Vornado Realty Trust
Annual Report 2018

Plain-text annual report

2 0 1 8 A N N U A L R E P O R T This Annual Report is printed on recycled paper and is recyclable.  V O R N A D O C O M P A N Y P R O F I L E Vornado Realty Trust is a fully-integrated real estate operating company. We own all or portions of:  21.5 million square feet of Manhattan office space in 36 properties;  2.8 million square feet of Manhattan street retail space in 71 properties;  1,999 units in 11 Manhattan residential properties (927 units at share in three residential properties and 36 units in eight properties);  The 1,700 room Hotel Pennsylvania located on Seventh Avenue at 33rd Street in the heart of the Penn 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 the Penn District and Times Square;  BMS, our wholly owned subsidiary, which provides cleaning and security services for our buildings and third parties, employing 2,838 associates;  The 3.7 million square foot MART in Chicago;  A 70% controlling interest in 555 California Street, a three-building office complex in San Francisco’s financial district aggregating 1.8 million square feet, formerly known as the Bank of America Center;  A 25.0% interest in Vornado Capital Partners, our real estate fund. We are the general partner and investment manager of the fund. The fund is in wind down;  220 Central Park South, a 950-foot super-tall luxury residential condominium tower containing 400,000 salable square feet, completing construction in 2019 with condominium units scheduled to close through 2020. Vornado’s common shares are listed on the New York Stock Exchange and are traded under the symbol: VNO. 1 2 F I N A N C I A L H I G H L I G H T S ( 1 ) As Reported Revenues Net income Net income per sharebasic Net income per sharediluted Total assets Total equity Net operating income Funds from operations Funds from operations per share % increase/(decrease) in funds from operations per share As Adjusted Revenues Net income Net income per sharebasic Net income per sharediluted Total assets Net operating income Funds from operations Funds from operations per share % increase in funds from operations per share $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Year Ended December 31, 2018 2017 2,163,720,000 384,832,000 2.02 2.01 17,180,794,000 5,107,883,000 1,382,620,000 729,740,000 3.82 1.9% $ $ $ $ $ $ $ $ $ 2,084,126,000 162,017,000 0.85 0.85 17,397,934,000 5,007,701,000 1,401,383,000 717,805,000 3.75 (51.0%) Year Ended December 31, 2018 2017 2,162,357,000 243,894,000 1.27 1.27 19,955,523,000 1,369,669,000 718,760,000 3.76 0.8% $ $ $ $ $ $ $ $ 2,083,039,000 252,864,000 1.32 1.32 19,836,909,000 1,372,436,000 713,023,000 3.73 4.2% 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, 2018 was $718.8 million, $3.76 per diluted share, compared to $713.0 million, $3.73 per diluted share, for the previous year, a 0.8% increase per share. Funds from Operations, as Reported (apples-to-apples plus one-timers) for the year ended December 31, 2018 was $729.7 million, $3.82 per diluted share, compared to $717.8 million, $3.75 per diluted share, for the previous year. (See page 5 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, 2018 was $384.8 million, $2.01 per diluted share, versus $162.0 million, $.85 per diluted share, for the previous year. Our Business is 89% concentrated in New York, the most important city in the world, and overall is 73% office and 27% high street flagship retail. Here are our financial results (presented in Net Operating Income format) by business unit: ($ IN MILLIONS) Net Operating Income: 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 2018 Same Store % Increase/ (Decrease) NOI - Cash Basis(2) NOI 7.5% (0.2%) 1.4% (3.4%) (9.5%) 4.3% 4.0% (2.2%) (3.0%) (4.6%) (10.2%) 1.4% (6.5%)(3) 18.1% (12.2%)(3) 14.9% Net Operating Income % of 2018 NOI Increase/ (Decrease) 2018/2017 2018 2017 2016 56.2% 26.7% 1.8% 3.4% 0.9% 89.0% 6.9% 4.1% 100% 21.8 (6.4) (0.9) (2.2) (1.4) 10.9 (11.4) 7.1 6.6 (25.4) (18.8) 743.0 353.5 23.5 45.1 11.9 1,177.0 90.9(3) 54.7 721.2 359.9 24.4 47.3 13.3 1,166.1 102.3 47.6 662.2 365.0 25.0 47.3 9.0 1,108.5 98.5 45.9 1,322.6 60.0 1,382.6 1,316.0 85.4 1,252.9 111.2 1,401.4 1,364.1 Other Net Operating Income is comprised of: ($ IN MILLIONS) Pennsylvania REIT 666 Fifth Avenue Office Condominium (sold August 3, 2018) Urban Edge Properties (sold March 4, 2019) 85 Tenth Avenue Other Total 2018 20.0 12.1 11.8 -- 16.1 60.0 2017 2016 21.1 20.6 14.5 -- 29.2 85.4 22.8 25.0 12.5 27.9 23.0 111.2 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, 2018, a copy of which accompanies this letter or can be viewed at www.vno.com. 2 Straight-lining of rents and amortization of below-market leases, net are excluded from NOI - Cash Basis. 3 Includes additional real estate tax expense accrual in 2018 of $15.1 due to an increase in the tax-assessed value of theMART, which is not billable to tenants until 2019. Excluding this timing mismatch, same store NOI - Cash Basis would have been positive 8.8% and same store NOI would have been positive 2.6%. Assuming an 80% reimbursement, pro forma 2018 NOI would have been $103.0. 4 The following chart reconciles Funds from Operations, as Reported, to Funds from Operations, as Adjusted: ($ 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 After-tax gain on sale of 220 Central Park South units Gain on Urban Edge issuance of units 666 Fifth Avenue Office Condominium Gain on repayment of loan - 666 Fifth Avenue Office Gain on repayment of Suffolk Downs debt Real estate sold Acquisition related costs Write-off of deferred financing and defeasance costs Real Estate Fund Tax expense on deferred tax asset Transfer taxes Preferred shares issuance costs Impairment loss – Pennsylvania REIT Other, primarily noncontrolling interests’ share of above adjustments Total adjustments Funds from Operations as Adjusted Funds from Operations as Adjusted per share 2018 729.7 -- -- 67.3 -- 3.1 7.3 -- -- (3.3) -- (23.7) -- (23.5) (14.5) -- (1.8) 10.9 718.8 3.76 2017 717.8 122.2 (68.7) -- 21.1 13.2 -- 11.3 2.0 (1.7) (8.6) (10.8) (34.8) -- -- (44.5) 4.1 4.8 713.0 3.73 Funds from Operations, as Adjusted, increased by $5.8 million in 2018, to $3.76 from $3.73 per share, an increase of $0.03 per share, or 0.8%. Here is the detail of this increase: ($ 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 Preferred share dividends Other Increase in FFO as Adjusted Amount Per Share 27.3 (0.8) (9.6) (1.4) (12.4)(4) 7.1 1.3 (21.6) 14.8 1.1 5.8 0.13 -- (0.05) (0.01) (0.06)(4) 0.03 0.01 (0.10) 0.07 0.01 0.03 4 After the additional real estate tax expense accrual of $15.1 previously noted in footnote 3. 5 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 14.8% per annum. Dividends have represented 3.0 percentage points of Vornado’s annual return. Here is a chart that shows Vornado’s total return to shareholders compared to our New York-centric peers and two REIT indices for various periods ending December 31, 2018 and for 2019 year-to-date: 2019 YTD (through 4/1/19) One-year Three-year Five-year Ten-year Fifteen-year Twenty-year Vornado 10.1% (17.8)% (15.6)% 10.6% 101.8% 174.7% 510.9% NY REIT Peers(5) 14.7% (20.7)% (22.6)% (5.3)% -- -- -- Office REIT Index 20.7% (14.5)% 1.8% 28.5% 146.7% 138.6% 351.3% MSCI Index 16.5% (4.6)% 8.9% 45.6% 215.5% 226.2% 531.4% Our stock price for the last five years has been disappointing and, in my mind, disconnected from the value of our assets. The graph below demonstrates that case. Over the last ten years, NAV(6) has compounded at 10.7% and stock price at 4.2%. In last year’s letter, I made the point that public shareholders seem to price CBD office buildings at 70% of private value. That pricing mismatch has been chronic and continues. Something is obviously wrong. Vornado NAV(6)(7) Per Share vs. Stock Price $97.90  $67.62  UE spin‐off JBGS spin‐off  $120.00  $100.00  $80.00  $60.00  $40.00  $20.00  $‐ NAV Stock Price 5 Comprised of New York City-centric peers, SL Green, Empire State Realty Trust and Paramount Group. 6 Per Green Street Advisors 7 NAV has been reduced by $10 for the Urban Edge spin-off and $23 for the JBG SMITH spin-off. 6 Board Matters In law and in practice, our Board of Trustees is our governing body, the ultimate authority. Board meetings are major events around here. The preparation of transactional and strategic material is intense. Transparency and communication is essential. We have a highly intelligent, seasoned, involved, fully committed and invested Board. Our boardroom overflows with real estate, legal and financial expertise, a large dose of what we call commercial instincts and lots of good old-fashioned judgment. Welcome Bill Helman. I am delighted to announce that William W. Helman IV has been appointed to our Board. Bill is a general partner at Greylock Partners, a VC firm. Bill is a seasoned investor and a student of strategy. He joined Greylock in 1984 and served as its managing partner from 1999 to 2013. Bill has been a member of the Board of Directors of Ford Motor Company since 2011 and currently serves on the Board of the Harvard Management Company (the manager of Harvard’s endowment), among others. Bill is a graduate of Dartmouth College (he served as board chair from 2014 to 2017) and Harvard Business School. Bill joins our Board with a mandate to challenge us and break glass. We can’t wait. Thank You Bob Kogod. Robert P. Kogod is retiring from the Board at this year’s annual meeting. Bob joined the Board in 2002, (along with his brother-in-law, Robert H. Smith), when we expanded into the Washington, DC region by acquiring their Charles E. Smith Commercial Realty Company. Over their careers, Bob and Bob created the region’s largest office company (which we acquired), as well as its largest apartment company (which they took public). What’s more, Bob Kogod had a second career as a civic and philanthropic leader. His name (and Bob Smith’s) are on universities, museums, theatres, religious institutions, etc. all over Washington. Bob’s judgment is impeccable; he is deliberate and measured. Bob was fully supportive of creating JBG SMITH, essentially formed out of his family business; he shares my pride and my expectations for true greatness to come. We will all miss his probing questions and judgment in the boardroom and on the Audit Committee. We will sorely miss our dear friend and colleague Michael Lynne who was a strong and wise voice in our boardroom from 2005 until his recent passing. We intend to add at least one additional independent Trustee this year, at which time we intend to invite David Greenbaum to join the Board. 7 Leadership Team I have the joy of working every day with the best management team in the business, a group of very smart, very knowledgeable, very hardworking men and women. Ours is a well-seasoned team. We have 11 Executive Vice Presidents average tenure 19 years; 26 Senior Vice Presidents average tenure 16 years; and 65 Vice Presidents average tenure 13 years. Overall, we are 3,900 strong, of which about 500 are management and support and 3,400 are in the buildings, principally at BMS. Today I am announcing several important, even generational changes in our senior management. Michael Franco, age 50, has been appointed President of Vornado. Michael has been with us for eight years, coming from Morgan Stanley where he was Managing Director, Head of MSREF US. He was most recently our Chief Investment Officer and as such has been lead for acquisitions, dispositions and financings. Michael has been a full partner with me, David and Joe in all important decisions and strategy. Michael is super smart, experienced, measured, understands risk and can see opportunity. He is a real estate lifer, who knows well our industry and financial counterparties. He is a good manager, well liked, who handles people well. He was our quarterback in the Urban Edge and JBG SMITH spin-offs. David Greenbaum and I first met when Vornado acquired the Mendik Company in 1997. For the last 22 years, he has been my partner(8) and the leader of our New York business. A lot has happened since then and he has had a hand in every day and every deal. Over that period, we have grown 15 times in market value, 21 times in NAV and 23 times in assets. David is the consummate real estate professional…at the head of the class. What’s more, David is the most competent and the most upstanding man I know. Four years ago, David gave me a two-year warning that he wanted to cut back… it’s now time. David has chosen to kick himself upstairs, continuing his leadership as Vice Chairman, working from both New York and Arizona. Glen Weiss, age 49, and Barry Langer, age 40, will jointly be responsible for the day-to-day running of our real estate business as co- heads. Glen and Barry are ready, proven leaders, expert in their fields. Glen Weiss started with the Mendik Company in 1992 at age 22 as an assistant building manager. In 1998, he switched to leasing and by 2013 he advanced to EVP – Head of Leasing. In our business, leasing is the main event. His position requires technical knowledge, smarts, salesmanship, presentation skills, leadership, working with brokers and clients…you get the picture. In addition to his leasing responsibilities, Glen weighs in on every development, acquisition and disposition decision. He swims in a market of 400 million square feet and thousands of buildings, hundreds of brokers and thousands of clients. Nobody knows all of this better; nobody is more well-respected; he is an expert in our markets. He is a can-do guy, a man of well-chosen words. He works on big deals and always brings home the bacon. How are our buildings always 97% leased in good markets and bad…that’s Glen. Barry Langer joined us in 2003 at age 24. Barry is an architect; he started as a development guy; he is now that, and has grown to be a seasoned real estate executive, expert in all phases of our business. He builds big buildings. But more than that, he gets involved in almost everything we do. Barry has it all. He knows the three-volume, 30-pound, 3,467- page New York City zoning code by heart. He knows our government counterparties, the architectural community, the construction industry, etc. In our business, if leasing is the main event, bricks and mortar is the medium and tall buildings are the grand prize…that’s Barry’s world. He is a master at scheming (in the British sense) ground-up developments and designing redevelopments. He has real estate in his blood. He is the single most creative member of our team. It is a measure of our talent pool that these leaders have been promoted from within. The Board and I could not be more proud. In our industry Joe Macnow is dean of CFOs. Our plan is that he will leave when I leave, giving my successor the right to appoint his successor. ____________________________________________ 8 Together, of course, with Mike Fascitelli during his tenure. 8 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) NOI Amount 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 1,369.7 1,372.4 1,327.4 1,273.6 1,132.2 1,068.4 929.9 920.1 896.1 859.2 As Adjusted Amount 718.8 713.0 681.0 650.3 535.1 495.6 382.8 371.9 350.7 236.0 FFO % Change 0.8% 4.7% 4.7% 21.5% 8.0% 29.5% 2.9% 6.0% 48.6% (32.6%) % Change (0.2%) 3.4% 4.2% 12.5% 6.0% 14.9% 1.1% 2.7% 4.3% (1.3%) Per Share 3.76 3.73 3.58 3.43 2.84 2.64 2.05 1.94 1.85 1.36 Shares Outstanding 202.3 201.6 200.5 199.9 198.5 197.8 197.3 196.5 195.7 194.1 FFO increased this year by 0.8% (0.8% on a per share basis), 7.7% per year over five years (7.3% on a per share basis) and 7.5% per year over ten years (5.8% on a per share basis). Acquisitions/Dispositions Here is a ten-year schedule of acquisitions and dispositions. Acquisitions(9) Dispositions(9) ($ IN MILLIONS) 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 Number of Transactions 5 4 6 13 6 6 10 12 15 -- 77 Asset Cost 573.5 145.7 147.4 955.8 648.1 813.3 1,365.2 1,499.1 542.4 -- 6,690.5 Number of Transactions 4 5 5 12 11 20 23 7 5 16 108 Proceeds 237.5 6,047.6 1,022.5 4,672.9 1,060.4 1,429.8 1,222.3 389.2 137.8 262.8 16,482.8 Net Gain 170.4 5.1 664.4 316.7 523.4 434.1 454.0 137.8 56.8 43.0 2,805.7 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. We have pushed away from acquisitions that are off-the-fairway, non-strategic or over-priced. By nature, we are growers. But for the moment, we are in a box; our stock price makes it difficult for us to do meaningful external acquisitions. Think about it, with our stock selling at a 30% discount to NAV, if we were to buy a building for, say $1 billion, it would likely then be valued in our stock at $700 million…sort of like the discount you would suffer when you drive a new car off the lot. Something else to think about – timing is crucial in investing (just look at the performance of the various vintages of private equity investments). Looking back, our best investments and largest returns were made by loading it in at the right time and the right time has always been when the economy is just coming out of recession. For sure those opportunities are coming and we must be prepared. By the way, I am often asked where I think we are in this cycle and my answer is after ten years of recovery, we are in the eighth inning, but this time we may be in a 12 or even a 15 inning game. I suspect that the recent decline in interest rates will prolong this cycle. Principal acquisitions in 2018 were $442 million for the pre-committed 46% that we did not already own of the retail and signage at 1535 Broadway and $42 million for an additional 45% interest in the Farley Office and Retail project, bringing our interest in this property to 95%. From 2012 through 2018, our disposition activity (including our two spin-offs) has increased nearly four-fold as we have implemented our strategic simplification. With reference to the table above, 2017 includes $5.997 billion for the JBG SMITH spin-off and 2015 includes $3.700 billion for the Urban Edge Properties spin-off. No gain was recognized on the spin-offs. What remains for the ten years presented are gains of $2.8 billion on dispositions of $6.8 billion, a very healthy 41% margin. In 2018, we sold our interest in 666 Fifth Avenue Office for proceeds of $120 million, with a GAAP gain of $134 million. The action here takes place on the 45th floor where our acquisitions/dispositions teams reside. 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. A special shout out to Michael Schnitt. 9 Excludes marketable securities. 10 Spring Cleaning In March, we sold 18.5 million common shares of Lexington Realty Trust (NYSE: LXP) realizing net proceeds of $167.7 million. This sale resulted in a financial statement gain of $16.1 million which will be recognized in the first quarter of 2019. We also sold 5.7 million common shares of Urban Edge Properties (NYSE:UE) realizing net proceeds of $108.5 million. This sale resulted in a financial statement gain of $62.4 million which will also be recognized in the first quarter of 2019. In accordance with requirements of the tax-free spin-off, these shares had to be sold by the end of 2019. The sale in no way reflects on our thinking about the prospects of UE. We used the proceeds from the sales, together with existing cash, to retire all of the $400 million principal amount of 5.00% senior unsecured notes, which were scheduled to mature on January 15, 2022. These sales, together with previous activity, put us close to halfway to cashing out the non-core, for-sale list 11 Capital Markets At year-end, we had $3.3 billion of liquidity comprised of $0.9 billion of cash, restricted cash and marketable securities and $2.4 billion available on our $2.5 billion revolving credit facilities. Today, we have $2.7 billion of liquidity. Since January 1, 2018, we have executed the following capital markets transactions:               In March 2019, we increased to $1.5 billion (from $1.25 billion) and extended to March 2024 (as fully extended) one of our two unsecured revolving credit facilities. The interest rate on the extended facility was lowered to LIBOR plus 0.90%. In March 2019, we called for redemption all of the $400 million principal amount of our 5.00% senior unsecured notes which were scheduled to mature on January 15, 2022, at a redemption price of 105.51% plus accrued interest. We will incur a charge of approximately $23 million in the first quarter of 2019 relating to the make-whole. In February 2019, we repaid the $259.6 million construction loan on the Farley Office and Retail building. The LIBOR plus 3.25% loan was scheduled to mature in June 2021. In February 2019, we completed a $580 million refinancing of 100 West 33rd Street, a 1.1 million square foot property comprised of 859,000 square feet of office space and the 256,000 square foot Manhattan Mall. The interest-only loan carries a rate of LIBOR plus 1.55% (4.03% as of March 31, 2019) and matures in April 2024, with two one-year extension options. The loan replaces the previous loan of the same amount that bore interest at LIBOR plus 1.65% and was scheduled to mature in July 2020. In February 2019, we completed a $95.7 million refinancing of 435 Seventh Avenue, a 43,000 square foot Manhattan retail property. The interest-only loan carries a rate of LIBOR plus 1.30% (3.78% as of March 31, 2019) and matures in 2024. The recourse loan replaces the previous $95.7 million of indebtedness that bore interest at LIBOR plus 2.25% and was scheduled to mature in August of 2019. In January 2019, the joint venture, in which we have a 45.1% ownership interest, completed a $167.5 million refinancing of 61 Ninth Avenue, a 170,000 square foot newly constructed office and retail property in the Meatpacking district of Manhattan, which is fully leased to Aetna and Starbucks. The seven-year interest-only loan carries a rate of LIBOR plus 1.35% (3.85% as of March 31, 2019) and matures in January 2026. Vornado realized net proceeds of approximately $31 million. The loan replaces the previous $90 million construction loan that bore interest at LIBOR plus 3.05% and was scheduled to mature in 2021. In December, Alexander’s, Inc. in which we have a 32.4% ownership interest, completed a $252.5 million refinancing of its 609,000 square foot Rego Park II shopping center located in Queens, New York. The interest-only loan is at LIBOR plus 1.35%, (3.85% as of March 31, 2019) and matures in December 2025. The proceeds of the new loan were used to repay the existing loan of the same amount, which bore interest at LIBOR plus 1.85% and was scheduled to mature in January 2019. Alexander’s continues to hold a $195.7 million participation in the $252.2 million loan at LIBOR plus 1.35%. The participation in the previous loan earned interest at LIBOR plus 1.60%. In November, we completed a $205 million refinancing of 150 West 34th Street, a 78,000 square foot Manhattan retail property. The interest-only loan carries a rate of LIBOR plus 1.88% (4.36% as of March 31, 2019) and matures in 2024, as extended. Concurrently, we invested $105 million in a participation in the refinanced mortgage loan, which earns interest at a rate of LIBOR plus 2.00% (4.48% as of March 31, 2019) and also matures in 2024, as extended. The property was previously encumbered by a mortgage of the same amount at LIBOR plus 2.25%, which was scheduled to mature in 2020. In October, we extended our $750 million unsecured term loan from October 2020 to February 2024. The interest rate on the extended unsecured term loan was lowered from LIBOR plus 1.15% to LIBOR plus 1.00% (3.50% as of March 31, 2019). In connection with the extension of our unsecured term loan, we entered into an interest rate swap from LIBOR plus 1.00% to a fixed rate of 3.87% through October 2023. In August, we completed a $120 million refinancing of 4 Union Square South, a 206,000 square foot Manhattan retail property. The interest-only loan carries a rate of LIBOR plus 1.40% (3.89% as of March 31, 2019) and matures in 2025, as extended. The property was previously encumbered by a $113 million mortgage at LIBOR plus 2.15%, which was scheduled to mature in 2019. In June, the joint venture (50.1% owned) that owns Independence Plaza, a three-building 1,327 unit residential complex in the Tribeca submarket of Manhattan completed a $675 million refinancing. The seven-year interest-only loan matures in July 2025 and has a fixed rate of 4.25%. Our share of net proceeds, after repayment of the existing 3.48% $550 million mortgage, was $55.6 million. In April, the joint venture between our Fund (25% owned) and our Crowne Plaza Times Square Hotel Joint Venture (57.1% owned) completed a $255 million refinancing. The interest-only loan is at LIBOR plus 3.53% (6.06% as of March 31, 2019) and matures in May 2020 with three one-year extension options. The asset was previously encumbered by a $310 million interest-only mortgage at LIBOR plus 2.80%, which was scheduled to mature in December 2018. In January, 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% (4.30% as of March 31, 2019), 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. In January, 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 $470 million in the aggregate, plus accrued and unpaid dividends through the date of redemption. 12 Below is the right hand side of our balance sheet at December 31, 2018. ($ IN MILLIONS) Secured debt Unsecured debt Pro rata share of non-consolidated debt Noncontrolling interests’ share of consolidated debt Total debt 220 Central Park South debt(10) Projected cash proceeds from 220 Central Park South in excess of debt Cash, restricted cash, marketable securities and loan participation Net debt EBITDA as adjusted(11) Net debt/EBITDA as adjusted 8,216 1,680 2,683 (618) 11,961 (1,487) (1,044) (974) 8,456 1,263 6.7x Fixed rate debt accounted for 65% of debt with a weighted average interest rate of 3.7% and a weighted average term of 4.0 years; floating rate debt accounted for 35% of debt with a weighted average interest rate of 4.2% and a weighted average term of 3.6 years. 91% of our debt is recourse solely to individual assets. The fair value of the assets pledged is $17.6 billion, resulting in an LTV ratio of 53.9%. We have approximately $10 billion of unencumbered assets. While we enjoy access to both the unsecured and secured debt markets, it is well-known that our preference is for the latter. Unsecured debt bears the personal guarantee of the entire entity whereas secured debt has recourse only to a single property. Since pricing is about the same, I think the advantage is obvious. Vornado remains committed to maintaining our investment grade rating. Our capital markets team was responsible for approximately $3.4 billion of transactions in this year. Thank you to EVP Mark Hudspeth and SVPs Richard Reczka and Jan LaChapelle. 10 We appropriately deduct 220 Central Park South debt since it is for-sale property and the debt related thereto will self liquidate from the proceeds of executed sales contracts. 11 Excluding the Real Estate Fund. 13 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 platform is where the rubber meets the road. In our business, leasing is the main event. In New York, theMART and 555 California Street, in 2018 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 2018 Square feet leased Initial Rent GAAP Mark-to-Market Number of transactions 1,827 79.03 33.7%(12) 113 255 171.25 (22.7)%(13) 34 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 Occupancy rate: 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 1,867 78.72 12.8% 139 2,241 78.97 19.7% 148 97.2% 97.1% 96.3% 96.3% 96.9% 96.6% 95.8% 96.2% 96.1% 95.5% 126 318.67 26.5% 17 111 285.17 23.4% 27 97.3% 96.9% 97.1% 96.2% 96.5% 97.4% 96.8% 95.6% 96.4% (14) theMART California St. 555 243 53.47 20.9% 75 345 47.60 26.0% 71 270 48.16 25.5% 64 94.7% 98.6% 98.9% 98.6% 94.7% 96.4% 95.2% 90.3% 93.7% 94.0% 249 89.28 34.3 % 8 285 88.42 24.2 % 10 151 77.25 23.6 % 9 99.4 % 94.2 % 92.4 % 93.3 % 97.6 % 94.5 % 93.1 % 93.1 % 93.0 % 94.8 % We are full and achieving record high rents. Year in and year out, our occupancy rate is in the high 90s. 2018 was a historic year in Manhattan. A total of 42.2 million square feet of leases were signed, the most active year in two decades and we certainly got our fair share. Thanks to our leasing captains: Glen Weiss and Ed Hogan. Also thanks to the New York leasing machine: Josh Glick, Jared Solomon, Andy Ackerman, Jared Silverman, Edward Riguardi, Ryan Levy, Lucy Phillips, Jason Morrison and to Paul Heinen who runs leasing at theMART and 555 California Street. 12 Primarily attributable to the renewal and expansion of tenants at 770 Broadway and One Park Avenue. 13 Primarily attributable to an ASC 805 accounting adjustment on an expiring lease. Cash mark-to-market was negative 1.0%. 14 Included in New York Office. 14 15 Penn District (The Promised Land) We are the largest owner in the Penn District with over 9 million square feet. Penn District’s time has come, the district being validated by the neighboring Hudson Yards and Manhattan West. Our assets sit literally on top of Penn Station, the region’s major transportation hub, adjacent to Macy’s and Madison Square Garden. Here’s where we stand:  Our transformation here is beginning with PENN1 and PENN2, where we are creating a two-building, 4.4 million square foot campus right on top of Penn Station. It will include a three-block grand plaza along 7th Avenue covered by a giant new bustle across the entire 430-foot frontage of PENN2. This bustle will extend out 70 feet from the building and will be 45 feet above the street. It will be striking, creating a huge covered plaza in front of our PENN2 and the main entrance to Penn Station. It will bring the neighborhood into the modern age. Overall, the bustle and penthouse conversion will create 140,000 square feet of very valuable new, high ceilinged, best-in- class creative space. Images of this design are shown below and posted on our website at www.vno.com. Essential to our strategy here is that our 4.4 million square foot campus will allow us to provide our tenants with an unparalleled amenity package, even a giant leap forward from what we have done at theMART. But, there’s more – the scale of this campus will allow us to provide our tenants with flexibility for expansion. A 300,000 square foot tenant in a 500,000 square foot building is stuck. The same 300,000 square foot tenant in a 4.4 million square foot complex is a totally different story.  Plans are nearing completion and construction will begin later this year to redevelop/transform PENN1. Images of this design are posted on our website at www.vno.com.  We are papering an agreement to participate with the MTA in a program to improve the Penn Station Long Island Rail Road concourse (the most congested corridor in the station). This will involve literally doubling its width and doubling its height and a land swap that will result in our owning the retail on both sides of the concourse. It will also involve a new entrance to Penn Station from the 33rd Street roadbed directly down to the LIRR concourse. 16  In October, we increased our ownership in the Moynihan Train Hall/Farley project from 50% to 95%. We are in full blown construction here and will deliver in 2020 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. Farley is the link between our Penn District and Hudson Yards. It is a double-wide block with 150,000 square foot floor plates and high ceilings. It is a horizontal campus in an iconic landmark building much like the horizontal campuses favored by our creative tenants on the West Coast. It is a truly unique asset.  Our financial plan here is to redeploy the proceeds from 220 Central Park South sales into the capital required for Farley, PENN1 and PENN2. Give or take, we expect to finance all this capital internally, probably with no or very little new debt. This will be very accretive since earnings from these assets will flow through without a capital charge.  Hotel Penn is in a pause. As we transform PENN1 and PENN2, this site will stand out as the best available in Manhattan.  Over time, our grand plan includes developing three to five new builds in the Penn District. 