled to mature in June 2016. 7 West 34th Street On May 16, 2016, we completed a $300,000,000 recourse financing of 7 West 34th Street, a 479,000 square foot Manhattan office building leased to Amazon. The ten-year loan is interest only at a fixed rate of 3.65% and matures in June 2026. Subsequently, on May 27, 2016, we sold a 47% ownership interest in this property and retained the remaining 53% interest. This transaction was based on a property value of approximately $561,000,000 or $1,176 per square foot. We received net proceeds of $127,382,000 from the sale and realized a net gain of $203,324,000, of which $159,511,000 was recognized in the second quarter of 2016 and is included in “net gain on disposition of wholly owned and partially owned assets” in our consolidated statements of income. The remaining net gain of $43,813,000 has been deferred until our guarantee of payment of loan principal and interest is removed or the loan is repaid. We realized a net tax gain of $90,017,000. We continue to manage and lease the property. We share control over major decisions with our joint venture partner. Accordingly, this property is accounted for under the equity method from the date of sale. 606 Broadway On May 20, 2016, we contributed $19,650,000 for a 50.0% equity interest in a joint venture that will develop 606 Broadway, a 34,000 square foot office and retail building, located on Houston Street in Manhattan. The development cost of this project is estimated to be approximately $104,000,000. At closing, the joint venture obtained a $65,000,000 construction loan, of which approximately $25,800,000 was outstanding at December 31, 2016. The loan, which bears interest at LIBOR plus 3.00% (3.66% at December 31, 2016), matures in May 2019 with two one-year extension options. Because this joint venture is a VIE and we determined we are the primary beneficiary, we consolidate the accounts of this joint venture from the date of our investment. 50-70 West 93rd Street On August 3, 2016, the joint venture, in which we have 49.9% ownership interest, completed an $80,000,000 refinancing of 50- 70 West 93rd Street, a 326 unit Manhattan residential complex. The three-year loan with two one-year extensions is interest only at LIBOR plus 1.70% (2.40% at December 31, 2016). The property was previously encumbered by a $44,980,000 first mortgage at LIBOR plus 1.90% and an $18,481,000 second mortgage at LIBOR plus 1.65%, which were scheduled to mature in September 2016. 125 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Investments in Partially Owned Entities – continued 85 Tenth Avenue In 2007, we made $50,000,000 of junior and senior mezzanine loans to the owner of 85 Tenth Avenue, a 626,000 square foot Manhattan office building. The loans were secured by equity interests in the property. In connection with the loans, we received the right to acquire a 49.9% equity interest in the property upon repayment of the loans. Pursuant to ASC 310-10-25-14, we accounted for our investment as an investment in real estate under the equity method. In February 2013, through a joint venture with an affiliate of the owner of 85 Tenth Avenue, we invested an additional $14,583,000 in senior mezzanine loans. In August 2014, we made an $8,413,000 preferred equity investment in the owner of 85 Tenth Avenue, bringing our total cash investment in 85 Tenth Owner to $72,996,000. As of December 1, 2016, our share of the net losses of 85 Tenth Avenue reduced our basis to $30,936,000. On December 1, 2016, the owner of 85 Tenth Avenue completed a 10-year, 4.55% $625,000,000 refinancing of the property and we received net proceeds of $191,779,000 in repayment of our existing loans and preferred equity investments. We recognized $160,843,000 of income and no tax gain as a result of this transaction. In conjunction with the repayment of the loans, we exercised our right to receive a 49.9% interest in the property, which we are accounting for under the equity method. Fairfax Square On December 19, 2016, we completed the sale of our 20% interest in Fairfax Square to our joint venture partner for $15,500,000, which resulted in a net gain of approximately $15,302,000. 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 Other investments(2) Percentage Ownership at December 31, 2016 As of December 31, 2016 2015 Various 32.4% 8.0% 4.1%-36.5% 5.4% Various $ $ 797,205 129,324 122,883 30,290 24,523 323,794 1,428,019 $ $ 947,883 133,568 133,375 48,310 25,351 261,935 1,550,422 (1) (2) Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue, 85 Tenth Avenue, 512 West 22nd Street and others. Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, 50-70 West 93rd Street and others. 126 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. 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 Income (Loss): 85 Tenth Avenue (see page 126 for details): Income from the repayment of loans and preferred equity Equity in net income (loss) Alexander's: Equity in net income Management, leasing and development fees UE (see page 124 for details): Equity in net income Management fees Toys: Equity in net loss(1) Non-cash impairment losses Management fees Partially owned office buildings(2) India real estate ventures(3) Percentage Ownership at December 31, 2016 For the Year Ended December 31, 2014 2015 2016 49.9% $ 160,843 $ - $ 17,229 178,072 (1,015) (1,015) 32.4% 5.4% 32.5% 27,470 6,770 34,240 24,209 6,869 31,078 5,003 836 5,839 - - 2,000 2,000 2,430 1,964 4,394 - - 2,500 2,500 - (6,231) (6,231) 21,287 8,722 30,009 - - - (4,691) (75,196) 6,331 (73,556) Various (42,100) (23,556) 93 4.1%-36.5% (18,122) (18,746) (8,309) PREIT (see page 124 for details) 8.0% (5,213) (7,450) - Other investments(4) Various 10,673 165 (1,867) $ 165,389 $ (12,630) $ (59,861) (1) Pursuant to Rule 4-08(g) of Regulation S-X, in 2014 Toys was considered a significant subsidiary where as in 2016 and 2015 it was not. For (2) (3) (4) the twelve months ended November 1, 2014, Toys’ total revenue was $12,645,000 and net loss attributable to Toys was $343,000. 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 2016 and 2015, we recognized net losses of $47,000 and $39,600, respectively, from our 666 Fifth Avenue (Office) joint venture as a result of our share of depreciation expense. 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 non-cash impairment losses of $13,962, $14,806 and $5,771, respectively. Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, 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. 127 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Investments in Partially Owned Entities – continued Below is a summary of the debt of our partially owned entities as of December 31, 2016 and 2015, none of which is recourse to us. (Amounts in thousands) Toys: Percentage Ownership at December 31, 2016 Maturity Interest Rate at December 31, 2016 100% Partially Owned Entities’ Debt at December 31, 2015 2016 Notes, loans and mortgages payable 32.5% 2017-2021 7.28% $ 5,640,779 $ 5,619,710 Partially owned office buildings(1): Mortgages payable PREIT: Mortgages payable UE: Mortgages payable Alexander's: Mortgages payable 85 Tenth Avenue: Mortgages payable Various 2017-2026 4.43% 4,341,056 3,771,255 8.0% 2017-2025 3.77% 1,747,543 1,852,270 5.4% 2018-2034 4.19% 1,209,994 1,246,155 32.4% 2018-2022 2.01% 1,056,147 1,053,262 49.9% 2026 4.55% 625,000 - India Real Estate Ventures: TCG Urban Infrastructure Holdings mortgages payable Other(2): Mortgages payable 25.0% 2017-2033 11.98% 187,296 185,607 Various 2017-2023 4.20% 1,277,632 1,316,641 (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 Centre Mall/Washington Tower, 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 $5,062,697,000 and $4,432,078,000 as of December 31, 2016 and 2015, 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, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014. (Amounts in thousands) Balance Sheet: Assets Liabilities Noncontrolling interests Equity (Amounts in thousands) Income Statement: Total revenue Net loss Balance as of December 31, 2016 2015 $ 24,926,000 $ 21,357,000 265,000 3,305,000 25,526,000 21,162,000 146,000 4,218,000 2016 For the Year Ended December 31, 2015 2014 $ 13,600,000 $ (65,000) 13,423,000 $ (224,000) 13,620,000 (434,000) 128 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Dispositions 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 14 – Fee and Other Income. 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. 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. 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 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). 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. 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 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. In 2014, we also sold six strip shopping centers, in separate transactions, for an aggregate of $66,410,000 in cash, which resulted in a net gain aggregating $22,500,000. 129 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Dispositions - continued In accordance with the provisions of ASC 360, Property, Plant, and Equipment, we have reclassified the revenues and expenses of our strip shopping center and mall business which was spun off to UE on January 15, 2015 and other related retail assets 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 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, 2016 and 2015, and their combined results of operations for the years ended December 31, 2016, 2015 and 2014. (Amounts in thousands) Assets related to discontinued operations: Real estate, net Other assets Liabilities related to discontinued operations: Other liabilities (Amounts in thousands) Income from discontinued operations: Total revenues Total expenses Net gains on sale of real estate and a lease position Impairment losses UE spin-off transaction related costs 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, 2016 December 31, 2015 $ $ $ 2,642 2,928 5,570 $ $ 29,561 7,459 37,020 2,870 $ 12,470 For the Year Ended December 31, 2015 2016 2014 $ $ $ $ 3,998 1,435 2,563 5,074 (465) - 7,172 - $ 27,831 17,651 10,180 65,396 (256) (22,972) 52,348 (86) 7,172 $ 52,262 $ 395,786 274,107 121,679 507,192 (26,518) (14,956) 587,397 (1,721) 585,676 $ 455 2,785 (33,462) $ 346,865 123,837 (180,019) 130 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. 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, 2016 and 2015. (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, 2015 2016 $ $ $ $ 400,061 $ (207,330) 192,731 $ 586,969 $ (323,183) 263,786 $ 415,261 (187,360) 227,901 643,488 (325,340) 318,148 Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $53,202,000, $78,749,000 and $37,516,000 for the years ended December 31, 2016, 2015 and 2014, respectively. Estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing January 1, 2017 is as follows: (Amounts in thousands) 2017 2018 2019 2020 2021 $ 45,576 44,346 32,168 23,343 18,159 Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $29,543,000, $36,659,000 and $28,275,000 for the years ended December 31, 2016, 2015 and 2014, respectively. Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2017 is as follows: (Amounts in thousands) 2017 2018 2019 2020 2021 $ 24,456 20,201 15,863 12,394 11,177 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 $1,832,000 for the years ended December 31, 2016, 2015 and 2014. Estimated annual amortization of these below-market leases, net of above-market leases, for each of the five succeeding years commencing January 1, 2017 is as follows: (Amounts in thousands) 2017 2018 2019 2020 2021 $ 1,832 1,832 1,832 1,832 1,832 131 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. Debt Unsecured Revolving Credit Facility On November 7, 2016, we extended one of our two $1.25 billion unsecured revolving credit facilities from June 2017 to February 2021 with two six-month extension options. The interest rate on the extended facility was lowered from LIBOR plus 115 basis points to LIBOR plus 100 basis points. The facility fee remains unchanged at 20 basis points. Secured Debt 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% (2.40% at December 31, 2016), which was swapped for four and a half years to a fixed rate of 2.56%. The Company realized net proceeds of approximately $330,000,000. The property was previously encumbered by a 5.65%, $353,000,000 mortgage which was scheduled to mature in March 2016. On September 6, 2016, we completed a $675,000,000 refinancing of theMART, a 3,652,000 square foot commercial building in Chicago. The five-year loan is interest only and has a fixed rate of 2.70%. The Company realized net proceeds of approximately $124,000,000. The property was previously encumbered by a 5.57%, $550,000,000 mortgage which was scheduled to mature in December 2016. On December 2, 2016, we completed a $400,000,000 refinancing of 350 Park Avenue, a 571,000 square foot Manhattan office building. The ten-year loan is interest only and has a fixed rate of 3.92%. The Company realized net proceeds of approximately $111,000,000. The property was previously encumbered by a 3.75%, $284,000,000 mortgage which was scheduled to mature in January 2017. On March 15, 2016, we notified the servicer of the $678,000,000 non-recourse mortgage loan on the Skyline properties located in Fairfax, Virginia, that cash flow will be insufficient to service the debt and pay other property related costs and expenses and that we were not willing to fund additional cash shortfalls. Accordingly, at our request, the loan was transferred to the special servicer. Consequently, based on the shortened holding period for the underlying assets, we concluded that the excess of carrying amount over our estimate of fair value was not recoverable and recognized a $160,700,000 non-cash impairment loss in the first quarter of 2016. The Company’s estimate of fair value was derived from a discounted cash flow model based upon market conditions and expectations of growth and utilized unobservable quantitative inputs including a capitalization rate of 8.0% and a discount rate of 8.2%. In the second quarter of 2016, cash flow became insufficient to service the debt and we ceased making debt service payments. Pursuant to the loan agreement, the loan was in default, and was subject to incremental default interest which increased the weighted average interest rate from 2.97% to 4.51% while the outstanding balance remains unpaid. For the year ended December 31, 2016, we recognized $7,823,000 of default interest expense. On August 24, 2016, the Skyline properties were placed in receivership. On December 21, 2016, the disposition of the Skyline properties was completed by the receiver. In connection therewith, the Skyline properties’ assets (approximately $236,535,000) and liabilities (approximately aggregating $724,412,000), were removed from our consolidated balance sheet which resulted in a net gain of $487,877,000. There was no taxable income related to this transaction. 132 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. 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, 2016 Balance at December 31, 2016 2015 3.84% 2.49% 3.37% $ $ 3.68% $ 1.88% 6,099,873 $ 3,274,424 9,374,297 (96,034) 9,278,263 $ 850,000 $ (4,423) 845,577 375,000 (2,785) 372,215 6,356,634 3,258,204 9,614,838 (101,125) 9,513,713 850,000 (5,841) 844,159 187,500 (4,362) 183,138 Unsecured revolving credit facilities 1.68% 115,630 550,000 Total, net $ 1,333,422 $ 1,577,297 The net carrying amount of properties collateralizing the mortgages payable amounted to $10.7 billion at December 31, 2016. As of December 31, 2016, the principal repayments required for the next five years and thereafter are as follows: (Amounts in thousands) Year Ending December 31, 2017 2018 2019 2020 2021 Thereafter Senior Unsecured Debt and Unsecured Revolving Credit Mortgages Payable Facilities $ $ 156,702 1,389,341 399,661 1,882,443 3,173,705 2,372,445 - 490,630 450,000 - - 400,000 133 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. Redeemable Noncontrolling Interests/Redeemable Partnership Units Redeemable noncontrolling interests on Vornado’s consolidated balance sheets and redeemable partnership units on the consolidated balance sheets of the Operating Partnership are primarily comprised of Class A Operating Partnership units held by third parties and are recorded at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the value from period to period are charged to “additional capital” in Vornado’s consolidated statements of changes in equity and to “partners’ capital” on the consolidated balance sheets of the Operating Partnership. Class A units may be tendered for redemption to the Operating Partnership for cash; Vornado, at its option, may assume that obligation and pay the holder either cash or Vornado common shares on a one-for-one basis. Because the number of Vornado common shares outstanding at all times equals the number of Class A units owned by Vornado, the redemption value of each Class A unit is equivalent to the market value of one Vornado common share, and the quarterly distribution to a Class A unitholder is equal to the quarterly dividend paid to a Vornado common shareholder. Below are the details of redeemable noncontrolling interests/redeemable partnership units as of December 31, 2016 and 2015. (Amounts in thousands, except units and per unit amounts) Balance as of December 31, Units Outstanding at December 31, Unit Series 2016 2015 2016 2015 Common: Preferred or Per Unit Annual Liquidation Preference Distribution Rate Class A units held by third parties $ 1,273,018 $ 1,223,793 12,197,162 12,242,820 n/a $ 2.52 Perpetual Preferred/Redeemable Preferred(1): 5.00% D-16 Cumulative Redeemable $ 3.25% D-17 Cumulative Redeemable $ 1,000 $ 4,428 $ 1,000 4,428 1 1 $ 1,000,000.00 $ 50,000.00 177,100 177,100 $ 25.00 $ 0.8125 (1) Holders may tender units for redemption to the Operating Partnership for cash at their stated redemption amount; Vornado, at its 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 Vornado's option at any time. Below is a table summarizing the activity of redeemable noncontrolling interests/redeemable partnership units. (Amounts in thousands) Balance at December 31, 2014 Net income Other comprehensive loss Distributions Redemption of Class A units for Vornado 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 Net income Other comprehensive income Distributions Redemption of Class A units for Vornado common shares, at redemption value Adjustments to carry redeemable Class A units at redemption value Other, net Balance at December 31, 2016 $ $ 1,337,780 43,231 (2,866) (30,263) (48,230) (192,464) 80,000 4,428 37,605 1,229,221 53,654 4,699 (31,342) (36,510) 26,251 32,473 1,278,446 134 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. Redeemable Noncontrolling Interests/Redeemable Partnership Units – continued Redeemable noncontrolling interests/redeemable partnership units exclude our Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units, as they are accounted for as liabilities in accordance with ASC 480, Distinguishing Liabilities and Equity, because of their possible settlement by issuing a variable number of Vornado common shares. Accordingly, the fair value of these units is included as a component of “other liabilities” on our consolidated balance sheets and aggregated $50,561,000 as of December 31, 2016 and 2015, respectively. Changes in the value from period to period, if any, are charged to “interest and debt expense” on our consolidated statements of income. 10. Shareholders’ Equity/Partners’ Capital Common Shares (Vornado Realty Trust) As of December 31, 2016, there were 189,100,876 common shares outstanding. During 2016, we paid an aggregate of $475,961,000 of common dividends comprised of quarterly common dividends of $0.63 per share. Class A Units (Vornado Realty L.P.) As of December 31, 2016, there were 189,100,876 Class A units outstanding that were held by Vornado. These units are classified as “partners’ capital” on the consolidated balance sheets of the Operating Partnership. As of December 31, 2016, there were 12,197,162 Class A units outstanding, that were held by third parties. These units are classified outside of “partners’ capital” as “redeemable partnership units” on the consolidated balance sheets of the Operating Partnership (See Note 9 – Redeemable Noncontrolling Interests/Redeemable Partnership Units). During 2016, the Operating Partnership paid an aggregate of $475,961,000 of distributions to Vornado comprised of quarterly common distributions of $0.63 per unit. Preferred Share/Preferred Units On September 1, 2016, we redeemed all of the outstanding 6.875% Series J cumulative redeemable preferred shares/units at their redemption price of $25.00 per share/unit, or $246,250,000 in the aggregate, plus accrued and unpaid dividends/distributions through the date of redemption. In connection therewith, we expensed $7,408,000 of issuance costs, which reduced net income attributable to common shareholders and net income attributable to Class A unitholders in the twelve months ended December 31, 2016. These costs had been initially recorded as a reduction of shareholders’ equity and partners’ capital. The following table sets forth the details of our preferred shares of beneficial interest and the preferred units of the Operating Partnership as of December 31, 2016 and 2015. (Amounts in thousands, except share/unit and per share/per unit amounts) Balance as of December 31, Annual Shares/Units Outstanding at Share/Unit Dividend/ Per December 31, Liquidation Distribution Preference Rate(1) Preferred Shares/Units 2016 2015 2016 2015 Convertible Preferred: 6.5% Series A: authorized 83,977 shares/units(2) $ 1,264 $ 1,321 24,829 26,629 $ 50.00 $ 3.25 Cumulative Redeemable Preferred: 6.625% Series G: authorized 8,000,000 shares/units(3) 6.625% Series I: authorized 10,800,000 shares/units(3) 6.875% Series J: authorized 9,850,000 shares/units 5.70% Series K: authorized 12,000,000 shares/units(3) 5.40% Series L: authorized 12,000,000 shares/units(3) 193,135 262,379 - 290,971 290,306 193,135 262,379 238,842 290,971 290,306 $ 1,038,055 $ 1,276,954 8,000,000 10,800,000 - 12,000,000 12,000,000 42,824,829 8,000,000 $ 10,800,000 $ 9,850,000 12,000,000 $ 12,000,000 $ 52,676,629 25.00 $ 25.00 $ n/a 25.00 $ 25.00 $ 1.65625 1.65625 n/a 1.425 1.35 (1) Dividends on preferred shares and distributions on preferred units are cumulative and are payable quarterly in arrears. (2) Redeemable at the option of Vornado under certain circumstances, at a redemption price of 1.5934 common shares/Class A units per Series A Preferred Share/Unit plus accrued and unpaid dividends/distributions through the date of redemption, or convertible at any time at the option of the holder for 1.5934 common shares/Class A units per Series A Preferred Share/Unit. (3) Redeemable at Vornado's option at a redemption price of $25.00 per share/unit, plus accrued and unpaid dividends/distributions through the date of redemption. 135 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. Shareholders’ Equity/Partners’ Capital – continued 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, 2016 Pro rata share of nonconsolidated subsidiaries' OCI Interest rate swap Securities available- for-sale Balance as of December 31, 2015 Net current period OCI Balance as of December 31, 2016 $ $ 46,921 $ 72,051 118,972 $ 78,448 52,057 130,505 $ $ (9,319) $ (2,739) (12,058) $ (19,368) $ 27,434 8,066 $ 11. Variable Interest Entities (“VIEs”) Unconsolidated VIEs Other (2,840) (4,701) (7,541) As of December 31, 2016 and 2015, we have several unconsolidated VIEs. We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities does not give us power over decisions that significantly affect these entities’ economic performance. We account for our investment in these entities under the equity method (see Note 5 – Investments in Partially Owned Entities). As of December 31, 2016 and 2015, the net carrying amount of our investments in these entities was $392,150,000 and $414,003,000, respectively, and our maximum exposure to loss in these entities, is limited to our investments. Consolidated VIEs We adopted ASU 2015-02 on January 1, 2016 which resulted in the identification of several VIEs which, prior to the adoption of ASU 2015-02, were consolidated under the voting interest model. Vornado’s most significant consolidated VIEs are our Operating Partnership, real estate fund investments, and certain properties that have non-controlling interests. These entities are VIEs because the non-controlling interests do not have substantive kick-out or participating rights. We consolidate these entities because we control all significant business activities. As of December 31, 2016, the total assets and liabilities of our consolidated VIEs, excluding the Operating Partnership, are $3,638,483,000 and $1,762,322,000, respectively. 136 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. 