Vornado Realty Trust
Annual Report 2017

Plain-text annual report

2 0 1 7 A N N U A L R E P O R T 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 operating company. We own all or portions of: • 20.3 million square feet of Manhattan office space in 36 properties; • 2.7 million square feet of Manhattan street retail space in 71 properties; • 2,009 units in 12 Manhattan 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 2,788 associates; • 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, formerly known as the Bank of America Center; • A 4.5% interest in Urban Edge Properties (NYSE:UE); A 8.0% interest in Pennsylvania Real Estate Investment Trust (NYSE:PEI); A 7.7% interest in Lexington Realty Trust (NYSE:LXP); • 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; the fund is now in wind down mode; • 220 Central Park South, a 950-foot-super-tall luxury residential for-sale condominium tower containing 400,000 salable square feet, currently under construction for 2019 delivery. Vornado’s common shares are listed on the New York Stock Exchange and are traded under the symbol: VNO. 1 2 F I N A N C I A L H I G H L I G H T S ( 1) As Reported Revenues Net income Net income per sharebasic Net income per sharediluted Total assets Total equity Net Operating Income Funds from operations Funds from operations per share % (decrease)/increase in funds from operations per share As Adjusted Revenues Net income Net income per sharebasic Net income per sharediluted Total assets Net Operating Income Funds from operations Funds from operations per share % increase in funds from operations per share Year Ended December 31, 2017 2,084,126,000 162,017,000 0.85 0.85 2016 2,033,742,000 823,606,000 4.36 4.34 $ $ $ $ 17,397,934,000 $ 20,814,847,000 5,007,701,000 1,401,383,000 717,805,000 3.75 (51.0%) $ $ $ $ 7,618,496,000 1,364,108,000 1,457,583,000 7.66 39.8% Year Ended December 31, 2017 2,084,126,000 250,951,000 1.32 1.31 2016 1,993,788,000 229,159,000 1.21 1.21 $ $ $ $ 19,889,920,000 $ 19,196,715,000 1,380,747,000 713,816,000 3.73 3.9% $ $ $ 1,335,984,000 683,395,000 3.59 5.5% $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1 In July 2017, we completed the spin-off of our Washington, DC segment to JBG SMITH Properties. The historical financial results of our Washington, DC segment are reflected in these financial highlights and in the Chairman’s letter to our shareholders that follows as discontinued operations for all periods presented. These financial highlights and the Chairman’s letter to our shareholders also present certain non-GAAP measures, including revenues, net income, total assets, NOI and Funds from Operations, all as adjusted as well as Funds from Operations and NOI. 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. 3 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, 2017 was $713.8 million, $3.73 per diluted share, compared to $683.4 million, $3.59 per diluted share, for the previous year, a 3.9% increase per share. Funds from Operations, as Reported (apples-to-apples plus one-timers) for the year ended December 31, 2017 was $717.8 million, $3.75 per diluted share, compared to $1,457.6 million, $7.66 per diluted share, for the previous year. (See page 3 for a reconciliation of Funds from Operations, as Reported, to Funds from Operations, as Adjusted.) Net Income attributable to common shares for the year ended December 31, 2017 was $162.0 million, $0.85 per diluted share, versus $823.6 million, $4.34 per diluted share, for the previous year. Our Business is 89% concentrated in New York, the most important city in the world, and overall is 70% office and 30% high street flagship retail. Here are our financial results (presented in Net Operating Income format) by business unit: ($ IN MILLIONS) 2017 Same Store % Increase/ (Decrease) % of 2017 NOI Increase/ (Decrease) 2017/2016 Net Operating Income 2017 2016 2015 Net Operating Income: Cash GAAP New York: Office Retail Residential Alexander’s Hotel Pennsylvania Total New York theMART 555 California Street Other (see below for details) Total Net Operating Income 12.0% 11.3% (1.8%) 3.0% 46.8% 11.3% 7.6% 36.0% 3.9% (0.3%) (2.4%) 1.6% 47.4% 2.7% 4.2% 1.9% 54.8% 27.3% 1.9% 3.6% 1.0% 88.6% 7.8% 3.6% 100% 59.0 (5.1) (0.6) -- 4.3 57.6 3.8 1.7 63.1 (25.8) 37.3 721.2 359.9 24.4 47.3 13.3 1,166.1 102.3 47.6 1,316.0 85.4 662.2 365.0 25.0 47.3 9.0 1,108.5 684.1 343.0 22.3 43.4 22.2 1,115.0 98.5 85.9 45.9 1,252.9 111.2 50.3 1,251.2 90.7 1,401.4 1,364.1 1,341.9 Other Net Operating Income is comprised of: ($ IN MILLIONS) Pennsylvania REIT 666 Fifth Avenue Office Condominium Urban Edge Properties 85 Tenth Avenue Other Total 2017 21.1 20.6 14.5 -- 29.2 85.4 2016 2015 22.8 25.0 12.5 27.9 23.0 111.2 11.0 25.1 8.1 22.9 23.6 90.7 This letter and this Annual Report contain forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. The Company’s future results, financial condition and business may differ materially from those expressed in these forward-looking statements. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Many of the factors that will determine these items are beyond our ability to control or predict. For further discussion of these factors, see “Forward-Looking Statements” and “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, a copy of which accompanies this letter or can be viewed at www.vno.com. 4 2 The following chart reconciles Funds from Operations, as Reported, to Funds from Operations, as Adjusted: ($ IN MILLIONS, EXCEPT PER SHARE) Funds from Operations, as Reported Less adjustments for certain items that impact FFO: FFO of Washington, DC, spin-off Transaction Costs related to spin-off Total Washington, DC Net gain on extinguishment of Skyline properties debt Gain on Urban Edge issuance of units 666 Fifth Avenue Office Condominium Gain on repayment of Suffolk Downs debt Real estate sold Income from repayment of loans to and preferred equity in 85 Tenth Avenue Acquisition related costs Write-off of deferred financing and defeasance costs Real Estate Fund Tax (expense)/benefit on deferred tax asset Impairment loss – Pennsylvania REIT Impairment loss – India Other, primarily noncontrolling interests’ share of above adjustments Total adjustments Funds from Operations as Adjusted Funds from Operations as Adjusted per share 2017 717.8 2016 1,457.6 2015 1,039.0 122.2 (68.7 ) 53.5 -- 21.1 13.2 11.3 1.2 -- (1.7 ) (8.6 ) (10.8 ) (34.8 ) (44.5 ) -- 4.1 4.0 713.8 3.73 226.3 (16.6 ) 209.7 487.9 -- 10.9 -- 11.9 160.8 (9.4 ) -- (21.0 ) -- -- (14.0 ) (62.6 ) 774.2 683.4 3.59 223.4 -- 223.4 -- -- 9.3 -- 64.3 -- (12.5 ) -- 33.9 90.0 -- (4.5 ) (12.7 ) 391.2 647.8 3.42 Funds from Operations, as Adjusted, increased by $30.4 million in 2017, to $3.73 from $3.59 per share, an increase of $0.14 per share, or 3.9%. Here is the detail of this increase: ($ IN MILLIONS, EXCEPT PER SHARE) Same Store Operations: New York Office New York Residential New York Street Retail New York Hotel Penn theMART 555 California Street Acquisitions Interest expense Other Increase in FFO as Adjusted Amount Per Share 26.6 (0.6) (0.8) 4.3 4.2 0.9 1.2 (9.4) 4.0 30.4 0.13 -- -- 0.02 0.02 -- -- (0.05) 0.02 0.14 5 3 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 15.9%(2) per annum. Dividends have represented 3.9 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, 2017 and for 2018 year-to-date: 2018 YTD One-year Three-year Five-year Ten-year Fifteen-year Twenty-year Office REIT Index (8.9 )% 5.3 % 19.5 % 58.7 % 70.1 % 274.0 % 336.3 % MSCI Index (9.1 )% 5.1 % 17.0 % 56.3 % 105.1 % 367.4 % 449.8 % Vornado (12.9 )% (4.3 )% (1.4 )% 54.3 % 75.7 % 426.7 % 459.0 % A Little History A few years ago, in response to a persistently undervalued stock price and an admittedly too complex and diffuse 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 is 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 in January 2015 into Urban Edge Properties and in July 2017 our Washington business to form JBG SMITH Properties. All told, this activity totaled $15.5 billion, $5.8 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. In essence, we 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 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, 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), 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. Vornado (RemainCo) has trophy assets in the best submarkets, a best-in-class management team with a proven record of value creation and a fortress balance sheet. So how have we done? When we began this campaign some years ago, our shares were trading at a discount to NAV that we calculated to be about 9%.(3) After all we have done, our NAV discount is today about 29%.(3), which I must say is a total disconnect from the value of our assets. The fact that many of our peers and many of the industry blue chips had similar NAV declines and are also trading at large discounts makes us feel no better at all. 2 More recent shareholder returns have been 9.1% for five years and 5.8% for ten years. 3 Calculated using Green Street’s NAV. 6 4 Since Kimco’s IPO, which began the modern REIT era in 1991, publicly-owned real estate has grown to approximately $2 trillion in assets and $1 trillion of equity.(4) Pretty exciting, amazing growth. Nonetheless, today public companies own only 10% of commercial property and their share is growing at a snail’s pace. Obviously, and notwithstanding the advantage of liquidity, professional management, etc. of REITs, 90% prefer to own their real estate directly or in other formats. Furthermore, public real estate seems to sell at a chronic discount to private market values. A building in New York valued at, say, $1,000 per square foot in the private market might sell for, you pick the number, $800 a foot in the public market. This makes little sense. Even worse, if we or our brethren invested in that building at $1,000 per square foot, the next day it would be valued by our shareholders at only $800 per foot…sort of like buying a new car, which when you drive it off the lot, suffers a 20% used-car discount. This discount is chronic and it seems to affect all CBD office companies, certainly in New York and even in London. It seems to affect companies of all styles whether the strong silent type like us, or promotional types like some others. Neither seems to work. One would think investors would pick up on this arbitrage opportunity and load up on discounted public real estate, but for lots of reasons that has not happened. One might conclude on the one hand, that institutional investors do not want paper shares and on the other, that shareholders will not pay full price for real estate. It may be that asset lite is a better format…or, it may be that we are in a frustrating part of the cycle which will correct over time. Be assured, we will continue to leave no stone unturned and everything remains on the table in the pursuit of shareholder value.(5) We are not done yet. 4 Source: NAREIT 5 Here’s a crazy idea…how exciting would it be to use Vornado’s highly sought-after assets to seed a core fund or funds? Another idea…Joe has thought we should separate retail, and he still does. 5 7 7 Why Buy Vornado Shares  Any way you cut it, we believe Vornado’s stock is stupid, stupid cheap. Never in history, by any metric, has it been this cheap. By our calculation, our 17.0 million square feet of office (at share) in New York is valued at less than $600 per square foot at our current stock price, and that’s at least $300 below the private market, and that’s over $5 billion.  Vornado has a 3.8% dividend yield, the highest amongst its peers.  Vornado is New York-centric (the best city in the world).  Vornado has the highest quality assets, both office and retail, including the franchise MART and 555 California Street.  Vornado has a tried and true management team, the most talented and experienced in the industry. 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.  Vornado has a great future in Penn Plaza (the Promised Land) and that future comes for free in our stock price.  Vornado has a fortress balance sheet with enormous financial capacity for external growth and an additional $2 billion expected to come in from asset sales and 220 Central Park South closings. Vornado has a track record of doing home run deals at the right time in the cycle.  Vornado has significant internal growth opportunities coming from among others: 61 Ninth Avenue, 512 West 22nd Street, 260 Eleventh Avenue, Farley Post Office/Moynihan Train Hall, Penn Plaza redevelopment including One Penn Plaza, 770 Broadway and 1535 Broadway, etc., etc. 8 6 Here Are The Principles By Which We Run Our Business:(6) We are a fully-integrated real estate operating company. We have the best leasing, operating and development teams in the business. We are laser focused. We invest in the best buildings in the best locations. We seek to acquire value-add assets where our unique skills will create shareholder value. We believe vacancy at the right price is an opportunity and that buildings, even in rundown condition (that we can reimagine) in great locations are also an opportunity. 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 increased rents over $20 per square foot, yielding attractive double-digit returns. David also measures our success here by the quality of tenants we have been able to attract.(7) We have transformed almost all of our fleet; Penn Plaza is on deck. We are disciplined and patient and prepared to let flat 4% cap rate deals pass by, while we wait for the fat pitch. 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. A few years ago, I coined the phrase, “The island of Manhattan is tilting to the West and to the South.” Today, the hottest submarkets in town run from Hudson Yards to Penn Plaza and extend South through Chelsea and Meatpacking. Anticipating these trends, we have structured our office portfolio so that half of our square footage is in this 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 believe this approach yields the highest renewal rate in the business; renewing tenants enhance our bottom line. 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 dominant, state of the art, dining, workout, socializing 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). We maintain a fortress balance sheet with industry-leading liquidity. All of this in the relentless pursuit of shareholder value. 6 7 These are enduring principles and are largely reprinted from last year’s letter. Such as: Amazon, Neuberger Berman, Facebook, AOL/Verizon, Ziff Brothers, PricewaterhouseCoopers, Guggenheim Partners, Cushman & Wakefield, PJT Partners, FootLocker, Alston & Bird, TPG, JLL and Robert A.M. Stern. 7 9 Growth As is our custom, we present the chart below that traces our ten-year record of growth, both in absolute dollars and per share amounts: ($ AND SHARES IN MILLIONS, EXCEPT PER SHARE DATA) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 As Adjusted FFO Amount 713.8 683.4 647.8 534.2 494.3 378.2 369.6 351.8 232.6 343.9 Per Share 3.73 3.59 3.42 2.83 2.63 2.03 1.93 1.85 1.34 2.10 Shares Outstanding 201.6 200.5 199.9 198.5 197.8 197.3 196.5 195.7 194.1 168.9 NOI 1,380.7 1,336.0 1,279.1 1,137.8 1,073.7 932.4 924.8 899.8 863.1 873.1 FFO increased this year by 4.5% (3.9% on a per share basis), 13.5% per year over five years (12.9% on a per share basis) and 6.5% per year over ten years (4.9% on a per share basis). 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 2016 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. From 2012 through 2016, our disposition activity has increased nearly four-fold as we have implemented our strategic simplification; we have sold much more than we have acquired; we have executed $5.7 billion of asset sales in 70 transactions, recognizing $2.4 billion of gains. In addition, we will have distributed $9.7 billion of assets ($6.8 billion of equity) to shareholders by way of tax-free spin-offs of Urban Edge Properties (our former strip shopping center business) and JBG SMITH (our former Washington, DC business). Importantly, we have also significantly upgraded the mix and quality of our assets. Here is a ten-year schedule of acquisitions and dispositions. Acquisitions(8) Dispositions(8) ($ IN MILLIONS) 2018 to date 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Number of Transactions 1 4 6 13 6 6 10 12 15 -- 3 76 Asset Cost 44.0 145.7 147.4 955.8 648.1 813.3 1,365.2 1,499.1 542.4 -- 31.5 6,192.5 Number of Transactions 1 4 5 11 11 20 23 7 5 16 6 109 Proceeds 20.5 50.6 1,022.5 972.9 1,060.4 1,429.8 1,222.3 389.2 137.8 262.8 493.2 7,062.0 Net Gain 12.4 5.1 664.4 316.7 523.4 434.1 454.0 137.8 56.8 43.0 171.1 2,818.8 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 and the rest of the team. 10 8 Excludes spin-offs and marketable securities. 8 11 Capital Markets At year-end, after adjusting for the $470 million redemption of all outstanding Series G and I preferred shares noted in the second bullet below, we had $4.1 billion of liquidity comprised of $1.6 billion of cash, restricted cash and marketable securities and $2.5 billion of revolving credit facilities. Today, we have $4.0 billion of liquidity available. Since January 1, 2017, we have executed the following capital markets transactions:            In January 2018, we completed a $100 million refinancing of 33-00 Northern Boulevard (Center Building), a 471,000 square foot office building in Long Island City, New York. The seven-year loan is at LIBOR plus 1.80%, which was swapped to a fixed rate of 4.14%. We realized net proceeds of approximately $37.2 million after repayment of the existing 4.43%, $59.8 million mortgage and closing costs. In January 2018, we redeemed all of the outstanding 6.625% Series G and Series I cumulative redeemable preferred shares at their redemption price of $25.00 per share, or $470 million in the aggregate, plus accrued and unpaid dividends/distributions through the date of redemption. In December, we issued $320 million of 5.25% Series M cumulative redeemable preferred shares at a price of $25.00 per share, receiving net proceeds of $309.6 million. In December, we redeemed all of the $450 million principal amount of our outstanding 2.50% senior unsecured notes which were scheduled to mature on June 30, 2019, at a redemption price of 100.71% plus accrued interest. In December, we completed a public offering of $450 million 3.50% senior unsecured notes due January 15, 2025. The notes were sold at 99.596% of their face amount to yield 3.565%. In December, the joint venture, in which we have a 50.0% interest, completed a $20 million refinancing of 50 West 57th Street, an 81,000 square foot Manhattan office building. The loan is interest-only at LIBOR plus 1.60% (3.26% at March 31, 2018) and matures in December 2022. The new loan refinanced the existing $20 million mortgage which had a fixed rate of 3.50%. In October, we extended one of our two $1.25 billion unsecured revolving credit facilities from November 2018 to January 2022 with two six-month extension options. The interest rate on the extended facility was lowered to LIBOR plus 1.00%. In August, the joint venture, in which we have a 50.0% interest, completed a $1.2 billion refinancing of 280 Park Avenue, a 1,250,000 square foot Manhattan office building. The loan is interest-only at LIBOR plus 1.73% (3.45% at March 31, 2018) and matures in September 2019 with five one-year extension options. Our share of net proceeds, after repayment of the existing $900 million LIBOR plus 2.00% mortgage and closing costs, was approximately $140 million. In July, Vornado Capital Partners Real Estate Fund (Fund), in which we have a 25.0% ownership interest, completed a $100 million loan facility for the refinancing of 1100 Lincoln Road, a 130,000 square foot retail and theater property in Miami, Florida. The loan is interest-only at LIBOR plus 2.40% (4.06% at March 31, 2018), matures in July 2020 with two one-year extension options. At closing, the Fund drew $82.8 million, and, subject to property performance, may borrow up to $17.3 million within the first 18 months of the loan term. The property was previously encumbered by a $66 million interest-only mortgage at LIBOR plus 2.25% which was scheduled to mature in August 2017. In July, the joint venture, in which we have a 25.0% interest, completed a $500 million refinancing of 330 Madison Avenue, an 845,000 square foot Manhattan office building. The seven-year interest-only loan matures in August 2024 and has a fixed rate of 3.43%. Our share of net proceeds, after repayment of the existing $150 million LIBOR plus 1.30% mortgage and closing costs, was approximately $85 million. In July, prior to completion of the tax-free spin-off of our Washington, DC business, we repaid the $43.6 million LIBOR plus 1.25% mortgage encumbering 1700 and 1730 M Street which was scheduled to mature in August 2017. The unencumbered property was then transferred to JBGS in connection with the tax-free spin-off of Washington. 12 9 13    In June, we completed a $220 million financing of The Bartlett residential building. The five-year interest- only loan is at LIBOR plus 1.70%, and matures in June 2022. In July, the property, the loan and the $217 million of net proceeds were transferred to JBGS in connection with the tax-free spin-off of our Washington, DC business. In June, the joint venture, in which we have a 50.1% interest, completed a $271 million loan facility for the Moynihan Office Building, of which $210.3 million was outstanding at December 31, 2017. The interest- only loan is at LIBOR plus 3.25% (4.94% at March 31, 2018) and matures in June 2019 with two one-year extension options. In June, Alexander’s, Inc. in which we have a 32.4% ownership interest, completed a $500 million refinancing of the office portion of 731 Lexington Avenue. The interest-only loan is at LIBOR plus 0.90% (2.68% at March 31, 2018) and matures in June 2020 with four one-year extension options. The property was previously encumbered by a $300 million interest-only mortgage at LIBOR plus 0.95% which was scheduled to mature in March 2021. Our AAA capital markets team was responsible for approximately $5 billion of transactions in this very active year. Thank you to EVP Mark Hudspeth and SVPs Richard Reczka and Jan LaChapelle. Below is the right hand side of our balance sheet at December 31, 2017: ($ 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 220 Central Park South(9) 666 Fifth Avenue office debt, at share Cash, restricted cash and marketable securities(10) Net debt EBITDA as adjusted(11) Net debt/EBITDA as adjusted 8,204 1,600 3,431 (601) 12,634 (1,700) (699) (1,628) 8,607 1,256 6.9x Fixed rate debt accounted for 70% of debt with a weighted average interest rate of 3.7% and a weighted average term of 4.4 years; floating rate debt accounted for 30% of debt with a weighted average interest rate of 3.2% and a weighted average term of 4.0 years. 84% of our debt is recourse solely to individual assets. The fair value of the assets pledged is $17.6 billion, resulting in a modest LTV ratio of 48.9%. We have $11 billion of unencumbered Class A assets in New York. Vornado remains committed to maintaining our investment grade rating. 9 We exclude 220 Central Park South since it is for sale property and the debt related thereto will self liquidate from the proceeds of executed sales contracts. 10 After the $470 million redemption in January 2018 of all the outstanding Series G and I preferred shares. 11 Excluding the Real Estate Fund and 666 Fifth Avenue office. 14 10 15 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, in 2017 we leased 2.6 million square feet. As is our practice, we present below leasing and occupancy statistics for our businesses. (SQUARE FEET IN THOUSANDS) New York Office Street Retail theMART 555 California St. 2017 Square feet leased Initial Rent GAAP Mark-to-Market Number of transactions 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 Occupancy rate: 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 1,867 78.72 12.8 % 139 2,241 78.97 (12) 19.7 % 148 2,276 78.55 22.8 % 165 97.1 % 96.3 % 96.3 % 96.9 % 96.6 % 95.8 % 96.2 % 96.1 % 95.5 % 96.7 % 126 318.67 26.5 % 17 111 285.17 23.4 % 27 91 917.59 99.6 % 20 96.9 % 97.1 % 96.2 % 96.5 % 97.4 % 96.8 % 95.6 % 96.4 % (13) (13) 345 47.60 26.0 % 71 270 48.16 25.5 % 64 766 38.64 25.3 % 86 98.6 % 98.9 % 98.6 % 94.7 % 96.4 % 95.2 % 90.3 % 93.7 % 94.0 % 96.5 % 285 88.42 24.2 % 10 151 77.25 23.6 % 9 98 83.59 32.4 % 4 94.2 % 92.4 % 93.3 % 97.6 % 94.5 % 93.1 % 93.1 % 93.0 % 94.8 % 94.0 % We are full and achieving record high rents. It seems to me our industry is a little wrong-footed when it focuses on leasing numbers, the larger the better. I, for one, focus on occupancy and starting rents. I would be content to have no leasing, if that meant we are full with leases for term with quality tenants at great rents and bumps. Business is good; David and Glen say so, the real estate community says so and most importantly the numbers say so. Cycles are a way of life, and right now, the market seems to be down on New York. I can tell you we don’t see it. Demand for office space in New York continues to be robust, coming from all manner of users in all submarkets. Year in and year out, our 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, Kevin West, Ryan Levy, Lucy Phillips and Jason Morrison. Paul Heinen is the all-star who runs leasing at theMART and 555 California Street. And thanks to Myron, Toni and Byron for all they do at theMART. 12 Excludes Long Island City; including Long Island City would be $72.56. 13 Included in New York Office. 16 11 Leasing Highlights This Past Year Include New York Aetna at 61 Ninth Avenue –142,000 square feet; Bryan Cave at 1290 Avenue of the Americas – 97,000 square feet; Facebook at 770 Broadway – 79,000 square feet; EMC at Two Penn – 72,000 square feet; Equinox at One Park Avenue – 65,000 square feet; Glencore at 330 Madison Avenue – 63,000 square feet; Google at 85 Tenth Avenue – 59,000 square feet; Victoria’s Secret at 666 Fifth Avenue – 56,000 square feet; JP Morgan Chase at 1290 Avenue of the Americas – 30,000 square feet; Sephora at 1535 Broadway – 16,000 square feet; Levi’s at 1535 Broadway – 12,000 square feet; theMART 555 California Street Allstate – 57,000 square feet; PayPal – 40,000 square feet; Kirkland and Ellis – 152,000 square feet; UBS AG – 55,000 square feet; Steelcase – 40,000 square feet; Lending Home – 46,000 square feet; Baker Furniture – 18,000 square feet; OFS Brands – 16,000 square feet; Ripple Labs – 43,000 square feet; Blue Shield – 28,000 square feet. 17 Penn Plaza (The Promised Land) We are the largest owner in the Penn Plaza District with over 9 million square feet. Penn Plaza’s time has come, the district being validated by the neighboring Hudson Yards and Manhattan West only a few blocks away. Our assets sit literally on top of Penn Station, the region’s major transportation hub, adjacent to Macy’s and Madison Square Garden… you get the picture. Here’s where we stand:  Last year a Vornado/Related venture was designated to redevelop the Farley Post Office/Moynihan Train Hall. The eastern half of this grand building will be the Moynihan Train Hall, being constructed by Skanska; in the western half, we and Related will create the best-located and most exciting 730,000 square feet of creative office space in town and 120,000 square feet of first class retail. Construction is under way for 2020 delivery.  Plans are complete and construction will begin later this year to redevelop/transform One Penn Plaza. Here we will invest $200 million ($80 per square foot on this 2.5 million square foot building) with the goal of achieving a $20 or more per square foot uplift in rents.(14)  The Hotel Penn continues to be on the tipping point between a total renovation (so total that the building would be closed for more than two years) where, together with a local operator and a major hotel company (not presently in New York), we would create a giant convention/entertainment hotel…versus…a teardown/rebuild. We have a ULURP approval here for a 2.8 million square foot financial services headquarters building, which would be addressed 15 Penn Plaza. As we transform One Penn and Two Penn, 15 Penn Plaza will stand out as the best available site in Manhattan. Immediately west of 15 Penn Plaza is Penn Station and immediately east is the Herald Square subway hub, all of which will be connected underground.  Two Penn Plaza is a little complicated. We have completed a great design for a redevelopment/transformation of this 1.6 million square foot building. While requiring a greater investment than One Penn for expansion, facade and mechanical work etc., it would produce similar financial results. Alternatively, we are investigating an even bolder plan, that being to raze the existing Two Penn building (in effect demolishing a building worth, say, $1.4 billion). This would allow us to incorporate the 5 million square feet of air rights which are trapped on the Madison Square Garden site (which we and MSG own jointly) thereby bringing back 6.6 million square feet (some of which may be sprinkled to adjacent sites). The old Two Penn has a 60,000 square foot footprint, the new would have a 120,000 square foot-plus footprint at the base, perfect for our creative class tenants. There would be towers above and a significant retail component below sandwiched between the train station and the office base. There is an enormous public purpose to this bold plan. It would daylight the eastern half of Penn Station, permitting modernization and improvements to Penn Station, as great as the imagination can conceive…finally curing the ills and creating the grand transportation hub that New Yorkers deserve. The station improvements would be self- financed by a PILOT from the incremental taxes the new buildings in this district would generate. As you can imagine, we would require some help in the form of a tax holiday.(15)  Over time, our grand plan includes developing three to five new builds on sites we own in Penn Plaza. Imagine the NEW New York along the 34th Street corridor from VornadoLand (Macy’s, Penn Station, MSG) to Moynihan to Manhattan West and to Hudson Yards. All this will take time but will be enormously rewarding to the patient investor. The Penn Plaza District is the Promised Land. Even now, we are always full in Penn Plaza and even now, rents are rising smartly. Starting rents in One Penn are $69 per square foot and in Two Penn $63 per square foot. Just imagine the future. We were the early movers in Penn Plaza when it was the low-rent district. Our basis here is $200 per square foot versus…you pick the current value number. 14 Leases at One Penn Plaza have an average term of 5.4 years. 15 All this is Penn Station 2.0. Back ten years ago was Penn Station 1.0 where we, Related and Madison Square Garden pursued another bold plan, to relocate MSG to the western half of Farley. The three private sector partners committed in writing and the ball was in the public sector court, so to speak. After years of trying, we pulled the plug as it became clear that this dream wasn’t going to happen. Looking back, everyone, the press, the civics, elected officials all had remorse over this unique, missed opportunity. 18 13 19 What’s Going On With Retail (And It’s Not The Weather) Disruption in retail is the topic du jour, the eye of the storm so to speak (both retail tenants’ and retail landlords’ stocks continue to be battered). Please see my last year’s letter at page 15 for a full blown discussion of my thoughts on retail which can be viewed at www.vno.com. We own the best-in-class 71-property, 2.7 million square foot flagship street retail business in Manhattan, concentrated on the best high streets – Fifth Avenue, Times Square, Madison Avenue, Penn Plaza, Union Square and Soho. This is a growing business: ($ IN MILLIONS, EXCEPT PROPERTIES) 2017 2016 2015 2014 2013 2012 Here is our 2017 retail math by submarket: ($ IN MILLIONS, EXCEPT %) Fifth Avenue Times Square Madison Avenue Penn Plaza Union Square SoHo Other Total Number of Properties 71 70 65 57 54 47 % 36.5 16.7 7.9 19.6 4.7 4.2 10.4 100.0 GAAP NOI 359.9 365.0 341.7 263.4 231.6 177.8 Cash NOI 118.5 54.0 25.5 63.4 15.4 13.6 33.9 324.3 20 14 More than half our retail income comes from Upper Fifth Avenue and Times Square. We are 100% leased here for term with great tenants.(16) Here are the lease expirations: Upper Fifth Avenue Tenant Zara MAC Cosmetics Hollister Uniqlo Tissot Dyson Ferragamo Swatch Harry Winston Victoria's Secret Year of Expiration 2019 2024 2024 2026 2026 2027 2028 2031(17) 2031 2032 Times Square Tenant US Polo Sunglass Hut Planet Hollywood MAC Cosmetics T-Mobile Disney Invicta Sephora Swatch Levi’s Forever 21 Nederlander Theater Year of Expiration 2023 2023 2023 2025 2025 2026 2029 2029 2030 2030(18) 2031 2050 About half the retail income of Penn Plaza comes from anchors JCPenney, Kmart and Old Navy; the balance from 81 different tenants, many of whom we keep on relatively short leases to facilitate development. For the complete lease expiration schedule, please see page 28 of our 2017 Annual Report on Form 10-K, which can be viewed at www.vno.com. 2017 cash NOI for our street retail business was $324.3 million. On our last earnings call we indicated that our 2018 cash NOI would be close to $309 million which we expect to be the floor. 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 $380 million of cash NOI by 2021. The following charts reconcile 2017 and 2018 guidance: (IN MILLIONS) Last year’s Chairman's letter guidance for 2017 Cash NOI Less reallocation of real estate taxes between retail and office Adjusted 2017 Cash NOI projection Outperformance Actual 2017 Cash NOI $ $ 330.0 (16.2) 313.8 10.5 324.3 Last year’s Chairman’s letter future “not less than” guidance Less reallocation of real estate taxes between retail and office 2018 guidance in fourth quarter earnings conference call Retail space converted to office use Adjusted 2018 Cash NOI “not less than” guidance 325.0 (16.2) 308.8 (4.8) (19) 304.0 $ 16 David says that the Victoria’s Secret and Swatch leases alone are equivalent in value to a million square foot office tower. 17 Tenant has the right to cancel in 2023. 18 Tenant has the right to cancel in 2024. 19 In the first quarter we recaptured 80,000 square feet of retail space at 770 Broadway that was leased to Kmart and converted it to office space leased to Facebook. Several other small reductions of retail space are in process. These items which total approximately $4.8 million per annum will decrease Retail NOI with an offsetting increase to Office NOI. 21 15 Some Thoughts, 2017 Version 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. New York City Is Our Home…New York City Is The Center Of The Universe New York City continues to be THE magnet for talent. New York is the gateway city with the strongest projected population growth. New York has a huge, healthy, diversified employment base. In 1990, 1 in 2 New York City jobs were in the financial services industry – today the ratio is 1 in 4. New York is the second largest tech center outside of Silicon Valley. New York has a growing footprint of healthcare systems and an emerging life sciences industry. New York continues to be the financial center of the world…and the financial sector is resurging. New York is the bullseye for global investors…and for domestic investors…and for its giant corporate citizens (a la recent deals by JPMorgan and Google, etc.). Park Avenue Ten years ago on a trip to London (a city as dense as New York), I was surprised to see tower cranes all over. I learned that in London they give density bonuses as incentives to tear down and rebuild buildings that are over 25 years old,(20) thereby insuring a refreshed, state-of-the-art, competitive stock of office buildings. In my letters of 2009(21) and 2010, I suggested that we in New York should do the same. While I take little credit for this, Amanda Burden, then City Planning Chair, and super broker Mary Ann Tighe, then REBNY President, initiated a midtown up-zoning project to accomplish these objectives. This was ably shaped and pushed over the finish line by Alicia Glen, our current Deputy Mayor for Economic Development. Kudos to them. JPMorgan Chase made big news last month when they announced they would tear down their 1.5 million square foot headquarters at 270 Park Avenue, temporarily relocate their employees and build back a state-of-the-art 2.5 million square foot headquarters. They are the first to execute under the new zoning; kudos to Jamie Dimon and his team. This is a bold, big deal and will go a long way to cement the status of Park Avenue as the most important commercial boulevard. We, together with partner SLG, own the neighboring 280 Park Avenue. We own 350 Park Avenue, three blocks up, which we consider to be the best candidate on Park Avenue to next take advantage of the new zoning incentives. 666 Fifth Avenue I have telegraphed our intention to exit the 666 Fifth Avenue office partnership. I believe we now have a handshake to sell our interest to our partner at a price which will repay our investment plus a mezzanine type return. The existing loan will be repaid including payment to us of the portion of the debt that we hold. Since we deducted losses along the way there will be a special capital gain dividend requirement which will be offset by a portion of the Toys “R” Us loss. While not the outcome we expected going in, it’s now the appropriate outcome for us and for our partner. This situation continues to be fluid - there can be no assurance that a final agreement will be reached or that a transaction will close. We will, of course, continue to own the 666 Fifth Avenue retail. 220 Central Park South continues its record setting success. 20 In New York, 30-year old buildings are landmark eligible. 21 Here is the quote from 2009: “Park Avenue, the major corporate corridor of New York, comprises about 40 million square feet from Grand Central to 59th Street and buildings there are on average about 45 years old (which is about the average age of the entire New York office stock). So here’s an idea for powers that be. To keep regenerating New York, why not upzone Park Avenue as an economic incentive to tear down old buildings and replace them with new-builds which may be, say, half again the size. They do this in London, quite successfully. (Park Avenue is one example.)” 22 16 Kmarts In Manhattan Vornado owns the only two Kmarts in Manhattan, both at the bottom of our office buildings (82,000 square feet remaining at 770 Broadway and 141,000 square feet at One Penn Plaza). Both have term and options for 18 years and under-market rents of $33.50 per square foot. In February, we made our first deal with Sears/Kmart, buying back a floor at 770 Broadway for Facebook. There should be more to come. CFO Search I may have jumped the gun on the CFO search. About a year ago, we dispatched Steve Theriot, our sitting CFO, to JBG SMITH, where his skills were badly needed and he has been very effective. Here at Vornado, our cup runneth over with financial talent: Joe Macnow, my CFO for 35 years, a little older but wiser and still the best in the business; Matt Iocco, our Chief Accounting Officer who runs Paramus; and Tom Sanelli, who runs the numbers for our operating business. We are/were looking for four skills in a CFO candidate:  Technical and financial competency  Capital markets expertise  Communication skills, the ability to tell our story  Strategic thinking, even transformational ability We saw quite a few qualified candidates (a number of whom I really liked), but we hit the pause button for three reasons:  There were and continue to be other things going on that would preempt a new hire  We haven’t yet been able to find that transformational candidate  Maybe Joe and I should go out at the same time, thereby giving my successor the right to choose Joe’s successor All this will play out and have a happy ending in due time. Buybacks Buying back one’s discounted stock seems to be an attractive proposition. We’ve done it before, in large scale, but that was way back in the dark ages. I must say we are tempted to do it now. Our hesitancy is that buybacks work best when financed out of recurring retained earnings. Since we dividend to shareholders all of our earnings, that is not us. So a buyback for us would be financed either by selling assets or running down our balance sheet. For us, selling assets would almost certainly result in a capital gain dividend requirement(22) rather than a source of cash to do a buyback. What’s more, we seem to be late in the cycle; real estate stocks are declining, signaling danger ahead; interest rates are rising, signaling danger ahead. This is exactly the point in the cycle where we want to maintain maximum liquidity. For us, the math is that a billion dollar buyback would increase our NAV by about $1.50 per share;(23) for the moment, we’d rather have the billion dollars. Lastly, buybacks whose purpose is to prop up one’s stock price, sort of like putting your finger in the dike, never, ever work. Notwithstanding all of the above, buybacks are a recurring topic at our board meetings and we may execute using proceeds from the billion dollars of assets we now have on our for-sale list. Guidance We are long-term investors and are an NAV-based management team. Nonetheless, many folks judge us more on quarter-to-quarter earnings which, while certainly important, are, we believe a second-best metric. The issue of guidance seems to be coming up more and more. 53% of the Fortune 100 give guidance, 47% do not. In our real estate industry, in the large cap REITS, 80% give guidance, 20% do not. We are one of the do-nots and have not for 38 years.(24) Within FD guidelines, we do, of course, work with our analysts and do pre-announce unexpected, unusual earnings items. Who knows, maybe my successor and Joe’s successor will be in the guidance camp. 22 Virtually every one of our assets has large embedded profits/tax gains. 23 By comparison, we expect $200 million invested in One Penn to increase NAV by about $4.00 per share versus a $200 million buyback which would create $0.30 of NAV. 24 I’m sorry, but I personally am turned off by the beat-by-a-penny, raise-by-a-penny culture. 17 23 Tax Protection Between 1997 and 2005, we issued 35 million Operating Partnership Units (at a weighted average of $35.60 per share) to acquire assets, all of which involved tax protection for the benefit of the seller. (We have not issued shares since 2009 and will do so in the future only on the rarest of occasions.) Most of that tax protection has run off. We currently have tax indemnity amounting to $222 million, (down from $1.8 billion at the highpoint), $122 million of which will run off by 2022; the remaining $100 million relates to the PREIT stock and is tied to the lifetime of a 94- year old individual. Toys In 2014, we wrote down to zero our interest in Toys “R” Us. Toys is now in liquidation. We have no financial obligations with respect to Toys. We will benefit in the future from a $420 million capital loss deduction from this failed investment. Repeal The New York State Estate Tax I have frequently been asked to predict the effect of the elimination of deductibility of state and local taxes (SALT) on New York real estate. My answer is not that much. As long as the employers stay, so will the employees, especially in mid-career, high-paying positions. There is one vulnerability I would like to point out. In New York State, the top 2% pay a full 50% of personal income taxes - so it is critical that they remain tax-paying residents. The vulnerability comes with the 1%-ers, who are at the end of their careers. Most of the folks I know are willing to pay higher income taxes for the privilege of living in New York, but hate the prospect of a 16% toll for the privilege of dying in New York. New York State’s estate tax brings in only about 1/150th of the state’s annual budget. The estate tax should be repealed. Keeping our highest taxpayers through the end of their lives is both good economic policy and good politics. By the way, high-tax California has no estate tax and high-tax New Jersey repealed its estate tax last year. Our iconic 3.7 million square foot Chicago Mart continues to go from strength to strength. David and Myron, working with Chicago City government, have just completed arrangements for a lighting installation that will project images of public art across the nearly three acres of the theMART’s southern facing facade. This will be the largest projection installation of its kind in the world. We believe this unique public art installation will have enormous impact. It will become a must-see Chicago landmark, maybe even become world renowned and will enhance the franchise value of this great building. After 59 years, the legendary Four Seasons Restaurant is moving across the street to our 280 Park Avenue. Alex and Julian will be at their normal posts. Last week, I toured the construction site again and the space and finishes designed by Brazilian architect, Isay Weinfeld, will be extraordinary. The restaurant is scheduled to open in the summer. Please call if you need help getting reservations. 