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. Our basis in Penn District is about $200 per square foot versus… you pick the current value number. All this will take time but will be enormously rewarding to the patient investor. Talent is our New Client We are in a service business. We put our best foot forward when we take a page out of the hospitality industry. Our tenants appreciate and deserve to be treated like guests. Coffee and welcoming greetings go a long way. In keeping with that spirit, our Penn District marketing campaign features the slogan, “Talent is our New Client,” the point being that everything we do, in every phase of our business, must be geared to pleasing, even “delighting,” our clients, defined as the talented employees of our tenants. After all, we recognize that real estate is a recruiting tool for our tenants. Further, we are pushing the envelope of design. There is a place for Park Avenue-style financial services buildings and a place for West Side creative-type buildings. The aesthetics of our Penn District will target the creative class and will feature lobbies with areas to sit, congregate, surf or just hang and chill, a warm palette, welcome libraries, conference centers, an auditorium and food service and more. In a word, we will create a hospitality-rich communal workplace for our Penn District tenants. The images below are a tiny sampling – additional images are posted at www.vno.com. 17 Retail We own the best-in-class 71-property, 2.8 million square foot flagship street retail business in Manhattan, concentrated on the best high streets – Fifth Avenue, Times Square, Penn District, Madison Avenue, Union Square and SoHo. Here is the math: ($ IN MILLIONS, EXCEPT PROPERTIES) 2018 2017 2016 2015 2014 2013 Number of Properties 71 71 70 65 57 54 Here is our 2018 math by submarket: ($ IN MILLIONS, EXCEPT %) Fifth Avenue Times Square Penn District Madison Avenue Union Square SoHo Other Total NOI 353.4 359.9 363.7 341.7 263.4 231.6 Amount 129.4 61.6 70.3 18.8 12.1 17.9 43.3 353.4 NOI - Cash Basis(15) 324.2 324.3 292.0 259.2 226.6 200.0 NOI % 36.6 17.4 19.9 5.3 3.4 5.1 12.3 100.0 NOI - Cash Basis(15) Amount 117.8 58.7 56.0 18.7 13.2 15.6 44.2 324.2 % 36.3 18.1 17.3 5.8 4.1 4.8 13.6 100.0 2018 cash NOI for our street retail business was $324.2 million, well ahead of the $304 million minimum we guided to in the beginning of 2018, which was increased to $315 million in the third quarter. We expect 2019 cash NOI will be flat to 2018 but are confident it will not be less than $315 million. Individually and collectively as a portfolio, these are the best quality retail assets there are. Please see www.vno.com for portfolio details and images. 15 Straight-lining of rents and amortization of below-market leases, net are excluded from NOI - Cash Basis. 18 JBG SMITH Properties…“Our” Washington business Our JBG SMITH business had quite a year. In July 2017, we created JBG SMITH Properties by tax-free spin-off of Vornado’s Washington segment and simultaneous merger with the JBG Companies, a dominant Washington-based real estate developer and fund manager. It was their best-in-class management team that we were after. At inception, our shareholders owned approximately 75% of the going-forward entity. I take license with the word “our” since, after the spin, Vornado and JBG SMITH are totally separate, independent companies, but I, our senior management team and our Board, still retain every share that we received in the spin (and hope you have too) and so continue to have the same proportional ownership. We have tremendous pride in this business, and its future prospects and its CEO Matt Kelly and his terrific team. In November, it was announced that JBG SMITH won half of the Amazon second headquarters competition (HQ2). The deal involves leasing about 600,000 square feet of existing office space in Crystal City, but the backbone is the sale of land to Amazon for 4.1 million square feet of new-builds. This land was contributed to the merger by Vornado. The land was sourced in 2005/2007 in add-on acquisitions by Mitchell Schear, who ran our Washington business before the spin. JBG SMITH is a high-growth company launched with 18 million square feet of development rights contributed about equally by both sides, 50% of which is in the Crystal City neighborhood. Amazon, and its 25,000 employees, coming to Crystal City will change everything. Crystal City will become a teeming metropolis of apartments, shops and offices. Urban Edge Properties A shout out for Jeff Olson and his Urban Edge team. UE strengthened its balance sheet with two equity sales aggregating $350 million, at $25 per share and strengthened its management team by recruiting Don Briggs (President - Development) and Chris Weilminster (EVP & Chief Operating Officer), two proven shopping center executives who joined after long careers at Federal Realty. UE has a strong hand with a great New York-centric infill portfolio inherited from Vornado, not to mention $500 million of important add-on acquisitions Jeff made in the last two years. As disclosed in our March 4, 2019 press release, Vornado sold 5.7 million shares of Urban Edge. This sale was required by the tax-free spin-off with a deadline of end of 2019. The sale in no way reflects on our thinking about the prospects of UE. 19 Some Thoughts, 2018 Version New York City Is Our Home…The Number One City In The World  McKinsey & Company labels New York City as a “superstar city… pulling away from peers in terms of per capita GDP and  seeing strong population growth.” New York City 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 City ranks first as the world’s premier tech center, overtaking San Francisco. New York City has a growing footprint of healthcare systems and an emerging life sciences industry. New York City continues to be the financial center of the world…and the financial sector is resurging.  More growth has been produced by New York City than any other city in the U.S. or across the globe (New York City contributed 8.3% of U.S. GDP growth and 2.6% of Global GDP growth between 2010 to 2017).  While headlines talk about a migration out of New York City, there has actually been a migration into New York City for college-educated individuals from 2014 to 2017. New York City has created more jobs than any other U.S. city for the sectors that have driven job growth in the country. New York City is the leading city for attracting U.S. and global talent. New York City ranks first in U.S. college graduate desirability and first in attracting skilled foreign professionals (31% are in New York City vs. the next highest of 9% in Dallas). New York City has the largest ultra-high-net-worth population (individuals with a net worth of $30 million plus) in the U.S. (8,865 in 2017) and is growing at 7%. New York City continues to experience record-low crime rates (14% decline in violent crime from 2013 to 2017 and a 63% decline since 1995). New York City beats San Francisco in amount of academic research spending ($4.1 billion in New York City vs. $2.3 billion in San Francisco), start-up density (154 start-ups per 1,000 companies in New York City vs. 150 in San Francisco) and VC funding growth (70% growth in VC funding in New York City from 2015 to 2017 vs. 12% decline in San Francisco). New York City is the bullseye for global investors…and for domestic investors…and for its giant corporate citizens.       Only in America - How many times have you said that, marveling at the freedoms and opportunities in this wonderful land? As a nation, we live under our unique democratic, capitalist system. As a nation, we have always taken the long view and the compassionate view. We are a nation of builders, innovators, inventors. We can do and we always overcome. I am grateful to be an American. But, I must say, it’s not always easy. Attracting Amazon HQ2 to New York was a great deal and well done. They undoubtedly were attracted by our workforce, infrastructure, and all that New York has to offer. Losing them was one of the stupidest damn things I’ve ever seen and heartbreaking. And the originally proposed version of an annual pied-à-terre tax was almost as bad. Those who fan the fire of class warfare and those who tear down should be put on double secret probation. Our system thrives when we grow and build. It may sound corny but tax, tax, tax must be replaced with grow, grow, grow. Governments seem to need ever-increasing tax revenues and that can only be accomplished by a growing tax base, not by a growing tax rate. Repeal the New York State Estate Tax (essentially reprinted from last year’s letter) - I am frequently asked to predict the effect of the elimination of deductibility of state and local taxes (SALT) on New York real estate. 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, New Jersey repealed its estate tax last year. Out of Service - I’m getting comments from analysts, and even a few investors, that our Penn District income will temporarily suffer as we vacate portions of a building and take portions out of service. All true, but I don’t get that our stock price should be penalized by a temporary dip in income as part of the process of turning $60 space into $90 space. And I don’t get the conventional wisdom that development is best not done in a public company. Signage Business - We own the largest signage business in Manhattan, concentrated in Times Square and the Penn District comprised of 22 large scale “HD spectacular LED signs” (that’s industry jargon). In 2018, the business produced $69 million of NOI, about half from signs under long term lease to our retail tenants and half leased in the advertising marketplace. This business is very capably managed by Gary Grossman and Justin Rinko. Over Boarding - I serve on four boards: Vornado, its affiliate Alexander’s which is managed by Vornado, and the two spin-offs that were born by Vornado. A few negative comments have been made that I am over-boarded. These boards are all in the family and so I think not. Good Neighbors - Hudson Yards is now open. Tenants are moving into the office buildings and shopping traffic is heavy in the mall. Congratulations to our friends and partners at Related Companies. We are thrilled at their success. Remember…we flourish when our neighbors flourish. 20 220 Central Park South continues its record setting success. So far, we closed on 23 units for $665 million. Closings will continue throughout 2020, as we climb up the building. Art on theMART - On September 29th, in cooperation with the City of Chicago, we launched Art on theMART, the largest permanent digital art installation in the world reflecting images designed by a rotating cadre of artists onto the riverfront facade of theMART building, essentially a 100,000 square foot canvas. The launch event was attended by 32,000 Chicagoans. Our objective here is to enhance the public realm with this wonderful art installation which, in turn, will increase the local, national, and even global renown of the building and increase its franchise value. Toys - The cancelling of our stock in Toys “R” Us is now complete and will result in approximately a $420 million capital loss deduction for tax purposes in 2019 (which if not offset by capital gain will result in a capital loss carry-over available for five years). Coworking - The trend toward densification, open-plan, casual creative-type space and flexibility predate the current coworking wave. We have been dealing with these phenomena for over a decade. We get it and every architectural and space planning firm gets it. No big deal. Coworking sells space by the desk vs. by the square foot; interesting, but in the end more expensive to the tenant. Are they friend or foe? So far, we deem them to be friend because they are absorbing space. It would be another story if they start adding space by way of new-builds. And coworking has several vulnerabilities. Their business is housed in leased space which has an expiration date. And it’s hard to justify multi-billion dollar valuations for a business that leases space desk by desk. I must say, I admire their asset-lite business model. And I am envious of their no TI model (when a new tenant comes in, they just dust off the desk). In the end, coworking is here to stay. The Principles By Which We Run Our Business that have been in recent years’ letters are reprinted as Appendix A. 21 Environmental, Social and Governance (“ESG”) We observe that sustainability is broadening to encompass Environmental, Social, and Governance (“ESG”) issues. We consider ESG to be responsible management of our business, and mitigation of various forms of risk. Vornado continues to lead the industry in sustainability. We know it is important to our tenants and investors, as well as our communities and our employees. From energy conservation, to healthy indoor environments, to sustainable new construction, we continuously improve our environmental programs each year. We recognize climate change as an issue to our business. We assess opportunities to fortify our properties against climate change-related risks, while actively managing and reducing our carbon footprint. We have signed on in support of the framework set forth by the Taskforce on Climate-related Financial Disclosures, and we are evaluating the risks and opportunities that various climate change scenarios present to all of our buildings. A portfolio of our size carries a significant responsibility to manage energy, and we work hard to monitor, control, and reduce our consumption. Our energy efficiency capital projects continue to save energy and modernize our existing buildings. We are an active participant in demand response and contribute significantly to reducing electricity grid constraints in each of our markets. We set a goal 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 December 31, 2018 we are more than halfway toward this goal, and have a strategic plan in place to achieve our goal ahead of schedule. We also know that we must partner with our tenants to reduce their greenhouse gas emissions, and encourage them to reduce their own consumption 30% by 2026. We lead a robust tenant engagement program that in 2018 included the continuation of our tenant roundtable series, which was attended by participants from over 5 million square feet of our tenant base. We own and operate more than 26 million square feet of LEED-certified buildings, with over 22 million square feet at LEED Gold. We are committed to LEED certifying our entire portfolio by 2020, and we are already more than 90% toward that goal. Our tenants and our employees spend the majority of their week working in our buildings, and we uphold our responsibility to provide a healthy indoor environment for them. In fact, office buildings of our size often represent communities unto themselves. We are focused on delivering healthy air and healthy water, and our cleaning company leads the industry in least-toxic cleaning policies. In 2018, we achieved Fitwel 2-star certification at theMART. We now own and manage the largest Fitwel certified building, and provide a healthy and active environment for the millions of tenants and visitors to theMART every year. 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 the Penn District expands our focus from the asset to the neighborhood, and we plan to apply our principles in energy innovation, resource conservation, and health and wellness to help transform the Penn District at large. Our programs continue to deliver results: in 2018, we recycled and composted over 24,000 tons of waste, amounting to a diversion rate of 61%. We were awarded Nareit’s Leader in the Light Award (9th 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 (6th year in a row). In 2018, we scored among the top 6% of over 800 worldwide respondents to GRESB. Our employees are the foundation of our human capital, and we have well-developed programs that provide training and continuing education, promote career and personal development, and encourage innovation and engagement. In addition to policies in support of shareholder rights, worker rights, diversity and equal opportunity, Vornado upholds strict policies against bribery and corruption, child labor, or forced or compulsory labor. Such policies extend to our Board and management as well as all our employees. We understand that our social commitments must also benefit the communities that surround us. As a corporate citizen, we uphold our commitment to give back by encouraging all of our employees to volunteer. Through Vornado Volunteers, our employees give back to communities through participation in causes that support vulnerable parts of the population, protect and improve the environment, and promote a healthy lifestyle. Sound principles of governance are critical to earning and retaining the trust of our investors and sustaining our commitment to acting with integrity. We are proud to have an esteemed and experienced Board of Trustees. Our trustees are significant investors in our Company and are committed to building shareholder value. Vornado’s governance continues to evolve. We engage with our shareholders on a regular basis regarding governance policies and disclosure. In the past two years, Vornado adopted proxy access with a 3/3/20/20 market standard and instituted the ability for shareholders to amend our Bylaws. We continue to enhance our disclosure on executive compensation and sustainability in our Proxy Statement. In addition, the Board recently adopted a renewed anti-harassment policy. As part of our Board refreshment program, this year we are adding one new Trustee to our Board. Robert P. Kogod, a member of our Board since 2002, will not be standing for reelection. 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. We have renamed this year’s Sustainability Report (our tenth) as an ESG Report. Our report is in accordance with the Global Reporting Initiative (GRI), and is also aligned with the metrics codified by the Sustainability Accounting Standards Board (SASB). We invite you to read through our report at www.vno.com. Thanks to Dan Egan, SVP, who so capably runs this important function for us. 22 We continually broaden our leadership team through promotions from within our Company. Please join me in congratulating this year’s class; they deserve it. Mark Ambrosone was promoted to Senior Vice President, Design; Dan Egan was promoted to Senior Vice President, Sustainability; Dana Arrigo was promoted to Senior Vice President, Corporate Accounting; Eileen Costello was promoted to Vice President, Marketing; Carlos Lopez was promoted to Vice President, Director Field Operations; Kelly Butler was promoted to Vice President, Corporate Office Operations; Brenda Fernandez was promoted to Vice President, Payroll; and Steve Vallone was promoted to Vice President, Applications and Security. Welcome to Samantha Benvenuto, VP, Employee Relations. Our operating platform heads are the best in the business. I pay my respects 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; 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. Our Vornado Family has grown with 8 marriages and 14 births this year, 6 girls and 8 boys. Congratulations and thank you to Brian Kurtz, who retired as an Executive Vice President after 53 years of service with Vornado. On behalf of Vornado’s Board, senior management and 3,928 associates, we thank our shareholders, analysts and other stakeholders for their continued support. Again this year, I offer to assist shareholders with tickets to my wife’s production Accidentally Brave. And to my son’s productions of The Book of Mormon, Frozen, Hadestown, Mean Girls and Moulin Rouge!. Please call if I can be of help. Congratulations to Rebecca… Yale ’22. And little Levi keeps growing. Steven Roth Chairman and CEO April 2, 2019 23 24 Appendix A - Here Are The Principles By Which We Run Our Business: 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. We also measure our success here by the quality of tenants we have been able to attract. We have transformed almost all of our fleet; Penn District 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 District 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. 25 2009 128.5 (67.2) -- 117.3 (5.6) -- 26.6 (280.7) (44.9) 298.9 166.7 44.1 101.6 396.3 881.6 (22.4) 859.2 2009 106.2 (57.1) 49.1 508.6 (45.3) 23.2 -- -- 140.6 (1.4) (22.9) -- -- (47.0) -- 0.2 605.1 3.49 2017 17,397.9 (29.3) (37.1) (354.8) (25.0) -- 2,885.2 19,836.9 Below is a reconciliation of Net Income to NOI, as adjusted: ($ IN MILLIONS) Net Income Our share of (income) loss from partially owned entities Our share of loss (income) from real estate fund Interest and other investment (income) loss, net Net gains on disposition of assets Purchase price fair value adjustment Net losses on early extinguishment of debt (Income) loss from discontinued operations NOI attributable to noncontrolling interests 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 Certain items that impact NOI NOI, as adjusted Below is a reconciliation of Net Income to FFO: ($ IN MILLIONS, EXCEPT SHARE AMOUNTS) Net Income attributable to Vornado Preferred share dividends and issuance costs Net Income applicable to common shares Depreciation and amortization of real property Net gains on sale of real estate Real estate impairment losses Decrease in fair value of marketable securities After tax purchase price fair value adjustment Partially-owned entities adjustments: Depreciation of real property Net gains on sale of real estate Income tax effect of adjustments Real estate impairment losses Decrease in fair value of marketable securities Noncontrolling interests’ share adjustments Interest on exchangeable senior debentures Preferred share dividends Funds From Operations Funds From Operations per share 2018 422.6 (9.1) 89.2 (17.1) (246.0) (44.1) -- (0.6) (71.2) 484.2 141.9 31.3 253.6 347.9 1,382.6 (12.9) 1,369.7 2018 449.9 (65.1) 384.8 413.1 (158.1) 12.0 26.5 (27.3) 101.6 (4.0) -- -- 3.9 (22.8) -- -- 729.7 3.82 2017 264.1 (15.2) (3.2) (37.8) (0.5) -- -- 13.2 (65.3) 470.4 159.0 1.8 269.2 345.6 1,401.3 (28.9) 1,372.4 2017 227.4 (65.4) 162.0 468.0 (3.5) -- -- -- 137.0 (17.8) -- 7.7 -- (36.7) -- 1.1 717.8 3.75 2016 982.0 (168.9) 23.6 (29.6) (160.4) -- -- (404.9) (66.2) 428.2 149.6 9.4 271.1 330.2 1,364.1 (36.7) 1,327.4 2016 906.9 (83.3) 823.6 531.6 (177.0) 160.7 -- -- 154.8 (2.9) -- 6.3 -- (41.1) -- 1.6 1,457.6 7.66 2015 859.4 9.9 (74.1) (27.2) (149.4) -- -- (223.5) (64.9) 294.8 149.3 12.5 245.8 309.3 1,341.9 (68.3) 1,273.6 2015 760.4 (80.6) 679.8 514.1 (289.1) 0.3 -- -- 144.0 (4.5) -- 16.8 -- (22.4) -- -- 1,039.0 5.48 2014 1,009.0 58.5 (163.0) (38.6) (13.6) -- -- (686.9) (55.0) 360.7 141.9 18.4 207.7 337.4 1,176.5 (44.3) 1,132.2 2014 864.9 (81.5) 783.4 517.5 (507.2) 26.5 -- -- 117.8 (11.6) (7.3) -- -- (8.0) -- -- 911.1 4.83 2013 564.7 336.3 (102.9) 20.8 (2.0) -- -- (666.8) (58.6) 342.5 150.3 24.9 175.1 323.5 1,107.8 (39.4) 1,068.4 2013 476.0 (84.0) 392.0 501.8 (411.6) 37.1 -- -- 157.3 (0.5) (26.7) 6.6 -- (15.1) -- 0.1 641.0 3.41 2012 694.5 (428.9) (63.9) 252.7 (4.9) -- -- (378.1) (45.3) 304.5 140.5 17.4 152.1 315.7 956.3 (26.4) 929.9 2012 617.3 (67.9) 549.4 504.4 (245.8) 130.0 -- -- 154.7 (241.6) (27.5) 11.6 -- (16.6) -- -- 818.6 4.39 2011 740.0 (125.5) (22.9) (156.6) (10.9) -- -- (394.4) (47.9) 309.2 137.5 34.9 132.2 338.0 933.6 (13.5) 920.1 2011 662.3 (60.5) 601.8 530.1 (51.6) 28.8 -- -- 170.9 (9.8) (24.6) -- -- (41.0) 26.1 0.3 1,231.0 6.42 2010 708.0 (85.6) -- (234.6) (26.7) -- 10.8 (351.6) (47.8) 301.3 145.7 38.6 100.8 348.9 907.8 (11.7) 896.1 2010 647.9 (51.2) 596.7 505.8 (57.2) 97.5 -- -- 148.3 (5.8) (24.6) 11.5 -- (46.8) 25.9 0.2 1,251.5 6.59 Below is a reconciliation of Net Income to Net Income, as Adjusted: Below is a reconciliation of Total Assets to Total Assets, as Adjusted: ($ IN MILLIONS) Net Income applicable to common shares Washington, DC 666 Fifth Avenue Real Estate Fund 220 CPS Gains Certain other items that impact net income Net income, as Adjusted Below is a reconciliation of Net Income to EBITDA, as Adjusted ($ IN MILLIONS) Net income (before noncontrolling interests) Less: net loss attributable to noncontrolling interests in consolidated subsidiaries Net income attributable to the Operating Partnership Interest and debt expense Depreciation and amortization Gains on sale and impairment losses on real estate Income tax expense and other EBITDAre Gain on sale of 220 Central Park South units Purchase price fair value adjustment Decrease in fair value of marketable securities Real Estate Fund Transfer taxes Gain on repayment of loan investment in 666 Fifth Avenue Office and operations Other EBITDA, as adjusted 2018 384.8 -- (134.0) 23.7 (67.3) 36.7 243.9 2018 422.6 53.0 475.6 448.3 520.7 (150.1) 36.8 1,331.3 (81.2) (44.1) 30.3 23.7 23.5 (23.1) 2.2 1,262.6 2017 162.0 20.9 -- 10.8 -- 59.2 252.9 ($ IN MILLIONS) Total Assets Adjustments: Assets related to sold properties 666 Fifth Avenue Office Real Estate Fund Verde Cash available to repay revolving credit facilities Accumulated depreciation Total Assets, as Adjusted 2018 17,180.8 (6.7) -- (318.8) -- (80.0) 3,180.2 19,955.5 Below is a reconciliation of Revenues to Revenues, as Adjusted: ($ IN MILLIONS) Revenues Revenues related to sold properties Revenues, as Adjusted 2018 2,163.7 (1.3) 2,162.4 2017 2,084.1 (1.1) 2,083.0 26 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: December 31, 2018 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 Maryland (State or other jurisdiction of incorporation or organization) 22-1657560 (I.R.S. Employer Identification Number) Vornado Realty L.P. Delaware 13-3925979 (State or other jurisdiction of incorporation or organization) (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 Title of Each Class Common Shares of beneficial interest, $.04 par value per share Cumulative Redeemable Preferred Shares of beneficial interest, no par value: 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 Securities registered pursuant to Section 12(g) of the Act: Registrant Vornado Realty L.P. Title of Each Class Class A Units of Limited Partnership Interest Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Vornado Realty Trust: YES  NO  Vornado Realty L.P.: YES  NO  Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Vornado Realty Trust: YES  NO  Vornado Realty L.P.: YES  NO  Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Vornado Realty Trust: YES  NO  Vornado Realty L.P.: YES  NO  Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Vornado Realty Trust: YES  NO  Vornado Realty L.P.: YES  NO  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” "non-accelerated filer," “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Vornado Realty Trust:  Large Accelerated Filer  Non-Accelerated Filer Vornado Realty L.P.:  Large Accelerated Filer  Non-Accelerated Filer  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  Vornado Realty L.P.: YES  NO  The aggregate market value of the voting and non-voting common shares held by non-affiliates of Vornado Realty Trust, i.e. by persons other than officers and trustees of Vornado Realty Trust, was $12,877,203,000 at June 30, 2018. As of December 31, 2018, there were 190,535,499 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, 2018 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 $707,001,000 at June 30, 2018. Part III: Portions of Proxy Statement for Annual Meeting of Vornado Realty Trust’s Shareholders to be held on May 16, 2019. Documents Incorporated by Reference EXPLANATORY NOTE This report combines the Annual Reports on Form 10-K for the fiscal year ended December 31, 2018 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 93.4% 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, and the net proceeds of debt offerings by Vornado, the net proceeds of which are contributed to the Operating Partnership in exchange for debt securities of 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 12. Redeemable Noncontrolling Interests/Redeemable Partnership Units Note 13. Shareholders' Equity/Partners' Capital Note 16. Stock-based Compensation Note 19. Income Per Share/Income Per Class A Unit Note 24. Summary of Quarterly Results (Unaudited) This report also includes separate Part II, Item 9A. Controls and Procedures sections 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. INDEX Item Financial Information: Page Number PART I. 1. Business 1A. Risk Factors 1B. Unresolved Staff Comments PART II. 2. 3. 4. 5. 6. 7. 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. Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 9A. Controls and Procedures 9B. Other Information PART III. 10. Directors, Executive Officers and Corporate Governance(1) 11. Executive Compensation(1) 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters(1) 13. Certain Relationships and Related Transactions, and Director Independence(1) 14. Principal Accounting Fees and Services(1) PART IV. 15. Exhibits, Financial Statement Schedules 16. Form 10-K Summary 7 12 25 26 32 32 33 35 38 93 94 159 159 163 163 164 164 164 164 165 179 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, 2018, portions of which are incorporated by reference herein. 180 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 PART I ITEM 1. BUSINESS 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 93.4% of the common limited partnership interest in the Operating Partnership as of December 31, 2018. We currently own all or portions of: New York: • 19.9 million square feet of Manhattan office in 36 properties; • 2.6 million square feet of Manhattan street retail in 71 properties; • 1,999 units in eleven residential properties; • The 1,700 room Hotel Pennsylvania located on Seventh Avenue at 33rd Street in the heart of the Penn 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 (the "Fund"). We are the general partner and investment manager of the Fund; and • Other real estate and other investments. 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 to 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. 7 ACQUISITIONS We completed the following acquisitions during 2018: • $442 million acquisition of the retail condominium at 1535 Broadway; • $44 million acquisition of 537 West 26th Street and 55,000 square feet of additional zoning air rights; and • $42 million purchase price to increase our ownership interest in the joint venture that is developing the Farley Office and Retail Building to 95.0% from 50.1%. DISPOSITIONS We completed the following sale transactions during 2018: • $120 million sale of our 49.5% interests in the 666 Fifth Office Condominium. Concurrently with the sale of our interests, the existing mortgage loan on the property was repaid and we received net proceeds of $55.2 million for the participation we held in the mortgage loan; • $82 million sale of the retail condominium at 11 East 68th Street by the Fund (25% interest); and • $45 million sale of 27 Washington Square North. 220 CENTRAL PARK SOUTH We completed the following sale transactions during 2018: • $215 million net proceeds from the sale of 11 condominium units. FINANCINGS We completed the following financing transactions during 2018: • $750 million unsecured term loan extended to February 2024, lowering the interest rate from LIBOR plus 1.15% to LIBOR plus 1.00%; • $675 million refinancing of Independence Plaza ($338 million at our 50.1% interest); • $470 million redemption of all of the outstanding 6.625% Series G and Series I cumulative redeemable preferred shares/units; • $255 million refinancing of the Crowne Plaza Times Square Hotel ($84 million at our 32.9% interest); • $205 million refinancing of 150 West 34th Street and $105 million investment in a participation in the refinanced loan; • $120 million refinancing of 4 Union Square South; and • $100 million refinancing of 33-00 Northern Boulevard (Center Building). 8 DEVELOPMENT AND REDEVELOPMENT EXPENDITURES We are constructing a residential condominium tower containing 397,000 salable square feet at 220 Central Park South ("220 CPS"). The development cost of this project (exclusive of land cost of $515.4 million) is estimated to be approximately $1.4 billion, of which $1.2 billion has been expended as of December 31, 2018. 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, 2018, $95,464,000 has been expended, of which our share is $52,505,000. 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 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, 2018, $51,202,000 has been expended, of which our share is $25,601,000. We are redeveloping a 78,000 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, 2018, $21,834,000 has been expended, of which our share is $15,284,000. We are redeveloping a 165,000 square foot office building at 825 Seventh Avenue, located at the corner of 53rd Street and Seventh Avenue (50.0% interest). The redevelopment cost of this project is estimated to be approximately $30,000,000, of which our share is $15,000,000. As of December 31, 2018, $8,967,000 has been expended, of which our share is $4,484,000. We are redeveloping PENN1, a 2,545,000 square foot office building located on 34th Street between Seventh and Eighth Avenue. The development cost of this project is estimated to be over $200,000,000, of which $9,725,000 has been expended as of December 31, 2018. We are in the planning phase to redevelop PENN2, a 1,634,000 square foot office building located on the west side of 7th Avenue between 31st and 33rd Street. We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including, in particular, the Penn District. 