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, 2016 and 2015, respectively. (Amounts in thousands) Marketable securities Real estate fund investments Deferred compensation plan assets (included in other assets) Interest rate swaps (included in other assets) Total assets Mandatorily redeemable instruments (included in other liabilities) Interest rate swap (included in other liabilities) Total liabilities (Amounts in thousands) Marketable securities Real estate fund investments 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 Total As of December 31, 2016 Level 2 Level 1 $ $ $ $ $ $ $ $ 203,704 462,132 121,374 21,816 809,026 50,561 10,122 60,683 Total 150,997 574,761 117,475 843,233 50,561 19,600 70,161 $ $ $ $ $ $ $ $ 203,704 - 63,930 - 267,634 50,561 - 50,561 $ $ $ $ - - - 21,816 21,816 - 10,122 10,122 As of December 31, 2015 Level 2 Level 1 150,997 - 58,289 209,286 50,561 - 50,561 $ $ $ $ - - - - - 19,600 19,600 Level 3 - 462,132 57,444 - 519,576 - - - Level 3 - 574,761 59,186 633,947 - - - $ $ $ $ $ $ $ $ 137 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. Fair Value Measurements - continued Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued Real Estate Fund Investments At December 31, 2016, we had six real estate fund investments with an aggregate fair value of $462,132,000, or $153,197,000 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 4.0 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, 2016. Unobservable Quantitative Input Discount rates Terminal capitalization rates Range 10.0% to 14.9% 4.3% to 5.8% Weighted Average (based on fair value of investments) 12.6% 5.3% The above inputs are subject to change based on changes in economic and market conditions and/or changes in use or timing of exit. Changes in discount rates and terminal capitalization rates result in increases or decreases in the fair values of these investments. The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates and the amount and timing of cash flows. Therefore, a change in the fair value of these investments resulting from a change in the terminal capitalization rate, may be partially offset by a change in the discount rate. It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values. The table below summarizes the changes in the fair value of real estate fund investments that are classified as Level 3, for the years ended December 31, 2016 and 2015. (Amounts in thousands) Beginning balance Purchases Dispositions/distributions Net unrealized (loss) gain Net realized gain Other, net Ending balance For The Year Ended December 31, 2016 2015 $ $ 574,761 - (71,888) (41,162) 507 (86) 462,132 $ $ 513,973 95,010 (91,450) 54,995 2,757 (524) 574,761 138 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. 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, 2016 and 2015. (Amounts in thousands) Beginning balance Purchases Sales Realized and unrealized gains (losses) Other, net Ending balance For The Year Ended December 31, 2016 2015 $ $ 59,186 5,355 (9,354) 344 1,913 57,444 $ $ 63,315 9,062 (13,252) (501) 562 59,186 Fair Value Measurements on a Nonrecurring Basis There were no assets measured at fair value on a nonrecurring basis on our consolidated balance sheets at December 31, 2016 and 2015. Financial Assets and Liabilities not Measured at Fair Value Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents (primarily money market funds, which invest in obligations of the United States government), and our secured and unsecured debt. Estimates of the fair value of these instruments are determined by the standard practice of modeling the contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk adjusted interest rate, which is provided by a third-party specialist. For floating rate debt, we use forward rates derived from observable market yield curves to project the expected cash flows we would be required to make under the instrument. The fair value of cash equivalents and borrowings under our unsecured revolving credit facilities and unsecured term loan are classified as Level 1. The fair value of our secured debt and senior unsecured debt are classified as Level 2. The table below summarizes the carrying amounts and estimated fair value of these financial instruments as of December 31, 2016 and 2015. (Amounts in thousands) Cash equivalents Debt: Mortgages payable Senior unsecured notes Unsecured term loan Unsecured revolving credit facilities Total As of December 31, 2016 Fair Value Carrying Amount As of December 31, 2015 Fair Value Carrying Amount 1,307,105 $ 1,307,000 $ 1,295,980 $ 1,296,000 9,374,297 $ 850,000 375,000 115,630 10,714,927 $ 9,356,000 $ 899,000 375,000 116,000 10,746,000 $ 9,614,838 $ 850,000 187,500 550,000 11,202,338 $ 9,306,000 868,000 187,500 550,000 10,911,500 $ $ $ 139 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Stock-based Compensation Vornado’s 2010 Omnibus Share Plan (the “Plan”) provides the Compensation Committee of Vornado’s Board of Trustees (the “Committee”) the ability to grant incentive and non-qualified Vornado stock options, restricted stock, restricted Operating Partnership units and out-performance plan awards to certain of our employees and officers. Under the Plan, awards may be granted up to a maximum of 6,000,000 Vornado shares, if all awards granted are Full Value Awards, as defined, and up to 12,000,000 Vornado 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 Vornado’s 2002 Omnibus Share Plan. Full Value Awards are awards of securities, such as Vornado 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 Vornado stock options, that do require the payment of an exercise price or strike price. This means, for example, if the Committee were to award only Vornado restricted shares, it could award up to 6,000,000 Vornado restricted shares. On the other hand, if the Committee were to award only Vornado stock options, it could award options to purchase up to 12,000,000 Vornado common 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, 2016, Vornado has approximately 2,929,000 shares available for future grants under the Plan, if all awards granted are Full Value Awards, as defined. In the years ended December 31, 2016, 2015 and 2014, we recognized an aggregate of $33,980,000, $39,846,000 and $36,641,000, 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 details of the various components of our stock-based compensation are discussed on the following pages. 140 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Stock-based Compensation - continued Out-Performance Plans (“the OPPs”) OPPs are multi-year, performance-based equity compensation plans under which participants have the opportunity to earn a class of units (“OPP units”) of the Operating Partnership if, and only if, Vornado outperforms 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 units of the Operating Partnership (and ultimately into Vornado common shares) following vesting. Awards under the 2014 OPP have been 99.5% earned. Awards under the 2015 and 2016 OPP may be earned if Vornado (i) achieves a TSR level greater than 7% per annum, or 21% over the three-year performance measurement periods (the “Absolute Component”), and/or (ii) achieves a TSR above that of the SNL US REIT Index (“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 Vornado underperforms the Index, such awards would be reduced (and potentially fully negated) based on the degree to which Vornado underperforms the Index. In certain circumstances, in the event Vornado outperforms 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 Vornado fails to achieve at least a 6% per annum absolute TSR, such awards earned under the Relative Component would be reduced based on Vornado’s absolute TSR, with no awards being earned in the event Vornado’s TSR during the applicable measurement period is 0% or negative, irrespective of the degree to which Vornado may outperform the Index. Dividends on awards issued and distributions on awards earned accrue during the performance period. If the designated performance objectives are achieved, OPP units are also subject to time-based vesting requirements. Awards earned under the OPPs vest 33.33% in each of years three, four and five. Vornado’s senior executive officers are required to hold earned 2016, 2015 and 2014 OPP awards (or related equity) for at least one year following vesting. Below is the summary of the OPP units granted during the years December 31, 2016, 2015, and 2014. Plan Year 2016 2015 2014 Total Plan Notional Amount Percentage of Notional Amount Granted Grant Date Fair Value(1) $ 40,000,000 40,000,000 50,000,000 $ 86.7% 84.5% 58.9% 11,800,000 9,120,000 8,202,000 OPP Units Earned To be determined in 2019 To be determined in 2018 297,495 (2) (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, 2016, 2015 and 2014, we recognized $11,055,000, $15,531,000 and $6,185,000, respectively, of compensation expense related to OPPs. As of December 31, 2016, there was $5,752,000 of total unrecognized compensation cost related to the OPPs, which will be recognized over a weighted-average period of 1.7 years. (2) 99.5% earned on January 10, 2017. 141 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Stock-based Compensation - continued Vornado Stock Options Vornado stock options are granted at an exercise price equal to the average of the high and low market price of Vornado’s 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 Vornado stock option awards is recognized on a straight-line basis over the vesting period. In the years ended December 31, 2016, 2015 and 2014, we recognized $937,000, $1,298,000 and $4,550,000, respectively, of compensation expense related to Vornado stock options that vested during each year. As of December 31, 2016, there was $1,335,000 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 Vornado’s stock option activity for the year ended December 31, 2016. Outstanding at January 1, 2016 Granted Exercised Cancelled or expired Outstanding at December 31, 2016 Options vested and expected to vest at December 31, 2016 Options exercisable at December 31, 2016 Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value Shares 2,827,570 $ 42,466 (125,724) (11,768) 2,732,544 $ 2,737,594 $ 2,642,684 $ 60.06 92.97 56.44 100.49 65.76 60.66 59.42 3.1 $ 120,360,377 4.1 $ 2.9 $ 118,170,212 119,269,973 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, 2016, 2015 and 2014. Expected volatility Expected life Risk free interest rate Expected dividend yield 2016 35.00 % 5.0 years 1.76 % 3.20 % December 31, 2015 35.00 % 5.0 years 1.56 % 3.30 % 2014 36.00 % 5.0 years 1.81 % 4.10 % The weighted average grant date fair value of options granted during the years ended December 31, 2016, 2015 and 2014 was $22.14, $28.85 and $20.31, respectively. Cash received from option exercises for the years ended December 31, 2016, 2015 and 2014 was $6,825,000, $15,343,000 and $17,441,000, respectively. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $5,519,000, $3,873,000 and $18,223,000, respectively. 142 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Stock-based Compensation - continued Vornado Restricted Stock Vornado restricted stock awards are granted at the average of the high and low market price of Vornado’s common shares on the NYSE on the date of grant and generally vest over four years. Compensation expense related to Vornado’s restricted stock awards is recognized on a straight-line basis over the vesting period. In the years ended December 31, 2016, 2015 and 2014, we recognized $851,000, $837,000 and $1,303,000, respectively, of compensation expense related to Vornado restricted stock awards that vested during each year. As of December 31, 2016, there was $1,337,000 of total unrecognized compensation cost related to unvested Vornado restricted stock, which is expected to be recognized over a weighted-average period of 1.7 years. Dividends paid on unvested Vornado restricted stock are charged directly to retained earnings and amounted to $56,000, $58,000 and $88,000 for the years ended December 31, 2016, 2015 and 2014, respectively. Below is a summary of Vornado’s restricted stock activity under the Plan for the year ended December 31, 2016. Unvested Shares Shares Unvested at January 1, 2016 Granted Vested Cancelled or expired Unvested at December 31, 2016 Weighted-Average Grant-Date Fair Value 19,592 $ 9,973 (7,472) (1,086) 21,007 91.09 92.97 85.80 93.87 93.72 Vornado restricted stock awards granted in 2016, 2015 and 2014 had a fair value of $927,000, $906,000 and $1,048,000, respectively. The fair value of restricted stock that vested during the years ended December 31, 2016, 2015 and 2014 was $641,000, $882,000 and $1,174,000, respectively. Restricted Operating Partnership Units (“OP Units”) OP Units are granted at the average of the high and low market price of Vornado’s 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, 2016, 2015 and 2014, we recognized $21,136,000, $22,180,000 and $24,603,000, respectively, of compensation expense related to OP Units that vested during each year. As of December 31, 2016, there was $15,670,000 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 Vornado’s consolidated statements of income and to “preferred unit distributions” on the Operating Partnership’s consolidated statements of income and amounted to $1,968,000, $2,414,000 and $2,866,000 in the years ended December 31, 2016, 2015 and 2014, respectively. Below is a summary of restricted OP unit activity under the Plan for the year ended December 31, 2016. Unvested Units Units Weighted-Average Grant-Date Fair Value Unvested at January 1, 2016 Granted Vested Cancelled or expired Unvested at December 31, 2016 639,017 $ 211,086 (289,515) (7,554) 553,034 80.46 87.60 78.41 92.01 87.11 OP Units granted in 2016, 2015 and 2014 had a fair value of $18,492,000, $20,293,000 and $19,669,000, respectively. The fair value of OP Units that vested during the years ended December 31, 2016, 2015 and 2014 was $22,701,000, $20,072,000 and $22,758,000, respectively. 