24 18 Some Accounting Updates The Washington, DC segment has been accounted for as a Discontinued Operation for all periods presented. Beginning in 2017 the Real Estate Fund, which is in wind down, was treated as noncomparable. Because we intend to sell our interest in the 666 Fifth Avenue Office Condominium, we have reclassified this building from New York to Other, excluded it from our leasing metrics and treated it as noncomparable in all periods presented. Beginning in 2017, for office buildings with retail at the base, we adjusted the allocation of real estate taxes as between the office and retail portions of each building. This had no effect on our consolidated financial statements, but resulted in a reallocation of slightly more than $16 million of income from retail to office. Corporate Governance Subject to shareholder approval at our Annual Meeting in May, we have taken action to permit our shareholders to amend our Bylaws. By 2019, the Board will be completely de-staggered. We have also enhanced the corporate governance, sustainability and executive compensation disclosures in our proxy statement. 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. 19 25 Sustainability Vornado continues to lead the industry in sustainability – it’s important to our tenants and investors, and it is important to us. From energy conservation, to healthy indoor environments, to sustainable new construction, we continuously improve our programs each year. 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. We own and operate an industry-leading 21 million square feet of LEED-certified buildings, with over 17 million square feet at LEED Gold. We are committed to LEED certifying our entire in-service office portfolio by 2020, and we are already 71% toward that goal. We recognize climate change as a material issue to our business, due to the risks it may present to our properties. We assess opportunities in resilience to fortify our properties against these risks, while mitigating our own contribution to climate change through reduction of our carbon footprint. 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. We are happy to report that as of 2017 we are over 20% toward this goal, and have a strategic plan in place to achieve our goal ahead of schedule. Our tenants spend the majority of their week working in our buildings, and we uphold 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. In 2017, we partnered with Bloomberg on achieving our first Fitwel 3-star certification at 731 Lexington Avenue, symbolic of our commitment to fostering a healthy, active workplace for our tenants. We lead a robust tenant engagement program that in 2017 included the continuation of our tenant roundtable series, which was attended by participants from over 5 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 vision for Penn Plaza expands our focus from the asset to the neighborhood, and we plan to apply our principles in sustainability to help transform Penn Plaza at large. Our programs deliver results: in 2017, we reduced our energy consumption by nearly 10,000 megawatt hours and recycled and composted over 9,200 tons of waste, amounting to a diversion rate of 53%. We were awarded NAREIT’s Leader in the Light Award (8th year in a row), we achieved ENERGY STAR Partner of the Year with Sustained Excellence (3rd time with this distinction), and we earned the Global Real Estate Sustainability Benchmark (GRESB) Green Star ranking (5th year in a row). In 2017, we were honored with the distinction as Sector Leader among North American office and retail diversified REITs. Finally, we extend our commitment 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 2017 sustainability efforts, including our Global Reporting Initiative (GRI) Index, please see our sustainability report at www.vno.com. SUSTAINABILITY 2017 26 20 SM 27 We continually broaden our leadership team through promotions from within our Company. Please join me in congratulating this year’s class; they deserve it. Fred Grapstein was promoted to Executive Vice President, Hotel Pennsylvania and Senior Vice President, Vornado Realty Trust; Gary Hansen was promoted to Senior Vice President and Controller, Alexander’s; Jared Silverman was promoted to Vice President, Office Leasing; Darren Chan was promoted to Vice President, Acquisitions and Capital Markets; Blaise Lucas was promoted to Vice President and Assistant Controller, Alexander’s; and Deirdre Maddock was promoted to Vice President, Corporate Investments. Welcome to Sangjoon Hahm, VP, Design and Construction; Sara O’Toole, VP, Leasing Counsel and Rudy Tauscher, General Manager, 220 Central Park South. 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 and Joe Macnow. We are fortunate to have in our Operating 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; Fred Grapstein, Hotel Pennsylvania; 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. Thank you as well to our very talented and hardworking 27 Senior Vice Presidents and 68 Vice Presidents who make the trains run on time, every day. Our Vornado Family has grown with 11 marriages and 16 births this year, 6 girls and 10 boys, but who’s counting? Many thanks to Joe Macnow and LouAnn Bell who have been helping me with my letter forever and special thanks to Lisa Vogel. On behalf of Vornado’s Board, senior management and 3,989 associates, we thank our shareholders, analysts and other stakeholders for their continued support. One Last Thing - I have run Vornado since 1980…that’s a long time. A lot has happened since then. In the beginning, the equity value of Vornado was $35 million; today it is over $19 billion at NAV, plus almost $7 billion of equity distributed to shareholders in the two recent spin-offs, plus $8.7 billion in dividends paid along the way (about an 18% IRR on a per share basis over 38 years). I am unbelievably indebted to my partners and colleagues over these 38 years, who have contributed full measure to our success and to my happiness. BTW, I feel fine…thanks for asking. Steven Roth Chairman and CEO April 2, 2018 Again this year, I offer to assist shareholders with tickets to my wife’s Tony award-winning Best Musical Kinky Boots, now in its fifth year. And to my son’s productions of Angels in America, The Book of Mormon, Frozen and Mean Girls. Please call if I can be of help. We are so proud of Rebecca, who will be attending YALE in September. And little two-year-old Levi, who is even now building tall buildings. 28 21 29 30 -- 6.0 Below is a reconciliation of Net Income to NOI, as adjusted: ($ IN MILLIONS) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Net Income 264.1 982.0 859.4 1,009.0 564.7 694.5 740.0 708.0 128.5 411.4 Our share of (income) loss from partially owned entities (15.2) (168.9) 9.9 58.5 336.3 (428.9) (125.5) (85.6) (67.2) 167.8 Our share of (income) loss from real estate fund (3.2) 23.6 (74.1) (163.0) (102.9) (63.9) (22.9) -- -- Interest and other investment income, net (37.8) (29.6) (27.2) Net gains on disposition of assets (.5) (160.4) (149.4) (38.6) (13.6) 20.8 (2.0) 252.7 (156.6) (234.6) 117.3 (4.9) (10.9) (15.9) 21.0 (17.6) Loss (income) from discontinued operations 13.2 (404.9) (223.5) (686.9) (666.8) (378.1) (394.4) (351.6) (280.7) (640.6) NOI attributable to noncontrolling interests (65.3) (66.2) (64.9) (55.0) (58.6) (45.3) (47.9) (47.8) (44.9) (47.1) Depreciation, amortization expense and income taxes General and Administrative expense Acquisition and transaction related costs Our share of NOI from partially owned entities Interest and debt expense NOI 470.4 159.0 1.8 269.2 345.6 428.2 149.6 9.4 271.1 330.2 294.8 149.3 12.5 245.8 309.3 360.7 342.5 141.9 150.3 18.4 24.9 207.7 175.1 337.4 323.5 1,401.3 1,364.1 1,341.9 1,176.5 1,107.8 304.5 140.5 17.4 152.1 315.7 956.3 309.2 137.5 34.9 132.2 338.0 933.6 301.3 298.9 145.7 166.7 38.6 44.1 100.8 101.6 348.9 396.3 907.8 881.6 314.3 131.3 80.9 76.7 402.8 885.9 Certain items that impact NOI (20.6) (28.1) (62.8) (38.7) (34.1) (23.9) (8.8) (8.0) (18.6) (12.8) NOI, as adjusted 1,380.7 1,336.0 1,279.1 1,137.8 1,073.7 932.4 924.8 899.8 863.1 873.1 Below is a reconciliation of Net Income to FFO: ($ IN MILLIONS, EXCEPT SHARE AMOUNTS) Net Income Preferred share dividends Net Income applicable to common shares Depreciation and amortization of real property Net gains on sale of real estate 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 adjustments Interest on exchangeable senior debentures Preferred share dividends Funds From Operations Funds From Operations per share 2017 227.4 2016 2015 2014 2013 2012 2011 2010 2009 2008 906.9 760.4 864.9 476.0 617.3 662.3 647.9 106.2 359.3 (65.4) (83.3) (80.6) (81.5) (84.0) (67.9) (60.5) (51.2) (57.1) (57.1) 162.0 468.0 823.6 531.6 679.8 514.1 783.4 392.0 517.5 501.8 549.4 504.4 601.8 530.1 596.7 505.8 49.1 508.6 302.2 509.4 (3.5) (177.0) (289.1) (507.2) (411.6) (245.8) (51.6) (57.2) (45.3) (57.5) -- 160.7 0.3 26.5 37.1 130.0 28.8 97.5 23.2 -- 137.0 154.8 144.0 117.8 157.3 154.7 170.9 148.3 140.6 115.9 (17.8) (2.9) (4.5) (11.6) (0.5) (241.6) (9.8) (5.8) (1.4) (9.5) 7.7 -- 6.3 -- 16.8 -- -- (26.7) (27.5) (24.6) (24.6) (22.9) (23.2) (7.3) 6.6 11.6 -- 11.5 -- -- (36.7) (41.1) (22.4) (8.0) (15.1) (16.6) (41.0) (46.8) (47.0) (49.7) -- 1.1 -- 1.6 -- -- -- -- -- 0.1 -- -- 26.1 0.3 25.9 0.2 -- 0.2 25.3 0.2 717.8 1,457.6 1,039.0 911.1 641.0 818.6 1,231.0 1,251.5 605.1 813.1 3.75 7.66 5.48 4.83 3.41 4.39 6.42 6.59 3.49 4.97 Below is a reconciliation of Net Income to Net Income, as Adjusted: ($ IN MILLIONS) Net Income applicable to common shares Washington, DC Real Estate Fund Certain other items that impact net income Net income, as Adjusted 2017 162.0 20.9 10.8 57.2 250.9 Below is a reconciliation of Net Income to EBITDA, as Adjusted ($ IN MILLIONS) Net income Interest and debt expense Depreciation and amortization Income tax expense EBITDA Adjustments(25) EBITDA, as adjusted 2017 238.3 468.6 612.3 43.0 1,362.2 (106.2) 1,256.0 2016 823.6 (70.6) 21.0 (544.8) 229.2 Below is a reconciliation of Total Assets to Total Assets, as Adjusted: ($ IN MILLIONS) Total Assets Adjustments: Assets related to discontinued operations 666 Fifth Avenue Office Real Estate Fund Cash available to repay revolving credit facilities Accumulated depreciation Total Assets, as Adjusted 2017 17,397.9 2016 20,814.8 (1.3) (37.1) (354.8) -- 2,885.2 19,889.9 (3,568.6) (53.3) (462.1) (115.6) 2,581.5 19,196.7 Below is a reconciliation of Revenues to Revenues, as Adjusted: ($ IN MILLIONS) Revenues Assets related to sold properties Revenues, as Adjusted 2017 2,084.1 -- 2,084.1 2016 2,003.7 (9.9) 1,993.8 (25) Includes income from the Washington DC business, the Real Estate Fund, gains on sale of real estate, impairment losses and other adjustments. 31 22 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K ý ¨ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: December 31, 2017 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 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 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 5.25% Series M 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 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  ý      NO  ¨   Vornado Realty L.P.: YES  ¨      NO  ý 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  ý   Vornado Realty L.P.: YES  ¨      NO  ý 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  ý      NO  ¨   Vornado Realty L.P.: YES  ý      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  ý      NO  ¨   Vornado Realty L.P.: YES  ý      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. ý 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,” “non-accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Vornado Realty Trust: ý Large Accelerated Filer ¨ Non-Accelerated Filer (Do not check if smaller reporting company) Vornado Realty L.P.: ¨ Large Accelerated Filer ý Non-Accelerated Filer (Do not check if smaller reporting company) ¨ Accelerated Filer ¨ Smaller Reporting Company ¨ Emerging Growth Company ¨ Accelerated Filer ¨ Smaller Reporting Company ¨ Emerging Growth Company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Vornado Realty Trust: YES  ¨      NO  ý   Vornado Realty L.P.: YES  ¨      NO  ý 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 $16,284,558,000 at June 30, 2017. As of December 31, 2017, there were 189,983,858 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, 2017 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 $897,361,000 at June 30, 2017. Part III:  Portions of Proxy Statement for Annual Meeting of Vornado Realty Trust’s Shareholders to be held on May 17, 2018. Documents Incorporated by Reference                              EXPLANATORY NOTE This report combines the Annual Reports on Form 10-K for the fiscal year ended December 31, 2017 of Vornado Realty Trust and Vornado Realty L.P.  Unless stated otherwise or the context otherwise requires, references to “Vornado” refer to Vornado Realty Trust, a Maryland real estate investment trust (“REIT”), and references to the “Operating Partnership” refer to Vornado Realty L.P., a Delaware limited partnership. References to the “Company,” “we,” “us” and “our” mean, collectively, Vornado, the Operating Partnership and those 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 93.5% 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.     PART I. PART II. PART III. PART IV. INDEX Item Financial Information: Page Number 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. 16. 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 Form 10-K Summary 7 11 22 23 29 29 30 32 35 93 94 161 161 165 165 166 166 166 166 167 181 Signatures ____________________ (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, 2017, portions of which are incorporated by reference herein. 182 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 93.5% of the common limited partnership interest in the Operating Partnership at December 31, 2017. On July 17, 2017, we completed the spin-off of our Washington, DC segment comprised of (i) 37 office properties totaling over 11.1 million square feet, five multifamily properties with 3,133 units and five other assets totaling approximately 406,000 square feet and (ii) 18 future development assets totaling over 10.4 million square feet of estimated potential development density, and (iii) $412.5 million of cash ($275.0 million plus The Bartlett financing proceeds less transaction costs and other mortgage items) to JBG SMITH Properties ("JBGS"). On July 18, 2017, JBGS was combined with the management business and certain Washington, DC assets of The JBG Companies (“JBG”), a Washington, DC real estate company. Steven Roth, the Chairman of the Board of Trustees and Chief Executive Officer of Vornado, is the Chairman of the Board of Trustees of JBGS. Mitchell Schear, former President of our Washington, DC business, is a member of the Board of Trustees of JBGS. We are providing transition services to JBGS initially including information technology, financial reporting and payroll services. The spin-off was effected through a tax-free distribution by Vornado to the holders of Vornado common shares of all of the common shares of JBGS at the rate of one JBGS common share for every two common shares of Vornado and the distribution by the Operating Partnership to the holders of its common units of all of the outstanding common units of JBG SMITH Properties LP (“JBGSLP”) at the rate of one JBGSLP common unit for every two common units of VRLP held of record. See JBGS’ Amendment No. 3 on Form 10 (File No. 1-37994) filed with the Securities and Exchange Commission on June 9, 2017 for additional information. Beginning in the third quarter of 2017, the historical financial results of our Washington, DC segment are reflected in our consolidated financial statements as discontinued operations for all periods presented. We currently own all or portions of: New York: • • • • • 20.3 million square feet of Manhattan office in 36 properties; 2.7 million square feet of Manhattan street retail in 71 properties; 2,009 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; Other Real Estate and Related Investments: • • • • • The 3.7 million square foot 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 (the "Fund").  We are the general partner and investment manager of the Fund; A 32.5% interest in Toys “R” Us, Inc. (“Toys”), which is in Chapter 11 bankruptcy and carried at zero in our consolidated balance sheets; 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 We completed the following acquisition during 2017: • $230.0 million upfront contribution for the acquisition of a 99-year leasehold of Farley Post Office (50.1% interest) DISPOSITIONS We completed the following sale transactions during 2017: • • • • • $6.0 billion spin-off of our Washington, DC segment on July 17, 2017; $155.0 million sale of property comprising the Suffolk Downs racetrack in East Boston, Massachusetts (21.2% interest); $148.0 million sale of 800 Corporate Pointe in Culver City, CA (25% interest); $23.9 million sale of investments by India Property Fund (36.5% interest); $18.7 million sale of our 25% interest in TCG Urban Infrastructure Holdings Private Limited, which substantially completes our sale of our investments in India; and • We received $50.0 million representing our interest in the $150.0 million mezzanine loan owned by a joint venture in which we had a 33.3% ownership interest. FINANCINGS We completed the following financing transactions during 2017: • • • • • • • • • • • • $1.25 billion revolving credit facility extended to January 2022 with two six-month extension options, lowering the interest rate from LIBOR plus 105 basis points to LIBOR plus 100 basis points. $1.2 billion refinancing of 280 Park Avenue (50% interest); $500 million refinancing of the office portion of 731 Lexington (32.4% interest); $500 million refinancing of 330 Madison (25% interest); $450 million public offering of 3.5% 7-year senior unsecured notes; $450 million redemption of 2.5% senior unsecured notes; $320 million issuance of 5.25% Series M cumulative redeemable preferred shares and $470 million redemption of 6.625% Series G and 6.625% Series I cumulative redeemable preferred shares in January 2018; $271 million loan facility for the Moynihan Office Building (50.1% interest); $220 million financing of The Bartlett (included in the spin-off of our Washington, DC segment); $100 million loan facility for the refinancing of Lincoln Road (25% interest); $44 million repayment of 1700 and 1730 M Street (included in the spin-off of our Washington, DC segment); and $20 million refinancing of 50 West 57th Street (50% interest). 8                    DEVELOPMENT AND REDEVELOPMENT EXPENDITURES We are constructing a residential condominium tower containing 397,000 salable square feet at 220 Central Park South. The development cost of this project (exclusive of land cost of $515 million) is estimated to be approximately $1.4 billion, of which $890 million has been expended as of December 31, 2017. We are developing a 173,000 square foot Class A office building, located along the western edge of the High Line at 512 West 22nd Street in the West Chelsea submarket of Manhattan (55.0% interest).  The 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, 2017, $73,890,000 has been expended, of which our share is $40,640,000. 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 (45.1% interest).  The development cost of this project is estimated to be approximately $152,000,000, of which our share is $69,000,000.  As of December 31, 2017, $105,281,000 has been expended, of which our share is $47,482,000. 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% interest).  The venture’s 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, 2017, $34,189,000 has been expended, of which our share is $17,095,000. A joint venture in which we have a 50.1% ownership interest is redeveloping the historic Farley Post Office building which will include a new Moynihan Train Hall and approximately 850,000 rentable square feet of commercial space, comprised of approximately 730,000 square feet of office space and approximately 120,000 square feet of retail space.  As of December 31, 2017, $271,641,000 has been expended, of which our share is $136,092,000. The joint venture has also entered into a development agreement with Empire State Development (“ESD”) and a design-build contract with Skanska Moynihan Train Hall Builders.  Under the development agreement with ESD, the joint venture is obligated to build the Moynihan Train Hall, with Vornado and Related Companies ("Related") each guaranteeing the joint venture’s obligations.  Under the design-build agreement, Skanska Moynihan Train Hall Builders is obligated to fulfill all of the joint venture’s obligations.  The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bear a full guaranty from Skanska AB. We are redeveloping a 64,000 square foot Class A office building at 345 Montgomery Street, a part of our 555 California Street complex in San Francisco (70.0% interest) located at the corner of California and Pine Street. The development cost of this project is estimated to be approximately $46,000,000, of which our share is $32,000,000. As of December 31, 2017, $2,720,000 has been expended, of which our share is $1,904,000. 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 reportable segments: New York and Other.  Financial information related to these reportable segments for the years ended December 31, 2017, 2016 and 2015 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 segment has 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, 2017, 2016 and 2015. 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. 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, 2017, we have approximately 3,989 employees, of which 290 are corporate staff. The New York segment has 3,551 employees, including 2,788 employees of Building Maintenance Services LLC, a wholly owned subsidiary, which provides cleaning, security and engineering services primarily to our New York properties and our former Washington, DC properties and 449 employees at the Hotel Pennsylvania. theMART has 148 employees.  The foregoing does not include employees of partially owned entities. PRINCIPAL EXECUTIVE OFFICES Our principal executive offices are located at 888 Seventh Avenue, New York, New York 10019; telephone (212) 894‑7000.  MATERIALS AVAILABLE ON OUR WEBSITE Copies of our Annual Report on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, and amendments to those reports, as well as Reports on Forms 3, 4 and 5 regarding officers, trustees or 10% beneficial owners, 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 of Vornado or units of the Operating Partnership, 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, operations and financial condition.  See “Forward-Looking Statements” contained herein on page 6. OUR INVESTMENTS ARE CONCENTRATED CURRENTLY IN THE NEW YORK CITY METROPOLITAN AREA AND CIRCUMSTANCES AFFECTING THIS AREA GENERALLY COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS.  A significant portion of our properties are located currently in the New York City/New Jersey metropolitan area and are affected by the economic cycles and risks inherent to this area. In 2017, approximately 89% of our net operating income ("NOI", a non-GAAP measure) came from properties located in the New York City metropolitan area.  We may continue to concentrate a significant portion of our future acquisitions and development in this area.  Real estate markets are subject to economic downturns and we cannot predict how economic conditions will impact this market in either the short or long term. Declines in the economy or declines in real estate markets in the New York City metropolitan area 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 this region include: • • • • • • • • • • financial performance and productivity of the media, advertising, professional services, financial, technology, retail, insurance and real estate industries; 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; changes in the treatment of the deductibility of state and local taxes; and any oversupply of, or reduced demand for, real estate. It is impossible for us to assess the future effects of trends in the economic and investment climates of the geographic areas in which we concentrate, and more generally of the United States, or the real estate markets in these areas.  Local, national or global economic downturns, would negatively affect our businesses and profitability. 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. Terrorist attacks, such as those of September 11, 2001 in New York City, 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, 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. Furthermore, we may experience increased costs in security, equipment and personnel. As a result, the value of our properties and the level of our revenues and cash flows could decline materially. 11                 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, 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.  Over time, these conditions could result in declining demand for office space in our buildings or the inability of us to operate the buildings at all. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable, increasing the cost of energy at our properties and requiring us to expend funds as we seek to repair and protect our properties against such risks. The incurrence of these losses, costs or business interruptions may adversely affect our operating and financial results. 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: • • • • • • • • • • • • • • • • • • • • • • • • 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; changes in real estate taxes and other expenses;   whether tenants and users such as customers and shoppers consider a property attractive; changes in consumer preferences adversely affecting retailers and retail store values; 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 an investment in 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. 12             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. U.S. federal tax reform legislation now and in the future could affect REITs generally, the geographic markets in which we operate, the trading of our shares and our results of operations, both positively and negatively, in ways that are difficult to anticipate. The Tax Cuts and Jobs Act of 2017 (the “2017 Act”) represents sweeping tax reform legislation that makes significant changes to corporate and individual tax rates and the calculation of taxes, as well as international tax rules. As a REIT, we are generally not required to pay federal taxes otherwise applicable to regular corporations if we comply with the various tax regulations governing REITs. Shareholders, however, are generally required to pay taxes on REIT dividends. The 2017 Act and future tax reform legislation could impact our share price or how shareholders and potential investors view an investment in REITs.  For example, the decrease in corporate tax rates in the 2017 Act could decrease the attractiveness of the REIT structure relative to companies that are not organized as REITs. In addition, while certain elements of the 2017 Act do not impact us directly as a REIT, they could impact the geographic markets in which we operate as well as our tenants in ways, both positive and negative, that are difficult to anticipate.  For example, the limitation in the 2017 Act on the deductibility of certain state and local taxes may make operating in jurisdictions that impose such taxes at higher rates less desirable than operating in jurisdictions imposing such taxes at lower rates.  The overall impact of the 2017 Act also depends on the future interpretations and regulations that may be issued by U.S. tax authorities, and it is possible that future guidance could adversely impact us. 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. Competition for acquisitions may reduce the number of acquisition opportunities available to us and increase the costs of those acquisitions. We may acquire properties when we are presented with attractive opportunities. We may face competition for acquisition opportunities from other well-capitalized investors, including publicly traded and privately held REITs, private real estate funds, domestic and foreign financial institutions, life insurance companies, sovereign wealth funds, pension trusts, partnerships and individual investors which may adversely affect us by causing us the inability to acquire a desired property or cause an increase in the purchase price for such acquisition property. If we are unable to successfully acquire additional properties, our ability to grow our business could be adversely affected. In addition, increases in the cost of acquisition opportunities could adversely affect our results of operations. 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 and other 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 13           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 also impair our ability to sell or lease real estate or to borrow using the real estate as collateral. Other laws and regulations govern indoor and outdoor air quality including those that can require the abatement or removal of asbestos-containing materials in the event of damage, demolition, renovation or remodeling and also govern emissions of and exposure to asbestos fibers in the air. The maintenance and removal of lead paint and certain electrical equipment containing polychlorinated biphenyls (PCBs) are also regulated by federal and state laws. We are also subject to risks associated with human exposure to chemical or biological contaminants such as molds, pollens, viruses and bacteria which, above certain levels, can be alleged to be connected to allergic or other health effects and symptoms in susceptible individuals. Our predecessor companies may be subject to similar liabilities for activities of those companies in the past.  We could incur fines for environmental compliance and be held liable for the costs of remedial action with respect to the foregoing regulated substances or related claims arising out of environmental contamination or human exposure to contamination at or from our properties.  Each of our properties has been subject to varying degrees of environmental assessment. To date, these environmental assessments have not revealed any environmental condition material to our business. However, identification of new compliance concerns or undiscovered areas of contamination, changes in the extent or known scope of contamination, human exposure to contamination or changes in clean-up or compliance requirements could result in significant costs to us. In addition, we may become subject to costs or taxes, or increases therein, associated with natural resource or energy usage (such as a “carbon tax”).  These costs or taxes could increase our operating costs and decrease the cash available to pay our obligations or distribute to equity holders. 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. 14                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. 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 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 $1,976,000 ($1,601,000 for 2018) and 17% (18% for 2018) 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. We are responsible for deductibles and losses in excess of our insurance coverage, which could be material. 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. 15               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. Changes in the method pursuant to which the LIBOR rates are determined and potential phasing out of LIBOR after 2021 may affect our financial results. The chief executive of the United Kingdom Financial Conduct Authority ("FCA"), which regulates LIBOR, has recently announced that the FCA intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the United Kingdom or elsewhere. Furthermore, in the United States, efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York. On August 24, 2017, the Federal Reserve Board requested public comment on a proposal by the Federal Reserve Bank of New York, in cooperation with the Office of Financial Research, to produce three new reference rates intended to serve as alternatives to LIBOR. These alternative rates are based on overnight repurchase agreement transactions secured by U.S. Treasury Securities. The Federal Reserve Bank said that the publication of these alternative rates is targeted to commence by mid-2018. Any changes announced by the FCA, including the FCA Announcement, other regulators or any other successor governance or oversight body, or future changes adopted by such body, in the method pursuant to which the LIBOR rates are determined may result in a sudden or prolonged increase or decrease in the reported LIBOR rates. If that were to occur, the level of interest payments we incur may change. In addition, although certain of our LIBOR based obligations provide for alternative methods of calculating the interest rate payable on certain of our obligations if LIBOR is not reported, which include requesting certain rates from major reference banks in London or New York, or alternatively using LIBOR for the immediately preceding interest period or using the initial interest rate, as applicable, uncertainty as to the extent and manner of future changes may result in interest rates and/or payments that are higher than, lower than or that do not otherwise correlate over time with the interest rates and/or payments that would have been made on our obligations if LIBOR rate was available in its current form. 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; or (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.   16           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”), 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. Our investment in Toys has in the past and may in the future result in increased seasonality and volatility in our reported earnings. We carry our Toys investment at zero.  As a result, we no longer record our equity in Toys' income or loss.   Because Toys is a retailer, its operations subject us to the risks of a retail company that are different than those presented by our other lines of business. The business of Toys is highly seasonal and substantially all of Toys net income is generated in its fourth quarter.  It is possible that the value of Toys may increase and we could again resume recording our equity in Toys' income or loss, which would increase the seasonality and volatility of our reported earnings. Our decision to dispose of real estate assets would change the holding period assumption in our valuation analyses, which could result in material impairment losses and adversely affect our financial results. We evaluate real estate assets for impairment based on the projected cash flow of the asset over our anticipated holding period.  If we change our intended holding period, due to our intention to sell or otherwise dispose of an asset, then under accounting principles generally accepted in the United States of America, we must reevaluate whether that asset is impaired.  Depending on the carrying value of the property at the time we change our intention and the amount that we estimate we would receive on disposal, we may record an impairment loss that would adversely affect our financial results. This loss could be material to our results of operations in the period that it is recognized. We invest in marketable equity securities.  The value of these investments may decline as a result of operating performance or economic or market conditions.  We invest in marketable equity securities of publicly-traded companies, such as Lexington Realty Trust.  As of December 31, 2017, our marketable securities have an aggregate carrying amount of $182,752,000, at market.  Significant declines in the value of these 17                       investments due to, among other reasons, operating performance or economic or market conditions, may result in the recognition of impairment losses which could be material.  OUR ORGANIZATIONAL AND FINANCIAL STRUCTURE GIVES RISE TO OPERATIONAL AND FINANCIAL RISKS. We may not be able to obtain capital to make investments. We depend primarily on external financing to fund the growth of our business. This is because one of the requirements of the Internal Revenue Code of 1986, as amended, for a REIT is that it distributes 90% of its taxable income, excluding net capital gains, to its shareholders. 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 to holders of its 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, 2017, there were four series of preferred units of the Operating Partnership not held by Vornado with a total liquidation value of $56,010,000. 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, 2017, our consolidated mortgages and unsecured indebtedness, excluding related premium, discount and deferred financing costs, net, totaled $9.8 billion. We are subject to the risks normally associated with debt financing, including the risk that our cash flow from operations will be insufficient to meet required debt service. Our debt service costs generally will not be reduced if developments at the property, such as the entry of new competitors or the loss of major tenants, cause a reduction in the income from the property. Should such events occur, our operations may be adversely affected. If a property is mortgaged to secure payment of indebtedness and income from such property is insufficient to pay that indebtedness, the property could be foreclosed upon by the mortgagee resulting in a loss of income and a decline in our total asset value. We have outstanding debt, and the amount of debt and its cost may increase and refinancing may not be available on acceptable terms. We rely on both secured and unsecured, variable rate and non-variable rate debt to finance acquisitions and development activities and for working capital. If we are unable to obtain debt financing or refinance existing indebtedness upon maturity, our financial condition and results of operations would likely be adversely affected.  In addition, the cost of our existing debt may increase, especially in the case of a rising interest rate environment, and we may not be able to refinance our existing debt in sufficient amounts or on acceptable 18                   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 and did so.  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. 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.  19                 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. 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. 20                     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, 2017, Interstate Properties, a New Jersey general partnership, and its partners owned an aggregate of approximately 7.2% of the common shares of Vornado and 26.2% 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. 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, 2017, 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 26.2% of the outstanding common stock of Alexander’s as of December 31, 2017. 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 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 – Chief Financial Officer and Chief Administrative Officer, is the Treasurer of Alexander’s and Matthew Iocco, our Executive Vice President – Chief Accounting Officer, is the Chief Financial Officer of Alexander’s. We manage, develop and lease Alexander’s properties under management and development agreements and leasing agreements under which we receive annual fees from Alexander’s. See 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 continue to 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; 21                 • • • • • • • • • • • • • • 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; changes in tax laws and rules; and all other risk factors addressed elsewhere in this Annual Report on 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, 2017, Vornado had authorized but unissued, 60,016,142 common shares of beneficial interest, $.04 par value and 72,116,023 preferred shares of beneficial interest, no par value; of which 19,666,004 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 and Exchange Commission as of the date of this Annual Report on Form 10-K. 22     ITEM 2.  PROPERTIES We operate in two reportable segments:  New York and Other.  The following pages provide details of our real estate properties as of December 31, 2017. NEW YORK SEGMENT Property One Penn Plaza (ground leased through 2098) 1290 Avenue of the Americas Two Penn Plaza 909 Third Avenue (ground leased through 2063) Independence Plaza, Tribeca (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 Moynihan Train Hall/Farley Building(1) 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 (ground leased through 2098) 7 West 34th Street (1) 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 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 ________________________________________ See notes on page 25. Square Feet Under Development or Not Available for Lease — — — — 12,000 — — — — — — — 850,000 — — — — — — — — — — — — — — — 173,000 147,000 — — — — — — — — — — — — — — — — 34,000 — — % Occupancy In Service 92.5% 100.0% 98.7% 97.6% 97.7% (2) 97.4% 100.0% 99.2% 98.3% 99.1% 97.3% 98.2% n/a 98.1% 2,530,000 2,114,000 1,634,000 1,347,000 1,245,000 1,254,000 1,160,000 1,152,000 961,000 939,000 889,000 855,000 — 846,000 92.6% 100.0% 91.1% 100.0% 94.3% 98.8% 99.6% 91.5% 91.8% 95.1% 97.4% 88.1% 100.0% 100.0% n/a 100.0% 100.0% 100.0% 99.9% 94.7% 100.0% 98.1% 87.9% 91.7% 100.0% 100.0% 100.0% 100.0% 93.6% 100.0% 100.0% 100.0% n/a 100.0% 35.9% (2) 709,000 627,000 593,000 571,000 542,000 479,000 471,000 325,000 314,000 283,000 256,000 251,000 206,000 184,000 — 23,000 169,000 160,000 137,000 129,000 114,000 106,000 103,000 98,000 85,000 78,000 66,000 57,000 50,000 44,000 43,000 36,000 — 26,000 23,000 Total Property 2,530,000 2,114,000 1,634,000 1,347,000 1,257,000 1,254,000 1,160,000 1,152,000 961,000 939,000 889,000 855,000 850,000 846,000 709,000 627,000 593,000 571,000 542,000 479,000 471,000 325,000 314,000 283,000 256,000 251,000 206,000 184,000 173,000 170,000 169,000 160,000 137,000 129,000 114,000 106,000 103,000 98,000 85,000 78,000 66,000 57,000 50,000 44,000 43,000 36,000 34,000 26,000 23,000 % Ownership 100.0% 70.0% 100.0% 100.0% 50.1% 50.0% 100.0% 100.0% 100.0% 55.0% 100.0% 100.0% 50.1% 25.0% 100.0% 49.9% 20.1% 100.0% 100.0% 53.0% 100.0% 100.0% 100.0% 49.9% 100.0% 100.0% 100.0% 100.0% 55.0% 45.1% 51.2% 100.0% 100.0% 100.0% 100.0% 100.0% 50.0% 100.0% 100.0% 100.0% 100.0% 92.5% 100.0% 100.0% 100.0% 100.0% 50.0% 74.3% 100.0% Type Office/Retail Office/Retail Office/Retail Office Retail/Residential Office/Retail Office/Retail Office/Retail Office/Retail Office/Retail Office/Retail Office Office/Retail Office/Retail Office/Retail Office/Retail Office/Retail Office/Retail Office/Retail Office/Retail Office Office/Retail Office/Retail Residential Retail Office/Retail Retail Office Office Office/Retail Office (1) /Retail Retail Office/Retail Office Retail Retail/Theatre Office/Retail Office/Retail Retail/Residential Retail Retail Retail Retail Retail Retail Retail Office/Retail Retail Retail 23 ITEM 2.  