9 DEVELOPMENT AND REDEVELOPMENT EXPENDITURES - continued Farley Office and Retail Building and Moynihan Train Hall Our 95.0% joint venture (the remaining 5.0% is owned by the Related Companies "Related") is developing the Farley Office and Retail Building (the "Project"), which will include 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. The total development cost of the Project is estimated to be approximately $800,000,000 (exclusive of a $230,000,000 upfront contribution and net of anticipated historic tax credits). As of December 31, 2018, $144,491,000 has been expended. The joint venture has entered into a development agreement with Empire State Development (“ESD”), an entity of New York State, to build the adjacent Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture's obligations. The joint venture has entered into a design-build contract with Skanska Moynihan Train Hall Builders pursuant to which they will build the Moynihan Train Hall, thereby fulfilling all of the joint venture's obligations to ESD. The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bear a full guaranty from Skanska AB. The development expenditures for the Moynihan Train Hall are estimated to be approximately $1.6 billion, which will be funded by governmental agencies. Pursuant to Accounting Standards Codification 840-40-55, the joint venture, which we consolidate on our consolidated balance sheets, is required to recognize all development expenditures for the Moynihan Train Hall. Accordingly, the development expenditures paid for by governmental agencies through December 31, 2018 of $445,693,000 are shown as “Moynihan Train Hall development expenditures” with a corresponding obligation recorded in “Moynihan Train Hall obligation” on our consolidated balance sheets. Upon completion of the development, the "Moynihan Train Hall development expenditures" and the offsetting “Moynihan Train Hall obligation” will be removed from our consolidated balance sheets. 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. 10 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, 2018, 2017 and 2016 is set forth in Note 25 – Segment Information to our consolidated financial statements in this Annual Report on Form 10-K. SEASONALITY Our revenues and expenses are subject to seasonality during the year which impacts quarterly net earnings, cash flows and funds from operations, and therefore impacts comparisons of the current quarter to the previous quarter. The 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, 2018, 2017 and 2016. 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, 2018, we have approximately 3,928 employees, of which 275 are corporate staff. The New York segment has 3,476 employees, including 2,838 employees of Building Maintenance Services LLC, a wholly owned subsidiary, which provides cleaning, security and engineering services primarily to our New York properties and 460 employees at the Hotel Pennsylvania. theMART has 177 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. 11 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 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 in the New York City Metropolitan area and are affected by the economic cycles and risks inherent to this area. In 2018, approximately 89% of our net operating income ("NOI", a non-GAAP measure) came from properties located in the New York City metropolitan area. We may continue to concentrate a significant portion of our future acquisitions and development in this area. Real estate markets are subject to economic downturns and we cannot predict how economic conditions will impact this market in either the short or long term. Declines in the economy or declines in real estate markets in the New York City metropolitan area could hurt our financial performance and the value of our properties. In addition to the factors affecting the national economic condition generally, the factors affecting economic conditions in this region include: • financial performance and productivity of the media, advertising, professional services, financial, technology, retail, insurance and real estate industries; • business layoffs or downsizing; • • • • • industry slowdowns; relocations of businesses; changing demographics; increased telecommuting and use of alternative work places; changes in the number of domestic and international tourists to our markets (including, as a result of changes in the relative strengths of world currencies); infrastructure quality; changes in rates or 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 could 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, or result in the bankruptcy of such tenants, and the willingness of retailers to lease space in our retail locations. Terrorist attacks may adversely affect the value of our properties and our ability to generate cash flow. We have significant investments in large metropolitan areas, including principally New York City, 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. 12 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, tornados, floods and hurricanes, could impact our properties in these and other areas in which we operate. Potentially adverse consequences of “global warming,” including rising sea levels, 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: changes in real estate taxes and other expenses; competition from other available space; local conditions such as an oversupply of space or a reduction in demand for real estate in the area; the development and/or redevelopment of our properties; changes in market rental rates; the timing and costs associated with property improvements and rentals; • global, national, regional and local economic conditions; • • • how well we manage our properties; • • • • whether we are able to pass all or portions of any increases in operating costs through to tenants; • • whether tenants and users such as customers and shoppers consider a property attractive; • changes in 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; • trends in office real estate; • the impact on our retail tenants and demand for retail space at our properties due to increased competition from online shopping; 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. 13 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 due to an economic downturn, bankruptcies, downsizing, layoffs and cost cutting. Government action or inaction may adversely affect the state of the capital markets. The cost and availability of credit may be adversely affected by illiquid credit markets and wider credit spreads, which may adversely affect our liquidity and financial condition, including our results of operations, and the liquidity and financial condition of our tenants. Our inability or the inability of our tenants to timely refinance maturing liabilities and access the capital markets to meet liquidity needs may materially affect our financial condition and results of operations and the value of our securities. 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”) represented sweeping tax reform legislation that made 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, become insolvent or file for bankruptcy, all of which can result in an increase in vacancy rates and lower income and funds available to pay indebtedness and for distribution to our equity investors. 14 We may be adversely affected by trends in office real estate. Telecommuting, flexible work schedules, open workplaces and teleconferencing are becoming more common. These practices enable businesses to reduce their office space requirements. There is also an increasing trend among some businesses to utilize shared office spaces and co-working spaces. A continuation of the movement towards these practices could, over time, erode the overall demand for office space and, in turn, place downward pressure on occupancy, rental rates and property valuations. We may be unable to renew leases or relet space as leases expire. When our tenants decide not to renew their leases upon their expiration, we may not be able to relet the space. Even if tenants do renew or we can relet the space, the terms of renewal or reletting, taking into account among other things, the cost of improvements to the property and leasing commissions, may be less favorable than the terms in the expired leases. In addition, changes in space utilization by our tenants may impact our ability to renew or relet space without the need to incur substantial costs in renovating or redesigning the internal configuration of the relevant property. If we are unable to promptly renew the leases or relet the space at similar rates or if we incur substantial costs in renewing or reletting the space, our cash flow and ability to service debt obligations and pay dividends and distributions to equity holders could be adversely affected. Bankruptcy or insolvency of tenants may decrease our revenue, net income and available cash. From time to time, some of our tenants have declared bankruptcy, and other tenants may declare bankruptcy or become insolvent in the future. The bankruptcy or insolvency of a major tenant could cause us to suffer lower revenues and operational difficulties, including leasing the remainder of the property. As a result, the bankruptcy or insolvency of a major tenant could result in decreased revenue, net income and funds available to pay our indebtedness or make distributions to equity holders. We may incur significant costs to comply with environmental laws and environmental contamination may impair our ability to lease and/or sell real estate. Our operations and properties are subject to various federal, state and local laws and regulations concerning the protection of the environment, including air and water quality, hazardous or toxic substances and health and safety. Under some environmental laws, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property. The owner or operator may also be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by those parties because of the contamination. These laws often impose liability without regard to whether the owner or operator knew of the release of the substances or caused the release. The presence of contamination or the failure to remediate contamination may 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. 15 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 or face other penalties. Any such termination could result in a loss of revenue or otherwise negatively affect our financial results and cash flows. Our business and operations would suffer in the event of system failures. Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for our internal information technology systems, our systems are vulnerable to damages from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business. We may also incur additional costs to remedy damages caused by such disruptions. The occurrence of cyber incidents, or a deficiency in our cyber security, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships or reputation, all of which could negatively impact our financial results. We face risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to e-mails, persons who access our systems from inside or outside our organization, and other significant disruptions of our IT networks and related systems. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Although we have not experienced cyber incidents that are individually, or in the aggregate, material, we have experienced cyber attacks in the past, which have thus far been mitigated by preventative, detective, and responsive measures that we have put in place. 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. Unauthorized parties, whether within or outside our company, may disrupt or gain access to our systems, or those of third parties with whom we do business, through human error, misfeasance, fraud, trickery, or other forms of deceit, including break-ins, use of stolen credentials, social engineering, phishing, computer viruses or other malicious codes, and similar means of unauthorized and destructive tampering. 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 litigation claims for breach of contract, damages, credits, fines, penalties, governmental investigations and enforcement actions 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. A cyber attack could interfere with our ability to comply with financial reporting requirements, which could adversely affect us. A cyber attack could also compromise the confidential information of our employees, tenants, customers and vendors. A successful attack could disrupt and materially affect our business operations, including damaging relationships with tenants, customers and vendors. Any compromise of our information security systems could also result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, loss or misuse of the information (which may be confidential, proprietary and/or commercially sensitive in nature) and a loss of confidence in our security measures, which could harm our business. 16 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 $260,000,000 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 $1,453,000 and 19% 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 and other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for uninsured losses and 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, 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 or refinance our properties and expand our portfolio. Compliance or failure to comply with the Americans with Disabilities Act ("ADA") or other safety regulations and requirements could result in substantial costs. 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. 17 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. Any changes announced by the FCA, 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. 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. 18 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, 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. Consequently, we are subject to operating and financial risks of those industries and to the risks associated with lack of control, such as having differing objectives than our partners or the entities in which we invest, or becoming involved in disputes, or competing directly or indirectly with these partners or entities. In addition, we rely on the internal controls and financial reporting controls of these entities and their failure to maintain effectiveness or comply with applicable standards may adversely affect us. We are subject to risks involved in real estate activity through joint ventures and private equity real estate funds. We have in the past and may in the future acquire or own properties in joint ventures and private equity real estate funds with other persons or entities when we believe circumstances warrant the use of such structures. Joint venture and fund investments involve risk, including: the possibility that our partners might refuse to make capital contributions when due and therefore we may be forced to make contributions to maintain the value of the property; that we may be responsible to our partners for indemnifiable losses; that our partners might at any time have business or economic goals that are inconsistent with ours; and that our partners may be in a position to take action or withhold consent contrary to our recommendations, instructions or requests. We and our respective joint venture partners may each have the right to trigger a buy-sell, put right or forced sale arrangement, which could cause us to sell our interest, or acquire our partner’s interest, or to sell the underlying asset, at a time when we otherwise would not have initiated such a transaction, without our consent or on unfavorable terms. In some instances, joint venture and fund partners may have competing interests in unfavorable terms. In some instances, joint venture and fund partners may have competing interests in our markets that could create conflicts of interest. These conflicts may include compliance with the REIT requirements, and our REIT status could be jeopardized if any of our joint ventures or funds does not operate in compliance with REIT requirements. To the extent our partners do not meet their obligations to us or our joint ventures or funds, or they take action inconsistent with the interests of the joint venture or fund, we may be adversely affected. 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. 19 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, 2018, our marketable securities have an aggregate carrying amount of $152,198,000, at market. Significant declines in the value of these investments due to, among other reasons, operating performance or economic or market conditions, would result in recognized GAAP 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, 2018, there were four series of preferred units of the Operating Partnership not held by Vornado with a total liquidation value of $55,921,000. 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, 2018, our consolidated mortgages and unsecured indebtedness, excluding related premium, discount and deferred financing costs, net, totaled $9.9 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 our required debt service. Our debt service costs generally will not be reduced if developments in the market or at our properties, such as the entry of new competitors or the loss of major tenants, cause a reduction in the income from our properties. 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. 20 We have outstanding debt, and the amount of debt and its cost may increase and refinancing may not be available on acceptable terms. We rely on both secured and unsecured, variable rate and non-variable rate debt to finance acquisitions and development activities and for working capital. If we are unable to obtain debt financing or refinance existing indebtedness upon maturity, our financial condition and results of operations would likely be adversely affected. In addition, the cost of our existing debt may increase, especially in the case of a rising interest rate environment, and we may not be able to refinance our existing debt in sufficient amounts or on acceptable terms. If the cost or amount of our indebtedness increases or we cannot refinance our debt in sufficient amounts or on acceptable terms, we are at risk of credit ratings downgrades and default on our obligations that could adversely affect our financial condition and results of operations. Covenants in our debt instruments could adversely affect our financial condition and our acquisitions and development activities. The mortgages on our properties contain customary covenants such as those that limit our ability, without the prior consent of the applicable 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 ratio 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 such 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 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. 21 Loss of our key personnel could harm our operations and adversely affect the value of our common shares and Operating Partnership Class A units. We are dependent on the efforts of Steven Roth, the Chairman of the Board of Trustees and Chief Executive Officer of Vornado. While we believe that we could find a replacement for him and other key personnel, the loss of their services could harm our operations and adversely affect the value of our securities. VORNADO’S CHARTER DOCUMENTS AND APPLICABLE LAW MAY HINDER ANY ATTEMPT TO ACQUIRE US. Vornado’s Amended and Restated Declaration of Trust (the “declaration of trust”) sets limits on the ownership of its shares. Generally, for Vornado to maintain its qualification as a REIT under the Internal Revenue Code, not more than 50% in value of the outstanding shares of beneficial interest of Vornado may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of Vornado’s taxable year. The Internal Revenue Code defines “individuals” for purposes of the requirement described in the preceding sentence to include some types of entities. Under Vornado’s declaration of trust, as amended, no person may own more than 6.7% of the outstanding common shares of any class, or 9.9% of the outstanding preferred shares of any class, with some exceptions for persons who held common shares in excess of the 6.7% limit before Vornado adopted the limit and other persons approved by Vornado’s Board of Trustees. These restrictions on transferability and ownership may delay, deter or prevent a change in control of Vornado or other transaction that might involve a premium price or otherwise be in the best interest of equity holders. The Maryland General Corporation Law (the “MGCL”) contains provisions that may reduce the likelihood of certain takeover transactions. The MGCL imposes conditions and restrictions on certain “business combinations” (including, among other transactions, a merger, consolidation, share exchange, or, in certain circumstances, an asset transfer or issuance of equity securities) between a Maryland REIT and certain persons who beneficially own at least 10% of the corporation’s stock (an “interested shareholder”). Unless approved in advance by the board of trustees of the trust, or otherwise exempted by the statute, such a business combination is prohibited for a period of five years after the most recent date on which the interested shareholder became an interested shareholder. After such five-year period, a business combination with an interested shareholder must be: (a) recommended by the board of trustees of the trust, and (b) approved by the affirmative vote of at least (i) 80% of the trust’s outstanding shares entitled to vote and (ii) two-thirds of the trust’s outstanding shares entitled to vote which are not held by the interested shareholder with whom the business combination is to be effected, unless, among other things, the trust’s common shareholders receive a “fair price” (as defined by the statute) for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for his or her shares. In approving a transaction, Vornado’s Board of Trustees may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the Board of Trustees. Vornado’s Board of Trustees has adopted a resolution exempting any business combination between Vornado and any trustee or officer of Vornado or its affiliates. As a result, any trustee or officer of Vornado or its affiliates may be able to enter into business combinations with Vornado that may not be in the best interest of our equity holders. With respect to business combinations with other persons, the business combination provisions of the MGCL may have the effect of delaying, deferring or preventing a change in control of Vornado or other transaction that might involve a premium price or otherwise be in the best interest of our equity holders. The business combination statute may discourage others from trying to acquire control of Vornado and increase the difficulty of consummating any offer. 22 Vornado may issue additional shares in a manner that could adversely affect the likelihood of certain takeover transactions. Vornado’s declaration of trust authorizes the Board of Trustees to: • • • • cause Vornado to issue additional authorized but unissued common shares or preferred shares; classify or reclassify, in one or more series, any unissued preferred shares; set the preferences, rights and other terms of any classified or reclassified shares that Vornado issues; and increase, without shareholder approval, the number of shares of beneficial interest that Vornado may issue. Vornado’s Board of Trustees could establish a series of preferred shares whose terms could delay, deter or prevent a change in control of Vornado, and therefore of the Operating Partnership, or other transaction that might involve a premium price or otherwise be in the best interest of our equity holders, although Vornado’s Board of Trustees does not now intend to establish a series of preferred shares of this kind. Vornado’s declaration of trust and bylaws contain other provisions that may delay, deter or prevent a change in control of Vornado or other transaction that might involve a premium price or otherwise be in the best interest of our equity holders. We may change our policies without obtaining the approval of our equity holders. Our operating and financial policies, including our policies with respect to acquisitions of real estate or other companies, growth, operations, indebtedness, capitalization, dividends and distributions, are exclusively determined by Vornado’s Board of Trustees. Accordingly, our equity holders do not control these policies. OUR OWNERSHIP STRUCTURE AND RELATED-PARTY TRANSACTIONS MAY GIVE RISE TO CONFLICTS OF INTEREST. Steven Roth and Interstate Properties may exercise substantial influence over us. They and some of Vornado’s other trustees and officers have interests or positions in other entities that may compete with us. As of December 31, 2018, Interstate Properties, a New Jersey general partnership, and its partners beneficially owned an aggregate of approximately 7.1% of the common shares of beneficial interest 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 23 – Related Party Transactions to our consolidated financial statements in this Annual Report on Form 10-K for additional information. 23 There may be conflicts of interest between Alexander’s and us. As of December 31, 2018, 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, 2018. 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 23 – 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: 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 financial condition and performance; • • • our dividend policy; • the reputation of REITs and real estate investments generally and the attractiveness of REIT equity securities in comparison to other equity securities, including securities issued by other real estate companies, and fixed income securities; • uncertainty and volatility in the equity and credit markets; • • fluctuations in interest rates; changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs; failure to meet analysts’ revenue or earnings estimates; speculation in the press or investment community; strategic actions by us or our competitors, such as acquisitions or restructurings; the extent of institutional investor interest in us; the extent of short-selling of Vornado common shares and the shares of our competitors; fluctuations in the stock price and operating results of our competitors; • • • • • • • general financial and economic market conditions and, in particular, developments related to market conditions for REITs and other real estate related companies; • domestic and international economic factors unrelated to our performance; • • 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. 24 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, 2018, Vornado had authorized but unissued, 59,464,501 common shares of beneficial interest, $.04 par value and 72,116,023 preferred shares of beneficial interest, no par value; of which 18,882,197 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. 25 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, 2018. NEW YORK SEGMENT Property PENN1 (ground leased through 2098) 1290 Avenue of the Americas PENN2 909 Third Avenue (ground leased through 2063) Independence Plaza, Tribeca (1,327 units)(1) 280 Park Avenue(1) 770 Broadway PENN11 90 Park Avenue One Park Avenue(1) 888 Seventh Avenue (ground leased through 2067) 100 West 33rd Street Farley Office and Retail Building (ground leased through 2116) 330 Madison Avenue(1) 330 West 34th Street (ground leased through 2149 - 34.8% ownership interest in the land) 85 Tenth Avenue(1) 650 Madison Avenue(1) 350 Park Avenue 150 East 58th Street (ground leased through 2118) 7 West 34th Street (1) 33-00 Northern Boulevard (Center Building) 595 Madison Avenue 640 Fifth Avenue 50-70 W 93rd Street (325 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 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 ________________________________________ See notes on page 28. % 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 % 95.0 % 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 % Square Feet Under Development or Not Available for Lease 169,000 — 236,000 — 12,000 — — — — — — — 850,000 — — — — — — — — — — — — — — — 173,000 147,000 169,000 — — — — — — — — — — — — — — % Occupancy 93.1 % 100.0 % 100.0 % 98.6 % 100.0 % (2) 93.5 % 100.0 % 99.7 % 94.9 % 100.0 % 96.7 % 100.0 % n/a 97.0 % 98.5 % 99.5 % 96.0 % 97.8 % 96.5 % 99.6 % 95.5 % 91.1 % 100.0 % 96.0 % 94.9 % 77.5 % 100.0 % 100.0 % n/a 100.0 % n/a 100.0 % 99.9 % 87.2 % 100.0 % 98.0 % 87.9 % 100.0 % 100.0 % (2) 100.0 % 100.0 % 100.0 % 93.6 % 100.0 % 100.0 % In Service 2,376,000 2,113,000 1,398,000 1,352,000 1,245,000 1,260,000 1,183,000 1,151,000 962,000 943,000 886,000 859,000 — 846,000 722,000 629,000 604,000 571,000 543,000 477,000 471,000 330,000 315,000 283,000 256,000 251,000 206,000 184,000 — 23,000 — 161,000 137,000 129,000 114,000 107,000 103,000 98,000 85,000 78,000 66,000 57,000 50,000 44,000 43,000 Total Property 2,545,000 2,113,000 1,634,000 1,352,000 1,257,000 1,260,000 1,183,000 1,151,000 962,000 943,000 886,000 859,000 850,000 846,000 722,000 629,000 604,000 571,000 543,000 477,000 471,000 330,000 315,000 283,000 256,000 251,000 206,000 184,000 173,000 170,000 169,000 161,000 137,000 129,000 114,000 107,000 103,000 98,000 85,000 78,000 66,000 57,000 50,000 44,000 43,000 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 26 ITEM 2. PROPERTIES – CONTINUED NEW YORK SEGMENT – CONTINUED Property 692 Broadway 606 Broadway 697-703 Fifth Avenue 715 Lexington Avenue 1131 Third Avenue 40 East 66th Street (5 units) 131-135 West 33rd Street 828-850 Madison Avenue 443 Broadway 334 Canal Street (4 units) 537 West 26th Street 304 Canal Street (4 units) 677-679 Madison Avenue (8 units) 431 Seventh Avenue 138-142 West 32nd Street 148 Spring Street 339 Greenwich Street 150 Spring Street (1 unit) 966 Third Avenue 968 Third Avenue (1) 488 Eighth Avenue 137 West 33rd Street Other (8 units) Hotel Pennsylvania Alexander's, Inc.: 731 Lexington Avenue(1) Rego Park II, Queens(1) Rego Park I, Queens(1) The Alexander Apartment Tower, Queens (312 units)(1) Flushing, Queens(1) (1.0 acre ground leased through 2037) Paramus, New Jersey (30.3 acres ground leased through 2041)(1) Total New York Segment Our Ownership Interest ________________________________________ See notes on page 28. Type % Ownership Retail 100.0 % Office / Retail 50.0 % Retail 74.3 % Retail 100.0 % 100.0 % Retail 100.0 % Retail / Residential Retail 100.0 % Retail 100.0 % 100.0 % Retail 100.0 % Retail / Residential Retail 100.0 % 100.0 % Retail / Residential 100.0 % Retail / Residential Retail 100.0 % Retail 100.0 % Retail 100.0 % 100.0 % Retail 100.0 % Retail / Residential Retail 100.0 % Retail 50.0 % Retail 100.0 % 100.0 % Retail 100.0 % Retail / Residential % Occupancy 100.0 % 100.0 % 100.0 % 92.5 % 100.0 % 66.7 % (2) 100.0 % 94.8 % 100.0 % 100.0 % (2) n/a n/a 100.0 % (2) 100.0 % 67.3 % 100.0 % 100.0 % 63.2 % (2) 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % (2) In Service 36,000 3,000 26,000 23,000 23,000 23,000 23,000 14,000 16,000 15,000 14,000 13,000 13,000 10,000 8,000 8,000 8,000 7,000 7,000 7,000 6,000 3,000 22,000 Square Feet Under Development or Not Available for Lease Total Property — 31,000 — — — — — 4,000 — — — — — — — — — — — — — — — 36,000 34,000 26,000 23,000 23,000 23,000 23,000 18,000 16,000 15,000 14,000 13,000 13,000 10,000 8,000 8,000 8,000 7,000 7,000 7,000 6,000 3,000 22,000 100.0 % Hotel n/a 1,400,000 — 1,400,000 32.4 % 32.4 % 32.4 % 32.4 % 32.4 % 32.4 % Office / Retail Retail Retail Residential Retail Retail 99.9 % 99.9 % 43.1 % 95.5 % 100.0 % 100.0 % 96.7 % 97.0 % 1,063,000 609,000 343,000 255,000 167,000 — 27,876,000 22,041,000 — — — — — 1,063,000 609,000 343,000 255,000 167,000 — 1,791,000 1,486,000 — 29,667,000 23,527,000 27 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 (0.64 acres owned in fee; 0.18 acres ground leased through 2187 and 0.05 acres ground leased through 2035) (4) Lucida, 86th Street and Lexington Avenue, NY (ground leased through 2082) (39 units) 501 Broadway, NY 1100 Lincoln Road, Miami, FL Total Real Estate Fund Our Ownership Interest Other: Rosslyn Plaza (197 units)(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 Square Feet Under Development or Not Available for Lease 100.0 % 50.0 % Office / Retail/Showroom Retail 70.0 % 70.0 % 70.0 % Office Office / Retail Office / Retail 94.8 % 89.5 % 94.7 % 94.7 % 99.3 % 100.0 % n/a 99.4 % 99.4 % 3,675,000 19,000 3,694,000 3,685,000 1,508,000 235,000 — 1,743,000 1,220,000 — — — — — — 78,000 78,000 55,000 Total Property 3,675,000 19,000 3,694,000 3,685,000 1,508,000 235,000 78,000 1,821,000 1,275,000 75.3 % Office / Retail/Hotel 100 % Retail / Residential Retail 100 % Retail / Theatre 100 % 97.6 % 243,000 — 243,000 (2) 100.0 % 100.0 % 86.9 % 94.1 % 94.5 % 155,000 9,000 130,000 537,000 154,000 — — — — — 155,000 9,000 130,000 537,000 154,000 46.2 % Office / Residential (2) 61.6 % 685,000 304,000 989,000 100 % 100 % 7.5 % 7.5 % Retail Retail Retail Office 100.0 % 100.0 % 99.6 % 100.0 % 92.5 % 671,000 6,000 677,000 128,000 868,000 170,000 2,522,000 1,187,000 — — — 310,000 146,000 128,000 868,000 170,000 2,832,000 1,333,000 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. (4) We own a 32.9% economic interest through the Fund and the Crowne Plaza Joint Venture. 