143 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. Fee and Other Income The following table sets forth the details of our fee and other income: (Amounts in thousands) BMS cleaning fees Management and leasing fees Lease termination fees(1) Other income For the Year Ended December 31, 2015 2016 2014 $ $ 78,920 20,891 9,516 32,480 141,807 $ $ 82,113 16,831 27,233 38,528 164,705 $ $ 85,658 19,905 16,362 33,281 155,206 (1) The year ended December 31, 2015 includes $15,000 related to the New York Stock Exchange lease termination at 20 Broad Street. The above table excludes fee income from partially owned entities, which is included in “income (loss) from partially owned entities” (see Note 5 – Investments in Partially Owned Entities). 15. Interest and Other Investment Income, Net The following table sets forth the details of our interest and other investment income, net: (Amounts in thousands) Dividends on marketable securities Mark-to-market income of investments in our deferred compensation plan(1) Interest on loans receivable Other, net For the Year Ended December 31, 2015 2014 2016 $ $ 13,135 $ 5,213 3,890 7,308 29,546 $ 12,836 111 6,371 7,660 26,978 $ $ 12,707 11,557 6,107 8,381 38,752 (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. 16. 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 144 For the Year Ended December 31, 2015 2014 2016 $ $ 402,057 $ 34,714 (34,097) 402,674 $ 405,169 32,161 (59,305) 378,025 $ $ 430,278 45,263 (62,786) 412,755 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. Income Per Share/Income Per Class A Unit Vornado Realty Trust The following table provides a reconciliation of both net income and the number of common shares used in the computation of (i) basic income per common share - which includes the weighted average number of common shares outstanding without regard to dilutive potential common shares, and (ii) diluted income per common share - which includes the weighted average common shares and dilutive share equivalents. Dilutive share equivalents may include our Series A convertible preferred shares, employee stock options and restricted stock awards. (Amounts in thousands, except per share amounts) Numerator: Income from continuing operations, net of income attributable to noncontrolling Year Ended December 31, 2015 2016 2014 interests $ 900,185 $ 711,240 $ 312,700 Income from discontinued operations, net of income attributable to noncontrolling interests Net income attributable to Vornado Preferred share dividends Preferred share issuance costs (Series J redemption) 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 Earnings allocated to Out-Performance Plan units 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 Out-Performance Plan units Denominator for diluted income per share – weighted average shares and assumed conversions INCOME PER COMMON SHARE – BASIC: Income from continuing operations, net Income from discontinued operations, net Net income per common share INCOME PER COMMON SHARE – DILUTED: Income from continuing operations, net Income from discontinued operations, net Net income per common share 6,732 906,917 (75,903) (7,408) 823,606 (96) 823,510 86 806 824,402 $ 49,194 760,434 (80,578) - 679,856 (81) 679,775 91 - 679,866 $ 552,152 864,852 (81,464) - 783,388 (125) 783,263 97 - 783,360 188,837 188,353 187,572 1,064 42 230 1,166 45 - 1,075 43 - 190,173 189,564 188,690 4.32 0.04 4.36 4.30 0.04 4.34 $ $ $ $ 3.35 0.26 3.61 3.33 0.26 3.59 $ $ $ $ 1.23 2.95 4.18 1.22 2.93 4.15 $ $ $ $ $ (1) The effect of dilutive securities in the years ended December 31, 2016, 2015 and 2014 excludes an aggregate of 12,022, 11,744 and 11,238 weighted average common share equivalents, respectively, as their effect was anti-dilutive. 145 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. Income Per Share/Income Per Class A Unit - continued Vornado Realty L.P. The following table provides a reconciliation of both net income and the number of Class A units used in the computation of (i) basic income per Class A unit - which includes the weighted average number of Class A units outstanding without regard to dilutive potential common units, and (ii) diluted income per Class A unit - which includes the weighted average common units and dilutive unit equivalents. Dilutive unit equivalents may include our Series A convertible preferred units, Vornado stock options and restricted unit awards. (Amounts in thousands, except per unit amounts) Numerator: Income from continuing operations, net of income attributable to noncontrolling Year Ended December 31, 2015 2016 2014 interests $ 953,399 $ 751,403 $ 326,789 Income from discontinued operations, net of income attributable to noncontrolling interests Net income attributable to Vornado Realty L.P. Preferred unit distributions Preferred unit issuance costs (Series J redemption) Net income attributable to Class A unitholders Earnings allocated to unvested participating securities Numerator for basic income per Class A unit Impact of assumed conversions: Convertible preferred unit distributions Numerator for diluted income per Class A unit Denominator: Denominator for basic income per Class A unit – weighted average units Effect of dilutive securities (1): Vornado stock options and restricted unit awards Convertible preferred units Denominator for diluted income per Class A unit – weighted average units and assumed conversions INCOME PER CLASS A UNIT – BASIC: Income from continuing operations, net Income from discontinued operations, net Net income per Class A unit INCOME PER CLASS A UNIT – DILUTED: Income from continuing operations, net Income from discontinued operations, net Net income per Class A unit 7,172 960,571 (76,097) (7,408) 877,066 (4,177) 872,889 52,262 803,665 (80,736) - 722,929 (4,092) 718,837 585,676 912,465 (81,514) - 830,951 (4,260) 826,691 86 872,975 $ 92 718,929 $ 97 826,788 $ 200,350 199,309 198,213 1,625 42 1,804 45 1,557 43 202,017 201,158 199,813 $ $ $ $ 4.32 0.04 4.36 4.29 0.03 4.32 $ $ $ $ 3.35 0.26 3.61 3.31 0.26 3.57 $ $ $ $ 1.22 2.95 4.17 1.21 2.93 4.14 (1) The effect of dilutive securities in the years ended December 31, 2016, 2015 and 2014 excludes an aggregate of 178, 150 and 116 weighted average Class A unit equivalents, respectively, as their effect was anti-dilutive. 146 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. 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. Certain leases provide for pass-through to tenants the tenant’s share of real estate taxes, insurance and maintenance. Certain leases also provide for the payment by the lessee of additional rent based on a percentage of the tenants’ sales. As of December 31, 2016, 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: 2017 2018 2019 2020 2021 Thereafter $ 1,738,779 1,696,355 1,570,197 1,446,485 1,342,749 7,340,929 These amounts do not include percentage rentals based on tenants’ sales. These percentage rents approximated $8,037,000, $5,760,000 and $6,343,000, for the years ended December 31, 2016, 2015 and 2014, respectively. None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2016, 2015 and 2014. 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, 2016 are as follows: (Amounts in thousands) Year Ending December 31: 2017 2018 2019 2020 2021 Thereafter $ 34,871 35,357 35,865 36,393 36,959 1,611,995 Rent expense, a component of “operating expenses” on our consolidated statements of income, was $42,024,000, $38,887,000 and $36,315,000 for the years ended December 31, 2016, 2015 and 2014, respectively. 147 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. Leases - continued 1535 Broadway We are a lessee under a long-term capital lease for the retail and signage components of the Marriott Marquis Times Square Hotel at 1535 Broadway. At inception of the lease in 2012, we recorded a $240,000,000 capital lease asset and liability on our consolidated balance sheet based on the present value of future minimum lease payments. The capital lease asset is being depreciated on a straight- line basis over the estimated life of the asset and the related expense is included in “depreciation and amortization” on our consolidated statements of income. During 2016, we substantially completed the redevelopment of the leased space, as required under the lease, at a total redevelopment cost of approximately $194,147,000. The lease contains a put/call purchase option under which the lessor may exercise its “put” on predetermined dates after March 31, 2018 and we may exercise our “call” at any time after July 30, 2027 and before January 3, 2032. As of December 31, 2016, future minimum lease payments under this capital lease are as follows: (Amounts in thousands) Year Ending December 31: 2017 2018 2019 2020 2021 Thereafter Total minimum obligations Interest portion Present value of net minimum payments $ $ 12,508 12,508 12,508 12,508 12,508 309,839 372,379 (132,379) 240,000 As of December 31, 2016, the gross carrying amount of the property leased under the capital lease was $434,147,000, which is a component of “buildings and improvements” on our consolidated balance sheets. 148 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. 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, 2016, our subsidiaries’ participation in these plans was not significant to our consolidated financial statements. In the years ended December 31, 2016, 2015 and 2014, our subsidiaries contributed $9,479,000, $10,878,000 and $11,431,000, 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, 2016, 2015 and 2014. 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, 2016, 2015 and 2014, our subsidiaries contributed $32,998,000, $29,269,000 and $29,073,000, respectively, towards these plans, which is included as a component of “operating” expenses on our consolidated statements of income. 20. 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 $1,622,000 ($1,976,000 for 2017) and 16% (17% for 2017) of the balance of a covered loss and the Federal government is responsible for the remaining portion of a covered loss. We are ultimately responsible for any loss incurred by PPIC. We continue to monitor the state of the insurance market and the scope and 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. 149 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. Commitments and Contingencies - continued Other Commitments and Contingencies We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not 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, 2016, the aggregate dollar amount of these guarantees and master leases is approximately $737,000,000. As of December 31, 2016, $19,847,000 of letters of credit was 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, 2016, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $173,000,000, which includes our share of the commitments of the Farley Post Office redevelopment joint venture. As of December 31, 2016, we have construction commitments aggregating $653,940,000. 