PROPERTIES – CONTINUED NEW YORK SEGMENT – CONTINUED Property % Ownership Type % Occupancy In Service 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 339 Greenwich Other (34 units) 100.0% Retail 100.0% Retail/Residential Retail 100.0% Retail 100.0% Retail 100.0% 100.0% Retail 100.0% Retail/Residential 100.0% Retail/Residential 100.0% Retail/Residential Retail 100.0% Retail 100.0% 100.0% Retail 100.0% Retail/Residential Retail 100.0% Retail 100.0% Retail 100.0% Retail 50.0% Retail 100.0% Retail 100.0% Retail 100.0% 100.0% Retail 80.6% Retail/Residential 100.0 % 84.1 % 100.0 % 100.0 % 100.0 % n/a 73.3 % n/a 90.4 % 100.0 % 35.3 % 100.0 % 100.0 % 100.0 % 100.0 % n/a n/a n/a n/a 100.0 % 100.0 % 85.8 % (2) (2) (2) (2) (2) 23,000 23,000 23,000 18,000 16,000 — 15,000 9,000 13,000 10,000 8,000 8,000 7,000 7,000 6,000 — 6,000 — — 3,000 8,000 57,000 Square Feet Under Development or Not Available for Lease Total Property — — — — — 16,000 — 4,000 — — — — — — — 6,000 — 3,000 3,000 — — 36,000 23,000 23,000 23,000 18,000 16,000 16,000 15,000 13,000 13,000 10,000 8,000 8,000 7,000 7,000 6,000 6,000 6,000 3,000 3,000 3,000 8,000 93,000 Hotel Pennsylvania 100.0% Hotel n/a 1,400,000 — 1,400,000 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 25. 32.4% 32.4% 32.4% 32.4% 32.4% 32.4% 32.4% Office/Retail Retail Retail Residential Retail Retail n/a 99.9 % 99.9 % 100.0 % 94.6 % 100.0 % 100.0 % n/a 97.4% 1,063,000 609,000 343,000 255,000 167,000 — — 28,381,000 — — — — — 1,063,000 609,000 343,000 255,000 167,000 — — 1,284,000 — 29,665,000 97.2% 22,478,000 661,000 23,139,000 24 ITEM 2.  PROPERTIES – CONTINUED OTHER SEGMENT 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 ("Fund")(3) : Crowne Plaza Times Square, NY Lucida, 86th Street and Lexington Avenue, NY (ground leased through 2082) 11 East 68th Street Retail, NY 501 Broadway, NY 1100 Lincoln Road, Miami, FL Total Real Estate Fund Our Ownership Interest Other: 666 Fifth Avenue Office Condominium(1) Rosslyn Plaza(1) Wayne Towne Center, Wayne (ground leased through 2064) Annapolis (ground leased through 2042) Fashion Centre Mall(1) Washington Tower(1) Total Other % Ownership Type % Occupancy In Service 100.0 % 50.0 % Office/Retail/ Showroom Retail 70.0 % 70.0 % 70.0 % Office Office/Retail Office/Retail 98.6 % 100.0 % 98.6% 3,670,000 19,000 3,689,000 98.6% 3,680,000 96.2 % 81.7 % n/a 94.2% 94.2% 1,506,000 235,000 — 1,741,000 1,219,000 75.3 % Office/Retail/ Hotel 68.9 % 241,000 100 % Retail/Residential 100 % 100 % 100 % Retail Retail Retail/Theatre (2) 100.0 % 100.0 % 100.0 % 90.2 % 83.8% 80.2% 155,000 11,000 9,000 128,000 544,000 155,000 Square Feet Under Development or Not Available for Lease — — — — — — 64,000 64,000 Total Property 3,670,000 19,000 3,689,000 3,680,000 1,506,000 235,000 64,000 1,805,000 45,000 1,264,000 — — — — 2,000 2,000 1,000 241,000 155,000 11,000 9,000 130,000 546,000 156,000 49.5 % Office/Retail 46.2 % Office/Residential n/a 65.9 % (2) — 688,000 1,448,000 301,000 1,448,000 989,000 100 % 100 % 7.5 % 7.5 % Retail 100.0 % 671,000 6,000 677,000 Retail Retail Office 100.0 % 99.4 % 100.0 % 93.2% 128,000 868,000 170,000 2,525,000 — — 128,000 868,000 — 170,000 1,755,000 — 4,280,000 Our Ownership Interest ________________________________________ (1) Denotes property not consolidated in the accompanying consolidated financial statements and related financial data included in the Annual Report on Form 10-K. (2) 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. 1,188,000 2,050,000 862,000 93.6% 25 NEW YORK As of December 31, 2017, our New York segment consisted of 28.4 million square feet in 88 properties.  The 28.4 million square feet is comprised of 20.3 million square feet of office in 36 properties, 2.7 million square feet of retail in 71 properties, 2,018 units in twelve residential properties, the 1.4 million square foot Hotel Pennsylvania, and our 32.4% interest in 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, 2017, the occupancy rate for our New York segment was 97.2%. Occupancy and weighted average annual rent per square foot (in service): Office: Retail: As of December 31, 2017 2016 2015 2014 2013 As of December 31, 2017 2016 2015 2014 2013 Total Property Square Feet 20,256,000 20,227,000 19,918,000 18,785,000 17,373,000 Total Property Square Feet 2,720,000 2,672,000 2,596,000 2,436,000 2,303,000 Vornado's Ownership Interest Square Feet Occupancy Rate Weighted Average Annual Rent Per Square Foot 16,982,000 16,962,000 16,734,000 15,730,925 14,625,000 97.1% $ 96.3% 97.1% 97.7% 96.9% 71.09 68.90 66.42 65.31 61.71 Vornado's Ownership Interest Square Feet Occupancy Rate Weighted Average Annual Rent Per Square Foot 2,471,000 2,464,000 2,396,000 2,176,000 2,103,225 96.9% $ 97.1% 96.1% 96.4% 97.5% 217.17 213.85 202.72 173.55 162.27 Occupancy and average monthly rent per unit (in service): Residential: As of December 31, Number of Units Number of Units Vornado's Ownership Interest Occupancy Rate Average Monthly Rent Per Unit 2017 2016 (1) 2015 2014 2013 2,009 2,004 1,711 1,678 1,672 981 977 886 855 847 96.7% $ 95.7% 95.0% 95.2% 94.8% 3,722 3,576 3,495 3,146 2,920 ________________________________________ (1) Includes The Alexander Apartment Tower (32.4% ownership) from the date of stabilization in the third quarter of 2016. 26     NEW YORK – CONTINUED Tenants accounting for 2% or more of revenues: Tenant IPG and affiliates Swatch Group USA AXA Equitable Life Insurance Macy's Victoria's Secret 2017 rental revenue by tenants’ industry: Industry Office: Financial Services Real Estate Family Apparel Communications Advertising/Marketing Legal Services Technology Insurance Publishing Government Engineering, Architect & Surveying Banking Home Entertainment & Electronics Health Services Pharmaceutical Other Women's Apparel Family Apparel Luxury Retail Restaurants Banking Department Stores Discount Stores Other Retail: Total Square Feet Leased 2017 Revenues $ 924,000 32,000 481,000 646,000 64,000 58,826,000 56,140,000 41,180,000 41,142,000 34,734,000 Percentage of New York Total Revenues Percentage of Total Revenues 3.3% 3.2% 2.3% 2.3% 2.0% 2.8% 2.7% 2.0% 2.0% 1.7% Percentage 13% 7% 6% 5% 5% 5% 5% 4% 3% 2% 2% 2% 2% 1% 1% 8% 71% 8% 7% 5% 2% 1% 1% 1% 4% 29% 100% 27 NEW YORK – CONTINUED Lease expirations as of December 31, 2017, assuming none of the tenants exercise renewal options: Year Number of Expiring Leases Square Feet of Expiring Leases Percentage of New York Square Feet Weighted Average Annual Rent of Expiring Leases Total Per Square Foot (1) (2) $ $ 13 89 89 117 122 86 81 82 51 72 57 0.4% 5.5% 4.6% 8.6% 7.1% 4.9% 12.3% 7.9% 4.9% 8.4% 6.1% 73,000 896,000 750,000 1,394,000 1,160,000 792,000 2,001,000 1,292,000 800,000 1,376,000 996,000 3,086,000 66,949,000 51,029,000 96,261,000 85,881,000 48,215,000 152,874,000 101,263,000 58,916,000 101,555,000 68,674,000 Office: Month to month 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Retail: Month to month 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 ________________________________________ (1) Based on current market conditions, we expect to re-lease this space at weighted average rents between $75 to $80 per square foot. (2) Excludes 492,000 square feet leased at 909 Third Avenue to the U.S. Post Office through 2038 (including three 5-year renewal options) for which the annual escalated 3,461,000 28,157,000 35,085,000 10,388,000 11,613,000 4,913,000 38,199,000 63,852,000 17,777,000 42,626,000 21,204,000 97,000 96,000 204,000 69,000 67,000 19,000 90,000 155,000 41,000 135,000 31,000 35.68 293.30 171.99 150.55 173.33 258.58 424.43 411.95 433.59 315.75 684.00 5.1% 5.0% 10.6% 3.6% 3.5% 1.0% 4.7% 8.1% 2.1% 7.0% 1.6% 42.27 74.72 68.04 69.05 74.04 60.88 76.40 78.38 73.65 73.80 68.95 19 25 27 19 18 9 16 20 11 18 10 $ $ (3) rent is $12.31 per square foot. (3) Based on current market conditions, we expect to re-lease this space at weighted average rents between $270 to $290 per square foot. Alexander’s As of December 31, 2017, 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 $1.24 billion of outstanding debt, net, at December 31, 2017, of which our pro rata share was $401.8 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. 2017 2016 2015 2014 2013 Year Ended December 31, Hotel Pennsylvania: Average occupancy rate Average daily rate Revenue per available room $ $ 87.3% 139.09 121.46 $ $ 84.7% 134.38 113.84 $ $ 90.7% 147.46 133.69 $ $ 92.0% 162.01 149.04 $ $ 93.4% 158.01 147.63 28 OTHER INVESTMENTS theMART As of December 31, 2017, 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, 2017, theMART had an occupancy rate of 98.6% and a weighted average annual rent per square foot of $42.15. 555 California Street As of December 31, 2017, 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 $569,215,000 mortgage loan that bears interest at a fixed rate of 5.10% and matures in September 2021.  As of December 31, 2017, 555 California Street had an occupancy rate of 94.2% and a weighted average annual rent per square foot of $73.40. 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, 2017, we own a 25.0% interest in the Fund which currently has five 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, 2017, these five investments are carried on our consolidated balance sheet at an aggregate fair value of $354,804,000, including the Crowne Plaza Joint Venture.  As of December 31, 2017, our share of unfunded commitments was $34,502,000. 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. 29   PART II ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Vornado Realty Trust 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, 2017 and 2016 were as follows: Year Ended December 31, 2017 Year Ended December 31, 2016 Quarter 1st 2nd 3rd 4th High Low Dividends High Low Dividends $ $ 111.72 103.35 97.25 80.30 (1) $ 98.51 91.18 72.77 (1) 71.90 (1) $ 0.71 0.71 0.60 (1) 0.60 (1) $ 99.97 100.13 108.69 105.91 $ 78.91 90.13 97.18 86.35 0.63 0.63 0.63 0.63 ____________________ (1) Reflects the July 17, 2017 spin-off of JBG SMITH Properties ("JBGS") (NYSE: JBGS). As of February 1, 2018, there were 993 holders of record of Vornado common shares.  Vornado Realty L.P. There is no established trading market for the Operating Partnership's Class A units or preferred units. The following table sets forth, for the periods indicated, the distributions declared on the Operating Partnership's Class A units: Quarter 1st 2nd 3rd 4th ____________________ (1) Reflects the July 17, 2017 spin-off of JBG SMITH Properties ("JBGS") (NYSE: JBGS). As of February 1, 2018, there were 984 Class A unitholders of record. Recent Sales of Unregistered Securities Declared Distributions Year ended December 31, 2017 2016 $ $ 0.71 0.71 0.60 (1) 0.60 (1) 0.63 0.63 0.63 0.63 During 2017, the Operating Partnership issued 1,213,237 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 $29,720,215 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 None. 30                   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, 2012 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 $225 $200 $175 $150 $125 $100 $75 2012 2013 2014 2015 2016 2017 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 $ 115 132 103 $ 156 151 132 $ 150 153 135 $ 161 171 147 154 208 160 2012 2013 2014 2015 2016 2017 31      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 Acquisition and transaction related costs Total expenses Operating income Income (loss) from partially owned entities Income (loss) from real estate fund investments Interest and other investment income (loss), net Interest and debt expense Net gains on disposition of wholly owned and partially owned assets Income (loss) before income taxes Income tax (expense) benefit Income (loss) from continuing operations (Loss) 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: 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 $ $ $ 2017 1,714,952 233,424 — 135,750 2,084,126 886,596 429,389 158,999 — 1,776 1,476,760 607,366 15,200 3,240 37,793 (345,654) 501 318,446 (41,090) 277,356 (13,228) 264,128 (25,802) (10,910) 227,416 (65,399) — 162,017 0.92 0.91 0.85 0.85 2.62 (1) Balance Sheet Data: Total assets Real estate, at cost Accumulated depreciation and amortization Debt, net Total equity ____________________ (1) Post spin-off of JBG SMITH Properties (NYSE: JBGS) on July 17, 2017. (2) Post spin-off of Urban Edge Properties (NYSE: UE) on January 15, 2015. $ 17,397,934 14,756,295 (2,885,283) 9,729,487 5,007,701 Year Ended December 31, 2015 2016 2014 2013 $ $ $ $ $ $ $ $ 1,662,093 221,563 — 120,086 2,003,742 844,566 421,023 149,550 — 9,451 1,424,590 579,152 168,948 (23,602) 29,548 (330,240) 160,433 584,239 (7,229) 577,010 404,912 981,922 (21,351) (53,654) 906,917 (75,903) (7,408) 823,606 2.35 2.34 4.36 4.34 2.52 20,814,847 14,187,820 (2,581,514) 9,446,670 7,618,496 1,626,866 218,739 — 139,890 1,985,495 824,511 379,803 149,256 — 12,511 1,366,081 619,414 (9,947) 74,081 27,240 (309,298) 149,417 550,907 85,012 635,919 223,511 859,430 (55,765) (43,231) 760,434 (80,578) — 679,856 2.49 2.48 3.61 3.59 2.52 (2) 21,143,293 13,545,295 (2,356,728) 9,095,670 7,476,078 $ $ $ $ $ $ $ $ 1,460,391 203,120 — 128,657 1,792,168 768,341 351,583 141,931 — 18,435 1,280,290 511,878 (58,484) 163,034 38,569 (337,360) 13,568 331,205 (9,039) 322,166 686,860 1,009,026 (96,561) (47,613) 864,852 (81,464) — 783,388 0.73 0.72 4.18 4.15 2.92 21,157,980 12,438,940 (2,209,778) 7,557,877 7,489,382 1,422,828 184,161 36,369 132,340 1,775,698 748,010 337,139 150,306 32,210 24,857 1,292,522 483,176 (336,292) 102,898 (25,016) (323,505) 2,030 (96,709) (5,314) (102,023) 666,763 564,740 (63,952) (24,817) 475,971 (82,807) (1,130) 392,034 (1.25) (1.25) 2.10 2.09 2.92 20,018,210 11,149,920 (1,958,132) 6,830,994 7,594,744 32 Item 6.  SELECTED FINANCIAL DATA – CONTINUED Vornado Realty Trust (Amounts in thousands) Other Data: Funds From Operations ("FFO")(1): 2017 Year Ended December 31, 2015 2014 2016 2013 Net income attributable to common shareholders $ 162,017 $ 823,606 $ 679,856 $ 783,388 $ 392,034 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 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) 467,966 (3,489) — 137,000 (17,777) 7,692 — 591,392 (36,728) 554,664 716,681 77 1,047 531,620 (177,023) 160,700 514,085 (289,117) 256 517,493 (507,192) 26,518 501,753 (411,593) 37,170 154,795 (2,853) 6,328 — 673,567 (41,267) 632,300 143,960 (4,513) 16,758 — 381,429 (22,342) 359,087 1,455,906 86 1,591 1,038,943 92 — 117,766 (11,580) — (7,287) 135,718 (8,073) 127,645 911,033 97 — 157,270 (465) 6,552 (26,703) 263,984 (15,089) 248,895 640,929 108 — $ 717,805 $ 1,457,583 $ 1,039,035 $ 911,130 $ 641,037 ________________________________________ (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. 33 Item 6.  SELECTED FINANCIAL DATA – CONTINUED Vornado Realty L.P. (Amounts in thousands) Operating Data: Revenues: Property rentals Tenant expense reimbursements Cleveland Medical Mart development project Fee and other income Total revenues Expenses: Operating Depreciation and amortization General and administrative Cleveland Medical Mart development project Acquisition and transaction related costs Total expenses Operating income Income (loss) from partially owned entities Income (loss) from real estate fund investments Interest and other investment income (loss), net Interest and debt expense Net gains on disposition of wholly owned and partially owned assets Income (loss) before income taxes Income tax (expense) benefit Income (loss) from continuing operations (Loss) 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: 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 Balance Sheet Data: Total assets Real estate, at cost Accumulated depreciation and amortization Debt, net Total equity 2017 Year Ended December 31, 2015 2016 2014 2013 $ $ $ $ 1,714,952 233,424 — 135,750 2,084,126 886,596 429,389 158,999 — 1,776 1,476,760 607,366 15,200 3,240 37,793 (345,654) 501 318,446 (41,090) 277,356 (13,228) 264,128 (25,802) 238,326 (65,593) — 172,733 0.91 0.90 0.84 0.83 2.62 (1) 17,397,934 14,756,295 (2,885,283) 9,729,487 5,007,701 $ $ $ $ $ $ $ $ 1,662,093 221,563 — 120,086 2,003,742 844,566 421,023 149,550 — 9,451 1,424,590 579,152 168,948 (23,602) 29,548 (330,240) 160,433 584,239 (7,229) 577,010 404,912 981,922 (21,351) 960,571 (76,097) (7,408) 877,066 2.34 2.32 4.36 4.32 2.52 20,814,847 14,187,820 (2,581,514) 9,446,670 7,618,496 1,626,866 218,739 — 139,890 1,985,495 824,511 379,803 149,256 — 12,511 1,366,081 619,414 (9,947) 74,081 27,240 (309,298) 149,417 550,907 85,012 635,919 223,511 859,430 (55,765) 803,665 (80,736) — 722,929 2.49 2.46 3.61 3.57 2.52 (2) 21,143,293 13,545,295 (2,356,728) 9,095,670 7,476,078 $ $ $ $ $ $ $ $ 1,460,391 203,120 — 128,657 1,792,168 768,341 351,583 141,931 — 18,435 1,280,290 511,878 (58,484) 163,034 38,569 (337,360) 13,568 331,205 (9,039) 322,166 686,860 1,009,026 (96,561) 912,465 (81,514) — 830,951 0.71 0.70 4.17 4.14 2.92 21,157,980 12,438,940 (2,209,778) 7,557,877 7,489,382 1,422,828 184,161 36,369 132,340 1,775,698 748,010 337,139 150,306 32,210 24,857 1,292,522 483,176 (336,292) 102,898 (25,016) (323,505) 2,030 (96,709) (5,314) (102,023) 666,763 564,740 (63,952) 500,788 (83,965) (1,130) 415,693 (1.27) (1.26) 2.09 2.08 2.92 20,018,210 11,149,920 (1,958,132) 6,830,994 7,594,744 ________________________________________ (1) Post spin-off of JBG SMITH (NYSE: JBGS) on July 17, 2017. (2) Post spin-off of Urban Edge Properties (NYSE: UE) on January 15, 2015. 34 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Overview - Leasing activity Critical Accounting Policies Net Operating Income by Segment for the Years Ended December 31, 2017, 2016 and 2015 Results of Operations: Year Ended December 31, 2017 Compared to December 31, 2016 Year Ended December 31, 2016 Compared to December 31, 2015 Supplemental Information: Net Operating Income by Segment for the Three Months Ended December 31, 2017 and 2016 Three Months Ended December 31, 2017 Compared to December 31, 2016 Three Months Ended December 31, 2017 Compared to September 30, 2017 Related Party Transactions Liquidity and Capital Resources Financing Activities and Contractual Obligations Certain Future Cash Requirements Cash Flows for the Year Ended December 31, 2017 Cash Flows for the Year Ended December 31, 2016 Cash Flows for the Year Ended December 31, 2015 Funds From Operations for the Three Months and Years Ended December 31, 2017 and 2016 Page Number 36 44 47 50 53 60 67 70 75 77 78 79 81 85 87 89 91 35 Overview Vornado Realty Trust (“Vornado”) is a fully‑integrated real estate investment trust (“REIT”) and conducts its business through, and substantially all of its interests in properties are held by, Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”). Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors.  Vornado is the sole general partner of, and owned approximately 93.5% of the common limited partnership interest in the Operating Partnership as of December 31, 2017.  All references to the “Company,” “we,” “us” and “our” mean collectively Vornado, the Operating Partnership and those entities/ subsidiaries consolidated by Vornado. On July 17, 2017, we completed the spin-off of our Washington, DC segment comprised of (i) 37 office properties totaling over 11.1 million square feet, five multifamily properties with 3,133 units and five other assets totaling approximately 406,000 square feet and (ii) 18 future development assets totaling over 10.4 million square feet of estimated potential development density, and (iii) $412.5 million of cash ($275.0 million plus The Bartlett financing proceeds less transaction costs and other mortgage items) to JBG SMITH Properties (“JBGS”). On July 18, 2017, JBGS was combined with the management business and certain Washington, DC assets of The JBG Companies (“JBG”), a Washington, DC real estate company. Steven Roth, the Chairman of the Board of Trustees and Chief Executive Officer of Vornado, is the Chairman of the Board of Trustees of JBGS. Mitchell Schear, former President of our Washington, DC business, is a member of the Board of Trustees of JBGS. We are providing transition services to JBGS initially including information technology, financial reporting and payroll services. The spin-off was effected through a tax-free distribution by Vornado to the holders of Vornado common shares of all of the common shares of JBGS at the rate of one JBGS common share for every two common shares of Vornado and the distribution by the Operating Partnership to the holders of its common units of all of the outstanding common units of JBG SMITH Properties LP (“JBGSLP”) at the rate of one JBGSLP common unit for every two common units of VRLP held of record. See JBGS’ Amendment No. 3 on Form 10 (File No. 1-37994) filed with the Securities and Exchange Commission on June 9, 2017 for additional information. Beginning in the third quarter of 2017, the historical financial results of our Washington, DC segment are reflected in our consolidated financial statements as discontinued operations for all periods presented. We own and operate office and retail properties with a large concentration in the New York City metropolitan 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, 2017: Three-month One-year Three-year Five-year Ten-year ____________________ Vornado Total Return(1) Office REIT MSCI 2.5 % (4.3)% (1.4)% 54.3 % 75.7 % 4.3% 5.3% 19.5% 58.7% 70.1% 1.4% 5.1% 17.0% 56.3% 105.1% (1) Past performance is not necessarily indicative of future performance. 36       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, 2017 Financial Results Summary Net income attributable to common shareholders for the year ended December 31, 2017 was $162,017,000, or $0.85 per diluted share, compared to $823,606,000, or $4.34 per diluted share, for the year ended December 31, 2016.  The years ended December 31, 2017 and 2016 include certain items that impact net income attributable to common shareholders, which are listed in the table on the following page.  The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased net income attributable to common shareholders for the year ended December 31, 2017 by $88,934,000, or $0.46 per diluted share, and increased net income attributable to common shareholders for the year ended December 31, 2016 by $594,447,000, or $3.13 per diluted share. Funds From Operations attributable to common shareholders plus assumed conversions (“FFO”) for the year ended December 31, 2017 was $717,805,000, or $3.75 per diluted share, compared to $1,457,583,000, or $7.66 per diluted share, for the year ended December 31, 2016.  The years ended December 31, 2017 and 2016 include certain items that impact FFO, which are listed in the table on page 39. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO by $3,989,000 and $774,188,000, or $0.02 and $4.07 per diluted share, for the years ended December 31, 2017 and 2016, respectively. 37                Overview - continued Vornado Realty Trust – continued Quarter Ended December 31, 2017 Financial Results Summary Net income attributable to common shareholders for the quarter ended December 31, 2017 was $27,319,000, or $0.14 per diluted share, compared to $651,181,000, or $3.43 per diluted share, for the prior year’s quarter.  The quarters ended December 31, 2017 and 2016 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, decreased net income attributable to common shareholders for the quarter ended December 31, 2017 by $38,160,000, or $0.20 per diluted share, and increased net income attributable to common shareholders for the quarter ended December 31, 2016 by $573,414,000, or $3.02 per diluted share. FFO for the quarter ended December 31, 2017 was $153,151,000, or $0.80 per diluted share, compared to $797,734,000, or $4.20 per diluted share, for the prior year’s quarter.  The quarters ended December 31, 2017 and 2016 include certain items that impact FFO, which are listed in the table on the following page.  The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO for the quarter ended December 31, 2017 by $34,402,000, or $0.18 per diluted share and increased FFO for the quarter ended December 31, 2016 by $604,495,000, or $3.18 per diluted share. (Amounts in thousands) Certain items that impact net income attributable to common shareholders: JBG SMITH Properties which is treated as a discontinued operation: Transaction costs Operating results through July 17, 2017 spin-off Impairment loss on our investment in Pennsylvania REIT Tax expense related to the reduction of our taxable REIT subsidiaries deferred tax assets 666 Fifth Avenue Office Condominium (49.5% interest)(1) Net gain resulting from Urban Edge Properties operating partnership unit issuances Our share of net gain on sale of property of Suffolk Downs JV Net gain on repayment of Suffolk Downs JV debt investments (Loss) income from real estate fund investments, net Expense related to the prepayment of our 2.50% senior unsecured notes due 2019 Our share of write-off of deferred financing costs 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 gain on sale of 47% ownership interest in 7 West 34th Street Gain on sale of our 20% interest in Fairfax Square Our share of impairment on India non-depreciable real estate Default interest on Skyline properties mortgage loan Preferred share issuance costs (Series J redemption) Other Noncontrolling interests' share of above adjustments Total of certain items that impact net (loss) income attributable to common shareholders, net For the Year Ended December 31, For the Three Months Ended December 31, 2017 2016 2017 2016 $ (68,662) $ (16,586) $ (1,617) $ (11,989) 47,752 (20,910) (44,465) (34,800) (25,414) 21,100 15,314 11,373 (10,804) (4,836) (3,819) — — — — — — — — 2,060 (95,201) 6,267 87,237 70,651 — — (41,532) — — — (21,042) — — 487,877 160,843 (160,700) 159,511 15,302 (13,962) (7,823) (7,408) (8,298) 633,419 (38,972) — (1,617) — (34,800) (3,042) — — — 529 (4,836) — — — — — — — — — 3,084 (40,682) 2,522 20,523 8,534 — — (7,869) — — — (34,704) — — 487,877 160,843 — — 15,302 (13,962) (2,480) — (2,942) 610,599 (37,185) $ (88,934) $ 594,447 $ (38,160) $ 573,414 ________________________________________ (1) Included in "certain items that impact net income" because we do not intend to hold this asset on a long-term basis. 38     Overview - continued Vornado Realty Trust – continued (Amounts in thousands) Certain items that impact FFO: JBG SMITH Properties which is treated as a discontinued operation: Transaction costs Operating results through July 17, 2017 spin-off Impairment loss on our investment in Pennsylvania REIT Tax expense related to the reduction of our taxable REIT subsidiaries deferred tax assets Net gain resulting from Urban Edge Properties operating partnership unit issuances 666 Fifth Avenue Office Condominium (49.5% interest)(1) Net gain on repayment of our Suffolk Downs JV debt investments (Loss) income from real estate fund investments, net Expense related to the prepayment of our 2.50% senior unsecured notes due 2019 Our share of write-off of deferred financing costs Net gain on extinguishment of Skyline properties debt Income from the repayment of our investments in 85 Tenth Avenue loans and preferred equity Our share of impairment on India non-depreciable real estate Preferred share issuance costs (Series J redemption) Other Noncontrolling interests' share of above adjustments Total certain items that impact FFO, net For the Year Ended December 31, For the Three Months Ended December 31, 2017 2016 2017 2016 $ (68,662) $ (16,586) $ (1,617) $ (11,989) 122,201 53,539 (44,465) (34,800) 21,100 13,164 11,373 (10,804) (4,836) (3,819) — — — — 3,801 4,253 (264) 226,288 209,702 — — — 10,925 — (21,042) — — 487,877 160,843 (13,962) (7,408) (2,454) 824,481 (50,293) — (1,617) — (34,800) — 1,103 — 529 (4,836) — — — — — 2,945 (36,676) 2,274 $ 3,989 $ 774,188 $ (34,402) $ 57,147 45,158 — — — 808 — (34,704) — — 487,877 160,843 (13,962) — (2,324) 643,696 (39,201) 604,495 ________________________________________ (1) Included in "certain items that impact FFO" because we do not intend to hold this asset on a long-term basis. Vornado Realty L.P. Year Ended December 31, 2017 Financial Results Summary Net income attributable to Class A unitholders for the year ended December 31, 2017 was $172,733,000, or $0.83 per diluted Class A unit, compared to $877,066,000, or $4.32 per diluted Class A unit, for the year ended December 31, 2016.   The year ended December 31, 2017 and 2016 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 decreased net income attributable to Class A unitholders by $95,201,000, or $0.47 per diluted Class A unit, for the year ended December 31, 2017 and increased net income attributable to Class A unitholders by $633,419,000, or $3.14 per diluted Class A unit, for the year ended December 31, 2016. Quarter Ended December 31, 2017 Financial Results Summary Net income attributable to Class A unitholders for the quarter ended December 31, 2017 was $29,123,000, or $0.14 per diluted Class A unit, compared to $693,377,000, or $3.43 per diluted Class A unit, for the prior year’s quarter.  The quarters ended December 31, 2017 and 2016 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 decreased net income attributable to Class A unitholders by $40,682,000, or $0.20 per diluted Class A unit, for the quarter ended December 31, 2017 and increased net income attributable to Class A unitholders by $610,599,000, or $3.02 per diluted Class A unit, for the quarter ended December 31, 2016. 39           Overview - continued Vornado Realty L.P. – continued (Amounts in thousands) Certain items that impact net income attributable to Class A unitholders: JBG SMITH Properties which is treated as a discontinued operation: Transaction costs Operating results through July 17, 2017 spin-off Impairment loss on our investment in Pennsylvania REIT Tax expense related to the reduction of our taxable REIT subsidiaries deferred tax assets 666 Fifth Avenue Office Condominium (49.5% interest)(1) Net gain resulting from Urban Edge Properties operating partnership unit issuances Our share of net gain on sale of property of Suffolk Downs JV Net gain on repayment of Suffolk Downs JV debt investments (Loss) income from real estate fund investments, net Expense related to the prepayment of our 2.50% senior unsecured notes due 2019 Our share of write-off of deferred financing costs 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 gain on sale of 47% ownership interest in 7 West 34th Street Gain on sale of our 20% interest in Fairfax Square Our share of impairment on India non-depreciable real estate Default interest on Skyline properties mortgage loan Preferred unit issuance costs (Series J redemption) Other For the Year Ended December 31, For the Three Months Ended December 31, 2017 2016 2017 2016 $ (68,662) $ (16,586) $ (1,617) $ (11,989) 47,752 (20,910) (44,465) (34,800) (25,414) 21,100 15,314 11,373 (10,804) (4,836) (3,819) — — — — — — — — 2,060 87,237 70,651 — — (41,532) — — — (21,042) — — 487,877 160,843 (160,700) 159,511 15,302 (13,962) (7,823) (7,408) (8,298) — (1,617) — (34,800) (3,042) — — — 529 (4,836) — — — — — — — — — 3,084 20,523 8,534 — — (7,869) — — — (34,704) — — 487,877 160,843 — — 15,302 (13,962) (2,480) — (2,942) ________________________________________ (1) Included in "certain items that impact net income" because we do not intend to hold this asset on a long-term basis. $ (95,201) $ 633,419 $ (40,682) $ 610,599 40 Overview - continued Vornado Realty Trust and Vornado Realty L.P. Same Store Net Operating Income ("NOI") The percentage increase (decrease) in same store NOI and same store NOI - cash basis of our New York segment, theMART and 555 California Street are summarized below. Same store NOI at share % increase (decrease): Year ended December 31, 2017 compared to December 31, 2016 Year ended December 31, 2016 compared to December 31, 2015 Three months ended December 31, 2017 compared to December 31, 2016 Three months ended December 31, 2017 compared to September 30, 2017 Same store NOI at share - cash basis % increase (decrease): Year ended December 31, 2017 compared to December 31, 2016 Year ended December 31, 2016 compared to December 31, 2015 Three months ended December 31, 2017 compared to December 31, 2016 Three months ended December 31, 2017 compared to September 30, 2017 New York theMART 555 California Street 2.7% 6.4% 2.8% 1.8% 11.3% 8.5% 7.0% 1.7% 4.2 % (1) 14.0 % (2) 7.1 % (7.1)% (3) 7.6 % (1) 12.4 % (2) 13.7 % (4.4)% (3) 1.9 % (9.3)% 10.4 % 4.2 % 36.0 % (12.2)% 32.4 % 9.4 % ________________________________________ (1) The year ended December 31, 2016 includes a $2,000,000 reversal of an expense accrued in 2015. Excluding this amount, same store NOI increased by 6.4% and same store NOI - cash basis increased by 10.0%. (2) The year ended December 31, 2016 includes a $2,000,000 reversal of an expense accrued in 2015. Excluding this amount, same store NOI increased by 11.7% and same store NOI - cash basis increased by 9.9%. (3) Excluding tradeshows seasonality, same store NOI increased by 0.3% and same store NOI - cash basis increased by 3.9%. Calculations of same store NOI, reconciliations of our net income to NOI, NOI - cash basis 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. 41     Overview - continued Acquisitions In September 2016, our 50.1% joint venture with the Related Companies (“Related”) was designated by Empire State Development (“ESD”), an entity of New York State, to redevelop the historic Farley Post Office building. The building will include a new Moynihan Train Hall and approximately 850,000 rentable square feet of commercial space, comprised of approximately 730,000 square feet of office space and approximately 120,000 square feet of retail space. On June 15, 2017, the joint venture closed a 99-year, triple-net lease with ESD for the commercial space at the Moynihan Office Building and made a $230,000,000 upfront contribution, of which our share is $115,230,000, towards the construction of the train hall. The lease calls for annual rent payments of $5,000,000 plus payments in lieu of real estate taxes. Simultaneously, the joint venture completed a $271,000,000 loan facility, of which $210,269,000 is outstanding at December 31, 2017. The interest-only loan is at LIBOR plus 3.25% (4.64% at December 31, 2017) and matures in June 2019 with two one-year extension options. The joint venture has also entered into a development agreement with ESD and a design-build contract with Skanska Moynihan Train Hall Builders. Under the development agreement with ESD, the joint venture is obligated to build the Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture’s obligations. Under the design-build agreement, Skanska Moynihan Train Hall Builders is obligated to fulfill all of the joint venture’s obligations. The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bears a full guaranty from Skanska AB. Dispositions On May 26, 2017, Sterling Suffolk Racecourse, LLC ("Suffolk Downs JV"), a joint venture in which we have a 21.2% equity interest, sold the property comprising the Suffolk Downs racetrack in East Boston, Massachusetts (“Suffolk Downs”) for $155,000,000, which resulted in net proceeds and a net gain to us of $15,314,000. In addition, we were repaid $29,318,000 of principal and $6,129,000 of accrued interest on our debt investments in Suffolk Downs JV, resulting in a net gain of $11,373,000.  On September 29, 2017, Vornado Capital Partners Real Estate Fund (the "Fund"), in which we have a 25.0% ownership interest, completed the sale of 800 Corporate Pointe in Culver City, CA for $148,000,000. From the inception of this investment through its disposition, the Fund realized a $35,620,000 net gain. During 2017, India Property Fund, in which we had a 36.5% interest, sold its investments. Our share of the aggregate sales price was approximately $23,895,000 which resulted in a financial statement loss of $533,000. In addition, on December 28, 2017, we sold our 25% interest in TCG Urban Infrastructure Holdings Private Limited for $18,742,000 which resulted in a financial statement gain of $1,885,000, which substantially completes the disposition of our investments in India. Financings Unsecured Revolving Credit Facility On October 17, 2017, we extended one of our two $1.25 billion unsecured revolving credit facilities from November 2018 to January 2022 with two six-month extension options. The interest rate on the extended facility was lowered from LIBOR plus 1.05% to LIBOR plus 1.00%. The interest rate and facility fees are the same as our other $1.25 billion unsecured revolving credit facility, which matures in February 2021 with two six-month extension options. Senior Unsecured Notes On December 27, 2017, we completed a public offering of $450,000,000 3.50% senior unsecured notes due January 15, 2025. The interest rate on the senior unsecured notes will be payable semi-annually on January 15 and July 15, commencing July 15, 2018. The notes were sold at 99.596% of their face amount to yield 3.565%. On December 27, 2017, we redeemed all of the $450,000,000 principal amount of our outstanding 2.50% senior unsecured notes which were scheduled to mature on June 30, 2019, at a redemption price of approximately 100.71% of the principal amount plus accrued interest through the date of redemption. In connection therewith, we expensed $4,836,000 of debt prepayment costs and wrote-off unamortized deferred financing costs which are included in "interest and debt expense" on our consolidated statements of income. 42     Overview - continued Financings - continued Preferred Securities In December 2017, we sold 12,780,000 5.25% Series M cumulative redeemable preferred shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement. We received aggregate net proceeds of $309,609,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to the Operating Partnership in exchange for 12,780,000 5.25% Series M preferred units (with economic terms that mirror those of the Series M preferred shares). Dividends on the Series M preferred shares/units are cumulative and payable quarterly in arrears. The Series M preferred shares/units are not convertible into, or exchangeable for, any of our properties or securities. On or after five years from the date of issuance (or sooner under limited circumstances), we may redeem the Series M preferred shares/units at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption. The Series M preferred shares/units have no maturity date and will remain outstanding indefinitely unless redeemed by us. In December 2017, we called for redemption of all of the outstanding 6.625% Series G and 6.625% Series I cumulative redeemable preferred shares/units. As a result, as of December 31, 2017, we reclassed the 6.625% Series G and 6.625% Series I cumulative redeemable preferred shares/units from shareholder's equity/partner's capital to liabilities on our consolidated balance sheets. On January 4, 2018, we redeemed all of the outstanding 6.625% Series G cumulative redeemable preferred shares/units at their redemption price of $25.00 per share/unit, or $200,000,000 in the aggregate, plus accrued and unpaid dividends/distributions through the date of redemption. On January 4 and 11, 2018, we redeemed 6,000,000 shares/units and 4,800,000 shares/units, respectively, representing all of the outstanding 6.625% Series I cumulative redeemable preferred shares/units at their redemption price of $25.00 per share/unit, or $270,000,000 in the aggregate, plus accrued and unpaid dividends/distributions through the date of redemption. Upon redemption of both series, we expensed $14,486,000 of issuance costs, which will be included in the quarter ended March 31, 2018 consolidated statements of income. Other Activities On May 9, 2017, a $150,000,000 mezzanine loan owned by a joint venture in which we had a 33.3% ownership interest was repaid at its maturity and we received our $50,000,000 share. The mezzanine loan earned interest at LIBOR plus 9.42%. On June 1, 2017, Alexander’s, Inc. (NYSE: ALX), in which we have a 32.4% ownership interest, completed a $500,000,000 refinancing of the office portion of 731 Lexington Avenue. The interest-only loan is at LIBOR plus 0.90% (2.38% at December 31, 2017) and matures in June 2020 with four one-year extension options. In connection therewith, Alexander’s purchased an interest rate cap with a notional amount of $500,000,000 that caps LIBOR at a rate of 6.00%. The property was previously encumbered by a $300,000,000 interest-only mortgage at LIBOR plus 0.95% which was scheduled to mature in March 2021. On June 15, 2017, the joint venture, in which we have a 50.1% interest, completed a $271,000,000 loan facility for the Moynihan Office Building, of which $210,269,000 is outstanding at December 31, 2017. The interest-only loan is at LIBOR plus 3.25% (4.64% at December 31, 2017) and matures in June 2019 with two one-year extension options. On June 20, 2017, we completed a $220,000,000 financing of The Bartlett residential building. The five-year interest-only loan is at LIBOR plus 1.70%, and matures in June 2022. On July 17, 2017, the property, the loan and the $217,000,000 of net proceeds were transferred to JBGS in connection with the tax-free spin-off of our Washington, DC segment. On July 17, 2017, prior to completion of the tax-free spin-off of our Washington, DC segment, we repaid the $43,581,000 LIBOR plus 1.25% mortgage encumbering 1700 and 1730 M Street which was scheduled to mature in August 2017. The unencumbered property was then transferred to JBGS in connection with the tax-free spin-off of our Washington, DC segment. On July 19, 2017, the joint venture, in which we have a 25.0% interest, completed a $500,000,000 refinancing of 330 Madison Avenue, an 845,000 square foot Manhattan office building. The seven-year interest-only loan matures in August 2024 and has a fixed rate of 3.43%. Our share of net proceeds, after repayment of the existing $150,000,000 LIBOR plus 1.30% mortgage and closing costs, was approximately $85,000,000. On July 27, 2017, the Fund completed a $100,000,000 loan facility for the refinancing of 1100 Lincoln Road, a 130,000 square foot retail and theater property in Miami, Florida. The loan is interest-only at LIBOR plus 2.40% (3.76% at December 31, 2017), matures in July 2020 with two one-year extension options. At closing, the fund drew $82,750,000, and subject to property performance, may borrow up to $17,250,000 of additional proceeds within the first 18 months of the loan term. The property was previously encumbered by a $66,000,000 interest-only mortgage at LIBOR plus 2.25% which was scheduled to mature in August 2017. 43   Overview - continued Other Activities - continued On August 23, 2017, the joint venture, in which we have a 50.0% interest, completed a $1.2 billion refinancing of 280 Park Avenue, a 1,250,000 square foot Manhattan office building. The loan is interest-only at LIBOR plus 1.73% (3.16% at December 31, 2017) and matures in September 2019 with five one-year extension options. Our share of net proceeds, after repayment of the existing $900,000,000 LIBOR plus 2.00% mortgage and closing costs, was approximately $140,000,000. On December 13, 2017, the joint venture, in which we have a 50.0% interest, completed a $20,000,000 refinancing of 50 West 57th Street, an 81,000 square foot Manhattan office building. The loan is interest-only at LIBOR plus 1.60% (3.06% at December 31, 2017) and matures in December 2022. The new loan replaced the existing $20,000,000 mortgage which had a fixed rate of 3.50%. 