92.8 % 28 NEW YORK As of December 31, 2018, our New York segment consisted of 27.9 million square feet in 87 properties. The 27.9 million square feet is comprised of 19.9 million square feet of office in 36 properties, 2.6 million square feet of retail in 71 properties, 1,999 units in eleven 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 10 garages totaling 1.7 million square feet (4,875 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, 2018, the occupancy rate for our New York segment was 97.0%. Occupancy and weighted average annual rent per square foot (in service): Office: Retail: Vornado's Ownership Interest As of December 31, Total Property Square Feet Square Feet Occupancy Rate 2018 2017 2016 2015 2014 19,858,000 20,256,000 20,227,000 19,918,000 18,785,000 16,632,000 16,982,000 16,962,000 16,734,000 15,730,925 Weighted Average Annual Rent Per Square Foot 74.04 71.09 68.90 66.42 65.31 97.2 % $ 97.1 % 96.3 % 97.1 % 97.7 % Vornado's Ownership Interest As of December 31, Total Property Square Feet Square Feet Occupancy Rate 2018 2017 2016 2015 2014 2,648,000 2,720,000 2,672,000 2,596,000 2,436,000 2,419,000 2,471,000 2,464,000 2,396,000 2,176,000 Weighted Average Annual Rent Per Square Foot 228.43 217.17 213.85 202.72 173.55 97.3 % $ 96.9 % 97.1 % 96.1 % 96.4 % 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 2018 2017 2016 (1) 2015 2014 1,999 2,009 2,004 1,711 1,678 963 981 977 886 855 96.6 % $ 96.7 % 95.7 % 95.0 % 95.2 % 3,803 3,722 3,576 3,495 3,146 ________________________________________ (1) Includes The Alexander Apartment Tower (32.4% ownership) from the date of stabilization in the third quarter of 2016. 29 NEW YORK – CONTINUED Tenants accounting for 2% or more of revenues: Tenant Swatch Group USA IPG and affiliates Macy's AXA Equitable Life Insurance 2018 rental revenue by tenants’ industry: Industry Office: Financial Services Advertising/Marketing Communications Family Apparel Technology Legal Services Insurance Real Estate Publishing Home Entertainment & Electronics Government Banking Engineering, Architect & Surveying Health Services Pharmaceutical Other Retail: Women's Apparel Family Apparel Luxury Retail Restaurants Banking Department Stores Discount Stores Other Total Square Feet Leased 2018 Revenues 32,000 $ 924,000 646,000 481,000 62,636,000 59,712,000 42,402,000 41,752,000 Percentage of New York Total Revenues Percentage of Total Revenues 3.4 % 3.3 % 2.3 % 2.3 % Percentage 2.9 % 2.8 % 2.0 % 1.9 % 14 % 8 % 7 % 5 % 5 % 4 % 4 % 3 % 3 % 3 % 2 % 2 % 2 % 1 % 1 % 7 % 71 % 7 % 7 % 6 % 2 % 1 % 1 % 1 % 4 % 29 % 100 % 30 NEW YORK – CONTINUED Lease expirations as of December 31, 2018, assuming none of the tenants exercise renewal options: Year Number of Expiring Leases Square Feet of Expiring Leases(1) Percentage of New York Square Feet Weighted Average Annual Rent of Expiring Leases Total Per Square Foot $ 12 69 110 133 82 87 98 54 76 69 54 0.3% 3.9% 7.8% 7.5% 4.5% 12.4% 8.8% 5.1% 7.8% 7.0% 6.4% 47,000 627,000 1,240,000 1,188,000 709,000 1,971,000 (3) 1,391,000 804,000 1,236,000 1,118,000 1,022,000 5,010,000 $ 41,116,000 86,369,000 92,419,000 47,069,000 159,774,000 109,744,000 60,228,000 93,992,000 81,535,000 72,762,000 Office: Month to month 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Retail: Month to month 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 ________________________________________ (1) Excludes storage, vacancy and other. (2) Based on current market conditions, we expect to re-lease this space at rents between $68 to $78 per square foot. (3) 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 9,355,000 $ 26,474,000 16,051,000 9,589,000 7,207,000 44,107,000 84,487,000 19,220,000 44,523,000 22,719,000 18,457,000 106.60 65.58 (2) 69.65 77.79 66.39 81.06 78.90 74.91 76.05 72.93 71.20 131.76 257.03 (4) 195.74 165.33 248.52 400.97 283.51 457.62 332.26 709.97 410.16 71,000 103,000 82,000 58,000 29,000 110,000 298,000 42,000 134,000 32,000 45,000 3.7% 5.4% 4.3% 3.0% 1.5% 5.8% 15.6% 2.2% 7.0% 1.7% 2.4% 20 27 23 15 9 18 22 11 17 11 16 $ rent is $12.99 per square foot. (4) Based on current market conditions, we expect to re-lease this space at rents between $250 to $275 per square foot. Alexander’s As of December 31, 2018, 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 $1.16 billion of outstanding debt, net, at December 31, 2018, of which our pro rata share was $376.2 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 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. 2018 2017 2016 2015 2014 Year Ended December 31, Hotel Pennsylvania: Average occupancy rate Average daily rate Revenue per available room $ 86.4 % 138.35 $ 119.47 87.3 % 139.09 $ 121.46 84.7 % 134.38 $ 113.84 90.7 % 147.46 $ 133.69 92.0 % 162.01 149.04 31 OTHER INVESTMENTS theMART As of December 31, 2018, 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, 2018, theMART had an occupancy rate of 94.7% and a weighted average annual rent per square foot of $48.16. 555 California Street As of December 31, 2018, 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 $558,914,000 mortgage loan that bears interest at a fixed rate of 5.10% and matures in September 2021. As of December 31, 2018, 555 California Street had an occupancy rate of 99.4% and a weighted average annual rent per square foot of $75.60. 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, 2018, we own a 25.0% interest in the Fund, which currently has four investments, one of which is the Crowne Plaza Times Square Hotel in which we also own an additional interest through the Crowne Plaza Joint Venture. We are the general partner and investment manager of the Fund. As of December 31, 2018, these four investments are carried on our consolidated balance sheet at an aggregate fair value of $318,758,000, including the Crowne Plaza Joint Venture. As of December 31, 2018, our share of unfunded commitments was $16,119,000. 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. 32 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.” As of February 1, 2019, there were 935 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. Class A units that are not held by Vornado 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. As of February 1, 2019, there were 984 Class A unitholders of record. Recent Sales of Unregistered Securities During 2018, the Operating Partnership issued 915,834 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 $19,078,596 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. From time to time, in connection with equity awards granted under our Omnibus Share Plan, we may withhold common shares for tax purposes or acquire common shares as part of the payment of the exercise price. Although we treat these as repurchases for certain financial statement purposes, these withheld or acquired shares are not considered by us as repurchases for this purpose. 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. 33 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, 2013 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. Vornado Realty Trust S&P 500 Index The NAREIT All Equity Index 2013 2014 2015 2016 2017 2018 $ 100 $ 100 100 136 $ 114 128 131 $ 115 132 141 $ 129 143 135 $ 157 155 111 150 149 34 ITEM 6. SELECTED FINANCIAL DATA Vornado Realty Trust (Amounts in thousands, except per share amounts) Year Ended December 31, 2018 2017 2016 2015 2014 Operating Data: REVENUES: Property rentals Tenant expense reimbursements Fee and other income Total revenues EXPENSES: Operating Depreciation and amortization General and administrative (Benefit) expense from deferred compensation plan liability Transaction related costs, impairment loss and other Total expenses Operating income Income (loss) from partially owned entities (Loss) income from real estate fund investments Interest and other investment income, net (Loss) income from deferred compensation plan assets Interest and debt expense Purchase price fair value adjustment Net gains on disposition of wholly owned and partially owned assets Income before income taxes Income tax (expense) benefit Income from continuing operations Income (loss) from discontinued operations Net income Less net loss (income) attributable to noncontrolling interests in: Consolidated subsidiaries Operating Partnership Net income attributable to Vornado Preferred share dividends Preferred share issuance costs NET INCOME attributable to common shareholders Per Share Data: Income from continuing operations, net - basic Income from continuing operations, net - diluted Net income per common share - basic Net income per common share - diluted Dividends per common share Balance Sheet Data: Total assets Real estate, at cost Accumulated depreciation and amortization Debt, net Total equity $ $ $ $ 1,760,205 $ 247,128 156,387 2,163,720 $ 1,662,093 $ 221,563 120,086 2,003,742 1,714,952 233,424 135,750 2,084,126 886,596 429,389 150,782 6,932 1,776 1,475,475 608,651 15,200 3,240 30,861 6,932 (345,654 ) — 501 319,731 (42,375 ) 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) $ $ $ 963,478 446,570 141,871 (2,480 ) 31,320 1,580,759 582,961 9,149 (89,231 ) 17,057 (2,480 ) (347,949 ) 44,060 246,031 459,598 (37,633 ) 421,965 638 422,603 53,023 (25,672 ) 449,954 (50,636 ) (14,486 ) 384,832 $ 2.02 $ 2.01 2.02 2.01 2.52 844,566 421,023 143,643 5,213 9,451 1,423,896 579,846 168,948 (23,602 ) 24,335 5,213 (330,240 ) — 160,433 584,933 (7,923 ) 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 ____________________ (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. 35 1,626,866 218,739 139,890 1,985,495 824,511 379,803 148,982 111 12,511 1,365,918 619,577 (9,947 ) 74,081 27,129 111 (309,298 ) — 149,417 551,070 84,849 635,919 223,511 859,430 (55,765 ) (43,231 ) 760,434 (80,578 ) — 679,856 2.49 2.48 3.61 3.59 2.52 (2) $ $ $ $ 1,460,391 203,120 128,657 1,792,168 768,341 351,583 130,256 11,557 18,435 1,280,172 511,996 (58,484 ) 163,034 27,012 11,557 (337,360 ) — 13,568 331,323 (9,157 ) 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 17,180,794 $ 16,237,883 (3,180,175 ) 9,836,621 5,107,883 17,397,934 14,756,295 (2,885,283 ) 9,729,487 5,007,701 20,814,847 $ 14,187,820 (2,581,514 ) 9,446,670 7,618,496 21,143,293 13,545,295 (2,356,728 ) 9,095,670 7,476,078 ITEM 6. SELECTED FINANCIAL DATA – CONTINUED Vornado Realty Trust (Amounts in thousands) Other Data: Funds From Operations ("FFO")(1): 2018 2017 2016 2015 2014 Year Ended December 31, Net income attributable to common shareholders $ 384,832 $ 162,017 $ 823,606 $ 679,856 $ 783,388 FFO adjustments: Depreciation and amortization of real property Net gains on sale of real estate Real estate impairment losses Decrease in fair value of marketable securities After-tax purchase price fair value adjustment on depreciable real estate 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 Decrease in fair value of marketable securities 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) $ 413,091 (158,138 ) 12,000 26,453 (27,289 ) 101,591 (3,998 ) — 3,882 — 367,592 (22,746 ) 344,846 467,966 (3,797 ) — — 531,620 (177,023 ) 160,700 — 514,085 (289,117 ) 256 — 517,493 (507,192 ) 26,518 — — — — — 137,000 (17,777 ) 7,692 — — 591,084 (36,420 ) 554,664 154,795 (2,853 ) 6,328 — — 673,567 (41,267 ) 632,300 143,960 (4,513 ) 16,758 — — 381,429 (22,342 ) 359,087 729,678 62 — 729,740 $ 716,681 77 1,047 717,805 $ 1,455,906 86 1,591 1,457,583 $ 1,038,943 92 — 1,039,035 $ 117,766 (11,580 ) — — (7,287 ) 135,718 (8,073 ) 127,645 911,033 97 — 911,130 ________________________________________ (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 depreciable real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified 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 our 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. 36 ITEM 6. SELECTED FINANCIAL DATA – CONTINUED Vornado Realty L.P. (Amounts in thousands, except per unit amounts) Year Ended December 31, 2018 2017 2016 2015 2014 Operating Data: REVENUES: Property rentals Tenant expense reimbursements Fee and other income Total revenues EXPENSES: Operating Depreciation and amortization General and administrative (Benefit) expense from deferred compensation plan liability Transaction related costs, impairment loss and other Total expenses Operating income Income (loss) from partially owned entities (Loss) income from real estate fund investments Interest and other investment income, net (Loss) income from deferred compensation plan assets Interest and debt expense Purchase price fair value adjustment Net gains on disposition of wholly owned and partially owned assets Income before income taxes Income tax (expense) benefit Income from continuing operations Income (loss) from discontinued operations Net income Less net loss (income) attributable to noncontrolling interests in consolidated subsidiaries Net income attributable to Vornado Realty L.P. Preferred unit distributions Preferred share issuance costs NET INCOME attributable to Class A unitholders Per Unit Data: Income from continuing operations, net - basic Income 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 $ $ $ $ 1,760,205 $ 247,128 156,387 2,163,720 $ 1,662,093 $ 221,563 120,086 2,003,742 1,714,952 233,424 135,750 2,084,126 886,596 429,389 150,782 6,932 1,776 1,475,475 608,651 15,200 3,240 30,861 6,932 (345,654 ) — 501 319,731 (42,375 ) 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) $ $ $ 963,478 446,570 141,871 (2,480 ) 31,320 1,580,759 582,961 9,149 (89,231 ) 17,057 (2,480 ) (347,949 ) 44,060 246,031 459,598 (37,633 ) 421,965 638 422,603 53,023 475,626 (50,830 ) (14,486 ) 410,310 $ 2.01 $ 2.00 2.02 2.00 2.52 844,566 421,023 143,643 5,213 9,451 1,423,896 579,846 168,948 (23,602 ) 24,335 5,213 (330,240 ) — 160,433 584,933 (7,923 ) 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 1,626,866 218,739 139,890 1,985,495 824,511 379,803 148,982 111 12,511 1,365,918 619,577 (9,947 ) 74,081 27,129 111 (309,298 ) — 149,417 551,070 84,849 635,919 223,511 859,430 (55,765 ) 803,665 (80,736 ) — 722,929 2.49 2.46 3.61 3.57 2.52 (2) $ $ $ $ 1,460,391 203,120 128,657 1,792,168 768,341 351,583 130,256 11,557 18,435 1,280,172 511,996 (58,484 ) 163,034 27,012 11,557 (337,360 ) — 13,568 331,323 (9,157 ) 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 17,180,794 $ 16,237,883 (3,180,175 ) 9,836,621 5,107,883 17,397,934 14,756,295 (2,885,283 ) 9,729,487 5,007,701 20,814,847 $ 14,187,820 (2,581,514 ) 9,446,670 7,618,496 21,143,293 13,545,295 (2,356,728 ) 9,095,670 7,476,078 ________________________________________ (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. 37 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Overview - Leasing activity Critical Accounting Policies Net Operating Income At Share by Segment for the Years Ended December 31, 2018, 2017 and 2016 Results of Operations: Year Ended December 31, 2018 Compared to December 31, 2017 Year Ended December 31, 2017 Compared to December 31, 2016 Supplemental Information: Net Operating Income At Share by Segment for the Three Months Ended December 31, 2018 and 2017 Three Months Ended December 31, 2018 Compared to December 31, 2017 Net Operating Income At Share by Segment for the Three Months Ended December 31, 2018 and September 30, 2018 Three Months Ended December 31, 2018 Compared to September 30, 2018 Related Party Transactions Liquidity and Capital Resources Financing Activities and Contractual Obligations Certain Future Cash Requirements Cash Flows for the Year Ended December 31, 2018 Compared to December 31, 2017 Capital Expenditures for the Year Ended December 31, 2018 Capital Expenditures for the Year Ended December 31, 2017 Capital Expenditures for the Year Ended December 31, 2016 Funds From Operations for the Three Months and Years Ended December 31, 2018 and 2017 Page Number 39 46 49 52 55 62 69 72 74 77 79 80 81 83 86 88 89 90 91 38 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 93.4% of the common limited partnership interest in the Operating Partnership as of December 31, 2018. All references to the “Company,” “we,” “us” and “our” mean collectively Vornado, the Operating Partnership and those entities/subsidiaries consolidated by Vornado. We own and operate office and retail properties with a 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, 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, 2018: Three-month One-year Three-year Five-year Ten-year Total Return(1) Vornado Office REIT MSCI (14.2 )% (17.8 )% (15.6 )% 10.6 % 101.8 % (11.9 )% (14.5 )% 1.8 % 28.5 % 146.7 % (6.7 )% (4.6 )% 8.9 % 45.6 % 215.5 % ____________________ (1) Past performance is not necessarily indicative of future performance. We intend to achieve this objective by continuing to pursue our investment philosophy and to 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. 39 Overview - continued Vornado Realty Trust Quarter Ended December 31, 2018 Financial Results Summary Net income attributable to common shareholders for the quarter ended December 31, 2018 was $100,494,000, or $0.53 per diluted share, compared to $27,319,000, or $0.14 per diluted share, for the prior year’s quarter. The quarters ended December 31, 2018 and 2017 include certain items that impact net income attributable to common shareholders, which are listed in the table on page 41. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders for the quarter ended December 31, 2018 by $49,504,000, or $0.26 per diluted share, and decreased net income attributable to common shareholders for the quarter ended December 31, 2017 by $38,471,000, or $0.20 per diluted share. Funds From Operations (“FFO”) attributable to common shareholders plus assumed conversions for the quarter ended December 31, 2018 was $210,100,000, or $1.10 per diluted share, compared to $153,151,000, or $0.80 per diluted share, for the prior year’s quarter. The quarters ended December 31, 2018 and 2017 include certain items that impact FFO, which are listed in the table on page 42. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO for the quarter ended December 31, 2018 by $38,673,000, or $0.20 per diluted share and decreased FFO for the quarter ended December 31, 2017 by $33,974,000, or $0.18 per diluted share. Year Ended December 31, 2018 Financial Results Summary Net income attributable to common shareholders for the year ended December 31, 2018 was $384,832,000, or $2.01 per diluted share, compared to $162,017,000, or $0.85 per diluted share, for the year ended December 31, 2017. The years ended December 31, 2018 and 2017 include certain items that impact net income attributable to common shareholders, which are listed in the table on page 41. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders for the year ended December 31, 2018 by $140,938,000, or $0.74 per diluted share, and decreased net income attributable to common shareholders for the year ended December 31, 2017 by $90,847,000, or $0.47 per diluted share. FFO attributable to common shareholders plus assumed conversions for the year ended December 31, 2018 was $729,740,000, or $3.82 per diluted share, compared to $717,805,000, or $3.75 per diluted share, for the year ended December 31, 2017. The years ended December 31, 2018 and 2017 include certain items that impact FFO, which are listed in the table on page 42. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO by $10,980,000 and $4,782,000, or $0.06 and $0.02 per diluted share, for the years ended December 31, 2018 and 2017, respectively. 40 Overview - continued Vornado Realty Trust - continued The following table reconciles the difference between our net income attributable to common shareholders and our net income attributable to common shareholders, as adjusted: (Amounts in thousands) For the Three Months Ended December 31, For the Year Ended December 31, 2018 2017 2018 2017 Certain (income) expense items that impact net income attributable to common shareholders: After-tax net gain on sale of 220 Central Park South condominium units $ (67,336 ) $ — $ (67,336 ) $ After-tax purchase price fair value adjustment related to the increase in ownership of the Farley joint venture Our share of loss (income) from real estate fund investments (excluding our $4,252 share of One Park Avenue potential additional transfer taxes) Real estate impairment losses (including our share of partially owned entities) Decrease in fair value of marketable securities resulting from a new GAAP accounting standard effective January 1, 2018 (including our share of partially owned entities) (Income) loss from discontinued operations and sold properties (primarily related to JBG SMITH Properties operating results and transaction costs through July 17, 2017 spin-off and 666 Fifth Avenue Office Condominium operations through August 3, 2018 sale) Tax expense related to the reduction of our taxable REIT subsidiaries deferred tax assets Net gains on sale of real estate (including our share of partially owned entities) Net gain on sale of our ownership interests in 666 Fifth Avenue Office Condominium Net gain on the repayment of our loan investment in 666 Fifth Avenue Office Condominium Our share of potential additional New York City transfer taxes based on a Tax Tribunal interpretation which Vornado is appealing Preferred share issuance costs Impairment loss on investment in Pennsylvania Real Estate Investment Trust ("PREIT") Net gain resulting from Urban Edge Properties ("UE") operating partnership unit issuances Net gain on repayment of our Suffolk Downs JV debt investments Other Noncontrolling interests' share of above adjustments (27,289 ) 24,366 12,000 3,733 — (529 ) 145 (27,289 ) 23,749 12,000 — — 10,804 7,692 — 30,335 — (242 ) 1,664 5,727 43,615 — — — — — — — — — 1,996 (52,772 ) 3,268 34,800 (585 ) — — — — — — — 5,515 41,010 (2,539 ) — (28,104 ) (134,032 ) (7,308 ) 23,503 14,486 34,800 (21,574 ) — — — — — 44,465 — — 4,046 (150,223 ) 9,285 (21,100 ) (11,373 ) 9,900 97,229 (6,382 ) Total of certain (income) expense items that impact net income attributable to common shareholders $ (49,504 ) $ 38,471 $ (140,938 ) $ 90,847 41 Overview - continued Vornado Realty Trust - continued The following table reconciles the difference between our FFO attributable to common shareholders plus assumed conversions and our FFO attributable to common shareholders plus assumed conversions, as adjusted: (Amounts in thousands) For the Three Months Ended December 31, For the Year Ended December 31, 2018 2017 2018 2017 Certain (income) expense items that impact FFO attributable to common shareholders plus assumed conversions: After-tax net gain on sale of 220 Central Park South condominium units $ (67,336 ) $ — $ (67,336 ) $ — Our share of FFO from real estate fund investments (excluding our $4,252 share of One Park Avenue potential additional transfer taxes) FFO from discontinued operations and sold properties (primarily related to JBG SMITH Properties operating results and transaction costs through July 17, 2017 spin-off and 666 Fifth Avenue Office Condominium operations through August 3, 2018 sale) Tax expense related to the reduction of our taxable REIT subsidiaries deferred tax assets Our share of potential additional New York City transfer taxes based on a Tax Tribunal interpretation which Vornado is appealing Preferred share issuance costs Net gain on the repayment of our loan investment in 666 Fifth Avenue Office Condominium Impairment loss on investment in PREIT Net gain resulting from UE operating partnership unit issuances Net gain on repayment of our Suffolk Downs JV debt investments Other Noncontrolling interests' share of above adjustments 24,366 (529 ) 23,749 10,804 (242 ) (4,006 ) (2,834 ) (73,240 ) — — — — — — — 1,987 (41,225 ) 2,552 34,800 — 34,800 — — — — — — 5,951 36,216 (2,242 ) 23,503 14,486 (7,308 ) — — — 4,033 (11,707 ) 727 — — — 44,465 (21,100 ) (11,373 ) 10,328 (5,316 ) 534 Total of certain (income) expense items that impact FFO attributable to common shareholders plus assumed conversions, net $ (38,673 ) $ 33,974 $ (10,980 ) $ (4,782 ) 42 Overview - continued Same Store Net Operating Income ("NOI") At Share The percentage increase (decrease) in same store NOI at share and same store NOI at share - 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, 2018 compared to December 31, 2017 Year ended December 31, 2017 compared to December 31, 2016 Three months ended December 31, 2018 compared to December 31, 2017 Three months ended December 31, 2018 compared to September 30, 2018 Same store NOI at share - cash basis % increase (decrease): Year ended December 31, 2018 compared to December 31, 2017 Year ended December 31, 2017 compared to December 31, 2016 Three months ended December 31, 2018 compared to December 31, 2017 Three months ended December 31, 2018 compared to September 30, 2018 ________________________________________ Total New York(1) theMART 555 California Street (12.2 )% (2) 4.2 % (3) (56.6 )% (2) (58.0 )% (2) (6.5 )% (2) 7.6 % (3) (49.8 )% (2) (52.9 )% (2) 14.9 % 1.9 % 16.8 % 3.8 % 18.1 % 36.0 % 15.8 % 5.7 % 0.8 % 2.7 % (6.3 )% (5.3 )% 3.9 % 11.8 % (1.7 )% (4.2 )% 1.4 % 2.7 % (3.1 )% (1.1 )% 4.3 % 11.3 % 1.9 % — % Increase (Decrease) (1) Excluding Hotel Pennsylvania, same store NOI at share % increase (decrease): Year ended December 31, 2018 compared to December 31, 2017 Year ended December 31, 2017 compared to December 31, 2016 Three months ended December 31, 2018 compared to December 31, 2017 Three months ended December 31, 2018 compared to September 30, 2018 Excluding Hotel Pennsylvania, same store NOI at share - cash basis % increase (decrease): Year ended December 31, 2018 compared to December 31, 2017 Year ended December 31, 2017 compared to December 31, 2016 Three months ended December 31, 2018 compared to December 31, 2017 Three months ended December 31, 2018 compared to September 30, 2018 1.5 % 2.3 % (3.0 )% (1.7 )% 4.5 % 11.0 % 2.1 % (0.6 )% (2) Includes additional real estate tax expense accruals of $15,148,000 and $12,124,000 for the year and three months ended December 31, 2018, respectively, due to an increase in the tax-assessed value of theMART. (3) The year ended December 31, 2016 includes a $2,000,000 reversal of an expense accrued in 2015. Excluding this amount, same store NOI at share increased by 6.4% and same store NOI at share - cash basis increased by 10.0%. Calculations of same store NOI at share, reconciliations of our net income to NOI at share, NOI at share - 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. 43 Overview - continued Acquisitions 537 West 26th Street On February 9, 2018, we acquired 537 West 26th Street, a 14,000 square foot commercial property adjacent to our 260 Eleventh Avenue office property, and 55,000 square feet of additional zoning air rights for $44,000,000. 1535 Broadway On July 30, 2012, we entered into a lease with Host Hotels & Resorts, Inc. (NYSE: HST) (“Host”), under which we redeveloped the retail and signage components of the Marriott Times Square Hotel. We accounted for this lease as a “capital lease” and recorded a $240,000,000 capital lease asset and liability. On September 21, 2018, we acquired the retail condominium from Host for $442,000,000 (inclusive of the $240,000,000 capital lease liability). The original lease transaction provided that we would become the 100% owner through a put/call arrangement, based on a pre-negotiated formula. This transaction satisfies the put/call arrangement. Our 100% fee interest includes 45,000 square feet of retail, the 1,611 seat Marquis Theater and the largest digital sign in New York with a 330 linear foot, 25,000 square foot display. Farley Office and Retail Building On October 30, 2018, we increased our ownership interest in the joint venture that is developing the Farley Office and Retail Building to 95.0% from 50.1% by acquiring a 44.9% additional ownership interest from the Related Companies ("Related"). The purchase price was $41,500,000 plus the reimbursement of $33,026,000 of costs funded by Related through October 30, 2018. We consolidate the accounts of the joint venture as of October 30, 2018. In connection therewith, we recorded a net gain of $44,060,000, which is included in "purchase price fair value adjustment" on our consolidated statements of income. As a result of this gain, because we hold our investment in the joint venture through a taxable REIT subsidiary, $16,771,000 of income tax expense was recognized on our consolidated statements of income. Dispositions On January 17, 2018, Vornado Capital Partners Real Estate Fund (the "Fund") completed the sale of the retail condominium at 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. On June 21, 2018 we completed the $45,000,000 sale of 27 Washington Square North, which resulted in a net gain of $23,559,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. On August 3, 2018, we completed the sale of our 49.5% interests in the 666 Fifth Avenue Office Condominium. We received net proceeds of $120,000,000 and recognized a financial statement gain of $134,032,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. The gain for tax purposes was approximately $254,000,000. We continue to own all of the 666 Fifth Avenue Retail Condominium encompassing the Uniqlo, Tissot and Hollister stores with 125 linear feet of frontage on Fifth Avenue between 52nd and 53rd Street. Concurrently with the sale of our interests, the existing mortgage loan on the property was repaid and we received net proceeds of $55,244,000 for the participation we held in the mortgage loan. We recognized a financial statement gain of $7,308,000, which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. Financings Preferred Securities On January 4 and 11, 2018, we redeemed all of the outstanding 6.625% Series G and 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, and expensed $14,486,000 of previously capitalized issuance costs. 44 Overview - continued Financings - continued Unsecured Term Loan On October 26, 2018, we extended our $750,000,000 unsecured term loan from October 2020 to February 2024. The interest rate on the extended unsecured term loan was lowered from LIBOR plus 1.15% to LIBOR plus 1.00% (3.52% as of December 31, 2018). In connection with the extension of our unsecured term loan, we entered into an interest rate swap from LIBOR plus 1.00% to a fixed rate of 3.87% through October 2023. Other Financings 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%. We realized net proceeds of approximately $37,200,000 after repayment of the existing 4.43% $59,800,000 mortgage and closing costs. On April 19, 2018, the joint venture between the Fund and the Crowne Plaza Joint Venture completed a $255,000,000 refinancing of the Crowne Plaza Times Square Hotel. The interest-only loan is at LIBOR plus 3.53% (6.00% at December 31, 2018) and matures in May 2020 with three one-year extension options. In connection therewith, the joint venture purchased an interest rate cap that caps LIBOR at a rate of 4.00%. The Crowne Plaza Times Square Hotel was previously encumbered by a $310,000,000 interest-only mortgage at LIBOR plus 2.80%, which was scheduled to mature in December 2018. On June 11, 2018, the joint venture that owns Independence Plaza, a three-building 1,327 unit residential complex in the Tribeca submarket of Manhattan completed a $675,000,000 refinancing of Independence Plaza. The seven-year interest-only loan matures in July 2025 and has a fixed rate of 4.25%. Our share of net proceeds, after repayment of the existing 3.48% $550,000,000 mortgage and closing costs, was $55,618,000. On August 9, 2018, we completed a $120,000,000 refinancing of 4 Union Square South, a 206,000 square foot Manhattan retail property. The interest-only loan carries a rate of LIBOR plus 1.40% (3.75% as of December 31, 2018) and matures in 2025, as extended. The property was previously encumbered by a $113,000,000 mortgage at LIBOR plus 2.15%, which was scheduled to mature in 2019. On November 16, 2018, we completed a $205,000,000 refinancing of 150 West 34th Street, a 78,000 square foot Manhattan retail property. The interest-only loan carries a rate of LIBOR plus 1.88% (4.26% as of December 31, 2018) and matures in 2024, as extended. Concurrently, we invested $105,000,000 in a participation in the refinanced mortgage loan, which earns interest at a rate of LIBOR plus 2.00% (4.38% as of December 31, 2018) and also matures in 2024, as extended, and is included in "other assets" on our consolidated balance sheets. The property was previously encumbered by a mortgage of the same amount at LIBOR plus 2.25%, which was scheduled to mature in 2020. Other Activities 220 Central Park South ("220 CPS") During the fourth quarter of 2018, we completed the sale of 11 condominium units at 220 CPS for net proceeds aggregating $214,776,000 and resulting in a financial statement net gain of $81,224,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. In connection with these sales, $13,888,000 of income tax expense was recognized in our consolidated statements of income and $213,000,000 of the $950,000,000 220 CPS loan was repaid. 