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 sharebasic
Net income per sharediluted
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 sharebasic
Net income per sharediluted
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.
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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:
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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:
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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.
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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;
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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.
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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:
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$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:
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$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:
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$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).
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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.
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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.
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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:
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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.
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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:
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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.
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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
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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.
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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.
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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.
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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.
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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;
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•
•
•
•
•
•
•
•
•
•
•
•
•
•
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.
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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.
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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
*
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*
*
*
*
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
*
**
***
*
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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
***
***
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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