44 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 Retail theMART 555 California Street Quarter Ended December 31, 2017: 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 Cash basis: Initial rent(1) Prior escalated rent Percentage increase Tenant improvements and leasing commissions: Per square foot Per square foot per annum: Percentage of initial rent Year Ended December 31, 2017: 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 Cash basis: Initial rent(1) Prior escalated rent Percentage increase Tenant improvements and leasing commissions: Per square foot Per square foot per annum: Percentage of initial rent ____________________ See notes on the following page. $ $ $ $ $ $ $ $ $ $ $ $ $ $ 39 29 412.74 11.4 17 205.33 123.24 66.6% 181.52 117.40 54.6% 332.74 29.19 7.1% 126 97 318.67 7.6 61 171.74 135.81 26.5% 159.53 127.18 25.4% 209.76 27.60 8.7% $ $ $ $ $ $ $ $ $ $ $ $ $ $ 118 118 46.13 6.1 112 46.83 39.12 19.7% 46.23 42.50 8.8% 17.79 2.92 6.3% 345 345 47.60 6.6 319 47.93 38.04 26.0% 47.55 40.77 16.6% 33.86 5.13 10.8% $ $ $ $ $ $ $ $ $ $ $ $ $ $ 153 107 95.73 5.3 106 101.46 80.09 26.7% 97.45 87.40 11.5% 41.94 7.91 8.3% 285 200 88.42 7.2 152 99.53 80.15 24.2% 94.14 84.76 11.1% 74.38 10.33 11.7% 319 281 76.07 7.0 205 75.85 70.69 7.3% 78.02 72.98 6.9% 71.35 10.19 13.4% 1,867 1,469 78.72 8.1 1,018 74.28 65.85 12.8% 76.03 69.19 9.9% 73.97 9.13 11.6% $ $ $ $ $ $ $ $ $ $ $ $ $ $ 45     Overview - continued Leasing Activity – continued (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 Percentage increase inclusive of 3 square foot Dyson lease at 640 Fifth Avenue Cash basis: Initial rent(1) Prior escalated rent Percentage increase Percentage increase inclusive of 3 square foot Dyson lease at 640 Fifth Avenue Tenant improvements and leasing commissions: Per square foot Per square foot per annum: Percentage of initial rent $ $ $ $ $ $ $ New York Office Retail theMART 555 California Street 2,241 1,842 72.56 8.8 1,667 71.52 59.75 19.7% 71.82 61.62 16.6% 64.44 7.32 10.1% $ $ $ $ $ $ $ 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% $ $ $ $ $ $ $ 270 269 48.16 6.4 221 50.74 40.43 25.5% 49.65 43.43 14.3% 35.62 5.57 11.6% $ $ $ $ $ $ $ 151 106 77.25 8.4 69 82.69 66.92 23.6% 79.69 66.51 19.8% 76.29 9.08 11.8% ______________________________________ (1) Represents the cash basis weighted average starting rent per square foot, which is generally indicative of market rents.  Most leases include free rent and periodic step-ups in rent which are not included in the initial cash basis rent per square foot but are included in the GAAP basis straight-line rent per square foot. (2) Represents the GAAP basis weighted average rent per square foot that is recognized over the term of the respective leases, and includes the effect of free rent and periodic step-ups in rent. 46 Overview - continued Square footage (in service) and Occupancy as of December 31, 2017: (Square feet in thousands) New York: Office Retail (includes retail properties that are in the base of our office properties) Residential - 1,697 units Alexander's, including 312 residential units Hotel Pennsylvania Other: theMART 555 California Street Other Total square feet at December 31, 2017 Square footage (in service) and Occupancy as of December 31, 2016: (Square feet in thousands) New York: Office Retail (includes retail properties that are in the base of our office properties) Residential - 1,692 units Alexander's, including 312 residential units Hotel Pennsylvania Number of properties Other: theMART 555 California Street Other Number of properties Square Feet (in service) Our Total Share Portfolio Occupancy % 36 71 11 7 1 3 3 11 35 69 11 7 1 3 3 11 20,256 2,720 1,568 2,437 1,400 28,381 3,689 1,741 2,525 7,955 16,982 2,471 835 790 1,400 22,478 3,680 1,219 1,188 6,087 97.1% 96.9% 96.7% 99.3% 97.2% 98.6% 94.2% 93.6% 36,336 28,565 Square Feet (in service) Our Total Share Portfolio Occupancy % 20,227 2,672 1,559 2,437 1,400 28,295 3,671 1,738 2,557 7,966 16,962 2,464 826 790 1,400 22,442 3,662 1,217 1,188 6,067 96.3% 97.1% 95.7% 99.8% 96.5% 98.9% 92.4% 92.2% Total square feet at December 31, 2016 36,261 28,509 47 Critical Accounting Policies In preparing the consolidated financial statements we have made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Set forth below is a summary of the accounting policies that we believe are critical to the preparation of our consolidated financial statements.  The summary should be read in conjunction with the more complete discussion of our accounting policies included in Note 2 – 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 the redeveloped property, the excess is charged to expense. Depreciation is recognized on a straight-line basis over the 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 Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), 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 which are on a relative fair value basis. 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, 2017 and 2016, the carrying amounts of real estate, net of accumulated depreciation, were $11.9 billion and $11.6 billion, respectively.  As of December 31, 2017 and 2016, the carrying amounts of identified intangible assets (including acquired above-market leases, tenant relationships and acquired in-place leases) were $159,260,000 and $189,668,000, respectively, and the carrying amounts of identified intangible liabilities, a component of “deferred revenue” on our consolidated balance sheets, were $205,600,000 and $252,216,000, respectively. Our properties, including any related intangible assets, are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis.  An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair value.  Impairment analyses are based on our current plans, intended holding periods and available market information at the time the analyses are prepared.  If our estimates of the projected future cash flows, anticipated holding periods, or market conditions change, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements.  The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results.  Plans to hold properties over longer periods decrease the likelihood of recording impairment losses. 48         Critical Accounting Policies - continued Partially Owned Entities We consolidate entities in which we have a controlling financial interest.  In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider 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 decisions that most significantly impact the performance of the partially owned entity. This includes decisions regarding operating/ capital budgets, and the placement of new or additional financing secured by the assets of the venture, among others. 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 under 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, 2017 and 2016, the carrying amounts of investments in partially owned entities were $1.1 billion and $1.4 billion, respectively. Allowance for Doubtful Accounts We periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts ($5,526,000 and $6,708,000 as of December 31, 2017 and 2016, 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 ($954,000 and $1,913,000 as of December 31, 2017 and 2016, respectively). 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. These estimates may differ from actual results, which could be material to our consolidated financial statements. 49            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. 50                Net Operating Income by Segment for the Years Ended December 31, 2017, 2016 and 2015 On December 1, 2016 we were repaid the 85 Tenth Avenue mezzanine loans and we received a 49.9% equity interest in the property. In 2017, our 49.9% equity interest in the property is included in the "New York" segment. In 2016, our investment in 85 Tenth Avenue mezzanine loans was included in the "Other" segment. On July 17, 2017, we completed the spin-off of our Washington, DC segment. Beginning in the third quarter of 2017, the historical financial results of our former Washington, DC segment are reflected in our consolidated financial statements as discontinued operations for all periods presented and are included in the Other segment. Subsequent to the Washington, DC spin-off, we operate in two segments, New York and Other, which is based on how we manage our business. We have reclassified our 49.5% interest in 666 Fifth Avenue Office Condominium from "New York" to "Other" in all periods presented because we do not intend to hold this asset on a long-term basis. NOI represents total revenues less operating expenses. We consider NOI to be the primary non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on NOI, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. NOI should not be considered a substitute for net income. NOI may not be comparable to similarly titled measures employed by other companies. Below is a summary of NOI by segment for the years ended December 31, 2017, 2016 and 2015. (Amounts in thousands) Total revenues Operating expenses NOI - consolidated Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Our share of NOI from partially owned entities NOI at share Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other NOI at share - cash basis (Amounts in thousands) Total revenues Operating expenses NOI - consolidated Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Our share of NOI from partially owned entities NOI at share Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other NOI at share - cash basis (Amounts in thousands) Total revenues Operating expenses NOI - consolidated Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Our share of NOI from partially owned entities NOI at share Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other NOI at share - cash basis 51 For the Year Ended December 31, 2017 Total New York Other $ 2,084,126 $ 1,779,307 $ 886,596 1,197,530 (65,311) 269,164 1,401,383 756,670 1,022,637 (45,899) 189,327 1,166,065 (86,842) (79,202) 1,314,541 $ 1,086,863 $ 304,819 129,926 174,893 (19,412) 79,837 235,318 (7,640) 227,678 $ $ $ $ For the Year Ended December 31, 2016 Total New York Other 2,003,742 $ 1,713,374 $ 844,566 1,159,176 (66,182) 271,114 1,364,108 716,754 996,620 (47,480) 159,386 1,108,526 (170,477) (143,239) 1,193,631 $ 965,287 $ 290,368 127,812 162,556 (18,702) 111,728 255,582 (27,238) 228,344 For the Year Ended December 31, 2015 Total New York Other 1,985,495 $ 1,695,925 $ 824,511 1,160,984 (64,859) 245,750 1,341,875 694,228 1,001,697 (42,905) 156,177 1,114,969 (214,322) (186,781) $ 1,127,553 $ 928,188 $ 289,570 130,283 159,287 (21,954) 89,573 226,906 (27,541) 199,365 Net Operating Income by Segment for the Years Ended December 31, 2017, 2016 and 2015 - continued The elements of our New York and Other NOI for the years ended December 31, 2017, 2016 and 2015 are summarized below. (Amounts in thousands) New York: Office Retail Residential Alexander's Hotel Pennsylvania Total New York Other: theMART 555 California Street Other investments Total Other NOI at share For the Year Ended December 31, 2017 2016 2015 $ 721,183 $ 662,221 $ 359,944 24,370 47,302 13,266 364,953 25,060 47,295 8,997 684,110 342,999 22,266 43,409 22,185 1,166,065 1,108,526 1,114,969 102,339 47,588 85,391 235,318 98,498 45,848 111,236 255,582 85,963 50,268 90,675 226,906 $ 1,401,383 $ 1,364,108 $ 1,341,875 The elements of our New York and Other NOI - cash basis for the years ended December 31, 2017, 2016 and 2015 are summarized below. (Amounts in thousands) New York: Office Retail Residential Alexander's Hotel Pennsylvania Total New York Other: theMART 555 California Street Other investments Total Other NOI at share - cash basis For the Year Ended December 31, 2017 2016 2015 $ 678,839 $ 593,785 $ 324,318 21,626 48,683 13,397 1,086,863 99,242 45,281 83,155 227,678 292,019 22,285 48,070 9,128 965,287 92,571 32,601 103,172 228,344 580,252 262,698 20,254 42,965 22,019 928,188 81,867 36,686 80,812 199,365 $ 1,314,541 $ 1,193,631 $ 1,127,553 52 Reconciliation of Net Income to Net Operating Income for the Years Ended December 31, 2017, 2016 and 2015 Below is a reconciliation of net income to NOI for the years ended December 31, 2017, 2016 and 2015. (Amounts in thousands) Net income Deduct: Our share of (income) loss from partially owned entities Our share of (income) loss from real estate fund investments Interest and other investment income, net Net gains on disposition of wholly owned and partially owned assets Loss (income) from discontinued operations NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Depreciation and amortization expense General and administrative expense Acquisition and transaction related costs NOI from partially owned entities Interest and debt expense Income tax expense (benefit) NOI at share Non cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other NOI at share - cash basis For the Year Ended December 31, 2017 2016 2015 $ 264,128 $ 981,922 $ 859,430 (15,200) (3,240) (37,793) (501) 13,228 (65,311) 429,389 158,999 1,776 269,164 345,654 41,090 (168,948) 23,602 (29,548) (160,433) (404,912) (66,182) 421,023 149,550 9,451 271,114 330,240 7,229 1,401,383 1,364,108 (86,842) (170,477) $ 1,314,541 $ 1,193,631 $ 9,947 (74,081) (27,240) (149,417) (223,511) (64,859) 379,803 149,256 12,511 245,750 309,298 (85,012) 1,341,875 (214,322) 1,127,553 53 Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 Revenues Our revenues, which consist of property rentals, tenant expense reimbursements, and fee and other income, were $2,084,126,000 in the year ended December 31, 2017 compared to $2,003,742,000 for the prior year, an increase of $80,384,000.  Below are the details of the increase 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 Other $ 9,455 $ 824 7,974 (634) 35,240 52,859 (2,663) 705 13,819 11,861 10,718 1,843 (599) 3,702 15,664 9,229 (1) $ (93) 7,974 (2) — 25,066 42,176 (2,663) (75) 11,320 8,582 13,374 (3) 1,068 250 483 15,175 226 917 — (634) 10,174 10,683 — 780 2,499 3,279 (2,656) 775 (849) 3,219 489 Total increase in revenues $ 80,384 $ 65,933 $ 14,451 ________________________________________ (1) Primarily due to (i) $20,515 from the write-off of straight-line rents recorded in 2016, partially offset by (ii) $5,050 from the partial sale of 7 West 34th Street in May 2016 and (iii) $7,834 from the write-off of straight-line rents and FAS 141 recorded in 2017. (2) Average occupancy and revenue per available room were 87.3% and $121.46 respectively, for 2017 as compared to 84.7% and $113.84, respectively, for 2016. (3) Primarily due to an increase in third party cleaning agreements from JBGS, Skyline Properties and from tenants at theMART. 54       Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued Expenses Our expenses, which consist primarily of operating, depreciation and amortization, general and administrative expenses and acquisition and transaction related costs, were $1,476,760,000 in the year ended December 31, 2017 compared to $1,424,590,000 for the prior year, an increase of $52,170,000.  Below are the details of the increase by segment: (Amounts in thousands) (Decrease) increase 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 Other $ (2,978) $ (2,978) $ 69 (3,940) 3,721 (1,222) 15,368 31,012 42,030 2,227 2,752 3,387 8,366 1,719 7,730 (3) 9,449 (7,675) 119 (4,109) 3,721 — 12,835 (1) 30,328 39,916 2,227 3,182 (1,503) 3,906 — 4,333 4,333 — — (50) 169 — (1,222) 2,533 684 2,114 — (430) 4,890 4,460 1,719 (2) 3,397 5,116 (7,675) Total increase in expenses $ 52,170 $ 48,155 $ 4,015 ____________________ (1) Primarily due to an increase in third party cleaning agreements from JBGS, Skyline Properties and from tenants at theMART. (2) 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. (3) Primarily due to lower capitalized leasing and development payroll for consolidated projects in 2017 and higher franchise tax in 2017. 55     Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued Income from Partially Owned Entities Summarized below are the components of income from partially owned entities for the years ended December 31, 2017 and 2016. (Amounts in thousands) Equity in Net (Loss) Income: Pennsylvania Real Estate Investment Trust ("PREIT")(1) Alexander's Urban Edge Properties ("UE")(2) Partially owned office buildings (3) Other investments (4) Percentage Ownership at December 31, 2017 For the Year Ended December 31, 2017 2016 8.0% 32.4% 4.5% Various Various $ $ (53,325) $ 31,853 27,328 2,020 7,324 15,200 $ (5,213) 34,240 5,839 5,773 128,309 168,948 ____________________ (1) (2) (3) (4) In 2017, we recognized a $44,465 "other-than-temporary" impairment loss on our investment in PREIT. 2017 includes $21,100 of net gains resulting from UE operating partnership unit issuances. Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 7 West 34th Street, 330 Madison Avenue, 512 West 22nd Street, 85 Tenth Avenue (in 2017 only) and others.  Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, 85 Tenth Avenue (in 2016 only), 666 Fifth Avenue Office Condominium, India real estate ventures and others. In 2017, we recognized $26,687 of net gains, comprised of $15,314 representing our share of a net gain on the sale of Suffolk Downs and $11,373 representing the net gain on repayment of our debt investments in Suffolk Downs JV. In 2017 and 2016, we recognized net losses of $25,414 and $41,532, respectively, from our 666 Fifth Avenue Office Condominium joint venture as a result of our share of depreciation expense. In 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 and no tax gain as a result of this transaction. In addition, we recognized $13,962 of non-cash impairment losses related to India real estate ventures in 2016. Loss from Real Estate Fund Investments Below are the components of the loss from our real estate fund investments for the years ended December 31, 2017 and 2016. (Amounts in thousands) Net investment income Net realized gains on exited investments Previously recorded unrealized gain on exited investments Net unrealized loss on held investments Income (loss) from real estate fund investments Less (income) loss attributable to noncontrolling interests in consolidated subsidiaries Loss from real estate fund investments attributable to the Operating Partnership(1) Less loss attributable to noncontrolling interests in the Operating Partnership For the Year Ended December 31, 2017 2016 $ 18,507 $ 36,078 (25,538) (25,807) 3,240 (14,044) (10,804) 673 17,053 14,761 (14,254) (41,162) (23,602) 2,560 (21,042) 1,270 (19,772) Loss from real estate fund investments attributable to Vornado $ (10,131) $ ____________________ (1) Excludes $4,091 and $3,831 of management and leasing fees in the years ended December 31, 2017 and 2016, respectively, which are included as a component of "fee and other income" on our consolidated statements of income. 56         Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued Interest and Other Investment Income, net Interest and other investment income, net was $37,793,000 in the year ended December 31, 2017, compared to $29,548,000 in the prior year, an increase of $8,245,000.  This increase resulted primarily from increased interest rates and 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 $345,654,000 in the year ended December 31, 2017, compared to $330,240,000 in the prior year, an increase of $15,414,000. This increase was primarily due to (i) $19,887,000 of higher interest expense relating to our variable rate loans, (ii) $9,409,000 of higher interest expense from the refinancing of 350 Park Avenue and the $750,000,000 drawn on our $750,000,000 delayed draw term loan, (iii) $7,052,000 of higher interest expense from the 1535 Broadway capital lease obligation, (iv) $4,836,000 of interest expense relating to the December 27, 2017 prepayment of our $450,000,000 aggregate principal amount of 2.50% senior unsecured notes due 2019, partially offset by (v) $17,888,000 of higher capitalized interest and debt expense and (vi) $8,626,000 of interest savings from the refinancing of theMART. Net Gains on Disposition of Wholly Owned and Partially Owned Assets The net gain of $501,000 in the year ended December 31, 2017, resulted from the sale of residential condominiums. The net gain of $160,433,000 in the prior year primarily consists of a $159,511,000 net gain on sale of our 47% ownership interest in 7 West 34th Street and $714,000 from the sale of residential condominiums. Income Tax Expense In the year ended December 31, 2017, we had an income tax expense of $41,090,000, compared to $7,229,000 in the prior year, an increase of $33,861,000.  This increase resulted primarily from $34,800,000 of expense due to the reduction of our taxable REIT subsidiaries' deferred tax assets based on the decrease in corporate tax rates under the December 22, 2017 Tax Cuts and Jobs Act. 57               Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued (Loss) Income from Discontinued Operations We have reclassified the revenues and expenses of our former Washington, DC segment which was spun off on July 17, 2017 and other related retail assets that were sold or are currently held for sale to “(loss) 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, 2017 and 2016. (Amounts in thousands) Total revenues Total expenses JBGS spin-off transaction costs Net gains on sale of real estate, a lease position and other Income (loss) from partially owned assets Net gain on early extinguishment of debt Impairment losses Net gain on sale of our 20% interest in Fairfax Square Pretax (loss) income from discontinued operations Income tax expense (Loss) income from discontinued operations For the Year Ended December 31, 2017 2016 $ 261,290 $ 212,169 49,121 (68,662) 6,605 435 — — — (12,501) (727) $ (13,228) $ 521,084 442,032 79,052 (16,586) 5,074 (3,559) 487,877 (161,165) 15,302 405,995 (1,083) 404,912 Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries Net income attributable to noncontrolling interests in consolidated subsidiaries was $25,802,000 in the year ended December 31, 2017, compared to $21,351,000 in the prior year, an increase of $4,451,000.  This increase resulted primarily from higher 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 $10,910,000 in the year ended December 31, 2017, compared to $53,654,000 in the prior year, a decrease of $42,744,000.  This decrease resulted primarily from lower net income subject to allocation to unitholders. Preferred Share Dividends of Vornado Realty Trust Preferred share dividends were $65,399,000 in the year ended December 31, 2017, compared to $75,903,000 in the prior year, a decrease of $10,504,000.  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 $65,593,000 in the year ended December 31, 2017, compared to $76,097,000 in the prior year, a decrease of $10,504,000.  This decrease resulted primarily from the redemption of the 6.875% Series J cumulative redeemable preferred units on September 1, 2016. Preferred Share/Unit 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/units on September 1, 2016. 58                       Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued Same Store Net Operating Income Same store NOI represents NOI from operations which are owned by us and in service in both the current and prior year reporting periods. Same store NOI - cash basis is NOI from operations before straight-line rental income and expense, amortization of acquired below and above market leases, net and other non-cash adjustments which are owned by us and in service in both the current and prior year reporting periods.  We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers.  Same store NOI and same store NOI - cash basis should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies. Below are reconciliations of NOI to same store NOI for our New York segment, theMART and 555 California Street for the year ended December 31, 2017 compared to December 31, 2016. (Amounts in thousands) New York theMART 555 California Street NOI at share for the year ended December 31, 2017 $ 1,166,065 $ 102,339 $ 47,588 Less NOI at share from: Acquisitions Dispositions Development properties placed into and out of service Lease termination income, net of straight-line and FAS 141 adjustments Other non-operating income, net Same store NOI at share for the year ended December 31, 2017 NOI at share for the year ended December 31, 2016 Less NOI at share from: Acquisitions Dispositions Development properties placed into and out of service Lease termination income (expense), net of straight-line and FAS 141 adjustments Other non-operating income, net Same store NOI at share for the year ended December 31, 2016 Increase in same store NOI at share for the year ended December 31, 2017 compared to December 31, 2016 $ $ $ $ % increase in same store NOI at share (20,027) (698) 816 (1,973) (2,303) 1,141,880 1,108,526 (60) (3,107) 82 10,559 (3,610) 1,112,390 29,490 2.7% $ $ $ $ 164 — — (20) — 102,483 98,498 — — — (157) — 98,341 4,142 4.2% (1) $ $ $ $ — — — — — 47,588 45,848 — — 1,079 (238) — 46,689 899 1.9% ________________________________________ (1) The year ended December 31, 2016 includes a $2,000 reversal of an expense accrued in 2015. Excluding this amount, same store NOI increased by 6.4%. 59 Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued Same Store Net Operating Income - continued Below are reconciliations of NOI - cash basis to same store NOI - cash basis for our New York segment, theMART, and 555 California Street for the year ended December 31, 2017 compared to December 31, 2016. (Amounts in thousands) New York theMART 555 California Street NOI at share - cash basis for the year ended December 31, 2017 $ 1,086,863 $ 99,242 $ 45,281 Less NOI at share - cash basis from: Acquisitions Dispositions Development properties placed into and out of service Lease termination income Other non-operating income, net Same store NOI at share - cash basis for the year ended December 31, 2017 NOI at share - cash basis for the year ended December 31, 2016 Less NOI at share - cash basis from: Acquisitions Dispositions Development properties placed into and out of service Lease termination income Other non-operating income, net Same store NOI at share - cash basis for the year ended December 31, 2016 Increase in same store NOI at share - cash basis for the year ended December 31, 2017 compared to December 31, 2016 (17,217) (698) 814 (4,927) (3,021) 1,061,814 965,287 (13) (2,219) 289 (7,272) (2,362) 953,710 108,104 $ $ $ $ $ $ $ $ 164 — — (31) — 99,375 92,571 — — — (248) — 92,323 7,052 $ $ $ $ — — — — — 45,281 32,601 — — 1,079 (397) — 33,283 11,998 % increase in same store NOI at share - cash basis 11.3% 7.6% (1) 36.0% ________________________________________ (1) The year ended December 31, 2016 includes a $2,000 reversal of an expense accrued in 2015. Excluding this amount, same store NOI - cash basis increased by 10.0%. 60 Results of Operations – Year Ended December 31, 2016 Compared to December 31, 2015 Revenues Our revenues, which consist of property rentals, tenant expense reimbursements, and fee and other income, were $2,003,742,000 in the year ended December 31, 2016 compared to $1,985,495,000 for the prior year, an increase of $18,247,000.  Below are the details of the increase by segment: (Amounts in thousands) (Decrease) increase 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 Other $ (33,841) $ (33,841) (1) $ 2,346 (12,837) (852) 80,411 35,227 (4,697) 1,040 6,481 2,824 (3,455) 2,009 (13,599) (4,759) (19,804) (150) (12,837) (2) — 77,676 30,848 (4,698) (3) 10,170 5,469 (3,233) 1,105 (13,878) (3) (2,862) (18,868) — 2,496 — (852) 2,735 4,379 1 1,043 (3,689) (2,645) (222) 904 279 (1,897) (936) Total increase in revenues $ 18,247 $ 17,449 $ 798 ________________________________________ (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 in 2015 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) 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. (3) Primarily from a lease termination fee received from a tenant at 20 Broad Street in the fourth quarter of 2015. 61       Results of Operations – Year Ended December 31, 2016 Compared to December 31, 2015 - continued Expenses Our expenses, which consist primarily of operating, depreciation and amortization, general and administrative expenses and acquisition and transaction related costs, were $1,424,590,000 in the year ended December 31, 2016 compared to $1,366,081,000 for the prior year, an increase of $58,509,000.  Below are the details of the increase (decrease) 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 Other $ 2,527 $ 2,527 $ 1,389 (2,526) 322 456 (3,374) 21,261 20,055 3,229 1,025 36,966 41,220 5,102 (4,808) 294 (3,060) (99) (2,296) 322 — (3,152) 25,224 22,526 3,229 (296) 35,275 38,208 — 838 838 — — 1,488 (230) — 456 (222) (3,963) (2,471) — 1,321 1,691 3,012 5,102 (1) (5,646) (2) (544) (3,060) Total increase (decrease) in expenses $ 58,509 $ 61,572 $ (3,063) ________________________________________ (1) 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. (2) 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. 62     Results of Operations – Year Ended December 31, 2016 Compared to December 31, 2015 - continued 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): Partially owned office buildings(1) Alexander's UE PREIT Other investments(2) Percentage Ownership at December 31, 2016 Year Ended December 31, 2016 2015 Various 32.4% 5.4% 8.0% Various $ $ 5,773 $ 34,240 5,839 (5,213) 128,309 168,948 $ 19,808 31,078 4,394 (7,450) (57,777) (9,947) ____________________ (1) (2) Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 7 West 34th Street (in 2016 only), 330 Madison Avenue, 512 West 22nd Street and others. 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 interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, 85 Tenth Avenue, 666 Fifth Avenue Office Condominium, India real estate ventures and others. In 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 and no tax gain as a result of this transaction. In 2016 and 2015, we recognized net losses of $41,532 and $37,495, respectively, from our 666 Fifth Avenue Office Condominium joint venture as a result of our share of depreciation expense and $13,962 and $14,806, respectively, of non-cash impairment losses related to India real estate ventures. (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) For the Year Ended December 31, 2016 2015 Net investment income Net realized gains on exited investments Previously recorded unrealized gain on exited investments Net unrealized (loss) gains 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 $ 17,053 $ 14,761 (14,254) (41,162) (23,602) 2,560 (21,042) 1,270 (Loss) income from real estate fund investments attributable to Vornado $ (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. 63           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 $29,548,000 in the year ended December 31, 2016, compared to $27,240,000 in the year ended December 31, 2015, an increase of $2,308,000.  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 $330,240,000 in the year ended December 31, 2016, compared to $309,298,000 in the year ended December 31, 2015, an increase of $20,942,000.  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) $8,082,000 of lower capitalized interest, partially offset by (iii) $13,127,000 of interest savings from the re-financings of 888 7th Avenue and 770 Broadway. Net Gains on Disposition of Wholly Owned and Partially Owned Assets The net gain of $160,433,000 in year ended December 31, 2016, primarily consists of a $159,511,000 net gain on sale of our 47% ownership interest in 7 West 34th Street and $714,000 from the sale of residential condominiums.  The net gain of $149,417,000 in the year ended December 31, 2015 consists of $142,693,000 net gain on sale of 20 Broad Street 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 $7,229,000, compared to a benefit of $85,012,000 in the year ended December 31, 2015, an increase in expense of $92,241,000.  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. 64               Results of Operations – Year Ended December 31, 2016 Compared to December 31, 2015 - continued Income from Discontinued Operations We have reclassified the revenues and expenses of our former Washington, DC segment which was spun off on July 17, 2017, 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 “ (loss) 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 gain on early extinguishment of debt Impairment losses JBGS spin-off transaction costs Net gain on sale of our 20% interest in Fairfax Square Net gains on sale of real estate, a lease position and other Loss from partially owned assets UE spin-off transaction related costs Pretax income from discontinued operations Income tax expense Income from discontinued operations For the Year Ended December 31, 2016 2015 $ 521,084 $ 442,032 79,052 487,877 (161,165) (16,586) 15,302 5,074 (3,559) — 405,995 (1,083) $ 404,912 $ 558,663 477,299 81,364 — (256) — — 167,801 (2,022) (22,972) 223,915 (404) 223,511 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 year ended December 31, 2015, 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 year ended December 31, 2015, 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 year ended December 31, 2015, 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 year ended December 31, 2015, 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/Unit 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/units on September 1, 2016. 65                       Results of Operations – Year Ended December 31, 2016 Compared to December 31, 2015 - continued Same Store Net Operating Income Same store NOI represents NOI from operations which are owned by us and in service in both the current and prior year reporting periods. Same store NOI - cash basis is NOI from operations before straight-line rental income and expense, amortization of acquired below and above market leases, net and other non-cash adjustments which are owned by us and in service in both the current and prior year reporting periods.  We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers.  Same store NOI and same store NOI - cash basis should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies. Below are reconciliations of NOI to same store NOI for our New York segment, theMART and 555 California Street for the years ended December 31, 2016 compared to December 31, 2015. (Amounts in thousands) New York theMART 555 California Street NOI at share for the year ended December 31, 2016 $ 1,108,526 $ 98,498 $ 45,848 Less NOI at share from: Acquisitions Dispositions Development properties placed into and out of service Lease termination expense (income), net of straight-line and FAS 141 adjustments Other non-operating income, net Same store NOI at share for the year ended December 31, 2016 NOI at share for the year ended December 31, 2015 Less NOI at share from: Acquisitions Dispositions Development properties placed into and out of service Lease termination (income) expense, net of straight-line and FAS 141 adjustments Other non-operating income, net Same store NOI at share for the year ended December 31, 2015 Increase (decrease) in same store NOI at share for the year ended December 31, 2016 compared to December 31, 2015 $ $ $ $ (19,644) 13 66 10,801 (3,438) 1,096,324 1,114,969 (2,827) (31,648) 1,607 (30,493) (21,281) 1,030,327 65,997 $ $ $ $ — — — (157) — 98,341 85,963 — — — 274 — 86,237 12,104 $ $ $ $ — — — (238) — 45,610 50,268 — — — — — 50,268 (4,658) % increase (decrease) in same store NOI at share 6.4% 14.0% (1) (9.3)% ________________________________________ (1) The year ended December 31, 2016 includes a $2,000 reversal of an expense accrued in 2015. Excluding this amount, same store NOI increased by 11.7%. 66 Results of Operations – Year Ended December 31, 2016 Compared to December 31, 2015 - continued Same Store Net Operating Income - continued Below are reconciliations of NOI - cash basis to same store NOI - cash basis for our New York segment, theMART and 555 California Street for the year ended December 31, 2016 compared to December 31, 2015. (Amounts in thousands) New York theMART 555 California Street NOI at share - cash basis for the year ended December 31, 2016 $ 965,287 $ 92,571 $ 32,601 Less NOI at share - cash basis from: Acquisitions Dispositions Development properties placed into and out of service Lease termination income Other non-operating income, net Same store NOI at share - cash basis for the year ended December 31, 2016 NOI at share - cash basis for the year ended December 31, 2015 Less NOI at share - cash basis from: Acquisitions Dispositions Development properties placed into and out of service Lease termination (income) expense Other non-operating income, net Same store NOI at share - cash basis for the year ended December 31, 2015 Increase in same store NOI at share - cash basis for the year ended December 31, 2016 compared to December 31, 2015 $ $ $ $ (8,683) 13 66 (7,272) (2,180) 947,231 928,188 (1,185) (30,992) 1,559 (5,800) (18,425) 873,345 73,886 $ $ $ $ — — — (248) — 92,323 81,867 — — — 274 — 82,141 10,182 $ $ $ $ — — — (397) — 32,204 36,686 — — — — — 36,686 (4,482) % increase in same store NOI at share - cash basis 8.5% 12.4% (1) (12.2)% ________________________________________ (1) The year ended December 31, 2016 includes a $2,000 reversal of an expense accrued in 2015. Excluding this amount, same store NOI - cash basis increased by 9.9%. 67 Supplemental Information Net Operating Income by Segment for the Three Months Ended December 31, 2017 and 2016 On December 1, 2016 we were repaid the 85 Tenth Avenue mezzanine loans and we received a 49.9% equity interest in the property. In 2017, our 49.9% equity interest in the property is included in the "New York" segment. In 2016, our investment in 85 Tenth Avenue mezzanine loans was included in the "Other" segment. On July 17, 2017, we completed the spin-off of our Washington, DC segment. Beginning in the third quarter of 2017, the historical financial results of our former Washington, DC segment are reflected in our consolidated financial statements as discontinued operations for all periods presented and are included in the Other segment. Subsequent to the Washington, DC spin-off, we operate in two segments, New York and Other, which is based on how we manage our business. We have reclassified our 49.5% interest in 666 Fifth Avenue Office Condominium from "New York" to "Other" in all periods presented because we do not intend to hold this asset on a long-term basis. NOI represents total revenues less operating expenses. We consider NOI to be the primary non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on NOI, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. NOI should not be considered a substitute for net income. NOI may not be comparable to similarly titled measures employed by other companies. Below is a summary of NOI by segment for the three months ended December 31, 2017 and 2016. (Amounts in thousands) Total revenues Operating expenses NOI - consolidated Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Our share of NOI from partially owned entities NOI at share Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other NOI at share - cash basis (Amounts in thousands) Total revenues Operating expenses NOI - consolidated Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Our share of NOI from partially owned entities NOI at share Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other NOI at share - cash basis For the Three Months Ended December 31, 2017 Total New York Other $ 536,226 $ 462,597 $ 225,011 311,215 (16,533) 69,175 363,857 (21,579) 195,421 267,176 (11,648) 48,700 304,228 (21,441) 342,278 $ 282,787 $ For the Three Months Ended December 31, 2016 Total New York Other 513,974 $ 443,910 $ $ $ 218,020 295,954 (16,083) 75,142 355,013 (36,370) 182,762 261,148 (11,829) 41,465 290,784 (29,547) $ 318,643 $ 261,237 $ 73,629 29,590 44,039 (4,885) 20,475 59,629 (138) 59,491 70,064 35,258 34,806 (4,254) 33,677 64,229 (6,823) 57,406 68 Supplemental Information - continued Net Operating Income by Segment for the Three Months Ended December 31, 2017 and 2016 - continued The elements of our New York and Other NOI for the three months ended December 31, 2017 and 2016 are summarized below. (Amounts in thousands) New York: Office Retail Residential Alexander's Hotel Pennsylvania Total New York Other: theMART 555 California Street Other investments Total Other NOI at share For the Three Months Ended December 31, 2017 2016 $ 189,481 $ 90,853 5,920 11,656 6,318 304,228 24,249 12,003 23,377 59,629 174,609 93,117 6,158 11,495 5,405 290,784 22,749 10,578 30,902 64,229 $ 363,857 $ 355,013 The elements of our New York and Other NOI - cash basis for the three months ended December 31, 2017 and 2016 are summarized below. (Amounts in thousands) New York: Office Retail Residential Alexander's Hotel Pennsylvania Total New York Other: theMART 555 California Street Other investments Total Other NOI at share - cash basis For the Three Months Ended December 31, 2017 2016 $ 175,787 $ 83,320 5,325 12,004 6,351 282,787 24,396 11,916 23,179 59,491 157,679 80,817 5,560 11,743 5,438 261,237 21,660 8,702 27,044 57,406 $ 342,278 $ 318,643 69 Supplemental Information - continued Reconciliation of Net Income to Net Operating Income for the Three Months Ended December 31, 2017 and 2016 Below is a reconciliation of net income to NOI for the three months ended December 31, 2017 and 2016. (Amounts in thousands) Net income Deduct: Our share of income from partially owned entities Our share of (income) loss from real estate fund investments Interest and other investment income, net Net gains on disposition of wholly owned and partially owned assets Income from discontinued operations NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Depreciation and amortization expense General and administrative expense Acquisition and transaction related costs NOI from partially owned entities Interest and debt expense Income tax expense (benefit) NOI at share Non cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other For the Three Months Ended December 31, 2017 2016 $ 53,551 $ 704,544 (9,622) (4,889) (9,993) — (1,273) (16,533) 114,166 36,838 703 69,175 93,073 38,661 363,857 (21,579) (165,056) 52,352 (9,427) (208) (509,116) (16,083) 104,640 36,957 2,754 75,142 80,206 (1,692) 355,013 (36,370) 318,643 NOI at share - cash basis $ 342,278 $ 70 Supplemental Information - continued Three Months Ended December 31, 2017 Compared to December 31, 2016 Same Store Net Operating Income Same store NOI represents NOI from operations which are owned by us and in service in both the current and prior year reporting periods. Same store NOI - cash basis is NOI from operations before straight-line rental income and expense, amortization of acquired below and above market leases, net and other non-cash adjustments which are owned by us and in service in both the current and prior year reporting periods.  We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers.  