45 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, 2018: 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, 2018: Total square feet leased Our share of square feet leased Initial rent(1) Weighted average lease term (years) Second generation relet space: Square feet GAAP basis: Straight-line rent(2) Prior straight-line rent Percentage increase (decrease) Cash basis: Initial rent(1) Prior escalated rent Percentage increase (decrease) Tenant improvements and leasing commissions: Per square foot Per square foot per annum: Percentage of initial rent ____________________ See notes on the following page. $ $ $ $ $ $ $ $ $ $ $ $ $ $ 26 17 211.34 $ 8.2 7 228.99 $ 222.39 $ 3.0 % 219.50 $ 217.08 $ 1.1 % 144.50 $ 17.62 $ 8.3 % 255 236 171.25 5.5 216 $ 180.01 232.98 $ $ (22.7 )% 164.74 166.35 $ $ (1.0 )% 59.17 10.76 $ $ 6.3 % 46 46 60.73 $ 5.6 46 61.28 $ 56.40 $ 8.7 % 60.73 $ 58.87 $ 3.2 % 9.03 $ 1.61 $ 2.7 % 243 243 53.47 $ 5.8 232 54.11 $ 44.77 $ 20.9 % 53.49 $ 47.48 $ 12.7 % 17.63 $ 3.04 $ 5.7 % — — — — — — — — % — — — % — — — % 249 174 89.28 10.3 62 104.06 77.46 34.3 % 97.28 85.77 13.4 % 94.98 9.22 10.3 % 479 415 72.97 $ 7.7 357 67.56 $ 63.17 $ 6.9 % 67.22 $ 66.41 $ 1.2 % 78.71 $ 10.22 $ 14.0 % 1,827 1,627 79.03 $ 9.6 1,347 81.57 $ 60.99 $ 33.7 % 79.22 $ 64.59 $ 22.7 % 92.69 $ 9.66 $ 12.2 % 46 Overview - continued Leasing Activity – continued (Square feet in thousands) 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 New York Office Retail theMART 555 California Street 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 % 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 % 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 % 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 % $ $ $ $ $ $ $ ______________________________________ (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. 47 Overview - continued Square footage (in service) and Occupancy as of December 31, 2018: (Square feet in thousands) New York: Office Retail (includes retail properties that are in the base of our office properties) Residential - 1,687 units Alexander's, including 312 residential units Hotel Pennsylvania Other: theMART 555 California Street Other Total square feet at December 31, 2018 Number of properties Square Feet (in service) Our Total Share Portfolio Occupancy % 36 71 10 7 1 3 3 10 19,858 2,648 1,533 2,437 1,400 27,876 3,694 1,743 2,522 7,959 35,835 16,632 2,419 800 790 1,400 22,041 3,685 1,220 1,187 6,092 28,133 97.2 % 97.3 % 96.6 % 91.4 % 97.0 % 94.7 % 99.4 % 92.8 % 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 Number of properties Square Feet (in service) Our Total Share Portfolio Occupancy % 36 71 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 36,336 16,982 2,471 835 790 1,400 22,478 3,680 1,219 1,188 6,087 28,565 97.1 % 96.9 % 96.7 % 99.3 % 97.2 % 98.6 % 94.2 % 93.6 % 48 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 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 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, 2018 and 2017, the carrying amounts of real estate, net of accumulated depreciation and amortization, were $13.1 billion and $11.9 billion, respectively. As of December 31, 2018 and 2017, the carrying amounts of identified intangible assets (including acquired above-market leases, tenant relationships and acquired in-place leases) were $136,781,000 and $159,260,000, respectively, and the carrying amounts of identified intangible liabilities, a component of “deferred revenue” on our consolidated balance sheets, were $161,594,000 and $205,600,000, 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 discounted 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. 49 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, or hold a majority of the voting interests of the entity. 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 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 recorded when there is a decline in the fair value below the carrying value and we conclude such decline is other-than-temporary. 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, 2018 and 2017, the carrying amounts of investments in partially owned entities were $0.9 billion and $1.1 billion, respectively. Revenue Recognition We have the following revenue sources and revenue recognition policies: • Base rent is revenue 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. 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. • Hotel revenue arising from the operation of Hotel Pennsylvania consists of room revenue, food and beverage revenue, and banquet revenue. Room revenue is recognized when rooms are occupied. Food and beverage and banquet revenue are recognized when the services have been transferred. • Trade shows revenue arising from the operation of trade shows is primarily booth rentals. This revenue is recognized upon the occurrence of the trade shows. • Operating expense reimbursements is 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 common areas of our properties. Revenue is generally recognized in the same period as the related expenses are incurred. • Tenant services is revenue arising from sub-metered electric, elevator, trash removal and other services provided to tenants at their request. This revenue is recognized as the services are transferred. 50 Critical Accounting Policies - continued Revenue Recognition - continued • Fee and other income includes management, leasing and other revenue arising from contractual agreements with third parties or with partially owned entities, and includes Building Maintenance Service (“BMS”) cleaning, engineering and security services. This revenue is recognized as the services are transferred. Fee and other income also includes lease termination fee income which is recognized immediately if a tenant vacates or is recognized on a straight-line basis over the shortened remaining lease term. 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 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. 51 Net Operating Income At Share by Segment for the Years Ended December 31, 2018, 2017 and 2016 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 at share and NOI at share - cash basis by segment for the years ended December 31, 2018, 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 (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 Year Ended December 31, 2018 Total New York Other 2,163,720 $ 963,478 1,200,242 (71,186 ) 253,564 1,382,620 (44,704 ) 1,337,916 $ 1,836,036 $ 806,464 1,029,572 (48,490 ) 195,908 1,176,990 (45,427 ) 1,131,563 $ 327,684 157,014 170,670 (22,696 ) 57,656 205,630 723 206,353 For the Year Ended December 31, 2017 Total New York Other 2,084,126 $ 886,596 1,197,530 (65,311 ) 269,164 1,401,383 (86,842 ) 1,314,541 $ 1,779,307 $ 756,670 1,022,637 (45,899 ) 189,327 1,166,065 (79,202 ) 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 $ 844,566 1,159,176 (66,182 ) 271,114 1,364,108 (170,477 ) 1,193,631 $ 1,713,374 $ 716,754 996,620 (47,480 ) 159,386 1,108,526 (143,239 ) 965,287 $ 290,368 127,812 162,556 (18,702 ) 111,728 255,582 (27,238 ) 228,344 $ $ $ $ $ $ 52 Net Operating Income At Share by Segment for the Years Ended December 31, 2018, 2017 and 2016 - continued The elements of our New York and Other NOI at share for the years ended December 31, 2018, 2017 and 2016 are summarized below. (Amounts in thousands) New York: Office Retail Residential Alexander's Hotel Pennsylvania Total New York Other: theMART(1) 555 California Street Other investments(2) Total Other NOI at share $ For the Year Ended December 31, 2018 2017 2016 743,001 $ 353,425 23,515 45,133 11,916 1,176,990 90,929 54,691 60,010 205,630 721,183 $ 359,944 24,370 47,302 13,266 1,166,065 102,339 47,588 85,391 235,318 662,221 364,953 25,060 47,295 8,997 1,108,526 98,498 45,848 111,236 255,582 $ 1,382,620 $ 1,401,383 $ 1,364,108 ________________________________________ (1) The year ended December 31, 2018 includes an additional $15,148 real estate tax expense accrual due to an increase in the tax-assessed value of theMART. (2) The years ended December 31, 2018, 2017 and 2016 include $12,145, $20,636 and $25,004, respectively from 666 Fifth Avenue Office Condominium (sold on August 3, 2018). The years ended December 31, 2017 and 2016 include $6,960 and $5,621, respectively from India real estate ventures which were sold in 2017. The elements of our New York and Other NOI at share - cash basis for the years ended December 31, 2018, 2017 and 2016 are summarized below. (Amounts in thousands) New York: Office Retail Residential Alexander's Hotel Pennsylvania Total New York Other: theMART(1) 555 California Street Other investments(2) Total Other NOI at share - cash basis For the Year Ended December 31, 2018 2017 2016 $ 726,108 $ 324,219 22,076 47,040 12,120 1,131,563 94,070 53,488 58,795 206,353 678,839 $ 324,318 21,626 48,683 13,397 1,086,863 99,242 45,281 83,155 227,678 593,785 292,019 22,285 48,070 9,128 965,287 92,571 32,601 103,172 228,344 $ 1,337,916 $ 1,314,541 $ 1,193,631 ________________________________________ (1) The year ended December 31, 2018 includes an additional $15,148 real estate tax expense accrual due to an increase in the tax-assessed value of theMART. (2) The years ended December 31, 2018, 2017 and 2016 include $12,025, $20,853 and $22,388, respectively from 666 Fifth Avenue Office Condominium (sold on August 3, 2018). The years ended December 31, 2017 and 2016 include $6,960 and $5,621, respectively from India real estate ventures which were sold in 2017. 53 Reconciliation of Net Income to Net Operating Income At Share and Net Operating Income At Share - Cash Basis for the Years Ended December 31, 2018, 2017 and 2016 Below is a reconciliation of net income to NOI at share and NOI at share - cash basis for the years ended December 31, 2018, 2017 and 2016. (Amounts in thousands) Net income Deduct: Income from partially owned entities Loss (income) from real estate fund investments Interest and other investment income, net Net gains on disposition of wholly owned and partially owned assets Purchase price fair value adjustment (Income) loss from discontinued operations NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Depreciation and amortization expense General and administrative expense Transaction related costs, impairment loss and other Our share of NOI from partially owned entities Interest and debt expense Income tax expense NOI at share For the Year Ended December 31, 2018 2017 $ 422,603 $ 264,128 $ 2016 981,922 (9,149 ) 89,231 (17,057 ) (246,031 ) (44,060 ) (638 ) (71,186 ) 446,570 141,871 31,320 253,564 347,949 37,633 1,382,620 (15,200 ) (3,240 ) (30,861 ) (501 ) — 13,228 (65,311 ) 429,389 150,782 1,776 269,164 345,654 42,375 1,401,383 (168,948 ) 23,602 (24,335 ) (160,433 ) — (404,912 ) (66,182 ) 421,023 143,643 9,451 271,114 330,240 7,923 1,364,108 (170,477 ) 1,193,631 Non cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other NOI at share - cash basis (44,704 ) 1,337,916 $ (86,842 ) 1,314,541 $ $ Net Operating Income At Share by Region Below is a summary of the percentages of NOI at share by geographic region for the year ended December 31, 2018, 2017 and 2016 . Region: New York City metropolitan area Chicago, IL San Francisco, CA For the Year Ended December 31, 2018 2017 2016 89 % 7 % 4 % 100 % 89 % 8 % 3 % 100 % 89 % 8 % 3 % 100 % 54 Results of Operations – Year Ended December 31, 2018 Compared to December 31, 2017 Revenues Our revenues, which consist of property rentals, tenant expense reimbursements, and fee and other income, were $2,163,720,000 in the year ended December 31, 2018 compared to $2,084,126,000 in the prior year, an increase of $79,594,000. 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 $ 362 $ 362 $ (4,930 ) 4,542 522 44,757 45,253 97 379 13,228 13,704 16,214 3,237 (6,027 ) 7,213 20,637 (5,298 ) 4,542 — 29,403 29,009 97 (24 ) 10,702 10,775 18,102 (1) 3,604 (7,097 ) 2,336 16,945 Total increase in revenues $ 79,594 $ 56,729 $ ________________________________________ (1) Primarily due to an increase in third party cleaning fees for services provided to JBGS, Skyline Properties and tenants at theMART. — 368 — 522 15,354 16,244 — 403 2,526 2,929 (1,888 ) (367 ) 1,070 4,877 3,692 22,865 55 Results of Operations – Year Ended December 31, 2018 Compared to December 31, 2017 - continued Expenses Our expenses, which consist primarily of operating, depreciation and amortization, general and administrative, (benefit) expense from deferred compensation plan liability, and transaction related costs, impairment loss and other, were $1,580,759,000 in the year ended December 31, 2018 compared to $1,475,475,000 in the prior year, an increase of $105,284,000. Below are the details of the increase by segment: (Amounts in thousands) Increase (decrease) due to: Operating: Acquisitions, dispositions and other $ Development and redevelopment Non-reimbursable expenses, including bad debt reserves Hotel Pennsylvania Trade shows BMS expenses Same store operations Depreciation and amortization: Acquisitions, dispositions and other Development and redevelopment Same store operations General and administrative Benefit from deferred compensation plan liability Transaction related costs, impairment loss and other Total New York Other $ 671 (98 ) 1,269 5,816 (73 ) 13,439 55,858 76,882 (1,876 ) 4,381 14,676 17,181 (8,911 ) (3) (9,412 ) 29,544 $ 671 (1,312 ) 790 5,816 — 15,327 (1) 28,502 49,794 (1,876 ) 4,376 11,944 14,444 95 — 25,103 (4) Total increase in expenses $ 105,284 $ 89,436 $ — 1,214 479 — (73 ) (1,888 ) 27,356 (2) 27,088 — 5 2,732 2,737 (9,006 ) (9,412 ) 4,441 15,848 ____________________ (1) Primarily due to an increase in third party cleaning fees for services provided to JBGS, Skyline Properties and tenants at theMART. (2) Primarily due to additional real estate tax expense accrual of $15,148 due to an increase in the tax-assessed value of theMART in December 2018. (3) Primarily due to higher capitalized development payroll in 2018. (4) Due to a $13,103 potential additional New York City real property transfer tax payment (“Transfer Tax”), which we are contesting, related to the December 2012 acquisition of Independence Plaza and a $12,000 non-cash impairment loss. 56 Results of Operations – Year Ended December 31, 2018 Compared to December 31, 2017 - continued Income from Partially Owned Entities Below are the components of income from partially owned entities for the years ended December 31, 2018 and 2017. (Amounts in thousands) Our share of net income (loss): Alexander's(1) UE(2) Partially owned office buildings(3) PREIT(4) Other investments(5) Percentage Ownership at December 31, 2018 For the Year Ended December 31, 2018 2017 32.4% 4.5% Various 7.9% Various $ $ 15,045 $ 4,460 (3,085 ) (3,015 ) (4,256 ) 9,149 $ 31,853 27,328 2,109 (53,325 ) 7,235 15,200 ____________________ (1) 2018 includes (i) our $7,708 share of Alexander's potential additional Transfer Tax, (ii) our $3,882 share of expense related to the decrease in fair value of marketable securities held by Alexander’s and (iii) our $1,085 share of a non-cash straight-line rent write-off adjustment related to Sears Roebuck and Co. which filed for Chapter 11 bankruptcy relief and (iv) our $518 share of Alexander’s litigation expense due to a settlement. (2) 2017 includes $21,100 of net gains resulting from UE operating partnership unit issuances. (3) 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 and others. 2018 includes our $4,978 share of potential additional Transfer Tax related to the March 2011 acquisition of One Park Avenue. (4) 2017 includes a $44,465 non-cash impairment loss. (5) Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, 666 Fifth Avenue Office Condominium (sold on August 3, 2018) and others. In 2017, we recognized $26,687 of net gains, comprised of $15,314 for our share of a net gain on the sale of Suffolk Downs and $11,373 for the net gain on repayment of our debt investments in Suffolk Downs JV. In 2018 and 2017, we recognized net losses of $4,873 and $25,414, respectively, from our 666 Fifth Avenue Office Condominium joint venture as a result of our share of depreciation expense. (Loss) Income from Real Estate Fund Investments Below are the components of the loss from our real estate fund investments for the years ended December 31, 2018 and 2017. (Amounts in thousands) Net investment income Net unrealized loss on held investments Net realized (loss) gain on exited investments Previously recorded unrealized gain on exited investment Transfer Tax (Loss) income from real estate fund investments Less loss (income) attributable to noncontrolling interests in consolidated subsidiaries Loss from real estate fund investments attributable to the Operating Partnership (includes $4,252 of loss related to One Park Avenue potential additional transfer taxes and reduction in carried interest for the year ended December 31, 2018) Less loss attributable to noncontrolling interests in the Operating Partnership Loss from real estate fund investments attributable to Vornado For the Year Ended December 31, 2018 2017 $ $ 6,105 $ (83,794 ) (912 ) — (10,630 ) (89,231 ) 61,230 (28,001 ) 1,732 (26,269 ) $ 18,507 (25,807 ) 36,078 (25,538 ) — 3,240 (14,044 ) (10,804 ) 673 (10,131 ) 57 Results of Operations – Year Ended December 31, 2018 Compared to December 31, 2017 - continued Interest and Other Investment Income, net Below are the components of interest and other investment, net for the years ended December 31, 2018 and 2017. (Amounts in thousands) Decrease in fair value of marketable securities(1) Interest on cash and cash equivalents and restricted cash Dividends on marketable securities Interest on loans receivable(2) Other, net For the Year Ended December 31, 2018 2017 $ $ (26,453 ) $ 15,827 13,339 10,298 4,046 17,057 $ — 8,171 13,276 4,352 5,062 30,861 ____________________ (1) On January 1, 2018, we adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which requires changes in the fair value of our marketable securities to be recorded in current period earnings. Previously, changes in the fair value of marketable securities were recognized in "accumulated other comprehensive income" on our consolidated balance sheets. Includes $6,707 of profit participation in connection with an investment in a mezzanine loan which was previously repaid to us for the year ended December 31, 2018. (2) Interest and Debt Expense Interest and debt expense was $347,949,000 in the year ended December 31, 2018, compared to $345,654,000 in the prior year, an increase of $2,295,000. This increase was primarily due to (i) $25,036,000 of higher interest expense resulting from higher average interest rates on our variable rate loans, and (ii) $9,753,000 of higher interest expense on our $750,000,000 delayed draw term loan which was fully drawn in October 2017, partially offset by (iii) $24,935,000 higher capitalized interest and debt expense and (iv) $6,475,000 lower capital lease interest, resulting from our acquisition of the retail at 1535 Broadway and termination of the existing capital lease structure. Purchase Price Fair Value Adjustment The purchase price fair value adjustment of $44,060,000 in the year ended December 31, 2018 represents the difference between the estimated fair market value and the book basis of our 50.1% interest in the joint venture that is developing the Farley Office and Retail Building as a result of our increased ownership in the joint venture to 95.0% from 50.1%. Net Gains on Disposition of Wholly Owned and Partially Owned Assets The net gains of $246,031,000 in the year ended December 31, 2018, resulted primarily from the (i) $134,032,000 net gain on sale of our 49.5% interests in 666 Fifth Avenue Office Condominium, (ii) $81,224,000 net gain on sales of 220 CPS condominium units, (iii) $23,559,000 net gain on sale of 27 Washington Square North, and (iv) $7,308,000 net gain from repayment of our interest on the mortgage loan on 666 Fifth Avenue Office Condominium. Income Tax Expense In the year ended December 31, 2018, we had an income tax expense of $37,633,000, compared to $42,375,000 in the prior year, a decrease of $4,742,000. This decrease resulted primarily from (i) $34,800,000 of expense in the year ended December 31, 2017 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, partially offset by (ii) $16,771,000 of income tax expense in the year ended December 31, 2018 due to the $44,060,000 purchase price fair value adjustment recognized as a result of our increased ownership in the joint venture that is developing the Farley Office and Retail Building, and (iii) $13,888,000 of income tax expense in the year ended December 31, 2018 on the sale of 220 CPS condominium units. 58 Results of Operations – Year Ended December 31, 2018 Compared to December 31, 2017 - continued Income (Loss) 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 to “income (loss) from discontinued operations” and the related assets and liabilities to “other assets” and “other liabilities” 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, 2018 and 2017. (Amounts in thousands) Total revenues Total expenses Net gains on sale of real estate, a lease position and other JBGS spin-off transaction costs Income from partially-owned entities Pretax income (loss) from discontinued operations Income tax expense Income (loss) from discontinued operations For the Year Ended December 31, 2018 2017 1,114 $ 1,094 20 618 — — 638 — 638 $ 261,290 212,169 49,121 6,605 (68,662 ) 435 (12,501 ) (727 ) (13,228 ) $ $ Net Loss (Income) Attributable to Noncontrolling Interests in Consolidated Subsidiaries Net loss attributable to noncontrolling interests in consolidated subsidiaries was $53,023,000 in the year ended December 31, 2018, compared to net income of $25,802,000 in the prior year, a decrease in net income of $78,825,000. 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 $25,672,000 in the year ended December 31, 2018, compared to $10,910,000 in the prior year, an increase of $14,762,000. This increase resulted primarily from higher net income subject to allocation to unitholders. Preferred Share Dividends of Vornado Realty Trust Preferred share dividends were $50,636,000 in the year ended December 31, 2018, compared to $65,399,000 in the prior year, a decrease of $14,763,000. The decrease is comprised of $30,651,000 of savings from the redemption of all of the outstanding 6.625% Series G and Series I cumulative redeemable preferred shares in January 2018, partially offset by a $15,888,000 increase due to the issuance of 5.25% Series M cumulative redeemable preferred shares in December 2017. Preferred Unit Distributions of Vornado Realty L.P. Preferred unit distributions were $50,830,000 in the year ended December 31, 2018, compared to $65,593,000 in the prior year, a decrease of $14,763,000. The decrease is comprised of $30,651,000 of savings from the redemption of all the outstanding 6.625% Series G and Series I cumulative redeemable preferred units in January 2018, partially offset by a $15,888,000 increase due to the issuance of 5.25% Series M cumulative redeemable preferred units in December 2017. Preferred Share/Unit Issuance Costs In the year ended December 31, 2018, we recognized preferred share/unit issuance costs of $14,486,000 representing the write-off of issuance costs upon the redemption of all the outstanding 6.625% Series G and Series I cumulative redeemable preferred shares/units in January 2018. 59 Results of Operations – Year Ended December 31, 2018 Compared to December 31, 2017 - continued Same Store Net Operating Income At Share Same store NOI at share represents NOI at share from operations which are owned by us and in service in both the current and prior year reporting periods. Same store NOI at share - cash basis is NOI at share 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 at share and same store NOI at share - 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 at share to same store NOI at share for our New York segment, theMART, 555 California Street and other investments for the year ended December 31, 2018 compared to December 31, 2017. (Amounts in thousands) NOI at share for the year ended December 31, 2018 Less NOI at share from: Acquisitions Dispositions Development properties Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net Other non-operating income, net Same store NOI at share for the year ended December 31, 2018 NOI at share for the year ended December 31, 2017 Less NOI at share from: Acquisitions Dispositions Development properties Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net Other non-operating income, net Same store NOI at share for the year ended December 31, 2017 Total $ 1,382,620 New York $ 1,176,990 theMART 90,929 $ 555 California Street $ 54,691 $ Other 60,010 (1,534 ) (351 ) (38,477 ) (1,385 ) (351 ) (38,477 ) 2,301 (62,732 ) $ 1,281,827 3,025 (2,722 ) $ 1,137,080 $ 1,401,383 $ 1,166,065 $ $ (149 ) — — (724 ) — 90,056 $ — — — — — 54,691 — — — — (60,010 ) — $ 102,339 $ 47,588 $ 85,391 36 (1,532 ) (37,307 ) (2,976 ) (88,017 ) $ 1,271,587 (164 ) (1,532 ) (37,307 ) 200 — — — — — (2,957 ) (2,626 ) $ 1,121,479 (19 ) — 102,520 $ $ — — 47,588 — — — — (85,391 ) — $ Increase (decrease) in same store NOI at share for the year ended December 31, 2018 compared to December 31, 2017 $ 10,240 $ 15,601 $ (12,464 ) $ 7,103 $ — % increase (decrease) in same store NOI at share 0.8 % 1.4 % (1) (12.2 )% (2) 14.9 % — % ____________________ (1) Excluding Hotel Pennsylvania, same store NOI at share increased by 1.5%. (2) The year ended December 31, 2018 includes an additional $15,148 real estate tax expense accrual due to an increase in the tax-assessed value of theMART. 60 Results of Operations – Year Ended December 31, 2018 Compared to December 31, 2017 - continued Same Store Net Operating Income At Share - continued Below are reconciliations of NOI at share - cash basis to same store NOI at share - cash basis for our New York segment, theMART, 555 California Street and other investments for the year ended December 31, 2018 compared to December 31, 2017. (Amounts in thousands) NOI at share - cash basis for the year ended December 31, 2018 Less NOI at share - cash basis from: Total New York $ 1,337,916 $ 1,131,563 theMART 94,070 $ 555 California Street 53,488 $ $ Dispositions Acquisitions Development properties (1,086 ) (287 ) (42,264 ) (1,163 ) (2,720 ) Same store NOI at share - cash basis for the year ended December 31, 2018 $ 1,230,510 $ 1,084,043 (1,235 ) (287 ) (42,264 ) (2,105 ) (61,515 ) Other non-operating income, net Lease termination income NOI at share - cash basis for the year ended December 31, 2017 $ 1,314,541 $ 1,086,863 Less NOI at share - cash basis from: Dispositions Acquisitions Development properties (63 ) (1,078 ) (38,211 ) (4,927 ) (3,346 ) Same store NOI at share - cash basis for the year ended December 31, 2017 $ 1,183,930 $ 1,039,238 137 (1,078 ) (38,211 ) (4,958 ) (86,501 ) Other non-operating income, net Lease termination income (149 ) — — (942 ) — 92,979 99,242 200 — — (31 ) — 99,411 $ $ $ $ $ $ Other 58,795 — — — — (58,795 ) — — — — — — 53,488 $ 45,281 $ 83,155 — — — — — 45,281 $ — — — — (83,155 ) — Increase (decrease) in same store NOI at share - cash basis for the year ended December 31, 2018 compared to December 31, 2017 $ 46,580 $ 44,805 $ (6,432 ) $ 8,207 $ — % increase (decrease) in same store NOI at share - cash basis 3.9 % 4.3 % (1) (6.5 )% (2) 18.1 % — % ____________________ (1) Excluding Hotel Pennsylvania, same store NOI at share - cash basis increased by 4.5%. (2) The year ended December 31, 2018 includes an additional $15,148 real estate tax expense accrual due to an increase in the tax-assessed value of theMART. 61 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 in 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 Total increase in revenues $ 80,384 $ 65,933 $ 226 917 — (634 ) 10,174 10,683 — 780 2,499 3,279 (2,656 ) 775 (849 ) 3,219 489 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 receivables and acquired below-market leases, net, 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 for services provided to JBGS, Skyline Properties and tenants at theMART. 62 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, expense from deferred compensation plan liability, and transaction related costs and other, were $1,475,475,000 in the year ended December 31, 2017 compared to $1,423,896,000 in the prior year, an increase of $51,579,000. Below are the details of the increase by segment: (Amounts in thousands) Increase (decrease) due to: Operating: Acquisitions, dispositions and other Development and redevelopment Non-reimbursable expenses, including bad debt reserves $ Hotel Pennsylvania Trade shows BMS expenses Same store operations Depreciation and amortization: Acquisitions, dispositions and other Development and redevelopment Same store operations General and administrative Expense on deferred compensation plan liability Transaction related costs and other Total New York Other $ (2,978 ) 69 (3,940 ) 3,721 (1,222 ) 15,368 31,012 42,030 2,227 2,752 3,387 8,366 7,139 (2) 1,719 (7,675 ) (2,978 ) $ 119 (4,109 ) 3,721 — 12,835 (1) 30,328 39,916 2,227 3,182 (1,503 ) 3,906 4,333 — — Total increase in expenses $ 51,579 $ 48,155 $ ________________________________________ (1) Primarily due to an increase in third party cleaning agreements for services provided to JBGS, Skyline Properties and tenants at theMART. (2) Primarily due to lower capitalized leasing and development payroll for consolidated projects in 2017 and higher franchise tax in 2017. — (50 ) 169 — (1,222 ) 2,533 684 2,114 — (430 ) 4,890 4,460 2,806 1,719 (7,675 ) 3,424 63 Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued Income from Partially Owned Entities Below are the components of income from partially owned entities for the years ended December 31, 2017 and 2016. (Amounts in thousands) Our share of net (loss) income: PREIT(1) Alexander's UE(2) Partially owned office buildings(3) Other investments(4) Percentage Ownership at December 31, 2017 Year Ended December 31, 2017 2016 8.0% 32.4% 4.5% Various Various $ $ (53,325 ) $ 31,853 27,328 2,109 7,235 15,200 $ (5,213 ) 34,240 5,839 5,773 128,309 168,948 ____________________ (1) 2017 includes a $44,465 non-cash impairment loss. (2) 2017 includes $21,100 of net gains resulting from UE operating partnership unit issuances. (3) (4) 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 and others. In 2017, we recognized $26,687 of net gains, comprised of $15,314 for our share of a net gain on the sale of Suffolk Downs and $11,373 for 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 as a result of this transaction. 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 gain on exited investments Net unrealized loss on held investments Previously recorded unrealized gain on exited investment 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 Less loss attributable to noncontrolling interests in the Operating Partnership Loss from real estate fund investments attributable to Vornado For the Year Ended December 31, 2017 2016 $ $ 18,507 $ 36,078 (25,807 ) (25,538 ) 3,240 (14,044 ) (10,804 ) 673 (10,131 ) $ 17,053 14,761 (41,162 ) (14,254 ) (23,602 ) 2,560 (21,042 ) 1,270 (19,772 ) 64 Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued Interest and Other Investment Income, net Below are the components of interest and other investment, net for the years ended December 31, 2017 and 2016. (Amounts in thousands) Dividends on marketable securities Interest on cash and cash equivalents and restricted cash Interest on loans receivable Other, net Interest and Debt Expense For the Year Ended December 31, 2017 2016 $ $ 13,276 $ 8,171 4,352 5,062 30,861 $ 13,135 3,622 3,890 3,688 24,335 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 $42,375,000, compared to $7,923,000 in the prior year, an increase of $34,452,000. This increase resulted primarily from the $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. 65 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 to “income (loss) from discontinued operations” and the related assets and liabilities to “other assets” and “other liabilities” 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 entities Net gain on early extinguishment of debt Impairment losses 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 ) 20,376 (3,559 ) 487,877 (161,165 ) 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. 