150 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 21. Related Party Transactions Alexander’s, Inc. We own 32.4% of Alexander’s. Steven Roth, the Chairman of Vornado’s Board of Trustee’s and its 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 5 - Investments in Partially Owned Entities. Urban Edge Properties We own 5.4% of UE. During 2015, we provided transition services to UE, primarily for information technology, human resources, tax and financial planning. In 2016, we continue to provide UE transition services for information technology and human resources. UE is providing us with leasing, development and property management services for certain of our retail properties including the retail assets of Alexander’s. Fees to UE for servicing the retail assets of Alexander’s are similar to the fees that we are receiving from Alexander’s as described in Note 5 - 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, 2016, 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 $521,000, $541,000, and $535,000 of management fees under the agreement for the years ended December 31, 2016, 2015 and 2014, respectively. 151 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 22. Summary of Quarterly Results (Unaudited) Vornado Realty Trust The following summary represents the results of operations for each quarter in 2016 and 2015: (Amounts in thousands, except per share amounts) 2016 December 31 September 30 June 30 March 31 2015 December 31 September 30 June 30 March 31 Net Income (Loss) Attributable to Common Shareholders (1) Revenues Net Income (Loss) Per Common Share (2) Basic Diluted $ $ 638,260 $ 633,197 621,708 613,037 651,581 $ 627,596 616,288 606,802 651,181 $ 66,125 220,463 (114,163) 230,742 $ 198,870 165,651 84,593 3.44 $ 0.35 1.17 (0.61) 1.22 $ 1.05 0.88 0.45 3.43 0.35 1.16 (0.61) 1.22 1.05 0.87 0.45 (1) Fluctuations among quarters resulted primarily from non-cash impairment losses, net gain on extinguishment of debt, 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. Vornado Realty L.P. The following summary represents the results of operations for each quarter in 2016 and 2015: (Amounts in thousands, except per unit amounts) 2016 December 31 September 30 June 30 March 31 2015 December 31 September 30 June 30 March 31 Net Income (Loss) Attributable to Class A Unitholders (1) Revenues Net Income (Loss) Per Class A Unit (2) Basic Diluted $ $ 638,260 $ 633,197 621,708 613,037 651,581 $ 627,596 616,288 606,802 693,377 $ 70,442 234,945 (121,698) 245,735 $ 211,526 175,800 89,868 3.44 $ 0.35 1.17 (0.61) 1.22 $ 1.05 0.88 0.45 3.43 0.35 1.16 (0.61) 1.21 1.05 0.87 0.44 (1) Fluctuations among quarters resulted primarily from non-cash impairment losses, net gain on extinguishment of debt, 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. 152 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. Segment Information Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the year ended December 31, 2016. (Amounts in thousands) For the Year Ended December 31, 2016 Total New York 1,713,374 1,093,587 619,787 (2,379) - 5,093 (216,685) - $ Washington, DC 518,117 528,863 (10,746) (7,227) - (2) (72,434) 487,877 159,511 565,327 (5,508) 559,819 - 559,819 15,302 412,770 (1,083) 411,687 - 411,687 $ Other 274,711 332,961 (58,250) 174,995 (23,602) 24,455 (113,555) - 922 4,965 (1,721) 3,244 7,172 10,416 (13,558) 546,261 280,563 435,961 5,911 1,268,696 (3) $ - 411,687 81,723 158,720 2,979 655,109 (4) $ (7,793) 2,623 145,076 99,533 2,948 250,180 (5) $ 10,787,730 1,080,064 13,312,116 $ 4,152,138 94,870 3,645,525 3,400,090 253,085 3,857,206 Total revenues Total expenses Operating income (loss) Income (loss) from partially owned entities Loss from real estate fund investments Interest and other investment income (loss), net Interest and debt expense Net gain on extinguishment of Skyline properties debt Net gain on disposition of wholly owned and partially owned assets Income before income taxes Income tax expense Income from continuing operations Income from discontinued operations Net income Less net income attributable to noncontrolling interests in consolidated subsidiaries Net income attributable to the Operating Partnership Interest and debt expense(2) Depreciation and amortization(2) Income tax expense(2) EBITDA(1) Balance Sheet Data: Real estate, at cost Investments in partially owned entities Total assets See notes on pages 156 and 157. $ $ $ $ $ $ 2,506,202 1,955,411 550,791 165,389 (23,602) 29,546 (402,674) 487,877 175,735 983,062 (8,312) 974,750 7,172 981,922 (21,351) 960,571 507,362 694,214 11,838 2,173,985 18,339,958 1,428,019 20,814,847 153 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. Segment Information - continued Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the year ended December 31, For the Year Ended December 31, 2015 Total New York 2015. (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 in consolidated subsidiaries Net income attributable to the Operating Partnership 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 156 and 157. $ 1,695,925 1,032,015 663,910 655 - 7,722 (194,278) $ Washington, DC 532,812 390,921 141,891 (6,020) - (262) (68,727) 142,693 620,702 (4,379) 616,323 - 616,323 (13,022) 603,301 248,724 394,028 4,766 1,250,819 (3) $ 102,404 169,286 (317) 168,969 - 168,969 - 168,969 80,795 178,021 (1,610) 426,175 (4) $ Other 273,530 319,083 (45,553) (7,265) 74,081 19,518 (115,020) 6,724 (67,515) 89,391 21,876 52,262 74,138 (42,743) 31,395 140,324 92,588 (88,535) 175,772 (5) $ 10,577,078 1,195,122 12,257,774 $ 4,544,842 80,708 4,517,092 2,968,217 274,592 4,368,427 $ $ $ $ $ $ 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 (55,765) 803,665 469,843 664,637 (85,379) 1,852,766 18,090,137 1,550,422 21,143,293 154 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. Segment Information - continued Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the year ended December 31, 2014. (Amounts in thousands) For the Year Ended December 31, 2014 Total New York 1,520,845 946,466 574,379 20,701 - 6,711 (183,427) $ Washington, DC 537,151 358,019 179,132 (4,767) - 183 (75,395) - 418,364 (4,305) 414,059 463,163 877,222 - 99,153 (242) 98,911 - 98,911 $ Other 254,516 318,134 (63,618) (75,795) 163,034 31,858 (153,933) 13,568 (84,886) (4,734) (89,620) 122,513 32,893 (8,626) 868,596 241,959 324,239 4,395 1,439,189 (3) $ - 98,911 87,778 144,124 288 331,101 (4) $ (87,935) (55,042) 324,661 217,610 19,565 506,794 (5) $ 9,732,818 1,036,130 10,706,476 $ 4,383,418 83,428 4,281,421 2,706,122 120,931 6,170,083 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 in consolidated subsidiaries Net income (loss) attributable to the Operating Partnership 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 $ $ $ $ $ $ 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 (96,561) 912,465 654,398 685,973 24,248 2,277,084 16,822,358 1,240,489 21,157,980 See notes on the following pages. 155 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. Segment Information – continued Notes to preceding tabular information: (1) We calculate EBITDA on an Operating Partnership basis which is before allocation to the noncontrolling interest of the Operating Partnership. 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. Our 7.5% interest in Fashion Centre Mall/Washington Tower will not be included in the spin-off of our Washington, DC segment and have been reclassified to Other. The prior year's presentation has been conformed to the current year. (2) Interest and debt expense, depreciation and amortization and income tax expense (benefit) in the reconciliation of net income to EBITDA includes our share of these items from partially owned entities. (3) The elements of "New York" EBITDA are summarized below. (Amounts in thousands) Office Retail Residential Alexander's Hotel Pennsylvania Total New York EBITDA Certain items that impact EBITDA: Net gains on sale of real estate EBITDA from discontinued operations and sold properties Other Certain items that impact EBITDA Total New York EBITDA, as adjusted For the Year Ended December 31, 2015 2016 2014 805,708 381,739 25,060 46,182 10,007 1,268,696 (159,511) (3,120) - (162,631) 1,106,065 $ $ 804,272 358,379 22,266 42,858 23,044 1,250,819 (142,693) (35,985) (1,300) (179,978) 1,070,841 $ $ 1,063,355 281,428 21,907 41,746 30,753 1,439,189 (440,537) (39,743) (171) (480,451) 958,738 $ $ (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 EBITDA Certain items that impact EBITDA: Net gain on extinguishment of Skyline properties debt Skyline properties impairment loss EBITDA from discontinued operations and sold properties Net gains on sale of real estate and a land parcel Other Certain items that impact EBITDA Total Washington, DC EBITDA, as adjusted For the Year Ended December 31, 2015 2016 2014 $ $ 260,436 348,016 608,452 46,657 655,109 (487,877) 160,700 (22,131) (15,302) - (364,610) 290,499 $ $ 359,063 26,325 385,388 40,787 426,175 - - (33,605) (102,404) 405 (135,604) 290,571 $ $ 260,270 29,250 289,520 41,581 331,101 - - (38,876) (1,800) - (40,676) 290,425 156 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. 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 (loss) gain Net realized/unrealized (loss) gain Carried interest Total (loss) income from real estate fund investments theMART (including 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) Income from the repayment of our investments in 85 Tenth Avenue loans and preferred equity Acquisition and transaction related costs Our share of impairment losses on India real estate ventures Discontinued operations(d) Net gains on sale of real estate Impairment loss and loan loss reserve on investment in Suffolk Downs Total Other For the Year Ended December 31, 2015 2016 2014 $ $ 8,607 (16,270) (13,379) (21,042) 91,845 45,827 3,685 2,000 77,240 199,555 (100,594) 22,501 160,843 (26,062) (13,962) 7,185 714 - 250,180 $ $ $ 8,611 14,657 10,696 33,964 79,159 49,975 3,933 2,500 42,436 211,967 (106,416) 26,385 - (12,511) (14,806) 28,314 44,390 (1,551) 175,772 $ 8,056 37,535 24,715 70,306 79,636 48,844 6,434 103,632 21,385 330,237 (94,929) 31,665 - (16,392) (5,771) 245,679 26,568 (10,263) 506,794 (a) As a result of our investment being reduced to zero, we suspended equity method accounting in 2014. The year ended December 31, 2014 includes an impairment loss of $75,196. (b) The amounts in these captions (for this table only) exclude the results of the mark-to-market of our deferred compensation plan of $5,213, $111, and $11,557 of income, respectively. (c) The year ended December 31, 2015 includes a cumulative catch up of $4,542 from the acceleration of recognition of compensation expense related to the modification of the 2012-2014 Out-Performance Plans. (d) The years ended December 31, 2015 and 2014 include $22,684 and $14,956, respectively, of transaction costs related to the spin-off of our strip shopping centers and malls. 157 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 24. Subsequent Events 2017 Out-Performance Plan On January 13, 2017, the Committee approved the 2017 Outperformance Plan, a multi-year, performance-based equity compensation plan (the “2017 OPP”). Awards under the 2017 OPP constitute awards under Vornado’s shareholder approved 2010 Omnibus Share Plan. Under the 2017 OPP, participants have the opportunity to earn compensation payable in the form of equity awards if, and only if, Vornado outperforms 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 2017 OPP may potentially be earned if Vornado (i) achieves a TSR level greater than 7% per annum, or 21% over the three-year performance period (the “Absolute Component”) and/or (ii) achieves a TSR above that of the SNL US REIT Index (the “Index”) over a three-year performance period (the “Relative Component”). To the extent awards would be earned under the Absolute Component but Vornado underperforms the Index, such awards earned under the Absolute Component would be reduced (and potentially fully negated) based on the degree to which Vornado underperforms the Index. In certain circumstances, in the event Vornado outperforms 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 Vornado fails to achieve at least a 3% per annum absolute TSR level, such awards earned under the Relative Component would be reduced based on Vornado’s absolute TSR performance, with no awards being earned in the event Vornado’s 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; 33.33% in each of years three, four and five. 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 Vornado’s senior executive officers are required to hold any earned OPP awards (or related equity) for at least one year following vesting. 158 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Vornado Realty Trust Disclosure Controls and Procedures: Our management, with the participation of Vornado’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15 (e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, Vornado’s 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 Vornado’s 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, 2016, 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, 2016 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, 2016 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing on the following page, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2016. 