Same store NOI and same store NOI - cash basis should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies. Below are reconciliations of NOI to same store NOI for our New York segment, theMART and 555 California Street for the three months ended December 31, 2017 compared to December 31, 2016. (Amounts in thousands) New York theMART 555 California Street NOI at share for the three months ended December 31, 2017 $ 304,228 $ 24,249 $ 12,003 Less NOI at share from: Acquisitions Dispositions Development properties placed into and out of service Lease termination income, net of straight-line and FAS 141 adjustments Other non-operating income, net Same store NOI at share for the three months ended December 31, 2017 NOI at share for the three months ended December 31, 2016 Less NOI at share from: Acquisitions Dispositions Development properties placed into and out of service Lease termination expense (income), net of straight-line and FAS 141 adjustments Other non-operating income, net Same store NOI at share for the three months ended December 31, 2016 Increase in same store NOI at share for the three months ended December 31, 2017 compared to December 31, 2016 $ $ $ $ % increase in same store NOI at share (4,817) (79) 161 (984) (12) 298,497 290,784 36 (106) (280) 586 (679) 290,341 8,156 2.8% $ $ $ $ (46) — — — — 24,203 22,749 — — — (157) — 22,592 1,611 7.1% $ $ $ $ — — — — — 12,003 10,578 — — 296 — — 10,874 1,129 10.4% 71 Supplemental Information - continued Three Months Ended December 31, 2017 Compared to December 31, 2016 - continued Same Store Net Operating Income - continued Below are reconciliations of NOI - cash basis to same store NOI - cash basis for our New York segment, theMART and 555 California Street for the three months ended December 31, 2017 compared to December 31, 2016. (Amounts in thousands) New York theMART 555 California Street NOI at share - cash basis for the three months ended December 31, 2017 $ 282,787 $ 24,396 $ 11,916 Less NOI at share - cash basis from: Acquisitions Dispositions Development properties placed into and out of service Lease termination income Other non-operating income, net Same store NOI at share - cash basis for the three months ended December 31, 2017 NOI at share - cash basis for the three months ended December 31, 2016 Less NOI at share - cash basis from: Acquisitions Dispositions Development properties placed into and out of service Lease termination income Other non-operating income, net Same store NOI at share - cash basis for the three months ended December 31, 2016 Increase in same store NOI at share - cash basis for the three months ended December 31, 2017 compared to December 31, 2016 $ $ $ $ % increase in same store NOI at share - cash basis (3,987) (79) 160 (1,393) (12) 277,476 261,237 — (106) (141) (602) (1,082) 259,306 18,170 7.0% $ $ $ $ (46) — — — — 24,350 21,660 — — — (248) — 21,412 2,938 13.7% $ $ $ $ — — — — — 11,916 8,702 — — 296 — — 8,998 2,918 32.4% 72 Supplemental Information - continued Net Operating Income by Segment for the Three Months Ended December 31, 2017 and September 30, 2017 On July 17, 2017, we completed the spin-off of our Washington, DC segment. Beginning in the third quarter of 2017, the historical financial results of our former Washington, DC segment are reflected in our consolidated financial statements as discontinued operations for all periods presented and are included in the Other segment. Subsequent to the Washington, DC spin-off, we operate in two segments, New York and Other, which is based on how we manage our business. We have reclassified our 49.5% interest in 666 Fifth Avenue Office Condominium from "New York" to "Other" in all periods presented because we do not intend to hold this asset on a long-term basis. NOI represents total revenues less operating expenses. We consider NOI to be the primary non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on NOI, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. NOI should not be considered a substitute for net income. NOI may not be comparable to similarly titled measures employed by other companies. Below is a summary of NOI by segment for the three months ended December 31, 2017 and September 30, 2017. (Amounts in thousands) Total revenues Operating expenses NOI - consolidated Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Our share of NOI from partially owned entities NOI at share Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other NOI at share - cash basis (Amounts in thousands) Total revenues Operating expenses NOI - consolidated Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Our share of NOI from partially owned entities NOI at share Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other NOI at share - cash basis For the Three Months Ended December 31, 2017 Total New York Other $ 536,226 $ 462,597 $ 225,011 311,215 (16,533) 69,175 363,857 (21,579) 195,421 267,176 (11,648) 48,700 304,228 (21,441) 342,278 $ 282,787 $ For the Three Months Ended September 30, 2017 Total New York Other 528,755 $ 453,609 $ $ $ 225,226 303,529 (16,171) 66,876 354,234 (22,307) 192,430 261,179 (11,464) 48,779 298,494 (21,092) $ 331,927 $ 277,402 $ 73,629 29,590 44,039 (4,885) 20,475 59,629 (138) 59,491 75,146 32,796 42,350 (4,707) 18,097 55,740 (1,215) 54,525 73 Supplemental Information - continued Net Operating Income by Segment for the Three Months Ended December 31, 2017 and September 30, 2017 - continued The elements of our New York and Other NOI for the three months ended December 31, 2017 and September 30, 2017 are summarized below. (Amounts in thousands) New York: Office Retail Residential Alexander's Hotel Pennsylvania Total New York Other: theMART 555 California Street Other investments Total Other NOI at share For the Three Months Ended December 31, 2017 September 30, 2017 $ 189,481 $ 90,853 5,920 11,656 6,318 304,228 24,249 12,003 23,377 59,629 185,169 90,088 5,981 11,937 5,319 298,494 26,019 11,519 18,202 55,740 $ 363,857 $ 354,234 The elements of our New York and Other NOI - cash basis for the three months ended December 31, 2017 and September 30, 2017 are summarized below. (Amounts in thousands) New York: Office Retail Residential Alexander's Hotel Pennsylvania Total New York Other: theMART 555 California Street Other investments Total Other NOI at share - cash basis For the Three Months Ended December 31, 2017 September 30, 2017 $ 175,787 $ 83,320 5,325 12,004 6,351 282,787 24,396 11,916 23,179 59,491 172,741 81,612 5,417 12,280 5,352 277,402 25,417 10,889 18,219 54,525 $ 342,278 $ 331,927 74 Supplemental Information - continued Reconciliation of Net Income to Net Operating Income for the Three Months Ended December 31, 2017 and September 30, 2017 Below is a reconciliation of net income to NOI for the three months ended December 31, 2017 and September 30, 2017. (Amounts in thousands) Net income (loss) Deduct: Our share of (income) loss from partially owned entities Our share of (income) loss from real estate fund investments Interest and other investment income, net (Income) loss from discontinued operations NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Depreciation and amortization expense General and administrative expense Acquisition and transaction related costs NOI from partially owned entities Interest and debt expense Income tax expense NOI at share Non cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other For the Three Months Ended December 31, 2017 September 30, 2017 $ 53,551 $ (10,754) (9,622) (4,889) (9,993) (1,273) (16,533) 114,166 36,838 703 69,175 93,073 38,661 363,857 (21,579) 41,801 6,308 (9,306) 47,930 (16,171) 104,972 36,261 61 66,876 85,068 1,188 354,234 (22,307) 331,927 NOI at share - cash basis $ 342,278 $ 75 Supplemental Information - continued Three Months Ended December 31, 2017 Compared to September 30, 2017 Same Store Net Operating Income Same store NOI represents NOI from operations which are owned by us and in service in both the current and prior year reporting periods. Same store NOI - cash basis is NOI from operations before straight-line rental income and expense, amortization of acquired below and above market leases, net and other non-cash adjustments which are owned by us and in service in both the current and prior year reporting periods.  We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers.  Same store NOI and same store NOI - cash basis should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies. Below are reconciliations of NOI to same store NOI for our New York segment, theMART and 555 California Street for the three months ended December 31, 2017 compared to September 30, 2017. (Amounts in thousands) New York theMART 555 California Street NOI at share for the three months ended December 31, 2017 $ 304,228 $ 24,249 $ 12,003 2 (8) 161 (984) (13) 303,386 298,494 — (15) 192 (185) (584) 297,902 5,484 1.8% $ $ $ $ (46) — — — — 24,203 26,019 41 — — — — 26,060 (1,857) (7.1)% (1) $ $ $ $ — — — — — 12,003 11,519 — — — — — 11,519 484 4.2% Less NOI at share from: Acquisitions Dispositions Development properties placed into and out of service Lease termination income, net of straight-line and FAS 141 adjustments Other non-operating income, net Same store NOI at share for the three months ended December 31, 2017 NOI at share for the three months ended September 30, 2017 Less NOI at share from: Acquisitions Dispositions Development properties placed into and out of service Lease termination income, net of straight-line and FAS 141 adjustments Other non-operating income, net Same store NOI at share for the three months ended September 30, 2017 Increase (decrease) in same store NOI at share for the three months ended December 31, 2017 compared to September 30, 2017 % increase (decrease) in same store NOI at share ________________________________________ (1) Excluding tradeshows seasonality, same store NOI increased by 0.3%. $ $ $ $ 76 Supplemental Information - continued Three Months Ended December 31, 2017 Compared to September 30, 2017 - continued Same Store Net Operating Income - continued Below are reconciliations of NOI - cash basis to same store NOI - cash basis for our New York segment, theMART and 555 California Street for the three months ended December 31, 2017 compared to September 30, 2017. (Amounts in thousands) New York theMART 555 California Street NOI at share - cash basis for the three months ended December 31, 2017 $ 282,787 $ 24,396 $ 11,916 Less NOI at share - cash basis from: Acquisitions Dispositions Development properties placed into and out of service Lease termination income Other non-operating income, net Same store NOI at share - cash basis for the three months ended December 31, 2017 NOI at share - cash basis for the three months ended September 30, 2017 Less NOI at share - cash basis from: Acquisitions Dispositions Development properties placed into and out of service Lease termination income Other non-operating income, net Same store NOI at share - cash basis for the three months ended September 30, 2017 Increase (decrease) in same store NOI at share - cash basis for the three months ended December 31, 2017 compared to September 30, 2017 $ $ $ $ % increase (decrease) in same store NOI at share - cash basis ________________________________________ (1) Excluding tradeshows seasonality, same store NOI increased by 3.9%. 2 (8) 160 (1,393) (13) 281,535 277,402 — (15) 194 (285) (584) 276,712 4,823 1.7% $ $ $ $ (46) — — — — 24,350 25,417 41 — — — — 25,458 (1,108) (4.4)% (1) $ $ $ $ — — — — — 11,916 10,889 — — — — — 10,889 1,027 9.4% 77 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 to our consolidated financial statements in this Annual Report on Form 10-K. Urban Edge Properties We own 4.5% of UE.  In 2017 and 2016, we provided UE with information technology support.  UE is providing us with leasing, development and property management services for (i) certain small retail properties that we plan to sell and (ii) our affiliate, Alexander's, Rego retail assets. 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, 2017, Interstate and its partners beneficially owned an aggregate of approximately 7.2% of the common shares of beneficial interest of Vornado and 26.2% 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 1 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 $501,000, $521,000, and $541,000 of management fees under the agreement for the years ended December 31, 2017, 2016 and 2015, respectively. 78               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/units 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 17, 2018, Vornado declared a quarterly common dividend of $0.63 per share (an indicated annual rate of $2.52 per common share).  This dividend, when declared by the Board of Trustees for all of 2018, will require Vornado to pay out approximately $479,000,000 of cash for common share dividends.  In addition, during 2018, Vornado expects to pay approximately $68,000,000 of cash dividends on outstanding preferred shares and approximately $32,000,000 of cash distributions to unitholders of the Operating Partnership. 79           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, 2017, 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, 2017, we had $1,817,655,000 of cash and cash equivalents and $2,491,062,000 of borrowing capacity under our unsecured revolving credit facilities, net of letters of credit of $8,938,000.  A summary of our consolidated debt as of December 31, 2017 and 2016 is presented below. (Amounts in thousands) 2017 2016 Consolidated debt: Variable rate Fixed rate Total Deferred financing costs, net and other Total, net December 31, Balance Weighted Average Interest Rate December 31, Balance Weighted Average Interest Rate $ $ 3,492,133 6,311,706 9,803,839 (74,352) 9,729,487 3.19% 3.72% 3.53% $ $ 3,217,763 6,329,547 9,547,310 (100,640) 9,446,670 2.45% 3.65% 3.25% During 2018 and 2019, $139,752,000 and $210,808,000, 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, 2017. (Amounts in thousands) Contractual cash obligations (principal and interest(1)): Notes and mortgages payable Operating leases Purchase obligations, primarily construction commitments Senior unsecured notes due 2025 Senior unsecured notes due 2022 Capital lease obligations Unsecured term loan Total contractual cash obligations Commitments: Capital commitments to partially owned entities Standby letters of credit Total commitments Total Less than 1 Year 1 – 3 Years 3 – 5 Years Thereafter $ 9,121,794 $ 2,281,579 $ 3,263,813 $ 2,720,087 $ 856,315 1,287,568 564,573 561,388 480,833 360,870 761,475 13,138,501 41,709 8,938 50,647 $ $ $ $ $ $ 33,703 564,573 15,750 20,000 13,508 761,475 3,690,588 41,709 8,938 50,647 $ $ $ 69,080 — 31,500 40,000 25,016 — 71,614 1,113,171 — 31,500 420,833 25,016 — — 482,638 — 297,330 — 3,429,409 $ 3,269,050 $ 2,749,454 — $ — — $ — $ — — $ — — — ____________________ (1) Interest on variable rate debt is computed using rates in effect at December 31, 2017. 80         Liquidity and Capital Resources – continued Financing Activities and Contractual Obligations – continued Details of 2017 financing activities are provided in the “Overview” of Management’s Discussion and Analysis of Financial Conditions and Results of Operations.  Details of 2016 financing activities are discussed below. 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%, 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. 81   Liquidity and Capital Resources – continued Acquisitions and Investments Details of 2017 acquisition activity is provided in the "Overview" of Management's Discussion and Analysis of Financial Conditions and Results of Operations. Details of 2016 acquisitions and investments are discussed below. 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% 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%, 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. Certain Future Cash Requirements Capital Expenditures The following table summarizes anticipated 2018 capital expenditures. (Amounts in millions, except square foot data) Expenditures to maintain assets Tenant improvements Leasing commissions Total capital expenditures and leasing commissions Total New York theMART $ $ 109.0 $ 75.0 25.0 90.0 58.0 22.0 $ 15.0 $ 9.0 1.0 209.0 $ 170.0 $ 25.0 $ 555 California Street 4.0 8.0 2.0 14.0 100 10 1,000 10 200 8 $ $ 80.00 8.00 $ $ 50.00 6.25 $ $ 100.00 10.00 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 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.   82       Liquidity and Capital Resources – continued Development and Redevelopment Expenditures We are constructing a residential condominium tower containing 397,000 salable square feet at 220 Central Park South. The development cost of this project (exclusive of land cost of $515 million) is estimated to be approximately $1.4 billion, of which $890 million has been expended as of December 31, 2017. We are developing a 173,000 square foot Class A office building, located along the western edge of the High Line at 512 West 22nd Street in the West Chelsea submarket of Manhattan (55.0% interest).  The 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, 2017, $73,890,000 has been expended, of which our share is $40,640,000. 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 (45.1% interest).  The development cost of this project is estimated to be approximately $152,000,000, of which our share is $69,000,000.  As of December 31, 2017, $105,281,000 has been expended, of which our share is $47,482,000. 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% interest).  The venture’s 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, 2017, $34,189,000 has been expended, of which our share is $17,095,000. A joint venture in which we have a 50.1% ownership interest is redeveloping the historic Farley Post Office building which will include a new Moynihan Train Hall and approximately 850,000 rentable square feet of commercial space, comprised of approximately 730,000 square feet of office space and approximately 120,000 square feet of retail space.  As of December 31, 2017, $271,641,000 has been expended, of which our share is $136,092,000. The joint venture has also entered into a development agreement with Empire State Development (“ESD”) and a design-build contract with Skanska Moynihan Train Hall Builders.  Under the development agreement with ESD, the joint venture is obligated to build the Moynihan Train Hall, with Vornado and Related Companies ("Related") each guaranteeing the joint venture’s obligations.  Under the design-build agreement, Skanska Moynihan Train Hall Builders is obligated to fulfill all of the joint venture’s obligations.  The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bear a full guaranty from Skanska AB. We are redeveloping a 64,000 square foot Class A office building at 345 Montgomery Street, a part of our 555 California Street complex in San Francisco (70.0% interest) located at the corner of California and Pine Street. The development cost of this project is estimated to be approximately $46,000,000, of which our share is $32,000,000. As of December 31, 2017, $2,720,000 has been expended, of which our share is $1,904,000. 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. 83             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 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 $1,976,000 ($1,601,000 for 2018) and 17% (18% for 2018) 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. We are responsible for deductibles and losses in excess of our insurance coverage, which could be material. 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. 84             Liquidity and Capital Resources – continued Other Commitments and Contingencies We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not currently expected to have a material adverse effect on our financial position, results of operations or cash flows. Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us. Generally, our mortgage loans are non-recourse to us.  However, in certain cases we have provided guarantees or master leased tenant space.  These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans.  As of December 31, 2017, the aggregate dollar amount of these guarantees and master leases is approximately $668,000,000. As of December 31, 2017, $8,938,000 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. In September 2016, our 50.1% joint venture with Related was designated by ESD, an entity of New York State, to redevelop the historic Farley Post Office Building. The joint venture entered into a development agreement with ESD and a design-build contract with Skanska Moynihan Train Hall Builders. Under the development agreement with ESD, the joint venture is obligated to build the Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture’s obligations. Under the design-build agreement, Skanska Moynihan Train Hall Builders is obligated to fulfill all of the joint venture’s obligations. The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bear a full guaranty from Skanska AB. As of December 31, 2017, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $42,000,000. As of December 31, 2017, we have construction commitments aggregating approximately $422,000,000. 85           Liquidity and Capital Resources – continued Cash Flows for the Year Ended December 31, 2017 Our cash and cash equivalents and restricted cash were $1,914,812,000 at December 31, 2017, a $315,481,000 increase from the balance at December 31, 2016.  Our consolidated outstanding debt, net, was $9,729,487,000 at December 31, 2017, a $282,817,000 increase from the balance at December 31, 2016.  As of December 31, 2017 and December 31, 2016, $0 and $115,630,000, respectively, was outstanding under our revolving credit facilities.  During 2018 and 2019, $139,752,000 and $210,808,000, respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it. Net Cash Provided by Operating Activities Net cash provided by operating activities of $860,142,000 was comprised of (i) net income of $264,128,000, (ii) $524,166,000 of non-cash adjustments, which include depreciation and amortization expense, amortization of below-market leases, net, the effect of straight-lining of rents, change in allowance for deferred tax assets, equity in net income from partially owned entities, net realized and unrealized losses on real estate fund investments, net gains on sale of real estate and other and net gains on disposition of wholly owned and partially owned assets, (iii) return of capital from real estate fund investments of $91,606,000 and (iv) distributions of income from partially owned entities of $82,095,000, partially offset by (v) the net change in operating assets and liabilities of $101,853,000. Net Cash Used in Investing Activities Net cash used in investing activities of $206,317,000 was primarily comprised of (i) $355,852,000 of development costs and construction in progress, (ii) $271,308,000 of additions to real estate, (iii) $40,537,000 of investments in partially owned entities and (iv) $30,607,000 of acquisitions of real estate and other, partially offset by (v) $366,155,000 of capital distributions from partially owned entities, (vi) $115,630,000 of proceeds from the repayment of a loan receivable from JBGS and (vii) $9,543,000 of proceeds from sales of real estate and related investments. Net Cash Used in Financing Activities Net cash used in financing activities of Vornado Realty Trust of $338,344,000 was primarily comprised of (i) $631,681,000 of repayments of borrowings, (ii) $496,490,000 of dividends paid on common shares, (iii) $416,237,000 of cash and cash equivalents and restricted cash included in the spin-off of JBGS, (iv) $109,697,000 of distributions to noncontrolling interests, (v) $64,516,000 of dividends paid on preferred shares, (vi) $12,325,000 of debt issuance costs and (vii) $3,217,000 of debt prepayment and extinguishment costs, partially offset by (viii) $1,055,872,000 of proceeds from borrowings, (ix) $309,609,000 of proceeds from the issuance of preferred shares and (x) $29,712,000 of proceeds received from exercise of employee share options and other. Net cash used in financing activities of the Operating Partnership of $338,344,000 was primarily comprised of (i) $631,681,000 of repayments of borrowings, (ii) $496,490,000 of distributions to Vornado, (iii) $416,237,000 of cash and cash equivalents and restricted cash included in the spin-off of JBGS, (iv) $109,697,000 of distributions to redeemable security holders and noncontrolling interests in consolidated subsidiaries, (v) $64,516,000 of distributions to preferred unitholders, (vi) $12,325,000 of debt issuance costs and (vii) $3,217,000 of debt prepayment and extinguishment costs, partially offset by (viii) $1,055,872,000 of proceeds from borrowings, (ix) $309,609,000 of proceeds from the issuance of preferred units and (x) $29,712,000 of proceeds received from exercise of Vornado stock options and other. 86     Liquidity and Capital Resources – continued Capital Expenditures for the Year Ended December 31, 2017 Capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions.  Recurring capital expenditures include expenditures to maintain a property’s competitive position within the market and tenant improvements and leasing commissions necessary to re-lease expiring leases or renew or extend existing leases.  Non-recurring capital improvements include expenditures to lease space that has been vacant for more than nine months and expenditures completed in the year of acquisition and the following two years that were planned at the time of acquisition, as well as tenant improvements and leasing commissions for space that was vacant at the time of acquisition of a property.  Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to the cash expended in the year ended December 31, 2017. (Amounts in thousands) Expenditures to maintain assets Tenant improvements Leasing commissions Non-recurring capital expenditures Total New York theMART 555 California Street Other $ 100,556 $ 73,745 $ 11,725 $ 89,696 30,165 80,461 42,475 21,183 68,977 9,423 1,190 1,092 $ 7,893 6,652 2,147 6,208 22,900 7,193 31,146 5,645 4,184 48,168 Total capital expenditures and leasing commissions (accrual basis) 300,878 206,380 23,430 Adjustments to reconcile to cash basis: Expenditures in the current period applicable to prior periods Expenditures to be made in future periods for the current period 153,511 (142,877) 101,500 (90,798) Total capital expenditures and leasing commissions (cash basis) $ 311,512 $ 217,082 Tenant improvements and leasing commissions: Per square foot per annum Percentage of initial rent $ 9.51 $ 10.21 11.1% 10.9% 8,784 (9,011) 23,203 5.13 10.8% $ $ $ $ 17,906 (3,301) 37,505 $ 25,321 (39,767) 33,722 (1) 10.33 11.7% n/a n/a __________ (1) Effective July 17, 2017, the date of the spin-off of our Washington, DC segment, capital expenditures and leasing commissions by our former Washington, DC segment have been reclassified to the Other segment. We have reclassified the prior period capital expenditures and leasing commissions to conform to the current period presentation. Development and Redevelopment Expenditures for the Year Ended December 31, 2017 Development and redevelopment expenditures consist of all hard and soft costs associated with the development or redevelopment of a property, including capitalized interest, debt and operating costs until the property is substantially completed and ready for its intended use.  Our development project budgets below include initial leasing costs, which are reflected as non-recurring capital expenditures in the table above. Below is a summary of development and redevelopment expenditures incurred in the year ended December 31, 2017. These expenditures include interest of $48,230,000, payroll of $6,044,000, and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $28,197,000, which were capitalized in connection with the development and redevelopment of these projects. (Amounts in thousands) 220 Central Park South 606 Broadway 90 Park Avenue Penn Plaza 345 Montgomery Street theMART 304 Canal Street Other Total New York theMART 555 California Street Other $ 265,791 $ — $ — $ — $ 265,791 15,997 7,523 7,107 5,950 5,682 3,973 43,829 15,997 7,523 7,107 — — 3,973 8,774 — — — — 5,682 — 459 — — — 5,950 — — 6,465 $ 355,852 $ 43,374 $ 6,141 $ 12,415 $ — — — — — — 28,131 293,922 87         Liquidity and Capital Resources – continued Cash Flows for the Year Ended December 31, 2016 Our cash and cash equivalents and restricted cash were $1,599,331,000 at December 31, 2016, a $344,184,000 decrease from the balance at December 31, 2015.  Our consolidated outstanding debt, net, was $9,446,670,000 at December 31, 2016, a $351,000,000 increase from the balance at December 31, 2015. Net Cash Provided by Operating Activities Cash flows provided by operating activities of $995,080,000 was comprised of (i) net income of $981,922,000, (ii) distributions of income from partially owned entities of $214,800,000, (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 gains 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, net realized and unrealized losses 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 $75,962,000. Net Cash Used in Investing Activities Net cash used in investing activities of $893,110,000 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) $91,103,000 of acquisitions of real estate and other, (v) $48,000,000 due to the net deconsolidation of 7 West 34th Street, (vi) $11,700,000 of investments in loans receivable, and (vii) $4,379,000 in purchases of marketable securities, partially offset by (viii) $196,635,000 of capital distributions from partially owned entities, (ix) $183,173,000 of proceeds from sales of real estate and related investments, and (x) $3,937,000 of proceeds from the sale of marketable securities. 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 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 and other. 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 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 and other. 88                 Liquidity and Capital Resources – continued Capital Expenditures for the Year Ended December 31, 2016 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 New York theMART 555 California Street Other $ 16,343 $ $ 114,031 $ 86,630 38,938 55,636 67,239 63,995 32,475 41,322 6,722 1,355 1,518 25,938 24,314 1,654 51,906 5.57 11.6% $ $ $ 5,704 3,201 1,041 3,900 13,846 24,745 12,712 4,067 8,896 50,420 12,708 (3,056) 23,498 $ 71,935 (16,357) 105,998 (1) 9.08 11.8% n/a n/a Total capital expenditures and leasing commissions (accrual basis) 295,235 205,031 Adjustments to reconcile to cash basis: Expenditures in the current period applicable to prior periods 268,101 159,144 Expenditures to be made in future periods for the current period (117,910) (100,151) Total capital expenditures and leasing commissions (cash basis) Tenant improvements and leasing commissions: Per square foot per annum Percentage of initial rent __________ $ $ 445,426 7.79 10.0% $ $ 264,024 7.98 9.7% $ $ (1) Effective July 17, 2017, the date of the spin-off of our Washington, DC segment, capital expenditures and leasing commissions by our former Washington, DC segment have been reclassified to the Other segment. We have reclassified the prior period capital expenditures and leasing commissions to conform to the current period presentation. Development and Redevelopment Expenditures for the Year Ended December 31, 2016 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, which were capitalized in connection with the development and redevelopment of these projects. (Amounts in thousands) 220 Central Park South 640 Fifth Avenue 90 Park Avenue theMART Penn Plaza Wayne Towne Center 330 West 34th Street Other __________ Total New York theMART 555 California Street Other $ 303,974 $ — $ — $ — $ 303,974 46,282 33,308 24,788 11,904 8,461 5,492 172,356 46,282 33,308 — 11,904 — 5,492 21,217 — — 24,788 — — — — — — — — — — — — — 8,461 — 1,384 9,150 140,605 (1) $ 606,565 $ 118,203 $ 26,172 $ 9,150 $ 453,040 (1) Primarily relates to our former Washington, DC segment which was spun-off on July 17, 2017. 89       Liquidity and Capital Resources – continued Cash Flows for the Year Ended December 31, 2015 Our cash and cash equivalents and restricted cash were $1,943,515,000 at December 31, 2015, a $558,526,000 increase over the balance at December 31, 2014.  Our consolidated outstanding debt, net, was $9,095,670,000 at December 31, 2015, a $1,537,793,000 increase from the balance at December 31, 2014.  Net Cash Provided by Operating Activities Cash flows provided by operating activities of $672,091,000 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 $66,819,000, partially offset by (iv) $81,654,000 of non-cash adjustments, which include depreciation and amortization expense, net gains on the disposition of wholly owned and partially owned assets, the effect of straight-lining of rental income, change in allowance for deferred tax assets, amortization of below-market leases, net, net gains on sale of real estate and other, net realized and unrealized gains on real estate fund investments, equity in net loss from partially owned entities and real estate impairment losses, and (v) the net change in operating assets and liabilities of $263,962,000 (including $95,010,000 related to real estate fund investments). Net Cash Used in Investing Activities Net cash used in investing activities of $732,424,000 was comprised of (i) $558,484,000 of acquisitions of real estate and other, (ii) $475,819,000 of development costs and construction in progress, (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, partially offset by (vi) $786,924,000 of proceeds from sales of real estate and related investments, (vii) $36,017,000 of capital distributions from partially owned entities, and (viii) $16,790,000 of proceeds from repayments of mortgage loans receivable. Net Cash Provided by Financing Activities Net cash provided by financing activities of Vornado Realty Trust of $618,859,000 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 and other, partially offset by (iv) $2,936,578,000 for the repayments of borrowings, (v) $474,751,000 of dividends paid on common shares, (vi) $234,967,000 of cash and cash equivalents and restricted cash included in 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 costs, (x) $15,000,000 of debt extinguishment costs and (xi) $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 $618,859,000 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 and other, partially offset by (iv) $2,936,578,000 for the repayments of borrowings, (v) $474,751,000 of distributions to Vornado, (vi) $234,967,000 of cash and cash equivalents and restricted cash included in 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 costs, (x) $15,000,000 of debt extinguishment costs and (xi) $7,473,000 for the repurchase of Class A units related to stock compensation agreements and related tax withholdings and other. 90               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. Total New York theMART 555 California Street Other (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: $ 125,215 $ 153,696 50,081 116,875 445,867 57,752 68,869 35,099 81,240 242,960 Expenditures in the current year applicable to prior periods 156,753 93,105 Expenditures to be made in future periods for the current period (222,469) (118,911) Total capital expenditures and leasing commissions (cash basis) Tenant improvements and leasing commissions: Per square foot per annum Percentage of initial rent $ $ 380,151 9.10 9.8% $ $ 217,154 10.20 8.9% $ $ $ 33,958 $ 30,246 7,175 411 71,790 16,849 (37,949) 50,690 6.02 15.6% $ $ $ 7,916 3,084 1,046 796 25,589 51,497 6,761 34,428 12,842 118,275 10,994 7,618 31,454 $ 35,805 (73,227) 80,853 (1) 8.13 9.7% n/a n/a __________ (1) Effective July 17, 2017, the date of the spin-off of our Washington, DC segment, capital expenditures and leasing commissions by our former Washington, DC segment have been reclassified to the Other segment. We have reclassified the prior period capital expenditures and leasing commissions to conform to the current period presentation. 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, which were capitalized in connection with the development and redevelopment of these projects. (Amounts in thousands) 220 Central Park South 330 West 34th Street 90 Park Avenue Marriott Marquis Times Square - retail and signage Wayne Towne Center 640 Fifth Avenue Penn Plaza Other __________ Total New York theMART 555 California Street Other $ 158,014 $ — $ — $ — $ 158,014 32,613 29,937 21,929 20,633 17,899 17,701 192,093 32,613 29,937 21,929 — 17,899 17,701 8,100 $ 490,819 $ 128,179 $ — — — — — — 588 588 $ — — — — — — 260 260 — — — 20,633 — — 183,145 (1) $ 361,792 (1) Primarily relates to our former Washington, DC segment which was spun-off on July 17, 2017. 91         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 $717,805,000, or $3.75 per diluted share for the year ended December 31, 2017, compared to $1,457,583,000, or $7.66 per diluted share for the year ended December 31, 2016. FFO attributable to common shareholders plus assumed conversions was $153,151,000, or $0.80 per diluted share for the three months ended December 31, 2017, compared to $797,734,000, or $4.20 per diluted share for the three months ended December 31, 2016.  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 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 $ $ $ $ $ $ $ For the Year Ended December 31, For the Three Months Ended December 31, 2017 2016 2017 2016 162,017 0.85 $ $ 823,606 4.34 $ $ 27,319 0.14 $ $ 651,181 3.43 467,966 $ 531,620 $ 106,017 $ (3,489) — (177,023) 160,700 137,000 (17,777) 7,692 591,392 (36,728) 554,664 716,681 77 1,047 717,805 3.75 $ $ $ $ 154,795 (2,853) 6,328 673,567 (41,267) 632,300 1,455,906 86 1,591 1,457,583 7.66 $ $ $ $ 308 — 28,247 (593) 145 134,124 (8,310) 125,814 153,133 18 — 153,151 0.80 $ $ $ $ 133,389 (15,302) — 37,160 (12) 792 156,027 (9,495) 146,532 797,713 21 — 797,734 4.20 189,526 188,837 189,898 189,013 1,448 46 284 1,064 42 230 1,122 43 — 1,055 40 — Denominator for FFO per diluted share 191,304 190,173 191,063 190,108 92         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) 2017 2016 December 31, Balance Weighted Average Interest Rate Effect of 1% Change In Base Rates December 31, Balance Weighted Average Interest Rate $ $ $ 3,492,133 6,311,706 9,803,839 1,395,001 1,269,522 2,035,888 587,865 $ 5,288,276 3.19% 3.72% 3.53% 3.24% 8.20% 4.89% 10.31% 5.85% 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 - excluding Toys "R" Us, Inc. Fixed rate - Toys "R" Us, Inc. 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 $ $ $ $ 34,921 — 34,921 $ $ 3,217,763 6,329,547 9,547,310 13,950 $ 12,695 — — 1,092,326 1,162,072 1,969,918 671,181 26,645 $ 4,895,497 2.45% 3.65% 3.25% 2.50% 6.05% 5.15% 9.42% 5.36% (1,456) 60,110 (3,727) 56,383 0.30 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, 2017, we have an interest rate swap on a $407,000,000 mortgage loan on Two Penn Plaza that swapped the rate from LIBOR plus 1.65% (3.01% as of December 31, 2017) to a fixed rate of 4.78% through March 2018, an interest rate swap on a $375,000,000 mortgage loan on 888 Seventh Avenue that swapped the rate from LIBOR plus 1.60% (2.96% as of December 31, 2017) to a fixed rate of 3.15% through December 2020 and an interest rate swap on a $700,000,000 mortgage loan on 770 Broadway that swapped the rate from LIBOR plus 1.75% (3.15% as of December 31, 2017) to a fixed rate of 2.56% through September 2020. Fair Value of Debt The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt.  As of December 31, 2017, the estimated fair value of our consolidated debt was $9,822,000,000. 93     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, 2017 and 2016 Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015 Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015 Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015 Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015  Vornado Realty L.P. Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 31, 2017 and 2016 Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015 Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015 Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015 Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 Notes to Consolidated Financial Statements Page Number 95 96 97 98 99 102 105 106 107 108 109 112 115 94   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Trustees Vornado Realty Trust New York, New York Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Vornado Realty Trust and subsidiaries (the "Company") as of December 31, 2017 and 2016, 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, 2017, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with the accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 12, 2018, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey February 12, 2018 We have served as the Company’s auditor since 1976. 95 VORNADO REALTY TRUST CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except unit, share and per share amounts) ASSETS Real estate, at cost: Land Buildings and improvements Development costs and construction in progress Leasehold improvements and equipment Total Less accumulated depreciation and amortization Real estate, net Cash and cash equivalents Restricted cash Marketable securities Tenant and other receivables, net of allowance for doubtful accounts of $5,526 and $6,708 Investments in partially owned entities Real estate fund investments Receivable arising from the straight-lining of rents, net of allowance of $954 and $1,913 Deferred leasing costs, net of accumulated amortization of $191,827 and $170,952 Identified intangible assets, net of accumulated amortization of $150,837 and $194,422 Assets related to discontinued operations Other assets LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY Mortgages payable, net Senior unsecured notes, net Unsecured term loan, net Unsecured revolving credit facilities Accounts payable and accrued expenses Deferred revenue Deferred compensation plan Liabilities related to discontinued operations Preferred shares to be redeemed on January 4 and 11, 2018 Other liabilities Total liabilities Commitments and contingencies Redeemable noncontrolling interests: Class A units - 12,528,899 and 12,197,162 units outstanding Series D cumulative redeemable preferred units - 177,101 units outstanding Total redeemable noncontrolling interests Vornado's shareholders' equity: Preferred shares of beneficial interest: no par value per share; authorized 110,000,000 shares; issued and outstanding 36,799,573 and 42,824,829 shares Common shares of beneficial interest: $0.04 par value per share; authorized 250,000,000 shares; issued and outstanding 189,983,858 and 189,100,876 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. 96 December 31, 2017 December 31, 2016 $ 3,143,648 $ 9,898,605 1,615,101 98,941 14,756,295 (2,885,283) 11,871,012 1,817,655 97,157 182,752 58,700 1,056,829 354,804 926,711 403,492 159,260 1,357 468,205 $ $ 17,397,934 8,137,139 $ $ 843,614 748,734 — 415,794 227,069 109,177 3,620 455,514 464,635 11,405,296 979,509 5,428 984,937 3,130,825 9,684,144 1,278,941 93,910 14,187,820 (2,581,514) 11,606,306 1,501,027 95,032 203,704 61,069 1,378,254 462,132 885,167 354,997 189,668 3,568,613 508,878 20,814,847 8,113,248 845,577 372,215 115,630 397,134 276,276 121,183 1,259,443 — 417,199 11,917,905 1,273,018 5,428 1,278,446 891,988 1,038,055 7,577 7,492,658 (4,183,253) 128,682 4,337,652 670,049 5,007,701 7,542 7,153,332 (1,419,382) 118,972 6,898,519 719,977 7,618,496 $ 17,397,934 $ 20,814,847 VORNADO REALTY TRUST  CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per share amounts) REVENUES: Property rentals Tenant expense reimbursements Fee and other income Total revenues EXPENSES: Operating Depreciation and amortization General and administrative Acquisition and transaction related costs Total expenses Operating income Income (loss) from partially owned entities Income (loss) from real estate fund investments Interest and other investment income, net Interest and debt expense Net gains on disposition of wholly owned and partially owned assets Income before income taxes Income tax (expense) benefit Income from continuing operations (Loss) 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 (Loss) income from discontinued operations, net Net income per common share Weighted average shares outstanding INCOME PER COMMON SHARE - DILUTED: Income from continuing operations, net (Loss) income from discontinued operations, net Net income per common share Weighted average shares outstanding Year Ended December 31, 2017 2016 2015 $ 1,714,952 $ 1,662,093 $ 1,626,866 233,424 135,750 2,084,126 886,596 429,389 158,999 1,776 1,476,760 607,366 15,200 3,240 37,793 (345,654) 501 318,446 (41,090) 277,356 (13,228) 264,128 (25,802) (10,910) 227,416 (65,399) — 221,563 120,086 2,003,742 844,566 421,023 149,550 9,451 1,424,590 579,152 168,948 (23,602) 29,548 (330,240) 160,433 584,239 (7,229) 577,010 404,912 981,922 (21,351) (53,654) 906,917 (75,903) (7,408) $ $ $ $ $ 162,017 $ 823,606 $ 0.92 (0.07) 0.85 189,526 0.91 (0.06) 0.85 $ $ $ $ 2.35 2.01 4.36 188,837 2.34 2.00 4.34 $ $ $ $ 218,739 139,890 1,985,495 824,511 379,803 149,256 12,511 1,366,081 619,414 (9,947) 74,081 27,240 (309,298) 149,417 550,907 85,012 635,919 223,511 859,430 (55,765) (43,231) 760,434 (80,578) — 679,856 2.49 1.12 3.61 188,353 2.48 1.11 3.59 191,258 190,173 189,564 See notes to consolidated financial statements. 