66 Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued Same Store Net Operating Income At Share Same store NOI at share represents NOI at share from operations which are owned by us and in service in both the current and prior year reporting periods. Same store NOI at share - cash basis is NOI at share 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 at share and same store NOI at share - 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 at share to same store NOI at share for our New York segment, theMART, 555 California Street and other investments for the year ended December 31, 2017 compared to December 31, 2016. (Amounts in thousands) NOI at share for the year ended December 31, 2017 Less NOI at share from: Acquisitions Dispositions Development properties Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net 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 Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net Other non-operating income, net Same store NOI at share for the year ended December 31, 2016 Total New York theMART $ 1,401,383 $ 1,166,065 $ 102,339 $ 555 California Street 47,588 $ Other 85,391 (19,863 ) (698 ) 816 (20,027 ) (698 ) 816 (1,993 ) (87,694 ) (1,973 ) (2,303 ) $ 1,291,951 $ 1,141,880 $ 1,364,108 $ 1,108,526 (60 ) (3,107 ) 1,161 (60 ) (3,107 ) 82 10,164 (114,846 ) 10,559 (3,610 ) $ 1,257,420 $ 1,112,390 $ $ $ 164 — — (20 ) — 102,483 98,498 — — — (157 ) — 98,341 $ $ $ — — — — — 47,588 $ — — — — (85,391 ) — 45,848 $ 111,236 — — 1,079 (238 ) — 46,689 $ — — — — (111,236 ) — Increase in same store NOI at share for the year ended December 31, 2017 compared to December 31, 2016 $ 34,531 $ 29,490 $ 4,142 $ 899 $ — % increase in same store NOI at share 2.7 % 2.7 % (1) 4.2 % (2) 1.9 % — % ____________________ (1) Excluding Hotel Pennsylvania, same store NOI at share increased by 2.3%. (2) The year ended December 31, 2016 includes a $2,000 reversal of an expense accrued in 2015. Excluding this amount, same store NOI at share increased by 6.4%. 67 Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued Same Store Net Operating Income At Share - continued Below are reconciliations of NOI at share - cash basis to same store NOI at share - cash basis for our New York segment, theMART,555 California Street and other investments for the year ended December 31, 2017 compared to December 31, 2016. (Amounts in thousands) NOI at share - cash basis for the year ended December 31, 2017 Less NOI at share - cash basis from: Acquisitions Dispositions Development properties Lease termination income Other non-operating income, net Total New York theMART $ 1,314,541 $ 1,086,863 $ 99,242 $ 555 California Street 45,281 $ (17,053 ) (698 ) 814 (4,958 ) (86,176 ) (17,217 ) (698 ) 814 (4,927 ) (3,021 ) 164 — — (31 ) — — — — — — Other 83,155 — — — — (83,155 ) Same store NOI at share - cash basis for the year ended December 31, 2017 $ 1,206,470 $ 1,061,814 NOI at share - cash basis for the year ended December 31, 2016 $ 1,193,631 $ 965,287 $ $ 99,375 92,571 $ $ 45,281 $ — 32,601 $ 103,172 Less NOI at share - cash basis from: Acquisitions Dispositions Development properties Lease termination income Other non-operating income, net (13 ) (2,219 ) 1,368 (7,917 ) (105,534 ) (13 ) (2,219 ) 289 (7,272 ) (2,362 ) — — — (248 ) — — — 1,079 (397 ) — — — — — (103,172 ) Same store NOI at share - cash basis for the year ended December 31, 2016 $ 1,079,316 $ 953,710 $ 92,323 $ 33,283 $ Increase in same store NOI - cash basis for the year ended December 31, 2017 compared to December 31, 2016 $ 127,154 $ 108,104 $ 7,052 $ 11,998 $ — — % increase in same store NOI at share - cash basis 11.8 % 11.3 % (1) 7.6 % (2) 36.0 % — % ____________________ (1) Excluding Hotel Pennsylvania, same store NOI at share - cash basis increased by 11.0%. (2) The year ended December 31, 2016 includes a $2,000 reversal of an expense accrued in 2015. Excluding this amount, same store NOI at share - cash basis increased by 10.0%. 68 Supplemental Information Net Operating Income At Share by Segment for the Three Months Ended December 31, 2018 and 2017 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 at share by segment for the three months ended December 31, 2018 and 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, 2018 Total New York Other 543,417 $ 254,320 289,097 (19,771 ) 60,205 329,531 (5,532 ) 323,999 $ 466,554 $ 206,696 259,858 (13,837 ) 49,178 295,199 (6,266 ) 288,933 $ 76,863 47,624 29,239 (5,934 ) 11,027 34,332 734 35,066 For the Three Months Ended December 31, 2017 Total New York Other 536,226 $ 225,011 311,215 (16,533 ) 69,175 363,857 (21,579 ) 342,278 $ 462,597 $ 195,421 267,176 (11,648 ) 48,700 304,228 (21,441 ) 282,787 $ 73,629 29,590 44,039 (4,885 ) 20,475 59,629 (138 ) 59,491 $ $ $ $ 69 Supplemental Information - continued Net Operating Income At Share by Segment for the Three Months Ended December 31, 2018 and 2017 - continued The elements of our New York and Other NOI at share for the three months ended December 31, 2018 and 2017 are summarized below. (Amounts in thousands) New York: Office Retail Residential Alexander's Hotel Pennsylvania Total New York Other: theMART(1) 555 California Street Other investments(2) Total Other NOI at share For the Three Months Ended December 31, 2018 2017 $ 186,832 $ 85,549 5,834 11,023 5,961 295,199 10,981 14,005 9,346 34,332 $ 329,531 $ 189,481 90,853 5,920 11,656 6,318 304,228 24,249 12,003 23,377 59,629 363,857 ________________________________________ (1) The three months ended December 31, 2018 includes an additional $12,814 real estate tax expense accrual due to an increase in the tax-assessed value of theMART. (2) The three months ended December 31, 2017 includes $5,433 from 666 Fifth Avenue Office Condominium (sold on August 3, 2018) and $2,958 from our India real estate ventures which were sold in 2017. The elements of our New York and Other NOI at share - cash basis for the three months ended December 31, 2018 and 2017 are summarized below. (Amounts in thousands) New York: Office Retail Residential Alexander's Hotel Pennsylvania Total New York Other: theMART(1) 555 California Street Other investments(2) Total Other NOI at share - cash basis For the Three Months Ended December 31, 2018 2017 $ 185,624 $ 80,515 5,656 11,129 6,009 288,933 12,758 13,784 8,524 35,066 $ 323,999 $ 175,787 83,320 5,325 12,004 6,351 282,787 24,396 11,916 23,179 59,491 342,278 ________________________________________ (1) The three months ended December 31, 2018 includes an additional $12,814 real estate tax expense accrual due to an increase in the tax-assessed value of theMART. (2) The three months ended December 31, 2017 include $5,359 from 666 Fifth Avenue Office Condominium (sold on August 3, 2018) and $2,958 from our India real estate ventures which were sold in 2017. 70 Supplemental Information - continued Reconciliation of Net Income to Net Operating Income At Share and Net Operating Income At Share - Cash Basis for the Three Months Ended December 31, 2018 and 2017 (Amounts in thousands) Net income Deduct: Income from partially owned entities Loss (income) from real estate fund investments Interest and other investment income, net Net gains on disposition of wholly owned and partially owned assets Purchase price fair value adjustment Income from discontinued operations NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Depreciation and amortization expense General and administrative expense Transaction related costs, impairment loss and other Our share of NOI from partially owned entities Interest and debt expense Income tax expense NOI at share For the Three Months Ended December 31, 2018 2017 $ 97,821 $ 53,551 (3,090 ) 51,258 (7,656 ) (81,203 ) (44,060 ) (257 ) (19,771 ) 112,869 32,934 14,637 60,205 83,175 32,669 329,531 (5,532 ) 323,999 $ (9,622 ) (4,889 ) (8,294 ) — — (1,273 ) (16,533 ) 114,166 34,916 703 69,175 93,073 38,884 363,857 (21,579 ) 342,278 Non cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other NOI at share - cash basis $ Net Operating Income At Share by Region Below is a summary of the percentages of NOI at share by geographic region for the three months ended December 31, 2018 and 2017. Region: New York City metropolitan area Chicago, IL San Francisco, CA For the Three Months Ended December 31, 2018 2017 92 % 3 % 5 % 100 % 89 % 7 % 4 % 100 % 71 Supplemental Information - continued Three Months Ended December 31, 2018 Compared to December 31, 2017 Same Store Net Operating Income At Share Same store NOI at share represents NOI at share from operations which are owned by us and in service in both the current and prior year reporting periods. Same store NOI at share - cash basis is NOI at share 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 at share and same store NOI at share - 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 at share to same store NOI at share for our New York segment, theMART, 555 California Street and other investments for the three months ended December 31, 2018 compared to December 31, 2017. (Amounts in thousands) NOI at share for the three months ended December 31, 2018 Total 329,531 $ New York 295,199 $ theMART 10,981 $ $ 555 California Street 14,005 $ Other 9,346 Less NOI at share from: Acquisitions Dispositions Development properties Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net Other non-operating income, net Same store NOI at share for the three months ended December 31, 2018 $ (337 ) 19 (12,623 ) (96 ) (10,412 ) 306,082 $ (337 ) 19 (12,637 ) 368 (1,066 ) 281,546 — — — — — 14 (464 ) — 10,517 $ — — 14,019 $ $ — — — — (9,346 ) — NOI at share for the three months ended December 31, 2017 $ 363,857 $ 304,228 $ 24,249 $ 12,003 $ 23,377 Less NOI at share from: Acquisitions Dispositions Development properties 2 (23 ) 2 (23 ) (12,789 ) (12,789 ) — — — — — — Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net Other non-operating income, net Same store NOI at share for the three months ended December 31, 2017 $ (984 ) (23,377 ) 326,686 $ (984 ) — 290,434 $ — — 24,249 $ — — 12,003 $ — — — — (23,377 ) — (Decrease) increase in same store NOI at share for the three months ended December 31, 2018 compared to December 31, 2017 $ (20,604 ) $ (8,888 ) $ (13,732 ) $ 2,016 $ — % (decrease) increase in same store NOI at share (6.3 )% (3.1 )% (1) (56.6 )% (2) 16.8 % — % ____________________ (1) Excluding Hotel Pennsylvania, same store NOI at share decreased by 3.0%. (2) The three months ended December 31, 2018 includes an additional $12,814 real estate tax expense accrual due to an increase in the tax-assessed value of theMART. 72 Supplemental Information - continued Three Months Ended December 31, 2018 Compared to December 31, 2017 - continued Same Store Net Operating Income At Share - continued Below are reconciliations of NOI at share - cash basis to same store NOI at share - cash basis for our New York segment, theMART,555 California Street and other investments for the three months ended December 31, 2018 compared to December 31, 2017. (Amounts in thousands) NOI at share - cash basis for the three months ended December 31, 2018 $ Less NOI at share - cash basis from: Acquisitions Dispositions Development properties Lease termination income Other non-operating income, net Total 323,999 New York 288,933 $ theMART 12,758 $ 555 California Street $ 13,784 $ (336 ) 19 (14,628 ) (563 ) (9,590 ) (336 ) 19 (14,642 ) (43 ) (1,066 ) — — — (520 ) — — — 14 — — Other 8,524 — — — — (8,524 ) Same store NOI at share - cash basis for the three months ended December 31, 2018 $ 298,901 $ 272,865 $ 12,238 $ 13,798 $ — NOI at share - cash basis for the three months ended December 31, 2017 $ 342,278 $ 282,787 $ 24,396 $ 11,916 $ 23,179 Less NOI at share - cash basis from: Acquisitions Dispositions Development properties Lease termination income Other non-operating income, net 2 76 (13,677 ) (1,393 ) (23,180 ) 2 76 (13,677 ) (1,393 ) (1 ) — — — — — — — — — — Same store NOI at share - cash basis for the three months ended December 31, 2017 $ 304,106 $ 267,794 $ 24,396 $ 11,916 $ (Decrease) increase in same store NOI at share - cash basis for the three months ended December 31, 2018 compared to December 31, 2017 $ (5,205 ) $ 5,071 $ (12,158 ) $ 1,882 $ — — — — (23,179 ) — — % (decrease) increase in same store NOI at share - cash basis (1.7 )% 1.9 % (1) (49.8 )% (2) 15.8 % — % ____________________ (1) Excluding Hotel Pennsylvania, same store NOI at share - cash basis increased by 2.1%. (2) The three months ended December 31, 2018 includes an additional $12,814 real estate tax expense accrual due to an increase in the tax-assessed value of theMART. 73 Supplemental Information - continued Net Operating Income At Share by Segment for the Three Months Ended December 31, 2018 and September 30, 2018 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 at share and NOI at share - cash basis by segment for the three months ended December 31, 2018 and September 30, 2018. (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, 2018 Total New York Other 543,417 $ 254,320 289,097 (19,771 ) 60,205 329,531 (5,532 ) 323,999 $ 466,554 $ 206,696 259,858 (13,837 ) 49,178 295,199 (6,266 ) 288,933 $ 76,863 47,624 29,239 (5,934 ) 11,027 34,332 734 35,066 For the Three Months Ended September 30, 2018 Total New York Other 542,048 $ 235,575 306,473 (16,943 ) 60,094 349,624 (8,743 ) 340,881 $ 462,446 $ 200,949 261,497 (11,348 ) 47,179 297,328 (9,125 ) 288,203 $ 79,602 34,626 44,976 (5,595 ) 12,915 52,296 382 52,678 $ $ $ $ 74 Supplemental Information - continued Net Operating Income At Share by Segment for the Three Months Ended December 31, 2018 and September 30, 2018 - continued The elements of our New York and Other NOI at share for the three months ended December 31, 2018 and September 30, 2018 are summarized below. (Amounts in thousands) New York: Office Retail Residential Alexander's Hotel Pennsylvania Total New York Other: theMART(1) 555 California Street Other investments(2) Total Other NOI at share For the Three Months Ended December 31, 2018 September 30, 2018 $ 186,832 $ 85,549 5,834 11,023 5,961 295,199 10,981 14,005 9,346 34,332 $ 329,531 $ 184,146 92,858 5,202 10,626 4,496 297,328 25,257 13,515 13,524 52,296 349,624 ________________________________________ (1) The three months ended December 31, 2018 includes an additional $12,124 real estate tax expense accrual due to an increase in the tax-assessed value of theMART. (2) The three months ended September 30, 2018 includes $1,737 from 666 Fifth Avenue Office Condominium (sold on August 3, 2018). The elements of our New York and Other NOI at share - cash basis for the three months ended December 31, 2018 and September 30, 2018 are summarized below. (Amounts in thousands) New York: Office Retail Residential Alexander's Hotel Pennsylvania Total New York Other: theMART(1) 555 California Street Other investments(2) Total Other NOI at share - cash basis For the Three Months Ended December 31, 2018 September 30, 2018 $ 185,624 $ 80,515 5,656 11,129 6,009 288,933 12,758 13,784 8,524 35,066 $ 323,999 $ 181,575 84,976 5,358 11,774 4,520 288,203 26,234 13,070 13,374 52,678 340,881 ________________________________________ (1) The three months ended December 31, 2018 includes an additional $12,124 real estate tax expense accrual due to an increase in the tax-assessed value of theMART. (2) The three months ended September 30, 2018 includes $1,704 from 666 Fifth Avenue Office Condominium (sold on August 3, 2018). 75 Supplemental Information - continued Reconciliation of Net Income to Net Operating Income At Share and Net Operating Income At Share - Cash Basis for the Three Months Ended December 31, 2018 and September 30, 2018 For the Three Months Ended December 31, 2018 September 30, 2018 $ 97,821 $ 219,162 (3,090 ) 51,258 (7,656 ) (81,203 ) (44,060 ) (257 ) (19,771 ) 112,869 32,934 14,637 60,205 83,175 32,669 329,531 (5,532 ) 323,999 $ (7,206 ) 190 (2,893 ) (141,269 ) — (61 ) (16,943 ) 113,169 31,977 2,510 60,094 88,951 1,943 349,624 (8,743 ) 340,881 (Amounts in thousands) Net income Deduct: Income from partially owned entities Loss from real estate fund investments Interest and other investment income, net Net gains on disposition of wholly owned and partially owned assets Purchase price fair value adjustment Income from discontinued operations NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Depreciation and amortization expense General and administrative expense Transaction related costs, impairment loss and other Our share of 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 NOI at share - cash basis $ 76 Supplemental Information - continued Three Months Ended December 31, 2018 Compared to September 30, 2018 Same Store Net Operating Income At Share Same store NOI at share represents NOI at share from operations which are owned by us and in service in both the current and prior year reporting periods. Same store NOI at share - cash basis is NOI at share 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 at share to same store NOI at share for our New York segment, theMART, 555 California Street and other investments for the three months ended December 31, 2018 compared to September 30, 2018. Total 329,531 $ New York 295,199 $ theMART 10,981 $ 555 California Street 14,005 $ $ Other 9,346 (Amounts in thousands) NOI at share for the three months ended December 31, 2018 Less NOI at share from: Dispositions Development properties Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net Other non-operating income, net Same store NOI at share for the three months ended December 31, 2018 $ 19 (12,623 ) (96 ) (10,412 ) 306,419 $ 19 (12,637 ) 368 (1,066 ) 281,883 $ — — (464 ) — 10,517 NOI at share for the three months ended September 30, 2018 $ 349,624 $ 297,328 $ 25,257 Less NOI at share from: Development properties Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net Other non-operating income, net Same store NOI at share for the three months ended September 30, 2018 $ (13,488 ) (13,474 ) 1,581 (14,103 ) 323,614 $ 1,800 (579 ) 285,075 $ — (219 ) — 25,038 (Decrease) increase in same store NOI at share for the three months ended December 31, 2018 compared to September 30, 2018 $ (17,195 ) $ (3,192 ) $ (14,521 ) — 14 — — 14,019 $ — — — (9,346 ) — 13,515 $ 13,524 (14 ) — — 13,501 $ — — (13,524 ) — 518 $ — $ $ $ $ % (decrease) increase in same store NOI at share (5.3 )% (1.1 )% (1) (58.0 )% (2) 3.8 % — % ____________________ (1) Excluding Hotel Pennsylvania, same store NOI at share decreased by 1.7%. (2) The three months ended December 31, 2018 includes an additional $12,124 real estate tax expense accrual due to an increase in the tax-assessed value of theMART. 77 Supplemental Information - continued Three Months Ended December 31, 2018 Compared to September 30, 2018 - continued Same Store Net Operating Income At Share - continued Below are reconciliations of NOI at share - cash basis to same store NOI at share - cash basis for our New York segment, theMART,555 California Street and other investments for the three months ended December 31, 2018 compared to September 30, 2018. (Amounts in thousands) NOI at share - cash basis for the three months ended December 31, 2018 $ Less NOI at share - cash basis from: Dispositions Development properties Lease termination income Other non-operating income, net Total 323,999 New York 288,933 $ theMART 12,758 $ 19 (14,628 ) (563 ) (9,590 ) 19 (14,642 ) (43 ) (1,066 ) — — (520 ) — Same store NOI at share - cash basis for the three months ended December 31, 2018 $ 299,237 $ 273,201 $ 12,238 NOI at share - cash basis for the three months ended September 30, 2018 $ 340,881 $ 288,203 $ 26,234 Less NOI at share - cash basis from: Development properties Lease termination income Other non-operating income, net (14,342 ) (318 ) (13,954 ) (14,328 ) (58 ) (580 ) — (260 ) — Same store NOI at share - cash basis for the three months ended September 30, 2018 $ 312,267 $ 273,237 $ 25,974 (Decrease) increase in same store NOI at share - cash basis for the three months ended December 31, 2018 compared to September 30, 2018 $ (13,030 ) $ (36 ) $ (13,736 ) 555 California Street $ 13,784 $ Other 8,524 — 14 — — — — — (8,524 ) 13,798 $ — 13,070 $ 13,374 (14 ) — — — — (13,374 ) 13,056 $ 742 $ — — $ $ $ $ % (decrease) increase in same store NOI at share - cash basis (4.2 )% — % (1) (52.9 )% (2) 5.7 % — % ____________________ (1) Excluding Hotel Pennsylvania, same store NOI at share - cash basis decreased by 0.6%. (2) The three months ended December 31, 2018 includes an additional $12,124 real estate tax expense accrual due to an increase in the tax-assessed value of theMART. 78 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 of Directors 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 7 - 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, respectively, are Interstate’s two other general partners. As of December 31, 2018, Interstate and its partners beneficially owned an aggregate of approximately 7.1% 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 one year and is automatically renewable unless terminated by either of the parties on 60 days’ notice at the end of the term. We believe, based upon comparable fees charged by other real estate companies, that the management agreement terms are fair to us. We earned $453,000, $501,000, and $521,000 of management fees under the agreement for the years ended December 31, 2018, 2017 and 2016, respectively. Urban Edge Properties We own 4.5% of UE. In 2018, 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 retail assets. Fees paid to UE for servicing the retail assets of Alexander’s are similar to the fees that we are receiving from Alexander’s. 79 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 expect to generate approximately $1 billion of after tax net income from the sales of 100% of the 220 CPS residential condominium units. As of December 31, 2018, 83% of the condominium units are sold or under sales contracts, with closings scheduled through 2020. We may from time to time purchase or retire outstanding debt securities or redeem our equity 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 16, 2019, Vornado declared a quarterly common dividend of $0.66 per share (an indicated annual rate of $2.64 per common share). This dividend, if and when declared by the Board of Trustees for all of 2019, will require Vornado to pay out approximately $503,000,000 of cash for common share dividends. In addition, during 2019, Vornado expects to pay approximately $50,000,000 of cash dividends on outstanding preferred shares and approximately $33,000,000 of cash distributions to unitholders of the Operating Partnership. 80 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, 2018, 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, 2018, we had $570,916,000 of cash and cash equivalents and $2,406,663,000 of borrowing capacity under our unsecured revolving credit facilities, net of letters of credit of $13,337,000. A summary of our consolidated debt as of December 31, 2018 and 2017 is presented below. (Amounts in thousands) 2018 2017 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 $ $ 3,292,382 6,603,465 9,895,847 (59,226 ) 9,836,621 4.31% 3.65% 3.87% $ $ 3,492,133 6,311,706 9,803,839 (74,352 ) 9,729,487 3.19% 3.72% 3.53% Our consolidated outstanding debt, net of deferred financing costs and other, was $9,836,621,000 at December 31, 2018, a $107,134,000 increase from the balance at December 31, 2017. During 2019 and 2020, $95,782,000 and $2,142,369,000, 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, 2018. (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 Unsecured term loan Revolving credit facilities Total contractual cash obligations Commitments: Capital commitments to partially owned entities Standby letters of credit Total commitments $ $ $ $ 1 – 3 Years 3 – 5 Years Thereafter Total 8,937,508 $ 1,835,219 487,406 545,156 460,833 897,146 85,858 13,249,126 $ Less than 1 Year 2,850,760 $ 46,147 487,406 15,750 20,000 29,038 2,840 3,451,941 $ 4,110,306 $ 87,858 — 31,500 40,000 58,076 83,018 4,410,758 $ 1,426,256 $ 88,587 — 31,500 400,833 57,639 — 2,004,815 $ 18,227 $ 13,337 31,564 $ 18,227 $ 13,337 31,564 $ — $ — — $ — $ — — $ 550,186 1,612,627 — 466,406 — 752,393 — 3,381,612 — — — ____________________ (1) Interest on variable rate debt is computed using rates in effect at December 31, 2018. 81 Liquidity and Capital Resources – continued Financing Activities and Contractual Obligations – continued Details of 2018 financing activities are provided in the “Overview” of Management’s Discussion and Analysis of Financial Conditions and Results of Operations. Details of 2017 financing activities are discussed below. 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. Secured Debt 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. 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. In January 2018, we completed the redemption of all of the outstanding Series G and Series I cumulative redeemable preferred shares/units. 82 Liquidity and Capital Resources – continued Certain Future Cash Requirements Capital Expenditures The following table summarizes anticipated 2019 capital expenditures. (Amounts in millions, except per square foot data) Total New York theMART 555 California Street Expenditures to maintain assets Tenant improvements Leasing commissions Total recurring tenant improvements, leasing commissions and other capital expenditures 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 $ $ 110.0 $ 77.0 26.0 213.0 $ $ 95.0 $ 64.0 24.0 183.0 $ 1,100 10 80.00 $ 8.00 10.0 $ 13.0 2.0 25.0 $ 250 8 60.00 $ 7.50 5.0 — — 5.0 — — — — The table above excludes anticipated capital expenditures of each of our partially owned non-consolidated subsidiaries, as these entities fund their capital expenditures without additional equity contributions from us. Development and Redevelopment Expenditures We are constructing a residential condominium tower containing 397,000 salable square feet at 220 CPS. The development cost of this project (exclusive of land cost of $515.4 million) is estimated to be approximately $1.4 billion, of which $1.2 billion has been expended as of December 31, 2018. 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, 2018, $95,464,000 has been expended, of which our share i s $52,505,000. 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 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, 2018, $51,202,000 has been expended, of which our share is $25,601,000. We are redeveloping a 78,000 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, 2018, $21,834,000 has been expended, of which our share is $15,284,000. We are redeveloping a 165,000 square foot office building at 825 Seventh Avenue, located at the corner of 53rd Street and Seventh Avenue (50.0% interest). The redevelopment cost of this project is estimated to be approximately $30,000,000, of which our share is $15,000,000. As of December 31, 2018, $8,967,000 has been expended, of which our share is $4,484,000. We are redeveloping PENN1, a 2,545,000 square foot office building located on 34th Street between Seventh and Eighth Avenue. The development cost of this project is estimated to be over $200,000,000, of which $9,725,000 has been expended as of December 31, 2018. 83 Liquidity and Capital Resources – continued Development and Redevelopment Expenditures - continued We are in the planning phase to redevelop PENN2, a 1,634,000 square foot office building located on the west side of 7th Avenue between 31st and 33rd Street. We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including, in particular, the Penn District. Farley Office and Retail Building and Moynihan Train Hall Our 95.0% joint venture (the remaining 5.0% is owned by the Related Companies "Related") is developing the Farley Office and Retail Building (the "Project"), which will include 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. The total development cost of the Project is estimated to be approximately $800,000,000 (exclusive of a $230,000,000 upfront contribution and net of anticipated historic tax credits). As of December 31, 2018, $144,491,000 has been expended. The joint venture has entered into a development agreement with Empire State Development (“ESD”), an entity of New York State, to build the adjacent Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture's obligations. The joint venture has entered into a design-build contract with Skanska Moynihan Train Hall Builders pursuant to which they will build the Moynihan Train Hall, thereby fulfilling all of the joint venture's obligations to ESD. The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bear a full guaranty from Skanska AB. The development expenditures for the Moynihan Train Hall are estimated to be approximately $1.6 billion, which will be funded by governmental agencies. Pursuant to Accounting Standards Codification 840-40-55, the joint venture, which we consolidate on our consolidated balance sheets, is required to recognize all development expenditures for the Moynihan Train Hall. Accordingly, the development expenditures paid for by governmental agencies through December 31, 2018 of $445,693,000 are shown as “Moynihan Train Hall development expenditures” with a corresponding obligation recorded in “Moynihan Train Hall obligation” on our consolidated balance sheets. Upon completion of the development, the "Moynihan Train Hall development expenditures" and the offsetting “Moynihan Train Hall obligation” will be removed from our consolidated balance sheets. 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. 84 . 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 $260,000,000 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 $1,453,000 and 19% 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 and other events. 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, 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 or refinance our properties and expand our portfolio. Other Commitments and Contingencies We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not 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. Our mortgage loans are non-recourse to us, except for the mortgage loan secured by 7 West 34th Street, which we guaranteed and therefore is part of our tax basis. 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, 2018, the aggregate dollar amount of these guarantees and master leases is approximately $660,000,000. As of December 31, 2018, $13,337,000 of letters of credit were outstanding under one of our unsecured revolving credit facilities. Our unsecured revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our unsecured revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal. A joint venture in which we own a 95.0% ownership interest was designated by ESD, an entity of New York State, to develop the Farley Office and Retail 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, 2018, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $18,000,000. As of December 31, 2018, we have construction commitments aggregating approximately $404,000,000. 