159 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, 2016, 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, 2016, 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, 2016 of the Company and our report dated February 13, 2017 expressed an unqualified opinion on those financial statements and financial statement schedules. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey February 13, 2017 160 ITEM 9A. CONTROLS AND PROCEDURES - continued Vornado Realty L.P. Disclosure Controls and Procedures: Vornado Realty L.P.’s management, with the participation of Vornado’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15 (e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, Vornado’s 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, sole general partner of Vornado Realty L.P., together with Vornado Realty L.P.’s 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 Vornado’s 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, 2016, 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, 2016 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 Vornado’s 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, 2016 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing on the following page, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2016. 161 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Partners Vornado Realty L.P. New York, New York We have audited the internal control over financial reporting of Vornado Realty L.P. and consolidated subsidiaries (the “Partnership”) as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management of Vornado Realty Trust, sole general partner of the Partnership, 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 Partnership’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 Vornado Realty Trust; 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 Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, 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, 2016 of the Partnership and our report dated February 13, 2017 expressed an unqualified opinion on those financial statements and financial statement schedules. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey February 13, 2017 162 ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information relating to trustees of Vornado, the Operating Partnership’s sole general partner, including its audit committee and audit committee financial expert, will be contained in Vornado’s definitive Proxy Statement involving the election of Vornado’s trustees under the caption “Election of Trustees” which Vornado 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, 2016, 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 Vornado’s Shareholders unless they are removed sooner by Vornado’s Board. Name Steven Roth Age 75 Michael J. Franco 48 PRINCIPAL OCCUPATION, POSITION AND OFFICE (Current and during past five years with Vornado unless otherwise stated) 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. 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 65 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 71 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. Mitchell N. Schear 58 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). Stephen W. Theriot 57 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). Vornado, the Operating Partnership’s sole general partner, has adopted a Code of Business Conduct and Ethics that applies to, among others, Steven Roth, Vornado’s principal executive officer, and Stephen W. Theriot, Vornado’s principal financial and accounting officer. This Code is available on Vornado’s website at www.vno.com. 163 ITEM 11. EXECUTIVE COMPENSATION Information relating to Vornado’s executive officer and trustee compensation will be contained in Vornado’s 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 Vornado’s 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, 2016 regarding Vornado’s equity compensation plans. Plan Category Equity compensation plans approved by security holders Equity compensation awards not approved by security holders Total 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) 4,787,974 (1) $ - 4,787,974 $ 65.76 - 65.76 2,928,899 (2) - 2,928,899 (1) (2) Includes an aggregate of 2,055,430 shares/units, comprised of (i) 21,007 restricted Vornado common shares, (ii) 693,567 restricted Operating Partnership units and (iii) 1,340,856 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 5,857,798. 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 Vornado’s 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 Vornado’s 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. 164 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, 2016, 2015 and 2014 III--Real Estate and Accumulated Depreciation as of December 31, 2016 Pages in this Annual Report on Form 10-K 168 169 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. 2.1 10.29 12.1 12.2 21 23.1 23.2 31.1 31.2 31.3 31.4 32.1 32.2 32.3 32.4 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE Master Transaction Agreement, dated as of October 31, 2016, by and among Vornado Realty Trust, Vornado Realty L.P., JBG Properties, Inc., JBG/Operating Partners, L.P., certain affiliates of JBG Properties Inc. and JBG/Operating Partners set forth on Schedule A thereto, JBG SMITH Properties and JBG SMITH Properties LP Amended and Restated Revolving Credit Agreement dated as of November 7, 2016, 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. Computation of Ratios for Vornado Realty Trust Computation of Ratios for Vornado Realty L.P. Subsidiaries of Vornado Realty Trust and Vornado Realty L.P. Consent of Independent Registered Public Accounting Firm for Vornado Realty Trust Consent of Independent Registered Public Accounting Firm for Vornado Realty L.P. Rule 13a-14 (a) Certification of Chief Executive Officer of Vornado Realty Trust Rule 13a-14 (a) Certification of Chief Financial Officer of Vornado Realty Trust Rule 13a-14 (a) Certification of Chief Executive Officer of Vornado Realty L.P. Rule 13a-14 (a) Certification of Chief Financial Officer of Vornado Realty L.P. Section 1350 Certification of the Chief Executive Officer of Vornado Realty Trust Section 1350 Certification of the Chief Financial Officer of Vornado Realty Trust Section 1350 Certification of the Chief Executive Officer of Vornado Realty L.P. Section 1350 Certification of the Chief Financial Officer of Vornado Realty L.P. XBRL Instance Document of Vornado Realty Trust and Vornado Realty L.P. XBRL Taxonomy Extension Schema of Vornado Realty Trust and Vornado Realty L.P. XBRL Taxonomy Extension Calculation Linkbase of Vornado Realty Trust and Vornado Realty L.P. XBRL Taxonomy Extension Definition Linkbase of Vornado Realty Trust and Vornado Realty L.P. XBRL Taxonomy Extension Label Linkbase of Vornado Realty Trust and Vornado Realty L.P. XBRL Taxonomy Extension Presentation Linkbase of Vornado Realty Trust and Vornado Realty L.P. 165 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 13, 2017 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/Mandakini Puri (Mandakini Puri) By: /s/Daniel R. Tisch (Daniel R. Tisch) By: /s/Richard R. West (Richard R. West) Trustee Trustee Trustee By: /s/Russell B. Wight (Russell B. Wight, Jr.) Trustee February 13, 2017 February 13, 2017 February 13, 2017 February 13, 2017 February 13, 2017 February 13, 2017 February 13, 2017 February 13, 2017 February 13, 2017 February 13, 2017 By: /s/Stephen W. Theriot (Stephen W. Theriot) Chief Financial Officer February 13, 2017 (Principal Financial and Accounting Officer) 166 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 L.P. (Registrant) Date: February 13, 2017 By: /s/ Stephen W. Theriot Stephen W. Theriot, Chief Financial Officer of Vornado Realty Trust, sole general partner of Vornado Realty L.P. (duly authorized officer and principal financial and accounting officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature By: /s/Steven Roth (Steven Roth) By: /s/Candace K. Beinecke (Candace K. Beinecke) By: /s/Michael D. Fascitelli (Michael D. Fascitelli) By: /s/Robert P. Kogod (Robert P. Kogod) By: /s/Michael Lynne (Michael Lynne) By: /s/David Mandelbaum (David Mandelbaum) By: /s/Mandakini Puri (Mandakini Puri) By: /s/Daniel R. Tisch (Daniel R. Tisch) By: /s/Richard R. West (Richard R. West) By: /s/Russell B. Wight (Russell B. Wight, Jr.) Title Date Chairman of the Board of Trustees and February 13, 2017 Chief Executive Officer of Vornado Realty Trust Trustee of Vornado Realty Trust February 13, 2017 Trustee of Vornado Realty Trust February 13, 2017 Trustee of Vornado Realty Trust February 13, 2017 Trustee of Vornado Realty Trust February 13, 2017 Trustee of Vornado Realty Trust February 13, 2017 Trustee of Vornado Realty Trust February 13, 2017 Trustee of Vornado Realty Trust February 13, 2017 Trustee of Vornado Realty Trust February 13, 2017 Trustee of Vornado Realty Trust February 13, 2017 By: /s/Stephen W. Theriot (Stephen W. Theriot) Chief Financial Officer of Vornado Realty Trust (Principal Financial and Accounting Officer) February 13, 2017 167 VORNADO REALTY TRUST AND VORNADO REALTY L.P. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS December 31, 2016 (Amounts in Thousands) Column A Column B Description Year Ended December 31, 2016: Balance at Beginning of Year Column D Column E Column C Additions Charged Against Uncollectible Accounts Operations Written-off Balance at End of Year Allowance for doubtful accounts $ 14,659 $ 2,679 $ (4,191) $ 13,147 Year Ended December 31, 2015: Allowance for doubtful accounts $ 21,209 $ (99) $ (6,451) $ 14,659 Year Ended December 31, 2014: Allowance for doubtful accounts $ 24,719 $ 3,076 $ (6,586) $ 21,209 168 COLUMN A COLUMN B COLUMN C COLUMN D Initial cost to company (1) COLUMN E Gross amount at which carried at close of period VORNADO REALTY TRUST AND VORNADO REALTY L.P. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (Amounts in thousands) COLUMN F COLUMN G COLUMN H COLUMN I Life on depreciation in latest income statement is computed Encumbrances (2) Land improvements to acquisition Land improvements Total (3) amortization construction (4) acquired Costs Building and capitalized subsequent Buildings and Accumulated depreciation and Date of Date New York Manhattan 1290 Avenue of the Americas $ 697-703 Fifth Avenue (St. Regis - retail) 350 Park Avenue 666 Fifth Avenue (Retail Condo) One Penn Plaza 100 West 33rd Street 1535 Broadway (Marriott Marquis) 150 West 34th Street 1540 Broadway 655 Fifth Avenue Two Penn Plaza 90 Park Avenue Manhattan Mall 770 Broadway 888 Seventh Avenue Eleven Penn Plaza 640 Fifth Avenue 909 Third Avenue 150 East 58th Street 595 Madison Avenue 330 West 34th Street 828-850 Madison Avenue 33-00 Northern Boulevard 715 Lexington Avenue 478-486 Broadway 4 Union Square South 260 Eleventh Avenue 510 Fifth Avenue 606 Broadway 40 Fulton Street 689 Fifth Avenue 443 Broadway 40 East 66th Street 950,000 $ 515,539 $ 152,825 450,000 265,889 400,000 189,005 390,000 - - 242,776 398,402 - - 119,657 205,000 105,914 - 102,594 140,000 53,615 575,000 8,000 - 88,595 181,598 52,898 700,000 - 375,000 40,333 450,000 38,224 - - 350,000 39,303 - 62,731 - - - 80,000 107,937 46,505 60,782 - - 30,000 - 24,079 116,022 - - 34,602 - - 25,768 15,732 - 19,721 - 11,187 - 13,616 - 923,653 $ 584,230 363,381 471,072 412,169 247,970 249,285 268,509 214,208 231,903 164,903 175,890 113,473 95,686 117,269 85,259 25,992 120,723 80,216 62,888 8,599 28,261 86,226 26,903 20,063 55,220 80,482 18,728 54,399 26,388 13,446 41,186 34,635 218,275 $ 515,539 $ 152,825 265,889 189,005 - 242,776 - 119,657 105,914 102,594 52,689 8,000 88,595 52,898 - 40,333 38,224 - 39,303 62,731 - 107,937 46,505 63,000 30,000 24,079 - 34,602 - 15,732 19,721 11,187 13,616 15 47,355 - 213,425 33,439 146,879 - 28,549 - 104,657 133,922 71,543 105,109 127,369 90,093 149,668 89,018 42,252 26,913 136,606 10 2,000 63,244 34,188 2,632 591 20,064 5,587 15,628 23,094 - 142 1,141,928 $ 1,657,467 $ 737,070 676,625 660,077 625,594 524,185 396,164 388,166 348,671 334,497 323,175 317,812 273,611 253,693 244,638 215,685 213,884 209,741 161,771 152,532 145,205 136,208 134,731 90,147 84,251 81,931 81,073 73,394 59,986 57,748 56,261 52,373 48,393 584,245 410,736 471,072 625,594 281,409 396,164 268,509 242,757 231,903 270,486 309,812 185,016 200,795 244,638 175,352 175,660 209,741 122,468 89,801 145,205 28,271 88,226 27,147 54,251 57,852 81,073 38,792 59,986 42,016 36,540 41,186 34,777 1963 1960 1972 1911 1900 1968 1964 2009 1907 1980 1923 1950 1969 1969 1968 1925 1915 1923 2009 1965/2004 1911 1987 1925 267,734 31,803 106,513 49,040 274,984 70,106 14,979 10,628 48,294 18,993 145,896 104,063 54,431 81,596 108,194 68,628 44,685 83,782 53,983 35,028 13,616 8,245 4,990 7,933 11,003 17,928 3,207 7,129 - 18,691 10,521 3,736 9,630 2007 2014 2006 2012 1998 2007 2012 2015 2006 2013 1997 1997 2007 1998 1998 1997 1997 1999 1998 1999 1998 2005 2015 2001 2007 1993 2015 2010 2016 1998 1998 2013 2005 (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) 169 COLUMN A COLUMN B COLUMN C COLUMN D Initial cost to company (1) COLUMN E Gross amount at which carried at close of period VORNADO REALTY TRUST AND VORNADO REALTY L.P. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (Amounts in thousands) COLUMN F COLUMN G COLUMN H COLUMN I Description New York - continued Manhattan - continued 155 Spring Street 435 Seventh Avenue 3040 M Street 608 Fifth Avenue 692 Broadway 131-135 West 33rd Street 265 West 34th Street 304 Canal Street 677-679 Madison Avenue 1131 Third Avenue 486 Eighth Avenue 431 Seventh Avenue 138-142 West 32nd Street 334 Canal Street 267 West 34th Street 1540 Broadway Garage 966 Third Avenue 148 Spring Street 150 Spring Street 137 West 33rd Street 488 Eighth Avenue 484 Eighth Avenue 825 Seventh Avenue Other (including signage) Total Manhattan Other Properties Hotel Pennsylvania Paramus Total Other Properties Encumbrances (2) Land improvements to acquisition Land improvements Total (3) amortization construction (4) acquired Costs Building and capitalized subsequent Buildings and Accumulated depreciation and Date of Date $ - $ 97,706 - - - - - - - - - - - - - - - - - - - - - - 13,700 $ 19,893 7,830 - 6,053 8,315 28,500 3,511 13,070 7,844 20,000 16,700 9,252 1,693 5,099 4,086 8,869 3,200 3,200 6,398 10,650 3,856 1,483 75,862 5,945,278 2,660,341 30,544 $ 19,091 27,490 - 22,908 21,312 - 12,905 9,640 7,844 71 2,751 9,936 6,507 10,037 8,914 3,631 8,112 5,822 1,550 1,767 762 697 14,829 5,730,335 3,578 $ 37 3,517 36,499 3,540 24 - 8,184 388 5,236 - - - 7,300 - - - 416 277 - (4,674) 399 33 110,071 13,700 $ 19,893 7,830 - 6,053 8,315 28,500 - 13,070 7,844 20,000 16,700 9,252 1,693 5,099 4,086 8,869 3,200 3,200 6,398 6,859 3,856 1,483 75,865 2,107,092 2,715,116 34,122 $ 19,128 31,007 36,499 26,448 21,336 - 24,600 10,028 13,080 71 2,751 9,936 13,807 10,037 8,914 3,631 8,528 6,099 1,550 884 1,161 730 124,897 47,822 $ 39,021 38,837 36,499 32,501 29,651 28,500 24,600 23,098 20,924 20,071 19,451 19,188 15,500 15,136 13,000 12,500 11,728 9,299 7,948 7,743 5,017 2,213 200,762 7,782,652 10,497,768 8,470 6,934 8,942 6,051 7,658 323 - - 2,657 1,076 - 671 476 565 800 2,364 303 1,848 1,338 68 200 385 361 25,377 1,866,856 2002 1932 1920 1910 1928 1920 1990 1932 2007 1997 2006 2012 2005 2016 2015 2014 2006 1997 2016 2007 2015 2011 2013 2006 2013 2008 2008 2015 2007 1997 1997 - - - 29,903 - 29,903 121,712 - 121,712 95,273 25,942 121,215 29,903 1,033 30,936 216,985 24,909 241,894 246,888 25,942 272,830 103,008 14,073 117,081 1919 1967 1997 1987 Total New York 5,945,278 2,690,244 5,852,047 2,228,307 2,746,052 8,024,546 10,770,598 1,983,937 170 Life on depreciation in latest income statement is computed (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) COLUMN A COLUMN B COLUMN C COLUMN D Initial cost to company (1) COLUMN E Gross amount at which carried at close of period VORNADO REALTY TRUST AND VORNADO REALTY L.P. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (Amounts in thousands) COLUMN F COLUMN G COLUMN H COLUMN I Costs Building and capitalized subsequent Buildings and Accumulated depreciation and Date of Date Land improvements to acquisition Land improvements Total (3) amortization construction (4) acquired Encumbrances (2) Description Washington, DC 2011-2451 Crystal Drive - 5 buildings $ S. Clark Street/12th Street - 5 buildings 2001 Jefferson Davis Highway, 2100/2200 Crystal Drive, 223 23rd Street, 2221 South Clark Street, Crystal City Shops at 2100, 220 20th Street 1550-1750 Crystal Drive/ 241-251 18th Street - 4 buildings RiverHouse Apartments - 3 buildings The Bartlett 1825 - 1875 Connecticut Ave NW - (Universal Buildings) - 2 buildings WestEnd 25 2101 L Street, NW 2200/2300 Clarendon Blvd (Courthouse Plaza) - 2 buildings 1800, 1851 and 1901 South Bell Street - 3 buildings 875 15th Street, NW (Bowen Building) 1399 New York Avenue, NW Commerce Executive - 3 buildings Met Park/Warehouses H Street - North 10-1D Land Parcel Crystal City Hotel 1730 M Street, NW Democracy Plaza One Crystal Drive Retail 1109 South Capitol Street South Capitol 1726 M Street, NW 1700 M Street Other Total Washington, DC 216,629 $ 100,935 $ 63,420 57,213 53,708 68,426 409,920 $ 231,267 131,206 162,507 $ 100,228 $ 63,291 130,043 57,070 216,730 573,134 $ 361,439 348,079 673,362 $ 424,730 405,149 228,973 112,593 1981, 1983-1987 1984-1989 77,331 1964-1969 2002 2002 2002 37,307 64,817 218,330 96,244 64,652 314,739 379,391 111,549 1974-1980 307,710 - 185,000 118,421 41,687 69,393 100,841 143,415 11,000 67,049 32,815 - 125,078 - 143,320 5,039 51,642 105,475 76,671 216,844 19,063 138,851 41,687 68,612 107,638 83,064 53,505 68,198 39,768 - 181,319 216,844 163,164 111,528 127,753 158,980 320,170 258,531 231,776 179,726 167,521 158,980 47,192 3,664 44,146 20,143 36,447 62,247 1956, 1963 1975 1988-1989 - 37,551 118,806 356 37,551 119,162 156,713 39,446 1968 - - - - - - 14,853 - - - - - 28,728 - 1,167,617 30,077 33,481 13,401 65,259 104,473 8,000 10,095 - - 11,541 4,009 9,450 23,359 1,763 968,209 98,962 67,363 58,705 1,326 55 47,191 17,541 33,628 20,465 178 6,273 22,062 24,876 52,408 1,991,116 5,443 7,075 29,414 26,309 (32,808) 11,659 15,521 5,954 5,806 (253) (1,865) (30,660) (48,231) 14,134 1,170,163 30,176 34,178 13,140 82,898 61,970 8,000 10,687 - - 11,597 - - - 1,763 934,317 104,306 73,741 88,380 9,996 9,750 58,850 32,470 39,582 26,271 (131) 8,417 852 4 66,542 134,482 107,919 101,520 92,894 71,720 66,850 43,157 39,582 26,271 11,466 8,417 852 4 68,305 3,195,171 4,129,488 2004 - 1985-1989 1968 1963 1987 2004 1964 1970 29,760 10,715 32,027 28 - 18,059 12,094 20,252 11,069 - 306 - - 1,104 919,145 2002 2007 2007 2007 2007 2003 2002 2002 2005 2011 2002 2007 2007 2004 2002 2002 2004 2007 2005 2006 2002 171 Life on depreciation in latest income statement is computed (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) COLUMN A COLUMN B COLUMN C COLUMN D Initial cost to company (1) COLUMN E Gross amount at which carried at close of period VORNADO REALTY TRUST AND VORNADO REALTY L.P. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (Amounts in thousands) Encumbrances (2) Land improvements to acquisition Land improvements Total (3) amortization construction (4) acquired Costs Building and capitalized subsequent Buildings and Accumulated depreciation and Date of Date COLUMN F COLUMN G COLUMN H COLUMN I Life on depreciation in latest income statement is computed Description Other theMART Illinois theMART, Chicago 527 West Kinzie, Chicago Total Illinois New York MMPI Piers $ 675,000 $ - 675,000 64,528 $ 5,166 69,694 319,146 $ - 319,146 368,328 $ 25 368,353 64,535 $ 5,166 69,701 687,467 $ 25 687,492 752,002 $ 5,191 757,193 259,808 - 259,808 1930 1998 1998 (5) - - - 14,663 - 14,663 14,663 1,916 2008 (5) Total theMART 675,000 69,694 319,146 383,016 69,701 702,155 771,856 261,724 555 California Street 220 Central Park South Borgata Land, Atlantic City, NJ Wayne Towne Center 40 East 66th Residential Annapolis 677-679 Madison Other Total Other Leasehold improvements equipment and other 579,795 221,903 950,000 115,720 83,089 - 29,199 - 1,462 - 521,067 56,607 - - - - - 2,261,402 893,324 16,420 - 26,137 85,798 9,652 1,058 3,766 1,355,301 117,729 987,158 - 51,253 (93,222) - 284 726 1,446,944 221,903 - 83,089 - 8,454 - 1,626 - 384,773 1,011,053 1,232,956 1,119,298 1,119,298 83,089 77,390 21,775 9,652 2,804 4,492 2,938,539 3,323,312 - 77,390 13,321 9,652 1,178 4,492 243,944 1922/1969/1970 - - 12,158 3,402 3,458 400 972 526,058 2007 2005 2010 2010 2005 2005 2006 2005 (5) (5) (5) (5) (5) (5) (5) (5) - - - 116,560 - 116,560 116,560 84,434 Total December 31, 2016 $ 9,374,297 $ 4,179,520 $ 9,198,464 $ 4,961,974 $ 4,065,142 $ 14,274,816 $ 18,339,958 $ 3,513,574 (1) Initial cost is cost as of January 30, 1982 (the date on which we commenced real estate operations) unless acquired subsequent to that date see Column H. (2) Represents the contractual debt obligations. (3) The net basis of our assets and liabilities for tax reporting purposes is approximately $3.7 billion lower than the amount reported for financial statement purposes. (4) Date of original construction –– many properties have had substantial renovation or additional construction –– see Column D. (5) Depreciation of the buildings and improvements are calculated over lives ranging from the life of the lease to forty years. 172 VORNADO REALTY TRUST AND VORNADO REALTY L.P. 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, 2015 2016 2014 $ 18,090,137 $ 16,822,358 $ 15,392,968 30,805 1,074,259 19,195,201 855,243 225,536 1,348,153 16,966,657 144,299 $ 18,339,958 $ 18,090,137 $ 16,822,358 281,048 1,288,136 18,391,542 301,405 $ $ 3,418,267 $ 478,788 3,897,055 383,481 3,513,574 $ 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 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, written-off and deconsolidated Balance at end of period 173 EXHIBIT INDEX Exhibit No. 2.1 - Master Transaction Agreement, dated as of October 31, 2016, by and among Vornado Realty Trust, Vornado Realty L.P., JBG Properties, Inc., JBG/Operating Partners, L.P., certain affiliates of JBG Properties Inc. and JBG/Operating Partners set forth on Schedule A thereto, JBG SMITH Properties and JBG SMITH Properties LP 3.1 - 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 3.2 - Amended and Restated Bylaws of Vornado Realty Trust, as amended on March 2, 2000 - Incorporated by reference to Exhibit 3.12 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on March 9, 2000 3.3 - Articles Supplementary, 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 3.4 - Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P., dated as of October 20, 1997 (the “Partnership Agreement”) – Incorporated by reference to Exhibit 3.26 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003 3.5 - Amendment to the Partnership Agreement, dated as of December 16, 1997 – Incorporated by reference to Exhibit 3.27 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003 3.6 - Second Amendment to the Partnership Agreement, dated as of April 1, 1998 – Incorporated by reference to Exhibit 3.5 to Vornado Realty Trust’s Registration Statement on Form S-3 (File No. 333-50095), filed on April 14, 1998 3.7 - Third Amendment to the Partnership Agreement, dated as of November 12, 1998 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on November 30, 1998 3.8 - Fourth Amendment to the Partnership Agreement, dated as of November 30, 1998 - Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on February 9, 1999 3.9 - Fifth Amendment to the Partnership Agreement, dated as of March 3, 1999 - Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on March 17, 1999 3.10 - 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 3.11 - 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 3.12 - 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 ___________________________________________ Incorporated by reference. * 174 * * * * * * * * * * * * 3.13 - Ninth Amendment to the Partnership Agreement, dated as of September 3, 1999 - Incorporated by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on October 25, 1999 3.14 - Tenth Amendment to the Partnership Agreement, dated as of September 3, 1999 - Incorporated by reference to Exhibit 3.4 to Vornado Realty Trust's Current Report on Form 8-K (File No. 001-11954), filed on October 25, 1999 3.15 - Eleventh Amendment to the Partnership Agreement, dated as of November 24, 1999 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on December 23, 1999 3.16 - Twelfth Amendment to the Partnership Agreement, dated as of May 1, 2000 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on May 19, 2000 3.17 - Thirteenth Amendment to the Partnership Agreement, dated as of May 25, 2000 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on June 16, 2000 3.18 - Fourteenth Amendment to the Partnership Agreement, dated as of December 8, 2000 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on December 28, 2000 3.19 - Fifteenth Amendment to the Partnership Agreement, dated