97 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in thousands) Net income Other comprehensive (loss) income: Year Ended December 31, 2017 2016 2015 $ 264,128 $ 981,922 $ 859,430 (Reduction) increase in unrealized net gain on available-for-sale securities Pro rata share of amounts reclassified from accumulated other comprehensive income of a nonconsolidated subsidiary Pro rata share of other comprehensive income (loss) of nonconsolidated subsidiaries Increase in value of interest rate swaps and other Comprehensive income Less comprehensive income attributable to noncontrolling interests (20,951) 14,402 1,425 15,477 274,481 (37,356) 52,057 — (2,739) 27,432 1,058,672 (79,704) Comprehensive income attributable to Vornado $ 237,125 $ 978,968 $ (55,326) — (327) 6,441 810,218 (96,130) 714,088 See notes to consolidated financial statements. 98 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Amounts in thousands) Preferred Shares Common Shares Shares Amount Shares Amount Additional Capital Earnings Less Than Distributions Accumulated Other Comprehensive Income (Loss) Balance, December 31, 2016 42,825 $ 1,038,055 189,101 $ 7,542 $ 7,153,332 $ (1,419,382) $ 118,972 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 Distributions: JBG SMITH Properties 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 amounts reclassified related to a nonconsolidated subsidiary Pro rata share of other comprehensive income of nonconsolidated subsidiaries Increase in value of interest rate swaps Adjustments to carry redeemable Class A units at redemption value — — — — — — — — — — — — — — — — — — — — — — (5) (162) — — — — — — — — — — — — Preferred shares issuance 12,780 309,609 Cumulative redeemable preferred shares called for redemption (18,800) (455,514) Redeemable noncontrolling interests' share of above adjustments Other — — — — — — — — 403 449 17 — — — — 10 — — — — — — — — — 4 — — — — 16 18 1 — — — — — — — — — — — — — — — — — — — 38,731 28,235 1,458 — — — — 162 2,246 — — — — 268,494 — — — — 227,416 — (496,490) (65,399) — — — — (2,428,345) — — — (418) — — — — — — — — (635) — — — — — — — — — — — — — (20,951) 14,402 1,425 15,476 — — — (642) — Non- controlling Interests in Consolidated Subsidiaries $ 719,977 Total Equity $ 7,618,496 — 227,416 25,802 — — — — — 1,044 25,802 (496,490) (65,399) 38,747 28,253 1,459 1,044 — (2,428,345) (73,850) (2,618) (73,850) (2,618) — — — — — — — — — — 1,828 (20,951) 14,402 1,425 15,476 268,494 309,609 (455,514) — (306) (642) (941) Balance, December 31, 2017 36,800 $ 891,988 189,984 $ 7,577 $ 7,492,658 $ (4,183,253) $ 128,682 $ 670,049 $ 5,007,701 See notes to consolidated financial statements. 99 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – CONTINUED (Amounts in thousands) Preferred Shares Common Shares Shares Amount Shares Amount Additional Capital Earnings Less Than Distributions Accumulated Other Comprehensive Income (Loss) Balance, December 31, 2015 52,677 $ 1,276,954 188,577 $ 7,521 $ 7,132,979 $ (1,766,780) $ 46,921 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 — — — — — — — — (9,850) (238,842) — — — — — — — — — — — — (2) (56) — — — — — — — — — — — — — (1) — — — — — 376 123 16 — — — 3 7 — — — — — (1) — — — — — 15 5 1 — — — — — — — — — — — — — — — — 36,495 6,820 1,443 — — — 56 906,917 — (475,961) (75,903) (7,408) — — — — — — — 1,788 (186) — — — (26,251) — 2 — — — — — (61) — — — — — — — — — — — — — 52,057 (2,739) 27,434 — (4,699) (2) Non- controlling Interests in Consolidated Subsidiaries $ 778,483 Total Equity $ 7,476,078 — 906,917 21,351 — — — — — — 19,749 21,351 (475,961) (75,903) (246,250) 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) — (358) (4,699) (420) Balance, December 31, 2016 42,825 $ 1,038,055 189,101 $ 7,542 $ 7,153,332 $ (1,419,382) $ 118,972 $ 719,977 $ 7,618,496 See notes to consolidated financial statements. 100 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – CONTINUED (Amounts in thousands) Preferred Shares Common Shares Shares Amount Shares Amount Additional Capital Earnings Less Than Distributions Accumulated Other Comprehensive Income (Loss) Balance, December 31, 2014 52,679 $ 1,277,026 187,887 $ 7,493 $ 6,873,025 $ (1,505,385) $ 93,267 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 — — — — — — — — — — — — — — — — — — — — — — — — (2) (72) — — — — — — — — — — — — — — — — — — — 452 214 14 — — — — 4 6 — — — — — — — — — — — — — — — — — — — — Non- controlling Interests in Consolidated Subsidiaries $ 743,956 Total Equity $ 7,489,382 — 760,434 55,765 55,765 (341) — — — — — 51,725 250 (464,603) (474,751) (80,578) 48,230 12,762 1,438 51,725 250 (72,114) (72,114) (525) (525) — — — — — — — 2,080 (55,326) (327) 6,435 192,464 — (233) 2,866 471 — — — — — — — — — — 760,434 — (464,262) (474,751) (80,578) 18 48,212 — 15,332 (2,579) 1,437 — — — — 71 — — — — — — 2,438 (359) 9 1 — — — — 1 1 — — — — — — — 192,464 — (2) — — — — — — — 700 (55,326) (327) 6,435 — 2,866 6 Balance, December 31, 2015 52,677 $ 1,276,954 188,577 $ 7,521 $ 7,132,979 $ (1,766,780) $ 46,921 $ 778,483 $ 7,476,078 See notes to consolidated financial statements. 101 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) Return of capital from real estate fund investments Distributions of income from partially owned entities Amortization of below-market leases, net Straight-lining of rents Change in allowance for deferred tax assets Equity in net (income) loss of partially owned entities Net realized and unrealized losses (gains) on real estate fund investments Net gains on sale of real estate and other Net gains on disposition of wholly owned and partially owned assets Net gain on extinguishment of Skyline properties debt Real estate impairment losses Other non-cash adjustments 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: Distributions of capital from partially owned entities Development costs and construction in progress Additions to real estate Proceeds from the repayment of JBG SMITH Properties loan receivable Investments in partially owned entities Acquisitions of real estate and other Proceeds from sales of real estate and related investments Proceeds from repayments of mortgage loans receivable Net deconsolidation of 7 West 34th Street Investments in loans receivable Purchases of marketable securities Proceeds from the sale of marketable securities Year Ended December 31, 2017 2016 2015 $ 264,128 $ 981,922 $ 859,430 529,826 91,606 82,095 (46,790) (45,792) 34,800 (15,635) 15,267 (3,489) (501) — — 56,480 — 1,183 (12,292) (79,199) 3,760 (15,305) 860,142 366,155 (355,852) (271,308) 115,630 (40,537) (30,607) 9,543 659 — — — — 595,270 71,888 214,800 (53,202) (146,787) — (165,389) 40,655 (5,074) (175,735) (487,877) 161,165 39,406 — (4,271) (7,893) (76,357) 13,278 (719) 995,080 196,635 (606,565) (387,545) — (127,608) (91,103) 183,173 45 (48,000) (11,700) (4,379) 3,937 566,207 91,458 66,819 (79,053) (153,668) (90,030) 11,882 (57,752) (65,396) (251,821) — 256 37,721 (95,010) 8,366 (16,836) (112,415) (25,231) (22,836) 672,091 36,017 (475,819) (301,413) — (235,439) (558,484) 786,924 16,790 — (1,000) — — Net cash used in investing activities (206,317) (893,110) (732,424) See notes to consolidated financial statements. 102 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED (Amounts in thousands) Cash Flows from Financing Activities: Proceeds from borrowings Repayments of borrowings Dividends paid on common shares Cash and cash equivalents and restricted cash included in the spin-off of JBG SMITH Properties ($275,000 plus The Bartlett financing proceeds less transaction costs and other mortgage items) Proceeds from issuance of preferred shares Distributions to noncontrolling interests Dividends paid on preferred shares Proceeds received from exercise of employee share options and other Debt issuance costs Debt prepayment and extinguishment costs Contributions from noncontrolling interests Repurchase of shares related to stock compensation agreements and related tax withholdings and other Redemption of preferred shares Cash and cash equivalents and restricted cash included in the spin-off of Urban Edge Properties Net cash (used in) provided by financing activities Net increase (decrease) in cash and cash equivalents and restricted cash Cash and cash equivalents and restricted cash at beginning of period Cash and cash equivalents and restricted cash at end of period Reconciliation of Cash and Cash Equivalents and Restricted Cash: Cash and cash equivalents at beginning of period Restricted cash at beginning of period Restricted cash included in discontinued operations at beginning of period Cash and cash equivalents and restricted cash at beginning of period Cash and cash equivalents at end of period Restricted cash at end of period Restricted cash included in discontinued operations at end of period $ $ $ Year Ended December 31, 2017 2016 2015 $ 1,055,872 $ 2,403,898 $ 4,468,872 (1,894,990) (475,961) (2,936,578) (474,751) (631,681) (496,490) (416,237) 309,609 (109,697) (64,516) 29,712 (12,325) (3,217) 1,044 (418) — — (338,344) 315,481 1,599,331 — — (130,590) (80,137) 8,269 (42,157) — 11,950 (186) (246,250) — (446,154) (344,184) 1,943,515 — — (102,866) (80,578) 16,779 (66,554) (15,000) 51,975 (7,473) — (234,967) 618,859 558,526 1,384,989 1,943,515 1,914,812 $ 1,599,331 $ 1,501,027 $ 1,835,707 $ 1,198,477 95,032 3,272 99,943 7,865 168,447 18,065 1,599,331 $ 1,943,515 $ 1,384,989 1,817,655 1,501,027 1,835,707 97,157 — 95,032 3,272 99,943 7,865 Cash and cash equivalents and restricted cash at end of period $ 1,914,812 $ 1,599,331 $ 1,943,515 See notes to consolidated financial statements. 103 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED (Amounts in thousands) Supplemental Disclosure of Cash Flow Information: Cash payments for interest, excluding capitalized interest of $43,071, $29,584 and $48,539 Cash payments for income taxes Non-Cash Investing and Financing Activities: Non-cash distribution to JBG SMITH Properties: Assets Liabilities Equity Reclassification of Series G and Series I cumulative redeemable preferred shares to liabilities upon call for redemption Adjustments to carry redeemable Class A units at redemption value Loan receivable established upon the spin-off of JBG SMITH Properties Accrued capital expenditures included in accounts payable and accrued expenses Write-off of fully depreciated assets (Reduction) increase in unrealized net gain on available-for-sale securities Decrease in assets and liabilities resulting from the disposition of Skyline properties: Real estate, net Mortgage payable, net Decrease in assets and liabilities resulting from the deconsolidation of investments that were previously consolidated: Real estate, net Mortgage payable, net 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 issued in connection with acquisition Financing assumed in acquisition $ $ $ Year Ended December 31, 2017 2016 2015 338,983 6,727 $ $ 368,762 9,716 $ $ 376,620 8,287 3,432,738 $ — $ (1,414,186) (2,018,552) 455,514 268,494 115,630 102,976 (58,810) (20,951) — — — — — — — — — — — — — (26,251) — 120,564 (305,679) 52,057 (189,284) (690,263) (122,047) (290,418) — — — — — — — — — — 192,464 — 122,711 (167,250) (55,326) — — — — 1,699,289 (1,469,659) (229,630) (145,313) 80,000 62,000 See notes to consolidated financial statements. 104 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Partners Vornado Realty L.P. New York, New York Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Vornado Realty L.P. and subsidiaries (the "Partnership") as of December 31, 2017 and 2016, 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, 2017, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with the accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Partnership's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 12, 2018, expressed an unqualified opinion on the Partnership's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the Partnership's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey February 12, 2018 We have served as the Partnership’s auditor since 1997. 105   VORNADO REALTY L.P. CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except unit amounts) ASSETS Real estate, at cost: Land Buildings and improvements Development costs and construction in progress Leasehold improvements and equipment Total Less accumulated depreciation and amortization Real estate, net Cash and cash equivalents Restricted cash Marketable securities Tenant and other receivables, net of allowance for doubtful accounts of $5,526 and $6,708 Investments in partially owned entities Real estate fund investments Receivable arising from the straight-lining of rents, net of allowance of $954 and $1,913 Deferred leasing costs, net of accumulated amortization of $191,827 and $170,952 Identified intangible assets, net of accumulated amortization of $150,837 and $194,422 Assets related to discontinued operations Other assets LIABILITIES, REDEEMABLE PARTNERSHIP UNITS AND EQUITY Mortgages payable, net Senior unsecured notes, net Unsecured term loan, net Unsecured revolving credit facilities Accounts payable and accrued expenses Deferred revenue Deferred compensation plan Liabilities related to discontinued operations Preferred units to be redeemed on January 4 and 11, 2018 Other liabilities Total liabilities Commitments and contingencies Redeemable partnership units: Class A units - 12,528,899 and 12,197,162 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 December 31, 2017 December 31, 2016 $ 3,143,648 $ 9,898,605 1,615,101 98,941 14,756,295 (2,885,283) 11,871,012 1,817,655 97,157 182,752 58,700 1,056,829 354,804 926,711 403,492 159,260 1,357 468,205 $ $ 17,397,934 8,137,139 $ $ 843,614 748,734 — 415,794 227,069 109,177 3,620 455,514 464,635 11,405,296 979,509 5,428 984,937 8,392,223 (4,183,253) 128,682 4,337,652 670,049 5,007,701 3,130,825 9,684,144 1,278,941 93,910 14,187,820 (2,581,514) 11,606,306 1,501,027 95,032 203,704 61,069 1,378,254 462,132 885,167 354,997 189,668 3,568,613 508,878 20,814,847 8,113,248 845,577 372,215 115,630 397,134 276,276 121,183 1,259,443 — 417,199 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 See notes to the consolidated financial statements. $ 17,397,934 $ 20,814,847 106 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per unit amounts) REVENUES: Property rentals Tenant expense reimbursements Fee and other income Total revenues EXPENSES: Operating Depreciation and amortization General and administrative Acquisition and transaction related costs Total expenses Operating income Income (loss) from partially owned entities Income (loss) from real estate fund investments Interest and other investment income, net Interest and debt expense Net gains on disposition of wholly owned and partially owned assets Income before income taxes Income tax (expense) benefit Income from continuing operations (Loss) 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 (Loss) 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 (Loss) income from discontinued operations, net Net income per Class A unit Weighted average units outstanding Year Ended December 31, 2017 2016 2015 $ 1,714,952 $ 1,662,093 $ 1,626,866 233,424 135,750 2,084,126 886,596 429,389 158,999 1,776 1,476,760 607,366 15,200 3,240 37,793 (345,654) 501 318,446 (41,090) 277,356 (13,228) 264,128 (25,802) 238,326 (65,593) — 221,563 120,086 2,003,742 844,566 421,023 149,550 9,451 1,424,590 579,152 168,948 (23,602) 29,548 (330,240) 160,433 584,239 (7,229) 577,010 404,912 981,922 (21,351) 960,571 (76,097) (7,408) $ $ $ $ $ 172,733 $ 877,066 $ 0.91 (0.07) 0.84 201,214 0.90 (0.07) 0.83 $ $ $ $ 2.34 2.02 4.36 200,350 2.32 2.00 4.32 $ $ $ $ 218,739 139,890 1,985,495 824,511 379,803 149,256 12,511 1,366,081 619,414 (9,947) 74,081 27,240 (309,298) 149,417 550,907 85,012 635,919 223,511 859,430 (55,765) 803,665 (80,736) — 722,929 2.49 1.12 3.61 199,309 2.46 1.11 3.57 203,300 202,017 201,158 See notes to consolidated financial statements. 107 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in thousands) Net income Other comprehensive (loss) income: Year Ended December 31, 2017 2016 2015 $ 264,128 $ 981,922 $ 859,430 (Reduction) increase in unrealized net gain on available-for-sale securities Pro rata share of amounts reclassified from accumulated other comprehensive income of a nonconsolidated subsidiary Pro rata share of other comprehensive income (loss) of nonconsolidated subsidiaries Increase in value of interest rate swaps and other Comprehensive income Less comprehensive income attributable to noncontrolling interests (20,951) 14,402 1,425 15,477 274,481 (25,802) 52,057 — (2,739) 27,432 1,058,672 (21,351) Comprehensive income attributable to Vornado $ 248,679 $ 1,037,321 $ (55,326) — (327) 6,441 810,218 (55,765) 754,453 See notes to consolidated financial statements. 108 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Amounts in thousands) Preferred Units Class A Units Owned by Vornado Units Amount Units Amount Earnings Less Than Distributions Accumulated Other Comprehensive Income (Loss) Non- controlling Interests in Consolidated Subsidiaries Total Equity Balance, December 31, 2016 42,825 $ 1,038,055 189,101 $ 7,160,874 $ (1,419,382) $ 118,972 $ 719,977 $ 7,618,496 Net income attributable to Vornado Realty L.P. 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 Distributions: JBG SMITH Properties 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 amounts reclassified related to a nonconsolidated subsidiary Pro rata share of other comprehensive income of nonconsolidated subsidiaries Increase in value of interest rate swaps Adjustments to carry redeemable Class A units at redemption value — — — — — — — — — — — — (5) — — — — — — — — — — — — — — — — — — (162) — — — — — — Preferred units issuance 12,780 309,609 Cumulative redeemable preferred units called for redemption Redeemable partnership units' share of above adjustments Other (18,800) (455,514) — — — — — — — — — 403 449 17 — — — — 10 — — — — — — — — — 4 — — — — — 38,747 28,253 1,459 — — — — 162 2,246 — — — — 268,494 — — — — 238,326 (10,910) — (496,490) (65,399) — — — — (2,428,345) — — — (418) — — — — — — — — (635) — — — — — — — — — — — — — — (20,951) 14,402 1,425 15,476 — — — (642) — — — 25,802 — — — — — 1,044 238,326 (10,910) 25,802 (496,490) (65,399) 38,747 28,253 1,459 1,044 — (2,428,345) (73,850) (2,618) — — — — — — — — — (306) (73,850) (2,618) — 1,828 (20,951) 14,402 1,425 15,476 268,494 309,609 (455,514) (642) (941) Balance, December 31, 2017 36,800 $ 891,988 189,984 $ 7,500,235 $ (4,183,253) $ 128,682 $ 670,049 $ 5,007,701 See notes to consolidated financial statements. 109 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – CONTINUED (Amounts in thousands) Preferred Units Class A Units Owned by Vornado Units Amount Units Amount Earnings Less Than Distributions Accumulated Other Comprehensive Income (Loss) Non- controlling Interests in Consolidated Subsidiaries Total Equity Balance, December 31, 2015 52,677 $ 1,276,954 188,577 $ 7,140,500 $ (1,766,780) $ 46,921 $ 778,483 $ 7,476,078 Net income attributable to Vornado Realty L.P. 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 (9,850) (238,842) 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 unconsolidated 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 — — — — — — (2) — — — — — — — — — — — — — (56) — — — — — — (1) — — — — — — 376 123 16 — — — 3 7 — — — — — (1) — — — — — — 36,510 6,825 1,444 — — — 56 960,571 (53,654) — (475,961) (75,903) (7,408) — — — — — — — 1,788 (186) — — — — — — — — — — — — — — — — — (26,251) — 2 — — — — — (61) 52,057 (2,739) 27,434 — (4,699) (2) — — 21,351 — — — — — — 19,749 (62,444) (36,804) — — — — — — — (358) 960,571 (53,654) 21,351 (475,961) (75,903) (246,250) 36,510 6,825 1,444 19,749 (62,444) (36,804) — 1,602 52,057 (2,739) 27,434 (26,251) (4,699) (420) Balance, December 31, 2016 42,825 $ 1,038,055 189,101 $ 7,160,874 $ (1,419,382) $ 118,972 $ 719,977 $ 7,618,496 See notes to consolidated financial statements. 110 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – CONTINUED (Amounts in thousands) Preferred Units Class A Units Owned by Vornado Units Amount Units Amount Earnings Less Than Distributions Accumulated Other Comprehensive Income (Loss) Non- controlling Interests in Consolidated Subsidiaries Total Equity Balance, December 31, 2014 52,679 $ 1,277,026 187,887 $ 6,880,518 $ (1,505,385) $ 93,267 $ 743,956 $ 7,489,382 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 — — — — — — — — — — — — — (2) — — — — — — — — — — — — — — — — — — — — (72) — — — — — — — — — — — — — 452 214 14 — — — — 4 6 — — — — — — — — — — — — 48,230 15,341 1,438 — — — — 72 803,665 (43,231) — (464,262) (474,751) (80,578) — (2,579) — — — — — — 2,439 (359) — — — — — — — — — — — — — — — — — — 192,464 — (2) — — — — — 700 (55,326) (327) 6,435 — 2,866 6 — — 55,765 (341) — — — — — 51,725 250 (72,114) (525) — — — — — — — (233) 803,665 (43,231) 55,765 (464,603) (474,751) (80,578) 48,230 12,762 1,438 51,725 250 (72,114) (525) — 2,080 (55,326) (327) 6,435 192,464 2,866 471 Balance, December 31, 2015 52,677 $ 1,276,954 188,577 $ 7,140,500 $ (1,766,780) $ 46,921 $ 778,483 $ 7,476,078 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) Return of capital from real estate fund investments Distributions of income from partially owned entities Amortization of below-market leases, net Straight-lining of rents Change in allowance for deferred tax assets Equity in net (income) loss of partially owned entities Net realized and unrealized losses (gains) on real estate fund investments Net gains on sale of real estate and other Net gains on disposition of wholly owned and partially owned assets Net gain on extinguishment of Skyline properties debt Real estate impairment losses Other non-cash adjustments 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: Distributions of capital from partially owned entities Development costs and construction in progress Additions to real estate Proceeds from the repayment of JBG SMITH Properties loan receivable Investments in partially owned entities Acquisitions of real estate and other Proceeds from sales of real estate and related investments Proceeds from repayments of mortgage loans receivable Net deconsolidation of 7 West 34th Street Investments in loans receivable Purchases of marketable securities Proceeds from the sale of marketable securities Year Ended December 31, 2017 2016 2015 $ 264,128 $ 981,922 $ 859,430 529,826 91,606 82,095 (46,790) (45,792) 34,800 (15,635) 15,267 (3,489) (501) — — 56,480 — 1,183 (12,292) (79,199) 3,760 (15,305) 860,142 366,155 (355,852) (271,308) 115,630 (40,537) (30,607) 9,543 659 — — — — 595,270 71,888 214,800 (53,202) (146,787) — (165,389) 40,655 (5,074) (175,735) (487,877) 161,165 39,406 — (4,271) (7,893) (76,357) 13,278 (719) 995,080 196,635 (606,565) (387,545) — (127,608) (91,103) 183,173 45 (48,000) (11,700) (4,379) 3,937 566,207 91,458 66,819 (79,053) (153,668) (90,030) 11,882 (57,752) (65,396) (251,821) — 256 37,721 (95,010) 8,366 (16,836) (112,415) (25,231) (22,836) 672,091 36,017 (475,819) (301,413) — (235,439) (558,484) 786,924 16,790 — (1,000) — — Net cash used in investing activities (206,317) (893,110) (732,424) 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 Cash and cash equivalents and restricted cash included in the spin-off of JBG SMITH Properties ($275,000 plus The Bartlett financing proceeds less transaction costs and other mortgage items) Proceeds from issuance of preferred units Distributions to redeemable security holders and noncontrolling interests in consolidated subsidiaries Distributions to preferred unitholders Proceeds received from exercise of Vornado stock options and other Debt issuance costs Debt prepayment and extinguishment costs Contributions from noncontrolling interests in consolidated subsidiaries Repurchase of Class A units related to stock compensation agreements and related tax withholdings and other Redemption of preferred units Cash and cash equivalents and restricted cash included in the spin-off of Urban Edge Properties Net cash (used in) provided by financing activities Net increase (decrease) in cash and cash equivalents and restricted cash Cash and cash equivalents and restricted cash at beginning of period Cash and cash equivalents and restricted cash at end of period Reconciliation of Cash and Cash Equivalents and Restricted Cash: Cash and cash equivalents at beginning of period Restricted cash at beginning of period Restricted cash included in discontinued operations at beginning of period Cash and cash equivalents and restricted cash at beginning of period Cash and cash equivalents at end of period Restricted cash at end of period Restricted cash included in discontinued operations at end of period $ $ $ Year Ended December 31, 2017 2016 2015 $ 1,055,872 $ 2,403,898 $ 4,468,872 (1,894,990) (475,961) (2,936,578) (474,751) (631,681) (496,490) (416,237) 309,609 (109,697) (64,516) 29,712 (12,325) (3,217) 1,044 (418) — — (338,344) 315,481 1,599,331 — — (130,590) (80,137) 8,269 (42,157) — 11,950 (186) (246,250) — (446,154) (344,184) 1,943,515 — — (102,866) (80,578) 16,779 (66,554) (15,000) 51,975 (7,473) — (234,967) 618,859 558,526 1,384,989 1,943,515 1,914,812 $ 1,599,331 $ 1,501,027 $ 1,835,707 $ 1,198,477 95,032 3,272 99,943 7,865 168,447 18,065 1,599,331 $ 1,943,515 $ 1,384,989 1,817,655 1,501,027 1,835,707 97,157 — 95,032 3,272 99,943 7,865 Cash and cash equivalents and restricted cash at end of period $ 1,914,812 $ 1,599,331 $ 1,943,515 See notes to consolidated financial statements. 113 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED (Amounts in thousands) Supplemental Disclosure of Cash Flow Information: Cash payments for interest, excluding capitalized interest of $43,071, $29,584 and $48,539 Cash payments for income taxes Non-Cash Investing and Financing Activities: Non-cash distribution to JBG SMITH Properties: Assets Liabilities Equity Reclassification of Series G and Series I cumulative redeemable preferred units to liabilities upon call for redemption Adjustments to carry redeemable Class A units at redemption value Loan receivable established upon the spin-off of JBG SMITH Properties Accrued capital expenditures included in accounts payable and accrued expenses Write-off of fully depreciated assets (Reduction) increase in unrealized net gain on available-for-sale securities Decrease in assets and liabilities resulting from the disposition of Skyline properties: Real estate, net Mortgage payable, net Decrease in assets and liabilities resulting from the deconsolidation of investments that were previously consolidated: Real estate, net Mortgage payable, net 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 issued in connection with acquisition Financing assumed in acquisition $ $ $ Year Ended December 31, 2017 2016 2015 338,983 6,727 $ $ 368,762 9,716 $ $ 376,620 8,287 3,432,738 $ — $ (1,414,186) (2,018,552) 455,514 268,494 115,630 102,976 (58,810) (20,951) — — — — — — — — — — — — — (26,251) — 120,564 (305,679) 52,057 (189,284) (690,263) (122,047) (290,418) — — — — — — — — — — 192,464 — 122,711 (167,250) (55,326) — — — — 1,699,289 (1,469,659) (229,630) (145,313) 80,000 62,000 See notes to consolidated financial statements. 114 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 93.5% of the common limited partnership interest in the Operating Partnership as of December 31, 2017.  All references to the “Company,” “we,” “us” and “our” mean, collectively, Vornado, the Operating Partnership and those entities/ subsidiaries consolidated by Vornado. We currently own all or portions of: New York: • 20.3 million square feet of Manhattan office in 36 properties; • 2.7 million square feet of Manhattan street retail in 71 properties; • 2,009 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; and • 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. Other Real Estate and Related Investments: • • • • • The 3.7 million square foot 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”), which is in Chapter 11 bankruptcy and carried at zero in our consolidated balance sheets; and Other real estate and other investments. 115              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, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. We adopted this standard effective January 1, 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. We have completed our evaluation of the standard’s impact on our revenue streams. The adoption of this standard is not expected to have a material impact on our consolidated financial statements. In January 2016, the FASB issued an update (“ASU 2016-01”) Recognition and Measurement of Financial Assets and Financial Liabilities to ASC Topic 825, Financial Instruments. ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We adopted this standard effective January 1, 2018 using the modified retrospective approach. While the adoption of this standard requires us to continue to measure “marketable securities” at fair value at each reporting date, the changes in fair value will be recognized in current period earnings as opposed to “other comprehensive income (loss).” As a result, on January 1, 2018 we will record an increase to retained earnings of $109,553,000 to recognize the unrealized gains previously recorded within “accumulated other comprehensive income”. Subsequent changes in the fair value of our marketable securities will be recorded to “interest and other investment income, net”. 116       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 February 2016, the FASB issued an update ("ASU 2016-02") to ASC Topic 842, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase. Lessees are required to record a right-of-use asset and a lease liability for all leases with a term 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. The accounting applied by the lessor is largely unchanged from that applied under the existing lease standard. We are currently evaluating the overall impact of the adoption of ASU 2016-02 on our consolidated financial statements and believe that the standard will more significantly impact the accounting for leases in which we are a lessee. We have a number of ground leases for which we will be required to record a right-of- use asset and lease liability equal to the present value of the remaining minimum lease payments, and will continue to recognize expense on a straight-line basis upon adoption of this standard. Under ASU 2016-02, initial direct costs for both lessees and lessors would include only those costs that are incremental to the arrangement and would not have been incurred if the lease had not been obtained. As a result, we may no longer be able to capitalize internal leasing costs and instead may be required to expense these costs as incurred. ASU 2016-02 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2018, with early adoption permitted. We will adopt this standard effective January 1, 2019 using the modified retrospective approach and will elect to use the practical expedients provided by this standard. In March 2016, the FASB issued an update (“ASU 2016-09”) Improvements to Employee Share-Based Payment Accounting to ASC Topic 718, Compensation - Stock Compensation.  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 was effective for interim and annual reporting periods in fiscal years beginning after December 15, 2016.  The adoption of this update as of January 1, 2017 did not have a material impact on our consolidated financial statements. In August 2016, the FASB issued an update (“ASU 2016-15”) Classification of Certain Cash Receipts and Cash Payments to ASC Topic 230, Statement of Cash Flows. ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice with respect to (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions, and (viii) separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted. We elected to early adopt ASU 2016-15 effective January 1, 2017, with retrospective application to our consolidated statements of cash flows. The adoption of ASU 2016-15 impacted our classification of distributions received from equity method investees and debt extinguishment costs. We selected the nature of earnings approach for classifying distributions. Under this approach, the distributions from equity method investees are classified on the basis of the nature of the activity of the investee that generated the distribution. The retrospective application of ASU 2016-15 resulted in (i) the reclassification of certain distributions between distributions of income from partially owned entities and distributions of capital from partially owned entities, and (ii) the reclassification of debt extinguishment costs as a financing cash outflow, which reduced net cash provided by operating activities and net cash used in investing activities by $2,668,000 for the year ended December 31, 2016 and increased net cash provided by operating activities by $1,801,000, reduced net cash used in investing activities by $13,199,000 and reduced net cash provided by financing activities by $15,000,000 for the year ended December 31, 2015. In November 2016, the FASB issued an update (“ASU 2016-18”) Restricted Cash to ASC Topic 230, Statement of Cash Flows. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning of period and end of period balances on the statement of cash flows upon adoption of this standard. ASU 2016-18 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted. We elected to early adopt ASU 2016-18 effective January 1, 2017, with retrospective application to our consolidated statements of cash flows. Accordingly, the consolidated statements of cash flows present a reconciliation of the changes in cash and cash equivalents and restricted cash. Restricted cash primarily consists of security deposits, cash restricted for the purposes of facilitating a Section 1031 Like-Kind Exchange, cash restricted in connection with our deferred compensation plan and cash escrowed under loan agreements for debt service, real estate taxes, property insurance and capital improvements. 117 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 February 2017, the FASB issued an update (“ASU 2017-05”) Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets to ASC Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets. ASU 2017-05 clarifies the scope of recently established guidance on nonfinancial asset derecognition, as well as the accounting for partial sales of nonfinancial assets. This update conforms the derecognition guidance on nonfinancial assets with the model for transactions in ASC 606. ASU 2017-05 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The adoption of this standard on January 1, 2018 is not expected to have an impact on our consolidated financial statements. In May 2017, the FASB issued an update (“ASU 2017-09”) Scope of Modification Accounting to ASC 718. ASU 2017-09 provides guidance about which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. ASU 2017-09 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The adoption of this standard on January 1, 2018 is not expected to have an impact on our consolidated financial statements. In August 2017, the FASB issued an update (“ASU 2017-12”) Targeted Improvements to Accounting for Hedging Activities to ASC Topic 815, Derivatives and Hedging (“ASC 815”). ASU 2017-12 amends the hedge accounting recognition and presentation requirements in ASC 815. The update is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting and increase transparency as to the scope and results of hedge programs. ASU 2017-12 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2017-12 on our consolidated financial statements, but do not believe the adoption of this standard will have a material impact on our consolidated financial statements. 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 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 the redeveloped property, the excess is charged to expense. Depreciation is recognized on a straight-line basis over the 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 $48,231,000 and $30,343,000 for the years ended December 31, 2017 and 2016, respectively. Upon the acquisition of real estate that meets the criteria of a business under ASC Topic 805, Business Combinations (“ASC 805”), 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 which are on a relative fair value basis. 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. 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 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 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 decisions that most significantly impact the performance of the partially owned entity. This includes decisions regarding operating/capital budgets, and the placement of new or additional financing secured by the assets of the venture, among others. 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 under 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, 2017, 2016 and 2015, we recognized non-cash impairment losses on investments in partially owned entities aggregating $44,465,000, $20,290,000 and $21,260,000, respectively. Cash and Cash Equivalents:  Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less and are carried at cost, which approximates fair value due to their short-term maturities.  The majority of our cash and cash equivalents consists of (i) deposits at major commercial banks, which may at times exceed the Federal Deposit Insurance Corporation limit, (ii) United States Treasury Bills, and (iii) Certificate of Deposits placed through an Account Registry Service (“CDARS”).  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, 2017 and 2016, we had $5,526,000 and $6,708,000, respectively, in allowances for doubtful accounts. In addition, as of December 31, 2017 and 2016, we had $954,000 and $1,913,000, respectively, in allowances for receivables arising from the straight-lining of rents. 120            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 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. 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, 2017 and 2016, our derivative instruments consisted of three interest rate swaps.  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. 121          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, 2017, were characterized, for federal income tax purposes, as ordinary income. 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. 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 $7,202,000, $7,946,000 and $8,322,000 for the years ended December 31, 2017, 2016 and 2015, respectively, and have immaterial differences between the financial reporting and tax basis of assets and liabilities.  At December 31, 2017 and 2016, our taxable REIT subsidiaries had deferred tax assets related to net operating loss carryforwards of $66,535,000 and $98,013,000, 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, in the year ended December 31, 2015, we reversed $90,030,000 of the allowance for deferred tax assets and recognized an income tax benefit in our consolidated statements of income.  On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law. The Act includes numerous changes in existing tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%. The rate reduction takes effect on January 1, 2018. As a result of the reduction of federal corporate income tax rates, we decreased the value of our taxable REIT subsidiaries' deferred tax assets which resulted in additional income tax expense of $34,800,000 in the year ended December 31, 2017. The following table reconciles net income attributable to Vornado common shareholders to estimated taxable income for the years ended December 31, 2017, 2016 and 2015. (Amounts in thousands) For the Year Ended December 31, 2017 2016 2015 Net income attributable to Vornado common shareholders $ 162,017 $ 823,606 $ 679,856 Book to tax differences (unaudited): Depreciation and amortization Impairment losses Straight-line rent adjustments Tax expense related to the reduction of the value of our taxable REIT subsidiaries' deferred tax assets Sale of real estate and other capital transactions Vornado stock options Earnings of partially owned entities Net gain on extinguishment of Skyline properties debt Tangible property regulations Other, net Estimated taxable income (unaudited) 213,083 49,062 (36,696) 32,663 11,991 (6,383) (3,054) — — 25,057 302,092 170,332 (137,941) — (39,109) (3,593) (149,094) (457,970) — 9,121 227,297 20,281 (144,727) (84,862) 320,326 (8,278) (5,299) — (575,618) (1) 58,748 $ 447,740 $ 517,444 $ 487,724 ____________________________________ (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 $2.0 billion lower than the amounts reported in Vornado’s consolidated balance sheet at December 31, 2017. 122         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. On January 29, 2018, by unanimous consent of the Fund's limited partners, the Fund's term was extended to February 2023. The Fund had 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, 2017, we had five real estate fund investments through the Fund and the Crowne Plaza Joint Venture with an aggregate fair value of $354,804,000, or $98,189,000 in excess of cost, and had remaining unfunded commitments of $117,872,000, of which our share was $34,502,000.  At December 31, 2016, we had six real estate fund investments with an aggregate fair value of $462,132,000. Below is a summary of (loss) income from the Fund and the Crowne Plaza Joint Venture for the years ended December 31, 2017, 2016 and 2015.     (Amounts in thousands) Net investment income Net realized gains on exited investments Previously recorded unrealized gain on exited investments Net unrealized (loss) gain on held investments Income (loss) from real estate fund investments Less (income) loss 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 For the Year Ended December 31, 2017 2016 2015 $ 18,507 $ 17,053 $ 36,078 (25,538) (25,807) 3,240 (14,044) (10,804) 673 14,761 (14,254) (41,162) (23,602) 2,560 (21,042) 1,270 16,329 26,036 (23,279) 54,995 74,081 (40,117) 33,964 (2,011) 31,953 (Loss) income from real estate fund investments attributable to Vornado $ (10,131) $ (19,772) $ ________________________________________ (1) Excludes $4,091, $3,831, and $2,939 of management and leasing fees in the years ended December 31, 2017, 2016 and 2015, respectively, which are included as a component of "fee and other income" on our consolidated statements of income. On September 29, 2017, the Fund completed the sale of 800 Corporate Pointe in Culver City, CA for $148,000,000. From the inception of this investment through its disposition, the Fund realized a $35,620,000 net gain. On July 27, 2017, the Fund completed a $100,000,000 loan facility for the refinancing of 1100 Lincoln Road, a 130,000 square foot retail and theater property in Miami, Florida. The loan is interest-only at LIBOR plus 2.40% (3.76% at December 31, 2017), matures in July 2020 with two one-year extension options. At closing, the fund drew $82,750,000, and subject to property performance, may borrow up to $17,250,000 of additional proceeds within the first 18 months of the loan term. The property was previously encumbered by a $66,000,000 interest-only mortgage at LIBOR plus 2.25% which was scheduled to mature in August 2017. 