85 Liquidity and Capital Resources – continued Cash Flows for the Year Ended December 31, 2018 Compared to December 31, 2017 Our cash flow activities for the years ended December 31, 2018 and 2017 are summarized as follows: (Amounts in thousands) Net cash provided by operating activities Net cash used in investing activities Net cash used in financing activities For the Year Ended December 31, 2018 2017 Decrease in Cash Flow $ 802,641 $ (877,722 ) (1,122,826 ) 860,142 $ (206,317 ) (338,344 ) (57,501 ) (671,405 ) (784,482 ) Cash and cash equivalents and restricted cash was $716,905,000 at December 31, 2018, a $1,197,907,000 decrease from the balance at December 31, 2017. Net cash provided by operating activities of $802,641,000 for the year ended December 31, 2018 was comprised of $824,306,000 of cash from operations, including distributions of income from partially owned entities of $78,831,000 and return of capital from real estate fund investments of $20,290,000, and a net decrease of $21,665,000 in cash due to the timing of cash receipts and payments related to changes in operating assets and liabilities. The following table details the cash used in investing activities for the years ended December 31, 2018 and 2017: (Amounts in thousands) Acquisitions of real estate and other Development costs and construction in progress Additions to real estate Proceeds from sales of real estate and related investments Proceeds from sale of condominium units at 220 Central Park South Investments in loans receivable Distributions of capital from partially owned entities Moynihan Train Hall expenditures Investments in partially owned entities Proceeds from repayments of loans receivable Proceeds from sale of marketable securities Net consolidation of Farley Office and Retail Building Proceeds from the repayment of JBG SMITH Properties loan receivable Net cash used in investing activities For the Year Ended December 31, 2018 2017 (Decrease) Increase in Cash Flow (574,812 ) $ (418,186 ) (234,602 ) 219,731 214,776 (105,000 ) 100,178 (74,609 ) (37,131 ) 25,757 4,101 2,075 — (877,722 ) $ (30,607 ) $ (355,852 ) (271,308 ) 9,543 — — 366,155 — (40,537 ) 659 — — 115,630 (206,317 ) $ (544,205 ) (62,334 ) 36,706 210,188 214,776 (105,000 ) (265,977 ) (74,609 ) 3,406 25,098 4,101 2,075 (115,630 ) (671,405 ) $ $ 86 Liquidity and Capital Resources – continued Cash Flows for the Year Ended December 31, 2018 Compared to December 31, 2017 - continued The following table details the cash used in financing activities for the years ended December 31, 2018 and 2017: (Amounts in thousands) Repayments of borrowings Proceeds from borrowings Dividends paid on common shares/Distributions to Vornado Redemption of preferred shares/units Distributions to redeemable security holders and noncontrolling interests in consolidated subsidiaries Moynihan Train Hall reimbursement from Empire State Development Contributions from noncontrolling interests in consolidated subsidiaries Dividends paid on preferred shares/Distributions to preferred unitholders Repurchase of shares/Class A units related to stock compensation agreements and related tax withholdings and other Debt issuance costs Proceeds received from exercise of Vornado stock options and other Debt prepayment and extinguishment costs 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/units Net cash used in financing activities For the Year Ended December 31, 2018 2017 (Decrease) Increase in Cash Flow $ $ (685,265 ) $ 526,766 (479,348 ) (470,000 ) (76,149 ) 74,609 61,062 (55,115 ) (12,969 ) (12,908 ) 7,309 (818 ) — — (1,122,826 ) $ (631,681 ) $ 1,055,872 (496,490 ) — (109,697 ) — 1,044 (64,516 ) (418 ) (12,325 ) 29,712 (3,217 ) (416,237 ) 309,609 (338,344 ) $ (53,584 ) (529,106 ) 17,142 (470,000 ) 33,548 74,609 60,018 9,401 (12,551 ) (583 ) (22,403 ) 2,399 416,237 (309,609 ) (784,482 ) 87 Liquidity and Capital Resources – continued Capital Expenditures for the Year Ended December 31, 2018 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 amounts paid for capital expenditures and leasing commissions for the year ended December 31, 2018. (Amounts in thousands) Expenditures to maintain assets Tenant improvements Leasing commissions Recurring tenant improvements, leasing commissions and other capital expenditures Non-recurring capital expenditures Total capital expenditures and leasing commissions Total New York theMART 555 California Street $ $ 92,386 $ 100,191 33,254 225,831 43,135 268,966 $ 70,954 $ 76,187 29,435 176,576 31,381 207,957 $ 13,282 $ 15,106 459 28,847 260 29,107 $ 8,150 8,898 3,360 20,408 11,494 31,902 Development and Redevelopment Expenditures for the Year Ended December 31, 2018 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 estimates below include initial leasing costs, which are reflected as non-recurring capital expenditures in the table above. Below is a summary of amounts paid for development and redevelopment expenditures in the year ended December 31, 2018. These expenditures include interest and debt expense of $73,166,000, payroll of $12,120,000, and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $66,651,000, which were capitalized in connection with the development and redevelopment of these projects. (Amounts in thousands) 220 Central Park South Farley Office and Retail Building 345 Montgomery Street 606 Broadway PENN1 1535 Broadway Other Total New York theMART 555 California Street Other $ $ 295,827 $ 18,995 18,187 15,959 8,856 8,645 51,717 418,186 $ — $ 18,995 — 15,959 8,856 8,645 36,660 89,115 $ — $ — — — — — 10,790 10,790 $ — $ — 18,187 — — — 445 18,632 $ 295,827 — — — — — 3,822 299,649 88 Liquidity and Capital Resources – continued Capital Expenditures for the Year Ended December 31, 2017 Below is a summary of amounts paid for capital expenditures and leasing commissions for the year ended December 31, 2017. (Amounts in thousands) Expenditures to maintain assets Tenant improvements Leasing commissions Recurring tenant improvements, leasing commissions and other capital expenditures Non-recurring capital expenditures Total capital expenditures and leasing commissions $ $ New York theMART 555 California Street Other Total 111,629 $ 128,287 36,447 79,567 $ 83,639 26,114 12,772 $ 8,730 1,701 23,203 — 9,689 $ 19,327 1,330 30,346 7,159 37,505 $ 9,601 16,591 7,302 33,494 228 33,722 (1) 276,363 35,149 311,512 $ 189,320 27,762 217,082 $ 23,203 $ ___________________ (1) Effective July 17, 2017, the date of the spin-off of our Washington, DC segment, capital expenditures and leasing commissions of our former Washington, DC segment have been reclassified to the Other segment. Development and Redevelopment Expenditures for the Year Ended December 31, 2017 Below is a summary of amounts paid for development and redevelopment expenditures in the year ended December 31, 2017. These expenditures include interest and debt expense 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 345 Montgomery Street theMART PENN1 Other Total New York theMART 555 California Street Other $ $ 265,791 $ 15,997 7,523 5,950 5,342 1,462 53,787 355,852 $ — $ 15,997 7,523 — — 1,462 18,392 43,374 $ — $ — — — 5,342 — 799 6,141 $ — $ — — 5,950 — — 6,465 12,415 $ 265,791 — — — — — 28,131 293,922 89 Liquidity and Capital Resources – continued Capital Expenditures for the Year Ended December 31, 2016 Below is a summary of amounts paid for capital expenditures and leasing commissions for the year ended December 31, 2016. (Amounts in thousands) Expenditures to maintain assets Tenant improvements Leasing commissions Recurring tenant improvements, leasing commissions and other capital expenditures Non-recurring capital expenditures Total capital expenditures and leasing commissions $ $ New York theMART 555 California Street Other Total 119,076 $ 219,751 47,906 65,561 $ 112,687 38,134 20,098 $ 29,738 2,070 51,906 — 9,954 $ 9,904 1,486 21,344 2,154 23,498 $ 23,463 67,422 6,216 97,101 8,897 105,998 (1) 386,733 58,693 445,426 $ 216,382 47,642 264,024 $ 51,906 $ ___________________ (1) Effective July 17, 2017, the date of the spin-off of our Washington, DC segment, capital expenditures and leasing commissions of our former Washington, DC segment have been reclassified to the Other segment. Development and Redevelopment Expenditures for the Year Ended December 31, 2016 Below is a summary of amounts paid for development and redevelopment expenditures in the year ended December 31, 2016. These expenditures include interest and debt expense 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 Wayne Towne Center 330 West 34th Street Other Total New York theMART 555 California Street Other $ $ 303,974 $ 46,282 33,308 24,788 8,461 5,492 184,260 606,565 $ — $ 46,282 33,308 — — 5,492 33,121 118,203 $ — $ — — 24,788 — — 1,384 26,172 $ — $ — — — — — 9,150 9,150 $ 303,974 — — — 8,461 — 140,605 (1) 453,040 ___________________ (1) Primarily relates to our former Washington, DC segment which was spun-off on July 17, 2017. 90 Funds From Operations 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 depreciable real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified 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 our 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. The calculations of both the numerator and denominator used in the computation of income per share are disclosed in Note 19 – Income Per Share/Income Per Class A Unit, in our consolidated financial statements on page 150 of this Annual Report on Form 10-K. In accordance with the NAREIT December 2018 restated definition of FFO, we have elected to exclude the mark-to-market adjustments of marketable equity securities from the calculation of FFO. Our FFO for the nine months ended September 30, 2018 has been adjusted to exclude the $26,602,000, or $0.13 per share, decrease in fair value of marketable equity securities previously reported. FFO attributable to common shareholders plus assumed conversions was $210,100,000, or $1.10 per diluted share, for the three months ended December 31, 2018, compared to $153,151,000, or $0.80 per diluted share, for the prior year's three months. FFO attributable to common shareholders plus assumed conversions was $729,740,000, or $3.82 per diluted share, for the year ended December 31, 2018, compared to $717,805,000, or $3.75 per diluted share, for the prior year. Details of certain items that impact FFO are discussed in the financial results summary of our “Overview.” 91 FFO - continued Vornado Realty Trust - continued (Amounts in thousands, except per share amounts) Reconciliation of our net income attributable to common shareholders to FFO attributable to common shareholders plus assumed conversions: 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 Decrease in fair value of marketable securities After-tax purchase price fair value adjustment on depreciable real estate 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 Decrease in fair value of marketable securities Noncontrolling interests' share of above adjustments FFO adjustments, net FFO attributable to common shareholders Convertible preferred share dividends Earnings allocated to Out-Performance Plan units FFO attributable to common shareholders plus assumed conversions Per diluted share Reconciliation of Weighted Average Shares Weighted average common shares outstanding Effect of dilutive securities: Employee stock options and restricted share awards Convertible preferred shares Out-Performance Plan units Denominator for FFO per diluted share $ $ $ $ $ $ $ For the Three Months Ended December 31, For the Year Ended December 31, 2018 2017 2018 2017 100,494 $ 0.53 $ 27,319 $ 0.14 $ 384,832 $ 2.01 $ 104,067 $ — 12,000 1,652 (27,289 ) 24,309 — — 2,081 116,820 (7,229 ) 109,591 $ 210,085 $ 15 — 210,100 $ 1.10 $ 190,348 814 37 — 191,199 106,017 $ — — — — 28,247 (585 ) 145 — 133,824 (8,010 ) 125,814 $ 153,133 $ 18 — 153,151 $ 0.80 $ 189,898 1,122 43 — 191,063 413,091 $ (158,138 ) 12,000 26,453 (27,289 ) 101,591 (3,998 ) — 3,882 367,592 (22,746 ) 344,846 $ 729,678 $ 62 — 729,740 $ 3.82 $ 190,219 933 37 — 191,189 162,017 0.85 467,966 (3,797 ) — — — 137,000 (17,777 ) 7,692 — 591,084 (36,420 ) 554,664 716,681 77 1,047 717,805 3.75 189,526 1,448 46 284 191,304 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 and unit amounts) 2018 2017 December 31, Balance Weighted Average Interest Rate Effect of 1% Change In Base Rates December 31, Balance Weighted Average Interest Rate $ $ $ $ 3,292,382 6,603,465 9,895,847 1,300,797 1,382,068 2,682,865 4.31% 3.65% 3.87% 4.05% 4.19% 4.12% Consolidated debt: Variable rate Fixed rate Pro rata share of debt of non-consolidated entities(1): Variable rate Fixed rate Noncontrolling interests’ share of consolidated subsidiaries Total change in annual net income attributable to the Operating Partnership Noncontrolling interests’ share of the Operating Partnership Total change in annual net income attributable to Vornado Total change in annual net income attributable to the Operating Partnership per diluted Class A unit Total change in annual net income attributable to Vornado per diluted share 3,492,133 6,311,706 9,803,839 1,395,001 2,035,888 3,430,889 3.19% 3.72% 3.53% 3.24% 4.89% 4.22% $ $ $ $ 32,924 $ — 32,924 $ 13,008 $ — 13,008 $ (1,649 ) 44,283 (2,741 ) 41,542 0.22 0.22 _______________________ (1) As a result of Toys “R” Us (“Toys”) filing a voluntary petition under chapter 11 of the United States Bankruptcy Code, we determined the Company no longer has the ability to exercise significant influence over Toys. Accordingly, we have excluded our share of Toys debt. 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, 2018, we have an interest rate swap on a $375,000,000 mortgage loan on 888 Seventh Avenue that swapped the rate from LIBOR plus 1.60% (3.99% as of December 31, 2018) to a fixed rate of 3.15% through December 2020; an interest rate swap on a $700,000,000 mortgage loan on 770 Broadway that swapped the rate from LIBOR plus 1.75% (4.13% as of December 31, 2018) to a fixed rate of 2.56% through September 2020; and an interest rate swap on a $100,000,000 mortgage loan on 33-00 Northern Boulevard that swapped the rate from LIBOR plus 1.80% (4.19% as of December 31, 2018) to a fixed rate of 4.14% through January 2025. In connection with the extension of our $750,000,000 unsecured term loan, we entered into an interest rate swap agreement that swapped the rate from LIBOR plus 1.00% (3.52% as of December 31, 2018) to a fixed rate of 3.87% through October 2023. 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, 2018, the estimated fair value of our consolidated debt was $9,856,000,000. 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, 2018 and 2017 Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016 Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016 Consolidated Statements of Changes in Equity for the years ended December 31, 2018, 2017 and 2016 Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016 Vornado Realty L.P. Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets at December 31, 2018 and 2017 Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016 Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016 Consolidated Statements of Changes in Equity for the years ended December 31, 2018, 2017 and 2016 Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016 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, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, 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, 2018, 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 11, 2019, 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 11, 2019 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 Moynihan Train Hall development expenditures 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 $4,154 and $5,526 Investments in partially owned entities Real estate fund investments 220 Central Park South condominium units ready for sale Receivable arising from the straight-lining of rents, net of allowance of $1,644 and $954 Deferred leasing costs, net of accumulated amortization of $207,529 and $191,827 Identified intangible assets, net of accumulated amortization of $172,114 and $150,837 Other assets LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY Mortgages payable, net Senior unsecured notes, net Unsecured term loan, net Unsecured revolving credit facilities Moynihan Train Hall obligation Accounts payable and accrued expenses Deferred revenue Deferred compensation plan Preferred shares redeemed on January 4 and 11, 2018 Other liabilities Total liabilities Commitments and contingencies Redeemable noncontrolling interests: Class A units - 12,544,477 and 12,528,899 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 36,798,580 and 36,799,573 shares Common shares of beneficial interest: $0.04 par value per share; authorized 250,000,000 shares; issued and outstanding 190,535,499 and 189,983,858 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, 2018 December 31, 2017 3,306,280 $ 10,110,992 2,266,491 445,693 108,427 16,237,883 (3,180,175 ) 13,057,708 570,916 145,989 152,198 73,322 858,113 318,758 99,627 935,131 400,313 136,781 431,938 17,180,794 $ 8,167,798 $ 844,002 744,821 80,000 445,693 430,976 167,730 96,523 — 311,806 11,289,349 778,134 5,428 783,562 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 — 926,711 403,492 159,260 469,562 17,397,934 8,137,139 843,614 748,734 — — 415,794 227,069 109,177 455,514 468,255 11,405,296 979,509 5,428 984,937 891,294 891,988 7,600 7,725,857 (4,167,184 ) 7,664 4,465,231 642,652 5,107,883 17,180,794 $ 7,577 7,492,658 (4,183,253 ) 128,682 4,337,652 670,049 5,007,701 17,397,934 $ $ $ $ VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per share amounts) Year Ended December 31, 2018 2017 2016 REVENUES: Property rentals Tenant expense reimbursements Fee and other income Total revenues EXPENSES: Operating Depreciation and amortization General and administrative (Benefit) expense from deferred compensation plan liability Transaction related costs, impairment loss and other Total expenses Operating income Income from partially owned entities (Loss) income from real estate fund investments Interest and other investment income, net (Loss) income from deferred compensation plan assets Interest and debt expense Purchase price fair value adjustment Net gains on disposition of wholly owned and partially owned assets Income before income taxes Income tax expense Income from continuing operations Income (loss) from discontinued operations Net income Less net loss (income) attributable to noncontrolling interests in: Consolidated subsidiaries Operating Partnership Net income attributable to Vornado Preferred share dividends Preferred share issuance costs NET INCOME attributable to common shareholders INCOME PER COMMON SHARE – BASIC: Income from continuing operations, net Income (loss) from discontinued operations, net Net income per common share Weighted average shares outstanding INCOME PER COMMON SHARE – DILUTED: Income from continuing operations, net Income (loss) from discontinued operations, net Net income per common share Weighted average shares outstanding $ 1,760,205 $ 247,128 156,387 2,163,720 1,714,952 $ 233,424 135,750 2,084,126 963,478 446,570 141,871 (2,480 ) 31,320 1,580,759 582,961 9,149 (89,231 ) 17,057 (2,480 ) (347,949 ) 44,060 246,031 459,598 (37,633 ) 421,965 638 422,603 53,023 (25,672 ) 449,954 (50,636 ) (14,486 ) 384,832 $ 2.02 $ — 2.02 $ 190,219 2.01 $ — 2.01 $ 191,290 886,596 429,389 150,782 6,932 1,776 1,475,475 608,651 15,200 3,240 30,861 6,932 (345,654 ) — 501 319,731 (42,375 ) 277,356 (13,228 ) 264,128 (25,802 ) (10,910 ) 227,416 (65,399 ) — 162,017 $ 0.92 $ (0.07 ) 0.85 $ 189,526 0.91 $ (0.06 ) 0.85 $ 191,258 $ $ $ $ $ 1,662,093 221,563 120,086 2,003,742 844,566 421,023 143,643 5,213 9,451 1,423,896 579,846 168,948 (23,602 ) 24,335 5,213 (330,240 ) — 160,433 584,933 (7,923 ) 577,010 404,912 981,922 (21,351 ) (53,654 ) 906,917 (75,903 ) (7,408 ) 823,606 2.35 2.01 4.36 188,837 2.34 2.00 4.34 190,173 See notes to consolidated financial statements. 97 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in thousands) Net income Other comprehensive income (loss): Year Ended December 31, 2018 2017 2016 $ 422,603 $ 264,128 $ 981,922 (Reduction) increase in value of interest rate swaps and other Pro rata share of other comprehensive income (loss) of nonconsolidated subsidiaries (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 Comprehensive income Less comprehensive loss (income) attributable to noncontrolling interests Comprehensive income attributable to Vornado $ (14,635 ) 1,155 — — 409,123 28,187 437,310 $ 15,477 1,425 (20,951 ) 14,402 274,481 (37,356 ) 237,125 $ 27,432 (2,739 ) 52,057 — 1,058,672 (79,704 ) 978,968 See notes to consolidated financial statements. 98 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Amounts in thousands) Balance, December 31, 2017 Cumulative effect of accounting change (see Note 2) Net income attributable to Vornado Net loss 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: Real estate fund investments Other Conversion of Series A preferred shares to common shares Deferred compensation shares and options Pro rata share of other comprehensive income of nonconsolidated subsidiaries Reduction in value of interest rate swaps Unearned 2015 Out-Performance Plan awards acceleration Adjustments to carry redeemable Class A units at redemption value Preferred shares issuance Redeemable noncontrolling interests' share of above adjustments Consolidation of the Farley joint venture Other Balance, December 31, 2018 Preferred Shares Common Shares Amount Shares 36,800 $ Amount Shares 189,984 $ 891,988 — — — — — — — — — — — (31 ) — — — — — (663 ) — — — — — — — — — — — — — — — — — — — — — — — — 244 279 20 — — — 2 6 — — — — — — — — — 36,800 $ — — 891,294 — — 190,535 $ Additional Capital Earnings Less Than Distributions Accumulated Other Comprehensive Income (Loss) Non- controlling Interests in Consolidated Subsidiaries Total Equity 7,577 $ 7,492,658 $ (4,183,253 ) $ 128,682 $ 670,049 $ 5,007,701 — — — — — 10 12 1 — — — — — — — — — — — — — — — — — — 122,893 449,954 — (479,348 ) (50,636 ) 17,058 — 5,907 1,389 — — — 30 (12,185 ) — — — — — 1,157 (121 ) — — 9,046 — — — 198,064 — — (14,486 ) — — 548 — — (2 ) 7,600 $ 7,725,857 $ (4,167,184 ) $ (108,374 ) — — — — — — — — — — — — 1,155 (14,634 ) — — — 836 — (1 ) 7,664 $ — — 14,519 449,954 (53,023 ) — — (53,023 ) (479,348 ) (50,636 ) — — — 62,657 (12,665 ) (33,250 ) — — — — — — — — 17,068 (6,266 ) 1,390 62,657 (12,665 ) (33,250 ) (1 ) 1,036 1,155 (14,634 ) 9,046 198,064 (15,149 ) 836 8,720 164 8,720 709 642,652 $ 5,107,883 See notes to consolidated financial statements. 99 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED (Amounts in thousands) Balance, December 31, 2016 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 Preferred shares issuance Cumulative redeemable preferred shares called for redemption Redeemable noncontrolling interests' share of above adjustments Other Balance, December 31, 2017 Preferred Shares Common Shares Amount Shares 42,825 $ 1,038,055 Shares 189,101 $ Amount Additional Capital Earnings Less Than Distributions Accumulated Other Comprehensive Income (Loss) Non- controlling Interests in Consolidated Subsidiaries Total Equity 7,542 $ 7,153,332 $ (1,419,382 ) $ 118,972 $ 719,977 $ 7,618,496 — — — — — 227,416 — — 227,416 25,802 — — 25,802 (496,490 ) (65,399 ) — — — 1,044 38,747 28,253 1,459 1,044 — (73,850 ) (2,618 ) (2,428,345 ) (73,850 ) (2,618 ) — — — — — — — 1,828 (20,951 ) 14,402 1,425 15,476 — — 268,494 309,609 — (455,514 ) (642 ) — (306 ) (941 ) 670,049 $ 5,007,701 — — — — — — — — — — (5 ) — — — — — — — — — — — — — — — (162 ) — — — — — — 12,780 — 309,609 (18,800 ) (455,514 ) — — 36,800 $ — — 891,988 — — — 403 449 17 — — — — 10 — — — — — — — — — 4 — — — 16 18 1 — — — — — — — — — — — — — — — — — — — (496,490 ) (65,399 ) 38,731 28,235 1,458 — — — — — — — — (2,428,345 ) — — 162 2,246 — — — — 268,494 — — — — — (418 ) — — — — — — — — (635 ) 189,984 $ 7,577 $ 7,492,658 $ (4,183,253 ) $ See notes to consolidated financial statements. — — — — — — — — — — — — (20,951 ) 14,402 1,425 15,476 — — — (642 ) — 128,682 $ 100 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED (Amounts in thousands) Balance, December 31, 2015 Net income attributable to Vornado Net income attributable to noncontrolling interests in consolidated subsidiaries Dividends on common shares Dividends on preferred shares Redemption of Series J preferred shares Common shares issued: Upon redemption of Class A units, at redemption value Under employees' share option plan Under dividend reinvestment plan Contributions Distributions: Real estate fund investments Other Conversion of Series A preferred shares to common shares Deferred compensation shares and options Increase in unrealized net gain on available-for-sale securities Pro rata share of other comprehensive loss of nonconsolidated subsidiaries Increase in value of interest rate swap Adjustments to carry redeemable Class A units at redemption value Redeemable noncontrolling interests' share of above adjustments Other Balance, December 31, 2016 Preferred Shares Common Shares Amount Shares 52,677 $ 1,276,954 Shares 188,577 $ Amount Additional Capital Earnings Less Than Distributions Accumulated Other Comprehensive Income (Loss) Non- controlling Interests in Consolidated Subsidiaries Total Equity 7,521 $ 7,132,979 $ (1,766,780 ) $ 46,921 $ 778,483 $ 7,476,078 — — — — — — — — — — — — — 52,057 (2,739 ) 27,434 — 906,917 21,351 — — 21,351 (475,961 ) (75,903 ) — (246,250 ) — — — 19,749 36,510 6,825 1,444 19,749 (62,444 ) (36,804 ) (62,444 ) (36,804 ) — — — — — — 1,602 52,057 (2,739 ) 27,434 — — (26,251 ) (4,699 ) (2 ) 118,972 $ (4,699 ) — (358 ) (420 ) 719,977 $ 7,618,496 — — — — — 906,917 — — — — — — (9,850 ) (238,842 ) — — — — — — (2 ) — — — — — — — — — — — (56 ) — — — — — — — — — 376 123 16 — — — 3 7 — — — — — — — (1 ) 42,825 $ 1,038,055 — (1 ) 189,101 $ — — — — 15 5 1 — — — — — — — — — — — — — — — — (475,961 ) (75,903 ) (7,408 ) 36,495 6,820 1,443 — — — 56 — — — — — — — 1,788 (186 ) — — — (26,251 ) — 2 — — — — — (61 ) 7,542 $ 7,153,332 $ (1,419,382 ) $ 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) Net gains on disposition of wholly owned and partially owned assets Net realized and unrealized losses on real estate fund investments Distributions of income from partially owned entities Purchase price fair value adjustment Amortization of below-market leases, net Decrease in fair value of marketable securities Return of capital from real estate fund investments Change in valuation of deferred tax assets and liabilities Real estate impairment losses Equity in net income of partially owned entities Straight-lining of rents Net gains on sale of real estate and other Net gain on extinguishment of Skyline properties debt 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: Acquisitions of real estate and other Development costs and construction in progress Additions to real estate Proceeds from sales of real estate and related investments Proceeds from sale of condominium units at 220 Central Park South Investments in loans receivable Distributions of capital from partially owned entities Moynihan Train Hall expenditures Investments in partially owned entities Proceeds from repayments of loans receivable Proceeds from sale of marketable securities Net consolidation of Farley Office and Retail Building Proceeds from the repayment of JBG SMITH Properties loan receivable Net deconsolidation of 7 West 34th Street Purchases of marketable securities Net cash used in investing activities Year Ended December 31, 2018 2017 2016 $ 422,603 $ 264,128 $ 981,922 472,785 (246,031 ) 84,706 78,831 (44,060 ) (38,573 ) 26,453 20,290 12,835 12,000 (9,149 ) (7,605 ) — — 39,221 (68,950 ) (14,532 ) 151,533 (84,222 ) 5,869 (11,363 ) 802,641 (574,812 ) (418,186 ) (234,602 ) 219,731 214,776 (105,000 ) 100,178 (74,609 ) (37,131 ) 25,757 4,101 2,075 — — — (877,722 ) 529,826 (501 ) 15,267 82,095 — (46,790 ) — 91,606 34,800 — (15,635 ) (45,792 ) (3,489 ) — 56,480 — 1,183 (12,292 ) (79,199 ) 3,760 (15,305 ) 860,142 (30,607 ) (355,852 ) (271,308 ) 9,543 — — 366,155 — (40,537 ) 659 — — 115,630 — — (206,317 ) 595,270 (175,735 ) 40,655 214,800 — (53,202 ) — 71,888 — 161,165 (165,389 ) (146,787 ) (5,074 ) (487,877 ) 39,406 — (4,271 ) (7,893 ) (76,357 ) 13,278 (719 ) 995,080 (91,103 ) (606,565 ) (387,545 ) 183,173 — (11,700 ) 196,635 — (127,608 ) 45 3,937 — — (48,000 ) (4,379 ) (893,110 ) See notes to consolidated financial statements. 102 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED (Amounts in thousands) Cash Flows from Financing Activities: Repayments of borrowings Proceeds from borrowings Dividends paid on common shares Redemption of preferred shares Distributions to noncontrolling interests Moynihan Train Hall reimbursement from Empire State Development Contributions from noncontrolling interests Dividends paid on preferred shares Repurchase of shares related to stock compensation agreements and related tax withholdings and other Debt issuance costs Proceeds received from exercise of employee share options and other Debt prepayment and extinguishment costs 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 Net cash used in financing activities Net (decrease) increase 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 Cash and cash equivalents and restricted cash at end of period Year Ended December 31, 2018 2017 2016 $ $ $ $ $ $ (685,265 ) $ 526,766 (479,348 ) (470,000 ) (76,149 ) 74,609 61,062 (55,115 ) (12,969 ) (12,908 ) 7,309 (818 ) — — (1,122,826 ) (1,197,907 ) 1,914,812 716,905 $ 1,817,655 $ 97,157 — 1,914,812 $ 570,916 $ 145,989 — 716,905 $ (631,681 ) $ 1,055,872 (496,490 ) — (109,697 ) — 1,044 (64,516 ) (418 ) (12,325 ) 29,712 (3,217 ) (416,237 ) 309,609 (338,344 ) 315,481 1,599,331 1,914,812 $ 1,501,027 $ 95,032 3,272 1,599,331 $ 1,817,655 $ 97,157 — 1,914,812 $ (1,894,990 ) 2,403,898 (475,961 ) (246,250 ) (130,590 ) — 11,950 (80,137 ) (186 ) (42,157 ) 8,269 — — — (446,154 ) (344,184 ) 1,943,515 1,599,331 1,835,707 99,943 7,865 1,943,515 1,501,027 95,032 3,272 1,599,331 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 $67,402, $43,071 and $29,584 Cash payments for income taxes Non-Cash Investing and Financing Activities: Reclassification of condominium units from "development costs and construction in progress" to "220 Central Park South condominium units ready for sale" Adjustments to carry redeemable Class A units at redemption value Accrued capital expenditures included in accounts payable and accrued expenses Write-off of fully depreciated assets Increase in assets and liabilities resulting from the consolidation of Farley Office and Retail Building: Real estate, net Mortgage payable, net Increase in assets and liabilities resulting from the consolidation of Moynihan Train Hall: $ $ $ Real estate, net Moynihan Train Hall obligation 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 Loan receivable established upon the spin-off of JBG SMITH Properties (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 Year Ended December 31, 2018 2017 2016 311,835 $ 62,225 $ 338,983 $ 6,727 $ 368,762 9,716 $ 233,179 198,064 88,115 (86,064 ) 401,708 249,459 346,926 346,926 — — — — — — — — — — $ — 268,494 102,976 (58,810 ) — (26,251 ) 120,564 (305,679 ) — — — — 3,432,738 (1,414,186 ) (2,018,552 ) 455,514 115,630 (20,951 ) — — — — — — — — — — — — — 52,057 — (189,284 ) (690,263 ) (122,047 ) (290,418 ) 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, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, 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, 2018, 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 11, 2019, 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 11, 2019 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 Moynihan Train Hall development expenditures 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 $4,154 and $5,526 Investments in partially owned entities Real estate fund investments 220 Central Park South condominium units ready for sale Receivable arising from the straight-lining of rents, net of allowance of $1,644 and $954 Deferred leasing costs, net of accumulated amortization of $207,529 and $191,827 Identified intangible assets, net of accumulated amortization of $172,114 and $150,837 Other assets LIABILITIES, REDEEMABLE PARTNERSHIP UNITS AND EQUITY Mortgages payable, net Senior unsecured notes, net Unsecured term loan, net Unsecured revolving credit facilities Moynihan Train Hall obligation Accounts payable and accrued expenses Deferred revenue Deferred compensation plan Preferred units redeemed on January 4 and 11, 2018 Other liabilities Total liabilities Commitments and contingencies Redeemable partnership units: Class A units - 12,544,477 and 12,528,899 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, 2018 December 31, 2017 3,306,280 $ 10,110,992 2,266,491 445,693 108,427 16,237,883 (3,180,175 ) 13,057,708 570,916 145,989 152,198 73,322 858,113 318,758 99,627 935,131 400,313 136,781 431,938 17,180,794 $ 8,167,798 $ 844,002 744,821 80,000 445,693 430,976 167,730 96,523 — 311,806 11,289,349 778,134 5,428 783,562 8,624,751 (4,167,184 ) 7,664 4,465,231 642,652 5,107,883 17,180,794 $ 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 — 926,711 403,492 159,260 469,562 17,397,934 8,137,139 843,614 748,734 — — 415,794 227,069 109,177 455,514 468,255 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 17,397,934 $ $ $ $ See notes to the consolidated financial statements. 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 (Benefit) expense from deferred compensation plan liability Transaction related costs, impairment loss and other Total expenses Operating income Income from partially owned entities (Loss) income from real estate fund investments Interest and other investment income, net (Loss) income from deferred compensation plan assets Interest and debt expense Purchase price fair value adjustment Net gains on disposition of wholly owned and partially owned assets Income before income taxes Income tax expense Income from continuing operations Income (loss) from discontinued operations Net income Less net loss (income) attributable to noncontrolling interests in consolidated subsidiaries Net income attributable to Vornado Realty L.P. Preferred unit distributions Preferred unit issuance costs NET INCOME attributable to Class A unitholders INCOME PER CLASS A UNIT – BASIC: Income from continuing operations, net Income (loss) from discontinued operations, net Net income per Class A unit Weighted average units outstanding INCOME PER CLASS A UNIT – DILUTED: Income from continuing operations, net Income (loss) from discontinued operations, net Net income per Class A unit Weighted average units outstanding Year Ended December 31, 2018 2017 2016 1,760,205 $ 247,128 156,387 2,163,720 963,478 446,570 141,871 (2,480 ) 31,320 1,580,759 582,961 9,149 (89,231 ) 17,057 (2,480 ) (347,949 ) 44,060 246,031 459,598 (37,633 ) 421,965 638 422,603 53,023 475,626 (50,830 ) (14,486 ) 410,310 $ 2.01 $ 0.01 2.02 $ 202,068 2.00 $ — 2.00 $ 203,412 1,714,952 $ 233,424 135,750 2,084,126 886,596 429,389 150,782 6,932 1,776 1,475,475 608,651 15,200 3,240 30,861 6,932 (345,654 ) — 501 319,731 (42,375 ) 277,356 (13,228 ) 264,128 (25,802 ) 238,326 (65,593 ) — 172,733 $ 0.91 $ (0.07 ) 0.84 $ 201,214 0.90 $ (0.07 ) 0.83 $ 203,300 1,662,093 221,563 120,086 2,003,742 844,566 421,023 143,643 5,213 9,451 1,423,896 579,846 168,948 (23,602 ) 24,335 5,213 (330,240 ) — 160,433 584,933 (7,923 ) 577,010 404,912 981,922 (21,351 ) 960,571 (76,097 ) (7,408 ) 877,066 2.34 2.02 4.36 200,350 2.32 2.00 4.32 202,017 $ $ $ $ $ $ See notes to consolidated financial statements. 