as of December 15, 2000 - Incorporated by reference to Exhibit 4.35 to Vornado Realty Trust’s Registration Statement on Form S-8 (File No. 333-68462), filed on August 27, 2001 3.20 - 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 3.21 - Seventeenth Amendment to the Partnership Agreement, dated as of September 21, 2001 - Incorporated by reference to Exhibit 3.4 to Vornado Realty Trust’s Current Report on Form 8 K (File No. 001-11954), filed on October 12, 2001 3.22 - Eighteenth Amendment to the Partnership Agreement, dated as of January 1, 2002 - Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K/A (File No. 001-11954), filed on March 18, 2002 3.23 3.24 - - Nineteenth Amendment to the Partnership Agreement, dated as of July 1, 2002 - Incorporated by reference to Exhibit 3.47 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 001-11954), filed on August 7, 2002 Twentieth Amendment to the Partnership Agreement, dated April 9, 2003 - Incorporated by reference to Exhibit 3.46 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003 3.25 - Twenty-First Amendment to the Partnership Agreement, dated as of July 31, 2003 - Incorporated by reference to Exhibit 3.47 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (File No. 001-11954), filed on November 7, 2003 3.26 - 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. * * * * * * * * * * * * * * 175 3.27 - 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 3.28 - Twenty-Fourth Amendment to the Partnership Agreement, dated August 17, 2004 – Incorporated by reference to Exhibit 3.57 to Vornado Realty Trust and Vornado Realty L.P.’s Registration Statement on Form S-3 (File No. 333-122306), filed on January 26, 2005 3.29 - Twenty-Fifth Amendment to the Partnership Agreement, dated November 17, 2004 – Incorporated by reference to Exhibit 3.58 to Vornado Realty Trust and Vornado Realty L.P.’s Registration Statement on Form S-3 (File No. 333-122306), filed on January 26, 2005 3.30 - Twenty-Sixth Amendment to the Partnership Agreement, dated December 17, 2004 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on December 21, 2004 3.31 - Twenty-Seventh Amendment to the Partnership Agreement, dated December 20, 2004 – Incorporated by reference to Exhibit 3.2 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on December 21, 2004 3.32 - Twenty-Eighth Amendment to the Partnership Agreement, dated December 30, 2004 - Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on January 4, 2005 3.33 - Twenty-Ninth Amendment to the Partnership Agreement, dated June 17, 2005 - Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on June 21, 2005 3.34 - Thirtieth Amendment to the Partnership Agreement, dated August 31, 2005 - Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on September 1, 2005 3.35 - Thirty-First Amendment to the Partnership Agreement, dated September 9, 2005 - Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on September 14, 2005 3.36 - Thirty-Second Amendment and Restated Agreement of Limited Partnership, dated as of December 19, 2005 – Incorporated by reference to Exhibit 3.59 to Vornado Realty L.P.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (File No. 000-22685), filed on May 8, 2006 3.37 - Thirty-Third Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of April 25, 2006 – Incorporated by reference to Exhibit 10.2 to Vornado Realty Trust’s Form 8-K (File No. 001-11954), filed on May 1, 2006 3.38 - Thirty-Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of May 2, 2006 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on May 3, 2006 3.39 - Thirty-Fifth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of August 17, 2006 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Form 8-K (File No. 000-22685), filed on August 23, 2006 3.40 - Thirty-Sixth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated as of October 2, 2006 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Form 8-K (File No. 000-22685), filed on January 22, 2007 ___________________________________________ * Incorporated by reference. 176 * * * * * * * * * * * * * * 3.41 3.42 3.43 3.44 3.45 3.46 - 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 3.47 - 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 3.48 - Forty-Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P., dated as of March 30, 2012 - Incorporated by reference to Exhibit 99.1 to Vornado Realty L.P.'s Current Report on Form 8-K (File No. 001-34482), filed on April 5, 2012 3.49 - 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 3.50 3.51 4.1 - - 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 Forty-Sixth Amendment to Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P., dated April 1, 2015 - 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 April 2, 2015 - 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 ___________________________________________ * Incorporated by reference. * * * * * * * * * * * * 177 4.2 - 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 10.1 10.2 ** - 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 10.3 ** - 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 ** - 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 - Amendment to Real Estate Retention Agreement, dated as of July 3, 2002, by and between Alexander’s, Inc. and Vornado Realty L.P. - Incorporated by reference to Exhibit 10(i)(E)(3) to Alexander’s Inc.’s Quarterly Report for the quarter ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002 10.6 ** - 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 10.7 - 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 10.8 ** - Form of Vornado Realty Trust's 2002 Omnibus Share Plan - Incorporated by reference to Exhibit 4.2 to Vornado Realty Trust's Registration Statement on Form S-8 (File No. 333-102216), filed on December 26, 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 ___________________________________________ * ** Incorporated by reference. Management contract or compensatory agreement. * * * * * * * * * * 178 10.11 ** 10.12 ** 10.13 ** - 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 - 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 - 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 10.14 ** - 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 10.15 ** - 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 10.16 ** - Amendment to Employment Agreement between Vornado Realty Trust and Mitchell N. Schear, dated December 29, 2008. Incorporated by reference to Exhibit 10.51 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-11954) filed on February 24, 2009 * * * * * * 10.17 ** - Vornado Realty Trust's 2010 Omnibus Share Plan - Incorporated by reference to Exhibit 10.41 to * Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 001-11954) filed on August 3, 2010 10.18 ** - Form of Vornado Realty Trust 2010 Omnibus Share Plan Incentive / Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 99.1 to Vornado Realty Trust's Current Report on Form 8-K (File No. 001-11954) filed on April 5, 2012 10.19 ** - Form of Vornado Realty Trust 2010 Omnibus Share Plan Restricted Stock Agreement. Incorporated by reference to Exhibit 99.2 to Vornado Realty Trust's Current Report on Form 8-K (File No. 001-11954) filed on April 5, 2012 10.20 ** - Form of Vornado Realty Trust 2010 Omnibus Share Plan Restricted LTIP Unit Agreement. Incorporated by reference to Exhibit 99.3 to Vornado Realty Trust's Current Report on Form 8-K (File No. 001-11954) filed on April 5, 2012 10.21 ** - 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 * * * * ___________________________________________ * ** Incorporated by reference. Management contract or compensatory agreement. 179 10.22 ** - 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 10.23 ** - 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 10.24 ** - 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 10.25 ** - Form of Vornado Realty Trust 2014 Outperformance 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 10.26 - 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 10.27 ** - 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 10.28 - 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 to Exhibit 10.32 to Vornado Realty Trust's Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 001-11954), filed on February 16, 2016. 10.29 - Amended and Restated Revolving Credit Agreement dated as of November 7, 2016, 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. * ** 180 12.1 12.2 21 23.1 23.2 31.1 31.2 31.3 31.4 32.1 32.2 32.3 32.4 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE - Computation of Ratios for Vornado Realty Trust Computation of Ratios for Vornado Realty L.P. - - - - - - - - - - - - - - - - - Subsidiaries of Vornado Realty Trust and Vornado Realty L.P. Consent of Independent Registered Public Accounting Firm for Vornado Realty Trust Consent of Independent Registered Public Accounting Firm for Vornado Realty L.P. Rule 13a-14 (a) Certification of the Chief Executive Officer of Vornado Realty Trust Rule 13a-14 (a) Certification of the Chief Financial Officer of Vornado Realty Trust Rule 13a-14 (a) Certification of the Chief Executive Officer of Vornado Realty L.P. Rule 13a-14 (a) Certification of the Chief Financial Officer of Vornado Realty L.P. Section 1350 Certification of the Chief Executive Officer of Vornado Realty Trust Section 1350 Certification of the Chief Financial Officer of Vornado Realty Trust Section 1350 Certification of the Chief Executive Officer of Vornado Realty L.P. Section 1350 Certification of the Chief Financial Officer of Vornado Realty L.P. XBRL Instance Document of Vornado Realty Trust and Vornado Realty L.P. XBRL Taxonomy Extension Schema of Vornado Realty Trust and Vornado Realty L.P. XBRL Taxonomy Extension Calculation Linkbase of Vornado Realty Trust and Vornado Realty L.P. XBRL Taxonomy Extension Definition Linkbase of Vornado Realty Trust and Vornado Realty L.P. XBRL Taxonomy Extension Label Linkbase of Vornado Realty Trust and Vornado Realty L.P. XBRL Taxonomy Extension Presentation Linkbase of Vornado Realty Trust and Vornado Realty L.P. 181 VORNADO CORPORATE INFORMATION TRUSTEES STEVEN ROTH Chairman of the Board CANDACE K. BEINECKE, Lead Trustee 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 MANDAKINI PURI Private Equity Consultant 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 CORPORATE OFFICERS STEVEN ROTH Chairman of the Board Chief Executive Officer DAVID R. GREENBAUM President of the New York Division MICHAEL J. FRANCO Executive Vice President – Chief Investment Officer JOSEPH MACNOW Executive Vice President – Chief Financial Officer and Chief Administrative Officer DIVISION EXECUTIVE VICE PRESIDENTS GLEN J.WEISS Executive Vice President Office Leasing – New York Division BARRY S. LANGER Executive Vice President Development – New York Division ED HOGAN Executive Vice President Retail Leasing – New York Division MICHAEL DOHERTY President – BMS Division ROBERT ENTIN Executive Vice President Chief Information Officer MARK HUDSPETH Executive Vice President Head of Capital Markets MATTHEW IOCCO Executive Vice President Chief Accounting Officer BRIAN KURTZ Executive Vice President Financial Administration MYRON MAURER Chief Operating Officer – theMART THOMAS SANELLI Chief Financial Officer – New York Division GASTON SILVA Chief Operating Officer – New York Division CRAIG STERN Executive Vice President Tax & Compliance WASHINGTON, DC DIVISION To Become JBG SMITH Properties MITCHELL N. SCHEAR Current President STEPHEN W. THERIOT Chief Financial Officer JAMES E. CREEDON Office Leasing LAURIE H. KRAMER Finance PATRICK J. TYRRELL Chief Operating Officer COMPANY DATA EXECUTIVE OFFICES 888 Seventh Avenue New York, New York 10019 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP Parsippany, New Jersey COUNSEL Sullivan & Cromwell LLP New York, New York TRANSFER AGENT AND REGISTRAR American Stock Transfer & Trust Co. New York, New York MANAGEMENT CERTIFICATIONS The Company’s Chief Executive Officer and Chief Financial Officer provided certifications to the Securities and Exchange Commission as required by Section 302 of the Sarbanes-Oxley Act of 2002 and these certifications are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. In addition, as required by Section 303A.12(a) of the New York Stock Exchange (NYSE) Listed Company Manual, on June 22, 2016 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 18, 2017 at the Saddle Brook Marriott, Interstate 80 and the Garden State Parkway, Saddle Brook, New Jersey 07663. 10JUL201211394241

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