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. 123           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).”  We adopted ASU 2016-01 effective January 1, 2018. While the adoption of ASU 2016-01 requires us to continue to measure "marketable securities" at fair value at each reporting date, the changes in fair value will be recognized in current period earnings as opposed to "other comprehensive income (loss)." As a result, on January 1, 2018 we will record an increase to retained earnings of $109,553,000 to recognize the unrealized gains previously recorded within “accumulated other comprehensive income”. Subsequent changes in the fair value of our marketable securities will be recorded to “interest and other investment income, net”. 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, 2017 and 2016. (Amounts in thousands) As of December 31, 2017 As of December 31, 2016 Equity securities: Lexington Realty Trust Other Fair Value GAAP Cost Unrealized Gain Fair Value GAAP Cost Unrealized Gain $ $ 178,226 4,526 182,752 $ $ 72,549 650 73,199 $ $ 105,677 3,876 109,553 $ $ 199,465 4,239 203,704 $ $ 72,549 650 73,199 $ $ 126,916 3,589 130,505 124         VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Investments in Partially Owned Entities Alexander’s As of December 31, 2017, 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, 2017 and 2016, Alexander’s owed us an aggregate of $2,490,000 and $1,070,000, respectively, pursuant to such agreements. As of December 31, 2017 the market value (“fair value” pursuant to ASC Topic 820, Fair Value Measurements ("ASC 820")) of our investment in Alexander’s, based on Alexander’s December 31, 2017 closing share price of $395.85, was $654,763,000, or $528,363,000 in excess of the carrying amount on our consolidated balance sheet.  As of December 31, 2017, the carrying amount of our investment in Alexander’s, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander’s by approximately $39,367,000.  The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets.  Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to real estate (land and buildings).  We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives.  This depreciation is not material to our share of equity in Alexander’s net income.  The basis difference related to the land will be recognized upon disposition of our investment. On June 1, 2017, Alexander’s completed a $500,000,000 refinancing of the office portion of 731 Lexington Avenue. The interest- only loan is at LIBOR plus 0.90% (2.38% at December 31, 2017) and matures in June 2020 with four one-year extension options. In connection therewith, Alexander’s purchased an interest rate cap with a notional amount of $500,000,000 that caps LIBOR at a rate of 6.00%. The property was previously encumbered by a $300,000,000 interest-only mortgage at LIBOR plus 0.95% which was scheduled to mature in March 2021. Management, Development, Leasing and Other 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) $306,000, 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. 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, Rego Park II properties and The Alexander apartment tower.  During the years ended December 31, 2017, 2016 and 2015, we recognized $2,678,000, $2,583,000 and $2,221,000 of income, respectively, for these services. 125             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) As of December 31, 2017, we own 5,717,184 UE operating partnership units, representing a 4.5% ownership interest in UE. We account for our investment in UE under the equity method and record our share of UE’s net income or loss on a one-quarter lag basis. In 2017 and 2016, we provided UE with information technology support. UE is providing us with leasing and property management services for (i) certain small retail properties that we plan to sell, and (ii) our affiliate, Alexander’s, Rego Park retail assets. As of December 31, 2017, the fair value of our investment in UE, based on UE’s December 31, 2017 closing share price of $25.49, was $145,731,000, or $99,579,000 in excess of the carrying amount on our consolidated balance sheet. In 2017, UE issued approximately 20,250,000 operating partnership units related to property acquisitions and public offerings of its common stock. As a result, our ownership interest in UE decreased to 4.5% from 5.4%. In accordance with ASC 323-10-40-1, we account for a unit issuance by an equity method investee as if we had sold a proportionate share of our investment. Accordingly, in 2017, we recorded $21,100,000 of net gains in connection with these issuances which are included in “income (loss) from partially owned entities” on our consolidated statements of income. Pennsylvania Real Estate Investment Trust (“PREIT”) (NYSE: PEI) As of December 31, 2017, we own 6,250,000 PREIT operating partnership units, representing an 8.0% interest in PREIT.  We account for our investment in PREIT under the equity method and record our share of PREIT’s net income or loss on a one-quarter lag basis.  Based on PREIT's September 29, 2017 quarter ended closing share price of $10.49, the market value ("fair value" pursuant to ASC 820) of our investment in PREIT was $65,563,000 or $44,465,000 below our carrying amount as of September 30, 2017. We concluded that our investment in PREIT was "other-than-temporarily" impaired and recorded a $44,465,000 non-cash impairment loss on our consolidated statements of income. Our conclusion was based on a sustained trading value of PREIT stock below our carrying amount and our inability to forecast a recovery in the near-term. As of December 31, 2017, the fair value of our investment in PREIT, based on PREIT’s December 31, 2017 closing share price of $11.89, was $74,313,000, or $7,741,000 in excess of the carrying amount on our consolidated balance sheet.  As of December 31, 2017, the carrying amount of our investment in PREIT exceeds our share of the equity in the net assets of PREIT by approximately $34,205,000. 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.   Moynihan Office Building In September 2016, our 50.1% joint venture with the Related Companies (“Related”) was designated by Empire State Development (“ESD”), an entity of New York State, to redevelop the historic Farley Post Office building. The building will include a new Moynihan Train Hall and approximately 850,000 rentable square feet of commercial space, comprised of approximately 730,000 square feet of office space and approximately 120,000 square feet of retail space. On June 15, 2017, the joint venture closed a 99-year, triple-net lease with ESD for the commercial space at the Moynihan Office Building and made a $230,000,000 upfront contribution, of which our share is $115,230,000, towards the construction of the train hall. The lease calls for annual rent payments of $5,000,000 plus payments in lieu of real estate taxes. Simultaneously, the joint venture completed a $271,000,000 loan facility, of which $210,269,000 is outstanding at December 31, 2017. The interest-only loan is at LIBOR plus 3.25% (4.64% at December 31, 2017) and matures in June 2019 with two one-year extension options. The joint venture has also entered into a development agreement with ESD and a design-build contract with Skanska Moynihan Train Hall Builders. Under the development agreement with ESD, the joint venture is obligated to build the Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture’s obligations. Under the design-build agreement, Skanska Moynihan Train Hall Builders is obligated to fulfill all of the joint venture’s obligations. The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bear a full guaranty from Skanska AB. 126         VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Investments in Partially Owned Entities – continued Mezzanine Loan – New York On May 9, 2017, a $150,000,000 mezzanine loan owned by a joint venture in which we had a 33.3% ownership interest was repaid at its maturity and we received our $50,000,000 share. The mezzanine loan earned interest at LIBOR plus 9.42%. Sterling Suffolk Racecourse, LLC (“Suffolk Downs JV”) On May 26, 2017, Suffolk Downs JV, a joint venture in which we have a 21.2% equity interest, sold the property comprising the Suffolk Downs racetrack in East Boston, Massachusetts (“Suffolk Downs”) for $155,000,000, which resulted in net proceeds and a net gain to us of $15,314,000. In addition, we were repaid $29,318,000 of principal and $6,129,000 of accrued interest on our debt investments in Suffolk Downs JV, resulting in a net gain of $11,373,000. 330 Madison Avenue On July 19, 2017, the joint venture, in which we have a 25.0% interest, completed a $500,000,000 refinancing of 330 Madison Avenue, an 845,000 square foot Manhattan office building. The seven-year interest-only loan matures in August 2024 and has a fixed rate of 3.43%. Our share of net proceeds, after repayment of the existing $150,000,000 LIBOR plus 1.30% mortgage and closing costs, was approximately $85,000,000. 280 Park Avenue On August 23, 2017, the joint venture, in which we have a 50.0% interest, completed a $1.2 billion refinancing of 280 Park Avenue, a 1,250,000 square foot Manhattan office building. The loan is interest-only at LIBOR plus 1.73% (3.16% at December 31, 2017) and matures in September 2019 with five one-year extension options. Our share of net proceeds, after repayment of the existing $900,000,000 LIBOR plus 2.00% mortgage and closing costs, was approximately $140,000,000. Toys "R" Us, Inc. ("Toys") We own 32.5% of Toys. On September 18, 2017, Toys filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. We carry our Toys investment at zero. Further, we do not hold any debt of Toys and do not guarantee any of Toys’ obligations. For income tax purposes, we carry our investment in Toys at approximately $420,000,000 which could result in a tax deduction in future periods. 50 West 57th Street On December 13, 2017, the joint venture, in which we have a 50.0% interest, completed a $20,000,000 refinancing of 50 West 57th Street, an 81,000 square foot Manhattan office building. The loan is interest-only at LIBOR plus 1.60% (3.06% at December 31, 2017) and matures in December 2022. The new loan replaced the existing $20,000,000 mortgage which had a fixed rate of 3.50%. India Real Estate Ventures During 2017, India Property Fund, in which we had a 36.5% interest, sold its investments. Our share of the aggregate sales price was approximately $23,895,000 which resulted in a financial statement loss of $533,000. In addition, on December 28, 2017, we sold our 25% interest in TCG Urban Infrastructure Holdings Private Limited for $18,742,000 which resulted in a financial statement gain of $1,885,000, which substantially completes the disposition of our investments in India. 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 schedule summarizing our investments in partially owned entities.   (Amounts in thousands) Investments: Partially owned office buildings/land(1) Alexander’s PREIT UE Other investments(2) 330 Madison Avenue(3) 7 West 34th Street(4) Percentage Ownership at December 31, 2017 As of December 31, 2017 2016 Various 32.4% 8.0% 4.5% Various 25.0% 53.0% $ 504,393 $ 126,400 66,572 46,152 313,312 681,265 129,324 122,883 24,523 420,259 $ $ $ 1,056,829 $ 1,378,254 (53,999) $ (47,369) (101,368) $ — (43,022) (43,022) ________________________________________ (1) Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 330 Madison Avenue (in 2016 only - see (3) below), 512 West 22nd Street, 85 Tenth Avenue, 61 Ninth Avenue and others. Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, Moynihan Office Building, Toys (which has a carrying amount of zero), 666 Fifth Avenue Office Condominium and others. (2) (3) Our negative basis resulted from a refinancing distribution and is included in "other liabilities" on our consolidated balance sheets (in 2017 only). (4) Our negative basis results from a deferred gain from the sale of a 47.0% ownership interest in the property on May 27, 2016 and is included in "other liabilities" on our consolidated balance sheets.  128 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Investments in Partially Owned Entities – continued Below is a schedule of net income (loss) from partially owned entities. (Amounts in thousands) Our Share of Net Income (Loss): PREIT (see page 126 for details): Non-cash impairment loss Equity in net loss Percentage Ownership at December 31, 2017 As of December 31, 2017 2016 2015 8.0% $ (44,465) $ — $ (8,860) (53,325) (5,213) (5,213) Alexander's (see page 125 for details): Equity in net income Management, leasing and development fees 32.4% UE (see page 126 for details): Net gain resulting from UE operating partnership unit issuances 4.5% Equity in net income Management fees Partially owned office buildings(1) Other investments(2) Various Various — (7,450) (7,450) 24,209 6,869 31,078 — 2,430 1,964 4,394 19,808 25,820 6,033 31,853 21,100 5,558 670 27,328 2,020 27,470 6,770 34,240 — 5,003 836 5,839 5,773 7,324 128,309 (57,777) $ 15,200 $ 168,948 $ (9,947) ____________________ (1) (2) Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 7 West 34th Street (in 2017 and 2016 only), 330 Madison Avenue, 512 West 22nd Street, 85 Tenth Avenue (in 2017 only) and others.  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 interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, 85 Tenth Avenue (in 2016 and 2015 only), 666 Fifth Avenue Office Condominium, India real estate ventures and others. In 2017, we recognized $26,687 of net gains, comprised of $15,314 representing our share of a net gain on the sale of Suffolk Downs and $11,373 representing the net gain on repayment of our debt investments in Suffolk Downs JV (see page 127 for details).  In 2017, 2016 and 2015, we recognized net losses of $25,414, $41,532 and $37,495, respectively, from our 666 Fifth Avenue Office Condominium joint venture as a result of our share of depreciation expense. In 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 and no tax gain as a result of this transaction. In 2016 and 2015, we recognized $13,962 and $14,806, respectively, of non-cash impairment losses related to India real estate ventures. 129 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, 2017 and 2016.   (Amounts in thousands) Partially owned office buildings(2): Mortgages payable PREIT: Mortgages payable UE: Mortgages payable Alexander's: Mortgages payable Other(3): Percentage Ownership at December 31, 2017 Maturity Interest Rate at December 31, 2017 100% Partially Owned Entities’ Debt at December 31, (1) 2017 2016 Various 2019-2026 3.76% 3,934,894 3,227,053 8.0% 2018-2025 3.61% 1,586,045 1,747,543 4.5% 2018-2034 4.11% 1,415,806 1,209,994 32.4% 2018-2024 2.61% 1,252,440 1,056,147 Mortgages payable and other Various 2018-2023 7.73% 8,601,383 8,540,710 ________________________________________ (1) All amounts are non-recourse to us except the $300,000 mortgage loan on 7 West 34th Street which we guaranteed in connection with the sale of a 47.0% equity (2) (3) interest in May 2016. Includes 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 7 West 34th Street, 330 Madison Avenue, 512 West 22nd Street, 85 Tenth Avenue and others. Includes Independence Plaza, Fashion Centre Mall/Washington Tower, 50-70 West 93rd Street, Toys, 666 Fifth Avenue Office Condominium, Moynihan Office Building 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 $5,288,276,000 and $4,895,497,000 as of December 31, 2017 and 2016, 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, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015. (Amounts in thousands) Balance Sheet: Assets Liabilities Noncontrolling interests Equity (Amounts in thousands) Income Statement: Total revenue Net loss Balance as of December 31, 2017 2016 $ 24,812,000 $ 24,926,000 22,739,000 21,357,000 140,000 1,933,000 265,000 3,304,000 For the Year Ended December 31, 2017 2016 2015 $ 12,991,000 $ 13,600,000 $ 13,423,000 (542,000) (65,000) (224,000) 130                               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.  Discontinued Operations Washington, DC On June 20, 2017, we completed a $220,000,000 financing of The Bartlett residential building. The five-year interest-only loan is at LIBOR plus 1.70% and matures in June 2022. On July 17, 2017, the property, the loan and the $217,000,000 of net proceeds were transferred to JBG SMITH Properties ("JBGS") in connection with the tax-free spin-off of our Washington, DC segment. On July 17, 2017, prior to completion of the tax-free spin-off of our Washington, DC segment, we repaid the $43,581,000 LIBOR plus 1.25% mortgage encumbering 1700 and 1730 M Street which was scheduled to mature in August 2017. The unencumbered property was then transferred to JBGS in connection with the tax-free spin-off of our Washington, DC segment. On July 17, 2017, we completed the spin-off of our Washington, DC segment comprised of (i) 37 office properties totaling over 11.1 million square feet, five multifamily properties with 3,133 units and five other assets totaling approximately 406,000 square feet and (ii) 18 future development assets totaling over 10.4 million square feet of estimated potential development density, and (iii) $412.5 million of cash ($275.0 million plus The Bartlett financing proceeds less transaction costs and other mortgage items) to JBGS. On July 18, 2017, JBGS was combined with the management business and certain Washington, DC assets of The JBG Companies (“JBG”), a Washington, DC real estate company. Steven Roth, the Chairman of the Board of Trustees and Chief Executive Officer of Vornado, is the Chairman of the Board of Trustees of JBGS. Mitchell Schear, former President of our Washington, DC business, is a member of the Board of Trustees of JBGS. We are providing transition services to JBGS initially including information technology, financial reporting and payroll services. The spin-off was effected through a tax-free distribution by Vornado to the holders of Vornado common shares of all of the common shares of JBGS at the rate of one JBGS common share for every two common shares of Vornado and the distribution by the Operating Partnership to the holders of its common units of all of the outstanding common units of JBG SMITH Properties LP (“JBGSLP”) at the rate of one JBGSLP common unit for every two common units of VRLP held of record. See JBGS’ Amendment No. 3 on Form 10 (File No. 1-37994) filed with the Securities and Exchange Commission on June 9, 2017 for additional information. Beginning in the third quarter of 2017, the historical financial results of our Washington, DC segment are reflected in our consolidated financial statements as discontinued operations for all periods presented. 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 would be insufficient to service the debt and pay other property related costs and expenses and that we were not willing to fund additional cash shortfalls. Accordingly, at our request, the loan was transferred to the special servicer. Consequently, based on 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. 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 “(loss) income from discontinued operations” on our consolidated statements of income.  The tax gain of approximately $137,000,000 was deferred as part of a like-kind exchange.  131   VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Dispositions – continued Discontinued Operations - continued Retail 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. 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. 132         VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Dispositions – continued Discontinued Operations - continued In accordance with the provisions of ASC 360, Property, Plant, and Equipment, we have reclassified the revenues and expenses of our former Washington, DC segment which was spun off on July 17, 2017, 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 “(loss) 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 certain of these properties are included in “(loss) income from discontinued operations” on our consolidated statements of income.  The tables below set forth the assets and liabilities related to discontinued operations as of December 31, 2017 and 2016, and their combined results of operations and cash flows for the years ended December 31, 2017, 2016 and 2015. (Amounts in thousands) Assets related to discontinued operations: Real estate, net Investments in partially owned entities Other assets Liabilities related to discontinued operations: Mortgages payable, net Other liabilities (Amounts in thousands) Income from discontinued operations: Total revenues Total expenses JBGS spin-off transaction costs Net gains on sale of real estate, a lease position and other Income (loss) from partially owned assets Net gain on early extinguishment of debt Impairment losses Net gain on sale of our 20% interest in Fairfax Square UE spin-off transaction related costs Pretax (loss) income from discontinued operations Income tax expense (Loss) 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, 2017 2016 $ $ $ $ — $ — 1,357 1,357 $ — $ 3,620 3,620 $ 3,222,720 49,765 296,128 3,568,613 1,165,015 94,428 1,259,443 For the Year Ended December 31, 2017 2016 2015 $ 261,290 $ 521,084 $ 212,169 49,121 (68,662) 6,605 435 — — — — (12,501) (727) 442,032 79,052 (16,586) 5,074 (3,559) 487,877 (161,165) 15,302 — 405,995 (1,083) $ $ (13,228) $ 404,912 $ 42,578 $ (48,377) 157,484 $ (216,125) 558,663 477,299 81,364 — 167,801 (2,022) — (256) — (22,972) 223,915 (404) 223,511 155,686 315,432 133 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 above-market leases) and liabilities (primarily below-market leases) as of December 31, 2017 and 2016. (Amounts in thousands) Identified intangible assets: Gross amount Accumulated amortization Total, net Identified intangible liabilities (included in deferred revenue): Gross amount Accumulated amortization Total, net Balance as of December 31, 2017 2016 $ $ $ $ 310,097 (150,837) 159,260 530,497 (324,897) 205,600 $ $ $ $ 384,090 (194,422) 189,668 550,454 (298,238) 252,216 Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $46,103,000, $51,849,000 and $75,952,000 for the years ended December 31, 2017, 2016 and 2015, respectively.  Estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing January 1, 2018 is as follows: (Amounts in thousands) 2018 2019 2020 2021 2022 $ 41,969 30,543 22,260 17,489 14,306 Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $25,057,000, $28,897,000 and $34,995,000 for the years ended December 31, 2017, 2016 and 2015, respectively.  Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2018 is as follows: (Amounts in thousands) 2018 2019 2020 2021 2022 $ 19,449 15,169 11,960 10,981 9,425 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 (a component of operating expense) of $1,747,000 for each of the years ended December 31, 2017, 2016 and 2015.  Estimated annual amortization of these below-market leases, net of above-market leases, for each of the five succeeding years commencing January 1, 2018 is as follows: (Amounts in thousands) 2018 2019 2020 2021 2022 $ 1,747 1,747 1,747 1,747 1,747 134         VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. Debt Unsecured Revolving Credit Facility On October 17, 2017, we extended one of our two $1.25 billion unsecured revolving credit facilities from November 2018 to January 2022 with two six-month extension options. The interest rate on the extended facility was lowered from LIBOR plus 1.05% to LIBOR plus 1.00%. The interest rate and facility fees are the same as our other $1.25 billion unsecured revolving credit facility, which matures in February 2021 with two six-month extension options. Senior Unsecured Notes On December 27, 2017, we completed a public offering of $450,000,000 3.50% senior unsecured notes due January 15, 2025. The interest rate on the senior unsecured notes will be payable semi-annually on January 15 and July 15, commencing July 15, 2018. The notes were sold at 99.596% of their face amount to yield 3.565%. On December 27, 2017, we redeemed all of the $450,000,000 principal amount of our outstanding 2.50% senior unsecured notes which were scheduled to mature on June 30, 2019, at a redemption price of approximately 100.71% of the principal amount plus accrued interest through the date of redemption. In connection therewith, we expensed $4,836,000 of debt prepayment costs and wrote-off unamortized deferred financing costs which are included in "interest and debt expense" on our consolidated statements of income. 135     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, 2017 Balance at December 31, 2017 2016 3.65% 3.33% 3.54% 4.21% 2.68% $ $ $ 5,461,706 $ 2,742,133 8,203,839 (66,700) 5,479,547 2,727,133 8,206,680 (93,432) 8,137,139 $ 8,113,248 850,000 $ (6,386) 843,614 750,000 (1,266) 748,734 850,000 (4,423) 845,577 375,000 (2,785) 372,215 Unsecured revolving credit facilities —% — 115,630 Total, net $ 1,592,348 $ 1,333,422 The net carrying amount of properties collateralizing the mortgages payable amounted to $9.8 billion at December 31, 2017.  As of December 31, 2017, the principal repayments required for the next five years and thereafter are as follows: (Amounts in thousands) Year Ended December 31, 2018 2019 2020 2021 2022 Thereafter Senior Unsecured Debt and Unsecured Resolving Credit Unsecured Facilities Mortgages Payable $ 2,009,030 $ 750,000 973,294 1,867,567 1,613,948 950,000 790,000 — — — 400,000 450,000 136     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, 2017 and 2016. (Amounts in thousands, except units and per unit amounts) Unit Series 2017 2016 2017 2016 Balance as of December 31, Units Outstanding at December 31, Per Unit Liquidation Preference Preferred or Annual Distribution Rate Common: Class A units held by third parties $ 979,509 $ 1,273,018 12,528,899 12,197,162 n/a $ 2.62 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 $ 1,000,000.00 177,100 177,100 $ 25.00 $ $ 50,000.00 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, 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, December 31, 2016 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 (including $224,069 attributable to the spin-off of JBGS) Other, net Balance, December 31, 2017 $ 1,229,221 53,654 4,699 (31,342) (36,510) 26,251 32,473 1,278,446 10,910 643 (33,229) (38,747) (268,494) 35,408 984,937 $ 137     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, 2017 and 2016.  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, 2017, there were 189,983,858 common shares outstanding.  During 2017, we paid an aggregate of $496,490,000 of common dividends comprised of quarterly common dividends of $0.71 per share in the first and second quarter and $0.60 per share in the third and fourth quarter. The third and fourth quarter dividends were after the July 17, 2017 spin-off of JBGS. JBGS' third and fourth quarter dividend amounts to $0.1125 per common share, adjusted for the 1:2 distribution to Vornado shareholders. Class A Units (Vornado Realty L.P.) As of December 31, 2017, there were 189,983,858 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, 2017, there were 12,528,899 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 2017, the Operating Partnership paid an aggregate of $496,490,000 of distributions to Vornado comprised of quarterly common distributions of $0.71 per unit in the first and second quarter and $0.60 per unit in the third and fourth quarter. The third and fourth quarter distributions were after the July 17, 2017 spin-off of JBGS. JBGS' third and fourth quarter distribution amounts to $0.1125 per unit, adjusted for the 1:2 distribution to Vornado shareholders. 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. In December 2017, we sold 12,780,000 5.25% Series M cumulative redeemable preferred shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement. We received aggregate net proceeds of $309,609,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to the Operating Partnership in exchange for 12,780,000 5.25% Series M preferred units (with economic terms that mirror those of the Series M preferred shares). Dividends on the Series M preferred shares/units are cumulative and payable quarterly in arrears. The Series M preferred shares/units are not convertible into, or exchangeable for, any of our properties or securities. On or after five years from the date of issuance (or sooner under limited circumstances), we may redeem the Series M preferred shares/units at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption. The Series M preferred shares/units have no maturity date and will remain outstanding indefinitely unless redeemed by us. In December 2017, we called for redemption of all of the outstanding 6.625% Series G and 6.625% Series I cumulative redeemable preferred shares/units. As a result, as of December 31, 2017, we reclassed the 6.625% Series G and 6.625% Series I cumulative redeemable preferred shares/units from shareholder's equity/partner's capital to liabilities on our consolidated balance sheets. On January 4, 2018, we redeemed all of the outstanding 6.625% Series G cumulative redeemable preferred shares/units at their redemption price of $25.00 per share/unit, or $200,000,000 in the aggregate, plus accrued and unpaid dividends/distributions through the date of redemption. On January 4 and 11, 2018, we redeemed 6,000,000 shares/units and 4,800,000 shares/units, respectively, representing all of the outstanding 6.625% Series I cumulative redeemable preferred shares/units at their redemption price of $25.00 per share/unit, or $270,000,000 in the aggregate, plus accrued and unpaid dividends/distributions through the date of redemption. Upon redemption of both series, we expensed $14,486,000 of issuance costs, which will be included in the quarter ended March 31, 2018 consolidated statements of income. 138           VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. Shareholders’ Equity/Partners’ Capital – continued 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, 2017 and 2016. (Amounts in thousands, except share/unit and per share/per unit amounts) Preferred Shares/Units Convertible Preferred: Balance as of December 31, Shares/Units Outstanding at December 31, 2017 2016 2017 2016 Liquidation Preference Annual Dividend/ Distribution(1) Per Share/Unit 6.5% Series A: authorized 83,977 shares/units(2) $ 1,102 $ 1,264 19,573 24,829 $ 50.00 $ 3.25 Cumulative Redeemable Preferred: 6.625% Series G: authorized 8,000,000 shares/units(3)(4) 6.625% Series I: authorized 10,800,000 shares/units(3)(4) 5.70% Series K: authorized 12,000,000 shares/units(3) 5.40% Series L: authorized 12,000,000 shares/units(3) 5.25% Series M: authorized 12,780,000 shares/units(3) — — 193,135 262,379 — — 8,000,000 10,800,000 290,971 290,306 309,609 290,971 12,000,000 12,000,000 290,306 12,000,000 12,000,000 — 12,780,000 — 25.00 25.00 25.00 25.00 25.00 1.65625 1.65625 1.425 1.35 1.3125 (5) $ 891,988 $ 1,038,055 36,799,573 42,824,829 ________________________________________ (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 1.9531 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 1.9531 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. (4) In December 2017, we called for redemption all of the outstanding 6.625% Series G and 6.625% Series I cumulative redeemable preferred shares/units. These shares were redeemed on January 4 and 11, 2018. As a result, we reclassed to liabilities all of the outstanding shares/units with the aggregate amount of $455,514 on our consolidated balance sheets as of December 31, 2017. (5) Annual dividend/distribution rate commencing in December 2017. Accumulated Other Comprehensive Income (Loss) The following table sets forth the changes in accumulated other comprehensive income (loss) by component. (Amounts in thousands) For the Year Ended December 31, 2017 Balance as of December 31, 2016 OCI before classifications Amounts reclassified from AOCI Balance as of December 31, 2017 Total 118,972 $ (4,692) 14,402 Securities available- for-sale 130,505 (20,951) — Pro rata share of nonconsolidated subsidiaries' OCI $ (12,058) $ 1,425 14,402 Interest rate swap 8,066 $ 15,476 — 128,682 $ 109,554 $ 3,769 $ 23,542 $ $ $ Other (7,541) (642) — (8,183) 139 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. Variable Interest Entities Unconsolidated VIEs As of December 31, 2017 and 2016, we have several unconsolidated VIEs.  We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities does not give us power over decisions that significantly affect these entities’ economic performance.  We account for our investment in these entities under the equity method (see Note 5 – Investments in Partially Owned Entities).  As of December 31, 2017 and 2016, the net carrying amount of our investments in these entities was $352,925,000 and $392,150,000, respectively, and our maximum exposure to loss in these entities, is limited to our investments. Consolidated VIEs Our most significant consolidated VIEs are the Operating Partnership (for Vornado), real estate fund investments, and certain properties that have 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, 2017, the total assets and liabilities of our consolidated VIEs, excluding the Operating Partnership, were $3,561,062,000 and $1,753,798,000 respectively. As of December 31, 2016, the total assets and liabilities of our consolidated VIEs, excluding the Operating Partnership, were $3,638,483,000 and $1,762,322,000, respectively. 140     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 sheets), (iv) interest rate swaps and (v) mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred units, Series D-13 cumulative redeemable preferred units, and 6.625% Series G and 6.625% Series I cumulative redeemable preferred shares).  The tables below aggregate the fair values of these financial assets and liabilities by their levels in the fair value hierarchy at December 31, 2017 and 2016, respectively.  (Amounts in thousands) Marketable securities Real estate fund investments Deferred compensation plan assets ($11,545 included in restricted cash and $97,633 in other assets) Interest rate swaps (included in other assets) Total assets Mandatorily redeemable instruments (included in other liabilities) Interest rate swaps (included in other liabilities) Total liabilities (Amounts in thousands) Marketable securities Real estate fund investments Deferred compensation plan assets ($4,187 included in restricted cash and $117,187 in other assets) Interest rate swaps (included in other assets) Total assets Mandatorily redeemable instruments (included in other liabilities) Interest rate swaps (included in other liabilities) Total liabilities 141 $ $ $ $ $ $ $ As of December 31, 2017 Total Level 1 Level 2 Level 3 $ 182,752 $ 182,752 $ — $ 354,804 109,178 27,472 674,206 520,561 1,052 $ $ — 69,050 — 251,802 520,561 — $ $ — — 27,472 — $ 1,052 521,613 $ 520,561 $ 1,052 $ 27,472 $ 394,932 — 354,804 40,128 — — — — As of December 31, 2016 Total Level 1 Level 2 Level 3 203,704 $ 203,704 $ — $ 462,132 121,374 21,816 — 63,930 — — — 21,816 — 462,132 57,444 — 809,026 $ 267,634 $ 21,816 $ 519,576 50,561 $ 50,561 $ — $ 10,122 — 10,122 60,683 $ 50,561 $ 10,122 $ — — —         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, 2017, we had five real estate fund investments with an aggregate fair value of $354,804,000, or $98,189,000 in excess of cost.  These investments are classified as Level 3.  We use a discounted cash flow valuation technique to estimate the fair value of each of these investments, which is updated quarterly by personnel responsible for the management of each investment and reviewed by senior management at each reporting period.  The discounted cash flow valuation technique requires us to estimate cash flows for each investment over the anticipated holding period, which currently ranges from 0.3 years to 5.0 years.  Cash flows are derived from property rental revenue (base rents plus reimbursements) less operating expenses, real estate taxes and capital and other costs, plus projected sales proceeds in the year of exit.  Property rental revenue is based on leases currently in place and our estimates for future leasing activity, which are based on current market rents for similar space plus a projected growth factor.  Similarly, estimated operating expenses and real estate taxes are based on amounts incurred in the current period plus a projected growth factor for future periods. Anticipated sales proceeds at the end of an investment’s expected holding period are determined based on the net cash flow of the investment in the year of exit, divided by a terminal capitalization rate, less estimated selling costs.  The fair value of each property is calculated by discounting the future cash flows (including the projected sales proceeds), using an appropriate discount rate and then reduced by the property’s outstanding debt, if any, to determine the fair value of the equity in each investment. Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates.  These rates are based on the location, type and nature of each property, and current and anticipated market conditions, industry publications and from the experience of our Acquisitions and Capital Markets departments.  Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these real estate fund investments at December 31, 2017 and 2016. Unobservable Quantitative Input December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016 Discount rates 2.0% to 14.9% 10.0% to 14.9% Terminal capitalization rates 4.7% to 6.7% 4.3% to 5.8% 11.9% 5.5% 12.6% 5.3% Range Weighted Average (based on fair value of investments) 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, 2017 and 2016. (Amounts in thousands) Beginning balance Dispositions/distributions Net unrealized loss on held investments Net realized gains on exited investments Previously recorded unrealized gains on exited investments Other, net Ending balance For the Year Ended December 31, 2017 2016 $ 462,132 $ (91,606) (25,807) 36,078 (25,538) (455) 574,761 (71,888) (41,162) 14,761 (14,254) (86) $ 354,804 $ 462,132 142               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, 2017 and 2016. (Amounts in thousands) Beginning balance Purchases Sales Realized and unrealized gains Other, net Ending balance For the Year Ended December 31, 2017 2016 $ $ 57,444 $ 5,786 (27,715) 2,519 2,094 40,128 $ 59,186 5,355 (9,354) 344 1,913 57,444 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, 2017 and 2016. 143             VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. Fair Value Measurements – continued Financial Assets and Liabilities not Measured at Fair Value Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents (primarily money market funds, which invest in obligations of the United States government), 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 unsecured debt are classified as Level 2.  The table below summarizes the carrying amounts and fair value of these financial instruments as of December 31, 2017 and 2016. (Amounts in thousands) As of December 31, 2017 As of December 31, 2016 Cash equivalents Debt: Mortgages payable Senior unsecured notes Unsecured term loan Unsecured revolving credit facilities Total Carrying Amount Fair Value Carrying Amount Fair Value $ $ $ $ $ 1,500,227 8,203,839 850,000 750,000 — $ $ 1,500,000 8,194,000 878,000 750,000 — $ $ 1,307,105 8,206,680 850,000 375,000 115,630 1,307,000 8,163,000 899,000 375,000 116,000 9,803,839 (1) $ 9,822,000 $ 9,547,310 (1) $ 9,553,000 ____________________ (1) Excludes $74,352 and $100,640 of deferred financing costs, net and other as of December 31, 2017 and 2016, respectively. 144     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, 2017, Vornado has approximately 2,353,000 shares available for future grants under the Plan, if all awards granted are Full Value Awards, as defined. In the years ended December 31, 2017, 2016 and 2015, we recognized an aggregate of $32,829,000, $33,980,000 and $39,846,000, 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. 145   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 2016 OPP may be earned if Vornado (i) achieves a TSR level greater than 7% per annum, or 21% over the 3-year performance measurement periods (the “Absolute Component”), and/or (ii) achieves a TSR above that of the SNL US REIT Index (“Index”) over the 3-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 2017, 2016 and 2015 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, 2017, 2016 and 2015. Plan Year 2017 2016 2015 Total Plan Notional Amount Percentage of Notional Amount Granted $ 35,000,000 40,000,000 40,000,000 Grant Date Fair Value(1) OPP Units Earned 86.6% $ 86.7% 84.5% 10,800,000 11,800,000 To be determined in 2020 To be determined in 2019 9,120,000 Not earned ________________________________________ (1) Such amounts are being amortized into expense over a 5-year period from the date of grant, using a graded vesting attribution model.  In the years ended December 31, 2017, 2016 and 2015, we recognized $10,723,000, $11,055,000 and $15,531,000, respectively, of compensation expense related to OPPs.  As of December 31, 2017, there was $4,159,000 of total unrecognized compensation cost related to the OPPs, which will be recognized over a weighted-average period of 1.7 years. 146         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 4 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, 2017, 2016 and 2015, we recognized $747,000, $937,000 and $1,298,000, respectively, of compensation expense related to Vornado stock options that vested during each year.  As of December 31, 2017, there was $865,000 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, 2017. Outstanding at January 1, 2017 Granted Exercised Cancelled or expired Outstanding at December 31, 2017 Options vested and expected to vest at December 31, 2017 Options exercisable at December 31, 2017 Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value 49.81 85.78 62.89 102.96 46.62 46.98 45.86 2.2 2.2 2.1 $ $ $ 89,382,838 90,218,230 89,274,127 Shares 3,322,069 $ 29,867 (449,386) (78,650) 2,823,900 2,881,202 2,762,728 $ $ $ 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, 2017, 2016 and 2015. Expected volatility Expected life Risk free interest rate Expected dividend yield 2017 35% 5.0 years 1.95% 3.0% December 31, 2016 35% 5.0 years 1.76% 3.2% 2015 35% 5.0 years 1.56% 3.3% The weighted average grant date fair value of options granted during the years ended December 31, 2017, 2016 and 2015 was $25.84, $22.14 and $28.85, respectively.  Cash received from option exercises for the years ended December 31, 2017, 2016 and 2015 was $28,253,000, $6,825,000 and $15,343,000, respectively.  The total intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $9,178,000, $5,519,000 and $3,873,000, respectively. 147             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, 2017, 2016 and 2015, we recognized $729,000, $851,000 and $837,000, respectively, of compensation expense related to Vornado restricted stock awards that vested during each year.  As of December 31, 2017, there was $860,000 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 $46,000, $56,000 and $58,000 for the years ended December 31, 2017, 2016 and 2015, respectively. Below is a summary of Vornado’s restricted stock activity under the Plan for the year ended December 31, 2017. Unvested Shares Unvested at January 1, 2017 Granted Vested Cancelled or expired Unvested at December 31, 2017 Shares Weighted-Average Grant-Date Fair Value 23,597 $ 7,419 (14,662) (1,509) 14,845 55.03 81.06 43.97 34.42 81.05 Vornado restricted stock awards granted in 2017, 2016 and 2015 had a fair value of $601,000, $927,000 and $906,000, respectively. The fair value of restricted stock that vested during the years ended December 31, 2017, 2016 and 2015 was $645,000, $641,000 and $882,000, 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, 2017, 2016 and 2015, we recognized $20,630,000, $21,136,000 and $22,180,000, respectively, of compensation expense related to OP Units that vested during each year.  As of December 31, 2017, there was $18,229,000 of total unrecognized compensation cost related to unvested OP Units, which is expected to be recognized over a weighted-average period of 1.8 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 $2,310,000, $1,968,000 and $2,414,000 in the years ended December 31, 2017, 2016 and 2015, respectively.    Below is a summary of restricted OP unit activity under the Plan for the year ended December 31, 2017. Unvested Units Unvested at January 1, 2017 Granted Vested Cancelled or expired Unvested at December 31, 2017 Units Weighted-Average Grant-Date Fair Value 627,709 $ 312,554 (309,030) (2,271) 628,962 70.11 79.75 67.64 68.16 76.13 OP Units granted in 2017, 2016 and 2015 had a fair value of $24,927,000, $18,492,000 and $20,293,000, respectively.  The fair value of OP Units that vested during the years ended December 31, 2017, 2016 and 2015 was $20,903,000, $22,701,000 and $20,072,000, respectively. 148                 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 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, 2017 2016 2015 $ $ 104,143 $ 93,425 $ 10,087 8,171 13,349 8,243 8,770 9,648 96,880 6,288 23,369 13,353 135,750 $ 120,086 $ 139,890 ________________________________________ (1) 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, 2017 2016 2015 13,276 $ 13,135 $ 12,836 6,932 4,352 13,233 5,213 3,890 7,310 111 6,371 7,922 37,793 $ 29,548 $ 27,240 $ $ ________________________________________ (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 interest and debt expense.  (Amounts in thousands) Interest expense Amortization of deferred financing costs Capitalized interest and debt expense For the Year Ended December 31, 2017 2016 2015 $ $ 359,819 $ 328,398 $ 34,066 (48,231) 32,185 (30,343) 345,654 $ 330,240 $ 333,388 29,335 (53,425) 309,298 149   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, restricted stock awards and Out-Performance Plan awards. (Amounts in thousands, except per share amounts) Numerator: Year Ended December 31, 2017 2016 2015 Income from continuing operations, net of income attributable to noncontrolling interests $ 239,824 $ 526,686 $ 550,240 (Loss) income from discontinued operations, net of income attributable to noncontrolling interest 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: Earnings allocated to Out-Performance Plan units Convertible preferred share dividends Numerator for diluted income per share Denominator: Denominator for basic income per share – weighted average shares Effect of dilutive securities (1): Employee stock options and restricted share awards Out-Performance Plan units Convertible preferred shares Denominator for diluted income per share – weighted average shares and assumed conversations INCOME PER COMMON SHARE – BASIC: Income from continuing operations, net (Loss) income from discontinued operations, net Net income per common share INCOME PER COMMON SHARE – DILUTED: Income from continuing operations, net (Loss) income from discontinued operations, net Net income per common share (12,408) 227,416 (65,399) — 162,017 (46) 161,971 230 — 380,231 906,917 (75,903) (7,408) 823,606 (96) 823,510 806 86 210,194 760,434 (80,578) — 679,856 (81) 679,775 — 91 $ 162,201 $ 824,402 $ 679,866 189,526 188,837 188,353 1,448 284 — 1,064 230 42 1,166 — 45 191,258 190,173 189,564 $ $ $ $ 0.92 (0.07) 0.85 0.91 (0.06) 0.85 $ $ $ $ 2.35 2.01 4.36 2.34 2.00 4.34 $ $ $ $ 2.49 1.12 3.61 2.48 1.11 3.59 ________________________________________ (1) The effect of dilutive securities in the years ended December 31, 2017, 2016 and 2015 excludes an aggregate of 12,165, 12,022 and 11,744 weighted average common share equivalents, respectively, as their effect was anti-dilutive. 150     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 Class A units, and (ii) diluted income per Class A unit - which includes the weighted average Class A units and dilutive unit equivalents. Dilutive unit equivalents may include our Series A convertible preferred units, Vornado stock options, restricted unit awards and Out-Performance Plan awards.   (Amounts in thousands, except per unit amounts) Numerator: Year Ended December 31, 2017 2016 2015 Income from continuing operations, net of income attributable to noncontrolling interests $ 251,554 $ 555,659 $ (Loss) income from discontinued operations 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: (13,228) 238,326 (65,593) — 172,733 (3,232) 169,501 404,912 960,571 (76,097) (7,408) 877,066 (4,177) 872,889 580,154 223,511 803,665 (80,736) — 722,929 (4,092) 718,837 — 86 92 $ 169,501 $ 872,975 $ 718,929 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 conversations 201,214 200,350 199,309 2,086 — 1,625 42 1,804 45 203,300 202,017 201,158 INCOME PER CLASS A UNIT – BASIC: Income from continuing operations, net (Loss) income from discontinued operations, net Net income per Class A unit INCOME PER CLASS A UNIT – DILUTED: Income from continuing operations, net (Loss) income from discontinued operations, net Net income per Class A unit $ $ $ 0.91 $ (0.07) 0.84 0.90 (0.07) 0.83 $ $ 2.34 2.02 4.36 2.32 2.00 4.32 $ $ $ 2.49 1.12 3.61 2.46 1.11 3.57 ________________________________________ (1) The effect of dilutive securities in the years ended December 31, 2017, 2016 and 2015 excludes an aggregate of 124, 178 and 150 weighted average Class A unit equivalents, respectively, as their effect was anti-dilutive. 151   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 for 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, 2017, 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: 2018 2019 2020 2021 2022 Thereafter $ 1,469,201 1,441,139 1,369,636 1,298,798 1,230,172 5,841,213 These amounts do not include percentage rentals based on tenants’ sales.  These percentage rents approximated $4,062,000, $3,590,000 and $1,575,000, for the years ended December 31, 2017, 2016 and 2015, respectively. None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2017, 2016 and 2015. 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, 2017 are as follows:  (Amounts in thousands) Year Ending December 31: 2018 2019 2020 2021 2022 Thereafter $ 33,703 34,301 34,779 35,295 36,319 1,113,171 Rent expense, a component of “operating" expenses on our consolidated statements of income, was $40,219,000, $40,170,000 and $37,575,000 for the years ended December 31, 2017, 2016 and 2015, respectively. 152             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 2017, we substantially completed the redevelopment of the leased space, as required under the lease, at a total redevelopment cost of approximately $197,209,000.  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, 2017, future minimum lease payments under this capital lease are as follows: (Amounts in thousands) Year Ending December 31: 2018 2019 2020 2021 2022 Thereafter Total minimum obligations Interest portion Present value of net minimum payments $ $ 13,508 12,508 12,508 12,508 12,508 297,330 360,870 (120,870) 240,000 As of December 31, 2017, the gross carrying amount of the property leased under the capital lease was $436,984,000, which is a component of “buildings and improvements” on our consolidated balance sheets. 153     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, 2017, our subsidiaries’ participation in these plans was not significant to our consolidated financial statements. In the years ended December 31, 2017, 2016 and 2015, our subsidiaries contributed $10,113,000, $9,479,000 and $10,878,000, 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, 2017, 2016 and 2015. 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, 2017, 2016 and 2015, our subsidiaries contributed $29,549,000, $32,998,000 and $29,269,000, 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 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 $1,976,000 ($1,601,000 for 2018) and 17% (18% for 2018) 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. We are responsible for deductibles and losses in excess of our insurance coverage, which could be material. 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. 154                       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 currently expected to have a material adverse effect on our financial position, results of operations or cash flows. Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us. Generally, our mortgage loans are non-recourse to us.  However, in certain cases we have provided guarantees or master leased tenant space.  These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans.  As of December 31, 2017, the aggregate dollar amount of these guarantees and master leases is approximately $668,000,000. As of December 31, 2017, $8,938,000 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.  In September 2016, our 50.1% joint venture with Related was designated by ESD, an entity of New York State, to redevelop the historic Farley Post Office Building (see page 126). The joint venture entered into a development agreement with ESD and a design- build contract with Skanska Moynihan Train Hall Builders. Under the development agreement with ESD, the joint venture is obligated to build the Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture’s obligations. Under the design-build agreement, Skanska Moynihan Train Hall Builders is obligated to fulfill all of the joint venture’s obligations. The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bear a full guaranty from Skanska AB. As of December 31, 2017, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $42,000,000. As of December 31, 2017, we have construction commitments aggregating approximately $422,000,000. 155           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 4.5% of UE.  In 2017 and 2016, we provided UE with information technology support.  UE is providing us with leasing, development and property management services for (i) certain small retail properties that we plan to sell and (ii) our affiliate, Alexander's, Rego retail assets. 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, 2017, Interstate and its partners beneficially owned an aggregate of approximately 7.2% of the common shares of beneficial interest of Vornado and 26.2% 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 1 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 $501,000, $521,000, and $541,000 of management fees under the agreement for the years ended December 31, 2017, 2016 and 2015, respectively.  156           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 2017 and 2016: (Amounts in thousands, except per share amounts) 2017 2016 December 31 September 30 June 30 March 31 December 31 September 30 June 30 March 31 Net Income (Loss) Attributable to Common Shareholders (1) Net Income (Loss) Per Common Share (2) Basic Diluted Revenues 536,226 $ 27,319 $ 0.14 $ 528,755 511,087 508,058 (29,026) 115,972 47,752 513,974 $ 651,181 $ 502,753 498,098 488,917 66,125 220,463 (114,163) (0.15) 0.61 0.25 $ 3.44 0.35 1.17 (0.61) 0.14 (0.15) 0.61 0.25 3.43 0.35 1.16 (0.61) $ $ ____________________ (1) Fluctuations among quarters resulted primarily from non-cash impairment losses, net gains on extinguishment of debt, net gains on sale of real estate and other items 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 2017 and 2016: (Amounts in thousands, except per unit amounts) 2017 2016 December 31 September 30 June 30 March 31 December 31 September 30 June 30 March 31 Net Income (Loss) Attributable to Class A Unitholders (1) Net Income (Loss) Per Class A Unit (2) Basic Diluted Revenues $ $ 536,226 $ 29,123 $ 0.14 $ 528,755 511,087 508,058 (30,952) 123,630 50,932 (0.16) 0.61 0.25 513,974 $ 693,377 $ 3.44 $ 502,753 498,098 488,917 70,442 234,945 (121,698) 0.35 1.17 (0.61) 0.14 (0.16) 0.61 0.25 3.43 0.35 1.16 (0.61) ____________________ (1) Fluctuations among quarters resulted primarily from non-cash impairment losses, net gains on extinguishment of debt, net gains on sale of real estate and other items 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. 157         VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. Segment Information On January 1, 2017, we classified our investment in 85 Tenth Avenue in the "New York" segment as a result of the December 1, 2016 receipt of a 49.9% ownership interest in the property and prior repayment of our mezzanine loans receivable. Previously our investment in the mezzanine loans was classified in the "Other" segment. On July 17, 2017, we completed the spin-off of our Washington, DC segment. Beginning in the third quarter of 2017, the historical financial results of our former Washington, DC segment are reflected in our consolidated financial statements as discontinued operations for all periods presented and are included in the Other segment. Subsequent to the Washington, DC spin-off, we operate in two segments, New York and Other, which is based on how we manage our business. We have reclassified our 49.5% interest in 666 Fifth Avenue Office Condominium from "New York" to "Other" in all periods presented because we do not intend to hold this asset on a long-term basis. Net Operating Income ("NOI") represents total revenues less operating expenses. We consider NOI to be the primary non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on NOI, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. NOI should not be considered a substitute for net income. NOI may not be comparable to similarly titled measures employed by other companies. Below is a reconciliation of net income to NOI for the years ended December 31, 2017, 2016 and 2015. (Amounts in thousands) Net income Deduct: Our share of (income) loss from partially owned entities Our share of (income) loss from real estate fund investments Interest and other investment income, net Net gains on disposition of wholly owned and partially owned assets Loss (income) from discontinued operations NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Depreciation and amortization expense General and administrative expense Acquisition and transaction related costs NOI from partially owned entities Interest and debt expense Income tax expense (benefit) NOI at share Non cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other NOI at share - cash basis For the Year Ended December 31, 2017 2016 2015 $ 264,128 $ 981,922 $ 859,430 (15,200) (3,240) (37,793) (501) 13,228 (65,311) 429,389 158,999 1,776 269,164 345,654 41,090 (168,948) 23,602 (29,548) (160,433) (404,912) (66,182) 421,023 149,550 9,451 271,114 330,240 7,229 1,401,383 1,364,108 (86,842) (170,477) $ 1,314,541 $ 1,193,631 $ 9,947 (74,081) (27,240) (149,417) (223,511) (64,859) 379,803 149,256 12,511 245,750 309,298 (85,012) 1,341,875 (214,322) 1,127,553 158 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. Segment Information - continued Below is a summary of NOI and selected balance sheet data by segment for the years ended December 31, 2017, 2016 and 2015. (Amounts in thousands) Total revenues Operating expenses NOI - consolidated Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Our share of NOI from partially owned entities NOI at share Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other NOI at share - cash basis Balance Sheet Data: Real estate, at cost Investments in partially owned entities Total assets (Amounts in thousands) Total revenues Operating expenses NOI - consolidated Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Our share of NOI from partially owned entities NOI at share Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other NOI at share - cash basis Balance Sheet Data: Real estate, at cost Investments in partially owned entities Total assets (Amounts in thousands) Total revenues Operating expenses NOI - consolidated Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Our share of NOI from partially owned entities NOI at share Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other NOI at share - cash basis 159 For the Year Ended December 31, 2017 Total New York Other $ 2,084,126 $ 1,779,307 $ 886,596 1,197,530 (65,311) 269,164 1,401,383 (86,842) 1,314,541 14,756,295 1,056,829 17,397,934 $ $ 756,670 1,022,637 (45,899) 189,327 1,166,065 (79,202) 1,086,863 11,025,092 861,430 13,780,817 $ $ $ $ 304,819 129,926 174,893 (19,412) 79,837 235,318 (7,640) 227,678 3,731,203 195,399 3,617,117 For the Year Ended December 31, 2016 Total New York Other $ 2,003,742 $ 1,713,374 $ 844,566 1,159,176 (66,182) 271,114 1,364,108 (170,477) 1,193,631 14,187,820 1,378,254 20,814,847 $ $ 716,754 996,620 (47,480) 159,386 1,108,526 (143,239) 965,287 10,787,730 1,026,793 13,310,524 $ $ $ $ 290,368 127,812 162,556 (18,702) 111,728 255,582 (27,238) 228,344 3,400,090 351,461 7,504,323 For the Year Ended December 31, 2015 Total New York Other $ 1,985,495 $ 1,695,925 $ 824,511 1,160,984 (64,859) 245,750 1,341,875 694,228 1,001,697 (42,905) 156,177 1,114,969 (214,322) (186,781) $ 1,127,553 $ 928,188 $ 289,570 130,283 159,287 (21,954) 89,573 226,906 (27,541) 199,365 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 24. Subsequent Event Stock-based Compensation On January 12, 2018, the Compensation Committee approved the issuance of appreciation-only long-term incentive plan units, or “AO LTIP Units”, pursuant to the Plan to certain of our officers and employees.  In connection with the approval of AO LTIP Units, Vornado, in its capacity as sole general partner of the Operating Partnership, amended the Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership (the “Partnership Agreement”) in order to establish the terms of the new class of partnership interests known as AO LTIP Units. AO LTIP Units are a class of partnership interests in the Operating Partnership that are intended to qualify as “profits interests” for federal income tax purposes and generally only allow the recipient to realize value to the extent the fair market value of a Vornado common share exceeds the threshold level set at the time the AO LTIP Units are granted, subject to any vesting conditions applicable to the award. The threshold level is intended to be equal to 100% of the then fair market value of a Vornado common share on the date of grant.  The value of vested AO LTIP Units is realized through conversion of the AO LTIP Units into Class A Operating Partnership units.  The number of Class A Units into which vested AO LTIP Units may be converted is determined based on the quotient of (i) the excess of the conversion value on the conversion date over the threshold value designated at the time the AO LTIP Unit was granted, divided by (ii) the conversion value on the conversion date.  The “conversion value” is the value of a Vornado common share on the conversion date multiplied by the Conversion Factor as defined in the Partnership Agreement, which is currently one.  AO LTIP Units have a term of ten years from the grant date. Each holder will generally receive special income allocations in respect of an AO LTIP Unit equal to 10% (or such other percentage specified in the applicable award agreement) of the income allocated in respect of a Class A Unit.  Upon conversion of AO LTIP Units to Class A Units, holders will be entitled to receive in respect of each such AO LTIP Unit, on a per unit basis, a special distribution equal to 10% (or such other percentage specified in the applicable award agreement) of the distributions received by a holder of an equivalent number of Class A Units during the period from the grant date of the AO LTIP Units through the date of conversion. Other On January 4 and 11, 2018, we redeemed all of the outstanding 6.625% Series G and 6.625% Series I cumulative redeemable preferred shares/units at their redemption price of $25.00 per share/unit, or $470,000,000 in the aggregate, plus accrued and unpaid dividends/ distributions through the date of redemption (see Note 10 - Shareholder’s Equity/Partners’ Capital). On January 5, 2018, we completed a $100,000,000 refinancing of 33-00 Northern Boulevard (Center Building), a 471,000 square foot office building in Long Island City, New York. The seven-year loan is at LIBOR plus 1.80%, which was swapped to a fixed rate of 4.14%. The loan is interest only for the first five years and includes principal amortization of $1,800,000 per annum beginning in year six. We realized net proceeds of approximately $37,200,000 after repayment of the existing 4.43% $59,800,000 mortgage and closing costs. On January 17, 2018, the Fund completed the sale of 11 East 68th Street, a property located on Madison Avenue and 68th Street, for $82,000,000. From the inception of this investment through its disposition, the Fund realized a $46,259,000 net gain. 160       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 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, 2017, 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, 2017 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, 2017 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, 2017. 161               REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Trustees Vornado Realty Trust New York, New York Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Vornado Realty Trust and subsidiaries (the “Company”) as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017, of the Company and our report dated February 12, 2018, expressed an unqualified opinion on those financial statements. Basis for Opinion 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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. 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. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed 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 directors 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey February 12, 2018 162   ITEM 9A. - 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, 2017, 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, 2017 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, 2017 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, 2017. 163               REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Partners Vornado Realty L.P. New York, New York Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Vornado Realty L.P. and subsidiaries (the “Partnership”) as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017, of the Partnership and our report dated February 12, 2018, expressed an unqualified opinion on those financial statements. Basis for Opinion The Partnership’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 Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. 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. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed 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 directors 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey February 12, 2018 164     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, 2017, 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 76 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. David R. Greenbaum 66 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. Michael J. Franco 49 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. Joseph Macnow 72 Executive Vice President - Chief Financial Officer and Chief Administrative Officer since February 2017; Executive Vice President - Finance and Chief Administrative Officer from June 2013 to February 2017; Executive Vice President - Finance and Administration from January 1998 to June 2013, and Chief Financial Officer from March 2001 to June 2013; Treasurer since May 2017, and Executive Vice President and Chief Financial Officer from August 1995 to April 2017 of Alexander's Inc. Vornado, the Operating Partnership’s sole general partner, has adopted a Code of Business Conduct and Ethics that applies to, among others, the above executive officers, and its principal accounting officer, Matthew Iocco, Vornado's Executive Vice President - Chief Accounting Officer. This Code is available on Vornado’s website at www.vno.com. 165     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, 2017 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) 4,988,139 (1) $ — 4,988,139 $ 46.62 — 46.62 2,353,493 (2) — 2,353,493 ________________________________________ (1) Includes an aggregate of 2,164,239 shares/units, comprised of (i) 14,846 restricted Vornado common shares, (ii) 628,962 restricted Operating Partnership units and (iii) 1,520,431 Out-Performance Plan units, which do not have an exercise price. (2) Based on awards being granted as "Full Value Awards," as defined.  If we were to grant "Not Full Value Awards," as defined, the number of securities available for future grants would be 4,706,986. 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. 166     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, 2017, 2016 and 2015 III--Real Estate and Accumulated Depreciation as of December 31, 2017, 2016 and 2015 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. 167       VORNADO REALTY TRUST AND VORNADO REALTY L.P. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS December 31, 2017 (Amounts in Thousands) Column A Description Year Ended December 31, 2017 Allowance for doubtful accounts Year Ended December 31, 2016 Allowance for doubtful accounts Year Ended December 31, 2015 Allowance for doubtful accounts Column B Balance at Beginning of Year Column C Additions Charged Against Operations Column D Column E Uncollectible Accounts Written-off Balance at End of Year $ $ $ 8,621 $ 26 $ (2,167) $ 6,480 10,075 $ 1,827 $ (3,281) $ 8,621 18,299 $ (1,429) $ (6,795) $ 10,075 168 VORNADO REALTY TRUST AND VORNADO REALTY L.P. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (Amounts in thousands) COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I Initial cost to company (1) Encumbrances (2) Land Buildings and improvements Costs capitalized subsequent to acquisition Gross amount at which carried at close of period Buildings and improvements Land Total (3) Accumulated depreciation and amortization Date of construction (4) Date acquired Life on which depreciation in latest income statement New York Manhattan 1290 Avenue of the Americas $ 950,000 $ 515,539 $ 923,653 $ 222,019 $ 515,539 $ 1,145,672 $ 1,661,211 $ 302,588 1963 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 450,000 400,000 390,000 — 398,402 — 205,000 — 140,000 575,000 — 181,598 700,000 375,000 450,000 — 350,000 — — — 80,000 59,721 — — 114,028 — — 38,458 — — — — 152,825 265,889 189,005 — 242,776 — 119,657 105,914 102,594 53,615 8,000 88,595 52,898 — 40,333 38,224 — 39,303 62,731 — 107,937 46,505 — 30,000 24,079 — 34,602 — 15,732 19,721 11,187 13,616 584,230 363,381 471,072 412,169 247,970 249,285 268,509 214,208 231,903 164,903 175,890 113,473 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 34,635 584,442 411,095 471,072 649,154 282,449 399,001 268,509 243,033 231,903 272,386 352,737 185,052 216,761 258,924 190,834 182,597 219,446 124,985 98,202 151,576 28,395 90,915 27,147 54,898 58,191 81,349 39,873 77,562 41,881 38,001 41,186 34,794 737,267 676,984 660,077 649,154 525,225 399,001 388,166 348,947 334,497 325,075 360,737 273,647 269,659 258,924 231,167 220,821 219,446 164,288 160,933 151,576 136,332 137,420 90,147 84,898 82,270 81,349 88,252 77,562 57,613 57,722 52,373 48,410 46,409 118,948 61,050 294,104 79,163 25,326 17,341 54,741 24,837 156,678 117,458 60,036 89,691 116,203 69,613 52,575 92,000 57,827 37,977 21,734 8,952 7,338 8,623 12,393 19,464 5,470 8,128 — 20,130 12,231 4,779 10,521 1960 1972 1911 1900 1968 1964 2009 1907 1980 1923 1950 1969 1969 1968 1925 1915 1923 2009 1965/2004 1911 1987 1925 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 — 48,379 — 15,732 19,721 11,187 13,616 212 47,714 — 236,985 34,479 149,716 — 28,825 — 106,557 176,847 71,579 121,075 141,655 105,575 156,605 98,723 44,769 35,314 142,977 134 4,689 63,244 34,835 2,971 867 34,922 23,163 15,493 24,555 — 159 169 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) VORNADO REALTY TRUST AND VORNADO REALTY L.P. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED (Amounts in thousands) COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I Initial cost to company (1) Encumbrances (2) Land Buildings and improvements Costs capitalized subsequent to acquisition Gross amount at which carried at close of period Buildings and improvements Land Total (3) Accumulated depreciation and amortization Date of construction (4) Date acquired Life on which depreciation in latest income statement 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 339 Greenwich Other (including signage) Total Manhattan Other Properties Hotel Pennsylvania Paramus Total Other Properties $ — $ 96,780 — — — — — — — — — — — — — — — — — — — — — — — 5,953,987 $ 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 2,622 80,762 2,667,863 — — — 29,903 — 29,903 $ 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 12,333 14,895 5,742,734 121,712 — 121,712 $ 4,545 37 3,583 38,829 3,690 24 23 11,115 413 5,708 23 — — 7,589 2 — — 406 294 — (4,671) 485 33 — 114,889 2,313,675 $ 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 6,859 3,856 1,483 2,622 80,762 2,739,923 105,665 25,176 130,841 29,903 1,036 30,939 $ 35,089 19,128 31,073 38,829 26,598 21,336 23 24,020 10,053 13,552 94 2,751 9,936 14,096 10,039 8,914 3,631 8,518 6,116 1,550 887 1,247 730 12,333 129,784 7,984,349 227,377 24,140 251,517 $ 48,789 39,021 38,903 38,829 32,651 29,651 28,523 27,531 23,123 21,396 20,094 19,451 19,188 15,789 15,138 13,000 12,500 11,718 9,316 7,948 7,746 5,103 2,213 14,955 210,546 10,724,272 257,280 25,176 282,456 9,516 7,418 9,923 8,859 8,422 879 — 160 2,913 1,503 — 739 724 909 3,994 2,589 393 2,054 1,501 107 223 526 380 245 33,136 2,111,441 110,796 15,188 125,984 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 2017 1919 1967 1997 1987 (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) Total New York 5,953,987 2,697,766 5,864,446 2,444,516 2,770,862 8,235,866 11,006,728 2,237,425 170 VORNADO REALTY TRUST AND VORNADO REALTY L.P. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED (Amounts in thousands) COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I Initial cost to company (1) Encumbrances (2) Land Buildings and improvements Costs capitalized subsequent to acquisition Gross amount at which carried at close of period Buildings and improvements Land Total (3) Accumulated depreciation and amortization Date of construction (4) Date acquired Life on which depreciation in latest income statement Other theMART Illinois theMART, Chicago 527 West Kinzie, Chicago Total Illinois $ $ 675,000 — 675,000 64,528 5,166 69,694 $ $ 319,146 — 319,146 $ 380,720 32 380,752 $ 64,535 5,166 69,701 $ 699,859 32 699,891 $ 764,394 5,198 769,592 283,135 — 283,135 1930 1998 1998 (5) New York MMPI Piers Total theMART 555 California Street 220 Central Park South Borgata Land, Atlantic City, NJ 40 East 66th Residential 677-679 Madison Annapolis Wayne Towne Center Other Total Other Leasehold improvements equipment and other — — 675,000 69,694 — 319,146 15,117 395,869 — 69,701 15,117 715,008 15,117 784,709 569,215 950,000 55,606 — — — — — 2,249,821 221,903 115,720 83,089 29,199 1,462 — — — 521,067 893,324 16,420 — 85,798 1,058 9,652 26,137 — 1,351,535 152,004 1,265,899 — (93,222) 284 — 52,771 4,419 1,778,024 209,916 — 83,089 8,454 1,626 — — — 372,786 1,057,315 1,398,039 — 13,321 1,178 9,652 78,908 4,419 3,277,840 1,267,231 1,398,039 83,089 21,775 2,804 9,652 78,908 4,419 3,650,626 1922, 1969-1970 2,450 285,585 261,218 — 3,662 439 3,709 16,448 1,161 572,222 2008 (5) 2007 2005 2010 2005 2006 2005 (5) (5) (5) (5) (5) (5) — — — 98,941 — 98,941 98,941 75,636 Total December 31, 2017 $ 8,203,808 $3,218,833 $ 7,215,981 $ 4,321,481 $3,143,648 $ 11,612,647 $ 14,756,295 $ 2,885,283 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. ________________________________________ (1) (2) Represents the contractual debt obligations. (3) The net basis of Vornado's assets and liabilities for tax reporting purposes is approximately $2.0 billion lower than the amounts 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. 171 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: 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 Year Ended December 31, 2017 2016 2015 $ 14,187,820 $ 13,545,295 $ 12,438,940 21,298 598,820 14,807,938 51,643 30,805 854,194 14,430,294 242,474 281,048 1,030,043 13,750,031 204,736 14,756,295 $ 14,187,820 $ 13,545,295 2,581,514 $ 2,356,728 $ 2,209,778 360,391 2,941,905 56,622 346,755 2,703,483 121,969 309,306 2,519,084 162,356 2,885,283 $ 2,581,514 $ 2,356,728 $ $ $ 172 Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES - continued (b) Exhibits: 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. Incorporated by reference to Exhibit 2.1 to Vornado Realty Trust's Annual Report on Form 10-K for the year ended December 31, 2016 (File No. 001-11954), filed February 13, 2017 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 Thursday, 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 — Articles Supplementary Classifying Vornado Realty Trust's 5.25% Series M Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by reference to Exhibit 3.7 to Vornado Realty Trust's Registration Statement on Form 8-A (File No. 001-11954), filed on December 13, 2017 3.5 — Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P., 3.6 3.7 3.8 3.9 dated as of October 20, 1997 (the “Partnership Agreement”) – Incorporated by reference to Exhibit 3.26 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003 — Amendment to the Partnership Agreement, dated as of December 16, 1997 – Incorporated by reference to Exhibit 3.27 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003 — Second Amendment to the Partnership Agreement, dated as of April 1, 1998 – Incorporated by reference to Exhibit 3.5 to Vornado Realty Trust’s Registration Statement on Form S-3 (File No. 333-50095), filed on April 14, 1998 — Third Amendment to the Partnership Agreement, dated as of November 12, 1998 - Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on November 30, 1998 — Fourth Amendment to the Partnership Agreement, dated as of November 30, 1998 - Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on February 9, 1999 3.10 — 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 3.11 — 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 3.12 — 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 __________________________________________ Incorporated by reference * 173 * * * * * * * * * * * * * 3.13 — Eighth Amendment to the Partnership Agreement, dated as of May 27, 1999 - Incorporated by reference to Exhibit 3.4 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001-11954), filed on July 7, 1999 3.14 — 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 3.15 — 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 3.16 — 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 3.17 — 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 3.18 — 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 3.19 — 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 3.20 — 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 3.21 — Sixteenth Amendment to the Partnership Agreement, dated as of July 25, 2001 - Incorporated by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on Form 8-K (File No. 001 11954), filed on October 12, 2001 3.22 — 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 3.23 — 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 3.24 — 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 3.25 — 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 3.26 — 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 Friday, November 7, 2003 3.27 — Twenty-Second Amendment to the Partnership Agreement, dated as of November 17, 2003 – Incorporated by reference to Exhibit 3.49 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 001-11954), filed on Wednesday, March 3, 2004 __________________________________________ * Incorporated by reference 174 * * * * * * * * * * * * * * * 3.28 — 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 3.29 — 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 Wednesday, January 26, 2005 3.30 — 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 Wednesday, January 26, 2005 3.31 — 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 3.32 — 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 3.33 — 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 3.34 — 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 3.35 — 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 3.36 — 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 3.37 — 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 3.38 — 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 3.39 — 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 Wednesday, May 3, 2006 3.40 — 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 3.41 — 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 175 * * * * * * * * * * * * * * * * * * * * * * * * * *** * 3.42 — 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 Wednesday, June 27, 2007 3.43 — 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 Wednesday, June 27, 2007 3.44 — 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 Wednesday, June 27, 2007 3.45 — 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 Wednesday, June 27, 2007 3.46 — 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 3.47 — 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 3.48 — 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 3.49 — 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 Thursday, April 5, 2012 3.50 — 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 3.51 — 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 3.52 — 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 Thursday, April 2, 2015 3.53 4.1 — Forty-Eighth Amendment to Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P dated as of January 12, 2018 — 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 Filed herewith 176 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 — Registration Rights Agreement between Vornado, Inc. and Steven Roth, dated December 29, 1992 - Incorporated by reference to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 001-11954), filed February 16, 1993 10.2 ** — 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 — Tax Reporting and Protection Agreement, dated December 31, 2001, by and among Vornado, Vornado Realty L.P., Charles E. Smith Commercial Realty L.P. and Charles E. Smith Commercial Realty L.L.C. - Incorporated by reference to Exhibit 10.3 to Vornado Realty Trust’s Current Report on Form 8-K/A (File No. 1-11954), filed on March 18, 2002 10.5 ** — 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 ** — Second 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 177 * * * * * * * * * * * * * * * * * * * * * * 10.11 ** — Amendment to 59th Street Real Estate Retention Agreement, dated January 1, 2007, by and among Vornado Realty L.P., 731 Retail One LLC, 731 Restaurant LLC, 731 Office One LLC and 731 Office Two LLC. – Incorporated by reference to Exhibit 10.56 to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2006 (File No. 001-11954), filed on February 27, 2007 10.12 ** — Employment Agreement between Vornado Realty Trust and Mitchell Schear, as of April 19, 2007 – Incorporated by reference to Exhibit 10.46 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (File No. 001-11954), filed on May 1, 2007 10.13 ** — 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 178 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 to Exhibit 10.29 to Vornado Realty Trust's Annual Report on Form 10-K for the year ended December 31, 2016 (File No. 001-11954), filed on February 13, 2017 10.30 ** — Amendment to Employment Agreement, dated March 10, 2017, between Vornado Realty Trust and Mitchell Schear. Incorporated by reference to Exhibit 10.30 to Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (File No. 001-11954), filed on May 1, 2017 10.31 ** — Consulting Agreement, dated March 10, 2017, between JBG SMITH Properties and Mitchell Schear. Incorporated by reference to Exhibit 10.31 to Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (File No. 001-11954), filed on May 1, 2017 __________________________________________ Incorporated by reference Management contract or compensatory agreement * ** 179 * * * * * * * * * * 10.32 ** — Form of 2017 Amendment to Vornado Realty Trust 2015, 2016, 2017 Outperformance Plan Award Agreements. Incorporated by reference to Exhibit 10.32 to Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 (File No. 001-11954), filed on July 31, 2017 10.33 — Amended and Restated Revolving Credit Agreement dated as of October 17, 2017, 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. 10.34 ** — Form of Vornado Realty Trust 2010 Omnibus Share Plan AO LTIP Unit Award Agreement dated as of January 12, 2018 __________________________________________ Incorporated by reference Management contract or compensatory agreement Filed herewith * ** *** * *** *** 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 — 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. 101.INS — XBRL Instance Document of Vornado Realty Trust and Vornado Realty L.P. 101.SCH — XBRL Taxonomy Extension Schema of Vornado Realty Trust and Vornado Realty L.P. 101.CAL — XBRL Taxonomy Extension Calculation Linkbase of Vornado Realty Trust and Vornado Realty L.P. 101.DEF — XBRL Taxonomy Extension Definition Linkbase of Vornado Realty Trust and Vornado Realty L.P. 101.LAB — XBRL Taxonomy Extension Label Linkbase of Vornado Realty Trust and Vornado Realty L.P. 101.PRE — XBRL Taxonomy Extension Presentation Linkbase of Vornado Realty Trust and Vornado Realty L.P. __________________________________________ *** Filed herewith *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** ITEM 16. FORM 10-K SUMMARY None. 181 VORNADO CORPORATE INFORMATION TRUSTEES STEVEN ROTH Chairman of the Board CANDACE K. BEINECKE, Lead Trustee Senior Partner 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 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 EDWARD P. 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 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 MATTHEW IOCCO Executive Vice President Chief Accounting Officer BRIAN KURTZ Executive Vice President Financial Administration MYRON MAURER Executive Vice President Chief Operating Officer – theMART THOMAS SANELLI Executive Vice President Chief Financial Officer – New York Division GASTON SILVA Executive Vice President Chief Operating Officer – New York Division CRAIG STERN Executive Vice President Tax & Compliance COMPANY DATA EXECUTIVE OFFICES 888 Seventh Avenue New York, New York 10019 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP Parsippany, New Jersey COUNSEL Sullivan & Cromwell LLP New York, New York TRANSFER AGENT AND REGISTRAR American Stock Transfer & Trust Co. New York, New York MANAGEMENT CERTIFICATIONS The Company’s Chief Executive Officer and Chief Financial Officer provided certifications to the Securities and Exchange Commission as required by Section 302 of the Sarbanes-Oxley Act of 2002 and these certifications are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. In addition, as required by Section 303A.12(a) of the New York Stock Exchange (NYSE) Listed Company Manual, on June 5, 2017 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 17, 2018 at the Saddle Brook Marriott, Interstate 80 and the Garden State Parkway, Saddle Brook, New Jersey 07663. 2 0 1 7 A N N U A L R E P O R T 

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