107 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in thousands) Net income Other comprehensive income (loss): Year Ended December 31, 2018 2017 2016 $ 422,603 $ 264,128 $ 981,922 (Reduction) increase in value of interest rate swaps and other Pro rata share of other comprehensive income (loss) of nonconsolidated subsidiaries (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 Comprehensive income Less comprehensive loss (income) attributable to noncontrolling interests in consolidated subsidiaries Comprehensive income attributable to Vornado $ (14,635 ) 1,155 — — 409,123 53,023 462,146 $ 15,477 1,425 (20,951 ) 14,402 274,481 (25,802 ) 248,679 $ 27,432 (2,739 ) 52,057 — 1,058,672 (21,351 ) 1,037,321 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 Amount Units 189,984 $ 7,500,235 $ Earnings Less Than Distributions Accumulated Other Comprehensive Income (Loss) Non- controlling Interests in Consolidated Subsidiaries (4,183,253 ) $ 128,682 $ 670,049 $ Amount Units 36,800 $ Balance, December 31, 2017 Cumulative effect of accounting change (see Note 2) Net loss 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: Real estate fund investments Other Conversion of Series A preferred units to Class A units Deferred compensation units and options Pro rata share of other comprehensive income of nonconsolidated subsidiaries Reduction in value of interest rate swaps Unearned 2015 Out-Performance Plan awards acceleration Adjustments to carry redeemable Class A units at redemption value Preferred units issuance Redeemable partnership units' share of above adjustments Consolidation of the Farley joint venture Other Balance, December 31, 2018 891,988 — — — — — — — — — — — — (31 ) — — — — — (663 ) — — — — — — — — — — — — — — — — — — — — — — 36,800 $ — — — 891,294 — — — — — — 244 279 20 — — — 2 6 — — — — — — — — — — — — — — 122,893 475,626 (25,672 ) — (479,348 ) (50,636 ) 17,068 — 5,919 1,390 — — — 30 1,157 — — 9,046 198,064 — — 548 (12,185 ) — — — — — (121 ) — — — — (14,486 ) — — (2 ) 190,535 $ 7,733,457 $ (4,167,184 ) $ Total Equity 5,007,701 14,519 475,626 (25,672 ) (53,023 ) (479,348 ) (50,636 ) 17,068 (6,266 ) 1,390 62,657 (12,665 ) (33,250 ) (1 ) 1,036 1,155 (14,634 ) 9,046 198,064 (15,149 ) (108,374 ) — — — — — — — — — — — — — 1,155 (14,634 ) — — — — — — (53,023 ) — — — — — 62,657 (12,665 ) (33,250 ) — — — — — — — 836 — (1 ) 7,664 $ — 8,720 164 642,652 $ 836 8,720 709 5,107,883 See notes to consolidated financial statements. 109 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – CONTINUED Preferred Units Class A Units Owned by Vornado Amount Units 42,825 $ 1,038,055 Amount Units 189,101 $ 7,160,874 $ Earnings Less Than Distributions Accumulated Other Comprehensive Income (Loss) Non- controlling Interests in Consolidated Subsidiaries (1,419,382 ) $ 118,972 $ 719,977 $ Total Equity 7,618,496 238,326 (10,910 ) 25,802 (496,490 ) (65,399 ) 38,747 28,253 1,459 1,044 (2,428,345 ) (73,850 ) (2,618 ) — 1,828 (20,951 ) — — — — — — — — — — — — — — (20,951 ) — — 25,802 — — — — — 1,044 — (73,850 ) (2,618 ) — — — 14,402 — 14,402 1,425 15,476 — — — — — — — 1,425 15,476 268,494 309,609 (455,514 ) (642 ) — 128,682 $ — (306 ) 670,049 $ (642 ) (941 ) 5,007,701 (Amounts in thousands) Balance, December 31, 2016 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 Preferred units issuance Cumulative redeemable preferred units called for redemption Redeemable partnership units' share of above adjustments Other Balance, December 31, 2017 — — — — — — — — — — — — (5 ) — — — — — — — — — — — — — — — — — (162 ) — — — — — — 12,780 — 309,609 (18,800 ) (455,514 ) — — 36,800 $ — — 891,988 — — — — — 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 ) 189,984 $ 7,500,235 $ (4,183,253 ) $ See notes to consolidated financial statements. 110 (Amounts in thousands) Balance, December 31, 2015 Net income attributable to Vornado Realty L.P. Net income attributable to redeemable partnership units Net income attributable to noncontrolling interests in consolidated subsidiaries Distributions to Vornado Distributions to preferred unitholders Redemption of Series J preferred units Class A Units issued to Vornado: Upon redemption of redeemable Class A units, at redemption value Under Vornado's employees' share option plan Under Vornado's dividend reinvestment plan Contributions Distributions: Real estate fund investments Other Conversion of Series A preferred units to Class A units Deferred compensation units and options Increase in unrealized net gain on available-for-sale securities Pro rata share of other comprehensive loss of nonconsolidated subsidiaries Increase in value of interest rate swap Adjustments to carry redeemable Class A units at redemption value Redeemable partnership units' share of above adjustments Other Balance, December 31, 2016 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – CONTINUED Preferred Units Class A Units Owned by Vornado Amount Units 52,677 $ 1,276,954 Amount Units 188,577 $ 7,140,500 $ Earnings Less Than Distributions Accumulated Other Comprehensive Income (Loss) Non- controlling Interests in Consolidated Subsidiaries (1,766,780 ) $ 46,921 $ 778,483 $ Total Equity 7,476,078 960,571 (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 ) — — 21,351 — — — — — — 19,749 (62,444 ) (36,804 ) — — — — — — — (358 ) 719,977 $ (4,699 ) (420 ) 7,618,496 — — — — — — — (9,850 ) — — — (238,842 ) — — — — — — — — — — — — 960,571 (53,654 ) — (475,961 ) (75,903 ) (7,408 ) — — — — — — (2 ) — — — — — — — — — — — (56 ) — — — — — — — — (1 ) 42,825 $ 1,038,055 376 123 36,510 6,825 16 — 1,444 — — — 3 7 — — — — — (1 ) — — 56 1,788 — — — (26,251 ) — 2 — — — — — — — (186 ) — — — — — (61 ) 189,101 $ 7,160,874 $ (1,419,382 ) $ See notes to consolidated financial statements. — — — — — — — — — — — — — — 52,057 (2,739 ) 27,434 — (4,699 ) (2 ) 118,972 $ 111 VORNADO REALTY L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Cash Flows from Operating Activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (including amortization of deferred financing costs) Net gains on disposition of wholly owned and partially owned assets Net realized and unrealized losses on real estate fund investments Distributions of income from partially owned entities Purchase price fair value adjustment Amortization of below-market leases, net Decrease in fair value of marketable securities Return of capital from real estate fund investments Change in valuation of deferred tax assets and liabilities Real estate impairment losses Equity in net income of partially owned entities Straight-lining of rents Net gains on sale of real estate and other Net gain on extinguishment of Skyline properties debt 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: Acquisitions of real estate and other Development costs and construction in progress Additions to real estate Proceeds from sales of real estate and related investments Proceeds from sale of condominium units at 220 Central Park South Investments in loans receivable Distributions of capital from partially owned entities Moynihan Train Hall expenditures Investments in partially owned entities Proceeds from repayments of loans receivable Proceeds from sale of marketable securities Net consolidation of Farley Office and Retail Building Proceeds from the repayment of JBG SMITH Properties loan receivable Net deconsolidation of 7 West 34th Street Purchases of marketable securities Net cash used in investing activities Year Ended December 31, 2018 2017 2016 $ 422,603 $ 264,128 $ 981,922 472,785 (246,031 ) 84,706 78,831 (44,060 ) (38,573 ) 26,453 20,290 12,835 12,000 (9,149 ) (7,605 ) — — 39,221 (68,950 ) (14,532 ) 151,533 (84,222 ) 5,869 (11,363 ) 802,641 (574,812 ) (418,186 ) (234,602 ) 219,731 214,776 (105,000 ) 100,178 (74,609 ) (37,131 ) 25,757 4,101 2,075 — — — (877,722 ) 529,826 (501 ) 15,267 82,095 — (46,790 ) — 91,606 34,800 — (15,635 ) (45,792 ) (3,489 ) — 56,480 — 1,183 (12,292 ) (79,199 ) 3,760 (15,305 ) 860,142 (30,607 ) (355,852 ) (271,308 ) 9,543 — — 366,155 — (40,537 ) 659 — — 115,630 — — (206,317 ) 595,270 (175,735 ) 40,655 214,800 — (53,202 ) — 71,888 — 161,165 (165,389 ) (146,787 ) (5,074 ) (487,877 ) 39,406 — (4,271 ) (7,893 ) (76,357 ) 13,278 (719 ) 995,080 (91,103 ) (606,565 ) (387,545 ) 183,173 — (11,700 ) 196,635 — (127,608 ) 45 3,937 — — (48,000 ) (4,379 ) (893,110 ) 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: Repayments of borrowings Proceeds from borrowings Distributions to Vornado Redemption of preferred units Distributions to redeemable security holders and noncontrolling interests in consolidated subsidiaries Moynihan Train Hall reimbursement from Empire State Development Contributions from noncontrolling interests in consolidated subsidiaries Distributions to preferred unitholders Repurchase of Class A units related to stock compensation agreements and related tax withholdings and other Debt issuance costs Proceeds received from exercise of Vornado stock options and other Debt prepayment and extinguishment costs 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 Net cash used in financing activities Net (decrease) increase 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 Cash and cash equivalents and restricted cash at end of period Year Ended December 31, 2018 2017 2016 (685,265 ) $ 526,766 (479,348 ) (470,000 ) (631,681 ) $ 1,055,872 (496,490 ) — (1,894,990 ) 2,403,898 (475,961 ) (246,250 ) (76,149 ) 74,609 61,062 (55,115 ) (12,969 ) (12,908 ) 7,309 (818 ) — — (1,122,826 ) (1,197,907 ) 1,914,812 716,905 $ 1,817,655 $ 97,157 — 1,914,812 $ 570,916 $ 145,989 — 716,905 $ (109,697 ) — 1,044 (64,516 ) (418 ) (12,325 ) 29,712 (3,217 ) (416,237 ) 309,609 (338,344 ) 315,481 1,599,331 1,914,812 $ 1,501,027 $ 95,032 3,272 1,599,331 $ 1,817,655 $ 97,157 — 1,914,812 $ (130,590 ) — 11,950 (80,137 ) (186 ) (42,157 ) 8,269 — — — (446,154 ) (344,184 ) 1,943,515 1,599,331 1,835,707 99,943 7,865 1,943,515 1,501,027 95,032 3,272 1,599,331 $ $ $ $ $ $ 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 $67,402, $43,071 and $29,584 Cash payments for income taxes Non-Cash Investing and Financing Activities: Reclassification of condominium units from "development costs and construction in progress" to "220 Central Park South condominium units ready for sale" Adjustments to carry redeemable Class A units at redemption value Accrued capital expenditures included in accounts payable and accrued expenses Write-off of fully depreciated assets Increase in assets and liabilities resulting from the consolidation of Farley Office and Retail $ $ $ Building: Real estate, net Mortgage payable, net Increase in assets and liabilities resulting from the consolidation of Moynihan Train Hall: Real estate, net Moynihan Train Hall obligation 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 Loan receivable established upon the spin-off of JBG SMITH Properties (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 Year Ended December 31, 2018 2017 2016 311,835 $ 62,225 $ 338,983 $ 6,727 $ 368,762 9,716 $ 233,179 198,064 88,115 (86,064 ) 401,708 249,459 346,926 346,926 — — — — — — — — — — $ — 268,494 102,976 (58,810 ) — (26,251 ) 120,564 (305,679 ) — — — — 3,432,738 (1,414,186 ) (2,018,552 ) 455,514 115,630 (20,951 ) — — — — — — — — — — — — — 52,057 (189,284 ) (690,263 ) (122,047 ) (290,418 ) 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 93.4% of the common limited partnership interest in the Operating Partnership as of December 31, 2018. 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: • 19.9 million square feet of Manhattan office in 36 properties; • 2.6 million square feet of Manhattan street retail in 71 properties; • 1,999 units in eleven residential properties; • The 1,700 room Hotel Pennsylvania located on Seventh Avenue at 33rd Street in the heart of the Penn 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; • 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. Certain prior year balances have been reclassified in order to conform to the current period presentation. For the years ended December 31, 2017 and 2016, expense of $6,932,000 and $5,213,000, respectively, related to the mark-to-market of our deferred compensation plan liability was reclassified from "general and administrative" expenses to "expense from deferred compensation plan liability" and income of $6,932,000 and $5,213,000, respectively, related to the mark-to-market of our deferred compensation plan assets was reclassified from "interest and other investment income, net" to "income from deferred compensation plan assets" on our consolidated statements of income. In addition, for the years ended December 31, 2017 and 2016, expense of $1,285,000 and $694,000, respectively, related to New York City Unincorporated Business Tax was reclassified from "general and administrative" expenses to "income tax expense" on our consolidated statements of income. Assets and liabilities related to discontinued operations as of December 31, 2017 were reclassified to “other assets” and “other liabilities”, respectively, on our consolidated balance sheets. 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 was 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 method applied to all existing contracts not yet completed as of January 1, 2018 and recorded a $14,519,000 cumulative-effect adjustment to beginning accumulated deficit. The adoption of ASC 606 did not have a material impact on our financial statements (see Note 3 - Revenue Recognition). 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 was effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We adopted this update effective January 1, 2018 using the modified retrospective approach. While the adoption of this update requires us to continue to measure “marketable securities” at fair value on 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 recorded a decrease to beginning accumulated deficit of $111,225,000 to recognize the unrealized gains previously recorded in “accumulated other comprehensive income” on our consolidated balance sheets. Subsequent changes in the fair value of our marketable securities will be recorded to “interest and other investment income, net” on our consolidated statements of income. For the year ended December 31, 2018, we recorded a decrease of $26,453,000 in the fair value of our marketable securities which is included in “interest and other investment income, net” on our consolidated statements of income. 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”) establishing ASC Topic 842, Leases ("ASC 842"), as amended by subsequent ASUs on the topic, 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 two-method approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase. Lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. Lessees will recognize an 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 adopted this standard effective January 1, 2019. We have completed our evaluation of the overall impact of the adoption of ASU 2016-02 on our consolidated financial statements and accounting policies. In transitioning to ASC 842, we elected to use the practical expedient package available to us and did not elect to use hindsight. We have a number of ground leases, which are classified as operating leases, for which we are required to record a right-of-use asset and a lease liability equal to the present value of the remaining minimum lease payments, and will continue to recognize expense on a straight-line basis for these leases. On January 1, 2019, we recorded an aggregate of approximately $527,000,000 of right-of-use assets and corresponding $527,000,000 of lease liabilities as a result of the 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 will no longer capitalize internal leasing costs and instead will expense these costs as incurred. During the years ended December 31, 2018, 2017 and 2016, we capitalized internal leasing costs of $5,538,000, $5,243,000, and $7,352,000 respectively, excluding the internal leasing costs of our former Washington, DC segment which was spun-off on July 17, 2017. 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. We adopted this update on January 1, 2018 using the modified retrospective approach applied to all contracts not yet completed. The adoption of this update did not have a material impact on our consolidated financial statements. In May 2017, the FASB issued an update (“ASU 2017-09”) Scope of Modification Accounting to ASC Topic 718, Compensation - Stock Compensation (“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 update on January 1, 2018 did not have a material 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 requires subsequent changes in fair value of a hedging instrument that has been designated and qualifies as a cash flow hedge to be recognized as a component of “other comprehensive income (loss).” ASU 2017-12 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2018, with early adoption permitted. We early adopted ASU 2017-12 on January 1, 2018 using the modified retrospective approach. The adoption of this update did not have a material impact on our consolidated financial statements. 117 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Basis of Presentation and Significant Accounting Policies – continued In August 2018, the FASB issued an update (“ASU 2018-13”) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement to ASC Topic 820, Fair Value Measurement (“ASC 820”). ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, and/or adding certain disclosures. ASU 2018-13 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019. An entity is permitted to early adopt by modifying existing disclosures and delay adoption of the additional disclosures until the effective date. We are currently evaluating the impact of the adoption of this update on our consolidated financial statements and disclosures. In October 2018, the FASB issued an update ("ASU 2018-16") Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes to ASC 815. ASU 2018-16 expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting by adding the OIS rate based on SOFR as an eligible benchmark interest rate. ASU 2018-16 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2018, with early adoption permitted. We adopted this update effective January 1, 2019. The adoption of this update did not have a material impact on our consolidated financial statements. 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 $73,166,000 and $48,231,000 for the years ended December 31, 2018 and 2017, respectively. Upon the acquisition of real estate we assess the fair value of acquired assets (including land, buildings and improvements, identified intangibles, such as acquired above and below-market leases, acquired in-place leases and tenant relationships) and acquired liabilities and we allocate the purchase price based on these assessments 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 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 discounted 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. We recognized impairment losses of $12,000,000 and $160,700,000 for the years ended December 31, 2018 and 2016, respectively. There were no impairment losses in the year ended December 31, 2017. 118 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Basis of Presentation and Significant Accounting Policies – continued Significant Accounting Policies - continued 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, or have a majority of the voting interests of the entity. 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 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 recorded when there is a decline in the fair value below the carrying values and we conclude such decline is other-than-temporary. 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 and 2016, we recognized non-cash impairment losses on investments in partially owned entities aggregating $44,465,000 and $20,290,000, respectively. There were no non-cash impairment losses on investments in partially owned entities in the year ended December 31, 2018. 220 Central Park South Condominium Units Ready For Sale: We are constructing a residential condominium tower at 220 Central Park South ("220 CPS"). Condominium units are reclassed from development costs and construction in progress to 220 Central Park South condominium units ready for sale upon receipt of the unit's temporary certificate of occupancy. These units are substantially complete and ready for sale. Each unit is carried at the lower of its carrying amount or fair value less costs to sell. We have used the relative sales value method to allocate costs to individual condominium units. GAAP income is recognized when legal title transfers upon closing of the condominium unit sales. As of December 31, 2018, none of the 220 CPS condominium units ready for sale have a carrying value that exceeds fair value. 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, 2018 and 2017, we had $4,154,000 and $5,526,000, respectively, in allowances for doubtful accounts. In addition, as of December 31, 2018 and 2017, we had $1,644,000 and $954,000, respectively, in allowances for receivables arising from the straight-lining of rents. Deferred Charges: Direct financing costs are deferred and amortized over the terms of the related agreements as a component of interest expense. Direct costs related to successful leasing activities are capitalized and amortized on a straight-line basis over the lives of the related leases. All other deferred charges are amortized on a straight-line basis, which approximates the effective interest rate method, in accordance with the terms of the agreements to which they relate. 119 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Basis of Presentation and Significant Accounting Policies – continued Significant Accounting Policies - continued Income Taxes: Vornado operates in a manner intended to enable it to continue to qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. Vornado distributes to its shareholders 100% of its REIT taxable income and therefore, no provision for Federal income taxes is required. Dividends distributed for the year ended December 31, 2018, were characterized, for federal income tax purposes, as 91.7% ordinary income and 8.3% long-term capital gain. 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. 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. 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% effective 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. At December 31, 2018 and 2017, our taxable REIT subsidiaries had deferred tax assets, net of valuation allowances, of $109,949,000 and $69,209,000, respectively, and are included in “other assets” on our consolidated balance sheets. At December 31, 2018 and 2017, our taxable REIT subsidiaries had deferred tax liabilities of $28,676,000 and $13,697,000, respectively, which are included in "other liabilities" on our consolidated balance sheets. The deferred tax assets and liabilities relate to net operating loss carryforwards and temporary differences between the book and tax basis of asset and liabilities. During 2018, we utilized $42,035,000 of deferred tax assets related to net operating loss carryforwards associated with our 220 CPS project. For the years ended December 31, 2018, 2017 and 2016, we recognized $37,633,000, $42,375,000 and $7,923,000 of income tax expense, respectively, based on effective tax rates of approximately 8.2%, 13.3% and 1.4%, respectively. Income tax expense recorded in each of the years primarily relates to our consolidated taxable REIT subsidiaries, and certain state, local, and franchise taxes. The year ended December 31, 2018 included $16,771,000 of income tax expense relating to the purchase price fair value adjustment recorded upon our acquisition of an additional 44.9% ownership interest in Farley Office and Retail Building and $13,888,000 of income tax expense recognized on the sale of 220 Central Park South condominium units. Income tax expense for the year ended December 31, 2017 included $34,800,000 of additional tax expense resulting from the reduction in the federal corporate tax rate, as discussed above. The Company has no uncertain tax positions recognized as of December 31, 2018 and 2017. The Operating Partnership’s partners are required to report their respective share of taxable income on their individual tax returns. The following table reconciles net income attributable to Vornado common shareholders to estimated taxable income for the years ended December 31, 2018, 2017 and 2016. (Amounts in thousands) Net income attributable to Vornado common shareholders Book to tax differences (unaudited): Depreciation and amortization Tangible property regulations Sale of real estate and other capital transactions Vornado stock options Earnings of partially owned entities Impairment losses Straight-line rent adjustments Tax expense related to the reduction of our taxable REIT subsidiaries' deferred tax assets Net gain on extinguishment of Skyline properties debt Other, net Estimated taxable income (unaudited) For the Year Ended December 31, 2017 2016 2018 384,832 $ 234,325 (86,040 ) 31,527 (22,992 ) 15,711 11,260 (7,133 ) — — 18,956 580,446 $ 162,017 $ 213,083 — 11,991 (6,383 ) (3,054 ) 49,062 (36,696 ) 32,663 — 25,057 447,740 $ 823,606 302,092 — (39,109 ) (3,593 ) (149,094 ) 170,332 (137,941 ) — (457,970 ) 9,121 517,444 $ $ The net basis of Vornado’s assets and liabilities for tax reporting purposes is approximately $1.9 billion lower than the amounts reported in Vornado’s consolidated balance sheet at December 31, 2018. 120 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Revenue Recognition On January 1, 2018, we adopted ASC 606 which 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 requires us to recognize for certain of our revenue sources the transfer of promised goods or services to customers in an amount that reflects the consideration we are entitled to in exchange for those goods or services. We adopted this standard effective January 1, 2018 using the modified retrospective method applied to all existing contracts not yet completed as of January 1, 2018 and recorded a $14,519,000 cumulative-effect adjustment to beginning accumulated deficit. The adoption of ASC 606 did not have a material impact on our consolidated financial statements. Our revenues primarily consist of property rentals, tenant expense reimbursements, and fee and other income. We operate in two reportable segments: New York and Other, with a significant portion of our revenues included in the “New York” segment. We have the following revenue sources and revenue recognition policies: • Base rent is revenue 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. 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. • Hotel revenue arising from the operation of Hotel Pennsylvania consists of room revenue, food and beverage revenue, and banquet revenue. Room revenue is recognized when rooms are occupied. Food and beverage and banquet revenue are recognized when the services have been transferred. • Trade shows revenue arising from the operation of trade shows is primarily booth rentals. This revenue is recognized upon the occurrence of the trade shows. • Operating expense reimbursements is 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 common areas of our properties. Revenue is generally recognized in the same period as the related expenses are incurred. • Tenant services is revenue arising from sub-metered electric, elevator, trash removal and other services provided to tenants at their request. This revenue is recognized as the services are transferred. • Fee and other income includes management, leasing and other revenue arising from contractual agreements with third parties or with partially owned entities, and includes Building Maintenance Service (“BMS”) cleaning, engineering and security services. This revenue is recognized as the services are transferred. Fee and other income also includes lease termination fee income which is recognized immediately if a tenant vacates or is recognized on a straight-line basis over the shortened remaining lease term. 121 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Revenue Recognition - continued Below is a summary of our revenues by segment. Base rent, operating expense reimbursements and lease terminations represent revenues from leases and are recognized in accordance with ASC Topic 840, Leases. Revenues from Hotel Pennsylvania, trade shows, tenant services, BMS cleaning fees, management and leasing fees and other income represent revenues recognized in accordance with ASC 606. Additional financial information related to these reportable segments for the years ended December 31, 2018, 2017 and 2016 is set forth in Note 25 - Segment Information. (Amounts in thousands) Base rent Hotel Pennsylvania Trade shows Property rentals Operating expense reimbursements Tenant services Tenant expense reimbursements BMS cleaning fees Management and leasing fees Lease termination fees Other income Fee and other income Total revenues (Amounts in thousands) Base rent Hotel Pennsylvania Trade shows Property rentals Operating expense reimbursements Tenant services Tenant expense reimbursements BMS cleaning fees Management and leasing fees Lease termination fees Other income Fee and other income Total revenues ____________________ See notes on the following page. For the Year Ended December 31, 2018 Total New York Other 1,623,122 $ 94,399 42,684 1,760,205 193,207 53,921 247,128 120,357 13,324 2,144 20,562 156,387 2,163,720 $ 1,371,182 $ 94,399 — 1,465,581 177,044 41,351 218,395 129,088 12,203 858 9,911 152,060 1,836,036 $ 251,940 — 42,684 294,624 16,163 12,570 28,733 (8,731 ) (1) 1,121 1,286 10,651 4,327 327,684 For the Year Ended December 31, 2017 Total New York Other 1,583,443 $ 89,302 42,207 1,714,952 179,381 54,043 233,424 104,143 10,087 8,171 13,349 135,750 2,084,126 $ 1,347,270 $ 89,302 — 1,436,572 165,347 42,273 207,620 110,986 8,599 7,955 7,575 135,115 1,779,307 $ 236,173 — 42,207 278,380 14,034 11,770 25,804 (6,843 ) (1) 1,488 216 5,774 635 304,819 $ $ $ $ 122 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Revenue Recognition - continued (Amounts in thousands) Base rent Hotel Pennsylvania Trade shows Property rentals Operating expense reimbursements Tenant services Tenant expense reimbursements BMS cleaning fees Management and leasing fees Lease termination fees Other income Fee and other income Total revenues For the Year Ended December 31, 2016 Total New York Other $ $ 1,538,605 $ 80,785 42,703 1,662,093 166,103 55,460 221,563 93,425 8,243 8,770 9,648 120,086 2,003,742 $ 1,313,611 $ 80,785 — 1,394,396 154,734 44,304 199,038 97,612 7,531 7,705 7,092 119,940 1,713,374 $ 224,994 — 42,703 267,697 11,369 11,156 22,525 (4,187 ) (1) 712 1,065 2,556 146 290,368 ____________________ (1) Represents the elimination of intercompany fees from the New York segment upon consolidation. 123 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. Acquisitions 537 West 26th Street On February 9, 2018, we acquired 537 West 26th Street, a 14,000 square foot commercial property adjacent to our 260 Eleventh Avenue office property, and 55,000 square feet of additional zoning air rights for $44,000,000. 1535 Broadway On July 30, 2012, we entered into a lease with Host Hotels & Resorts, Inc. (NYSE: HST) (“Host”), under which we redeveloped the retail and signage components of the Marriott Times Square Hotel. We accounted for this lease as a “capital lease” and recorded a $240,000,000 capital lease asset and liability. On September 21, 2018, we acquired the retail condominium from Host for $442,000,000 (inclusive of the $240,000,000 capital lease liability). The original lease transaction provided that we would become the 100% owner through a put/call arrangement, based on a pre-negotiated formula. This transaction satisfies the put/call arrangement. Our 100% fee interest includes 45,000 square feet of retail, the 1,611 seat Marquis Theater and the largest digital sign in New York with a 330 linear foot, 25,000 square foot display. Farley Office and Retail Building and Moynihan Train Hall In September 2016, our joint venture with the Related Companies (“Related”) was designated by Empire State Development (“ESD”), an entity of New York State, to develop the Farley Office and Retail Building (the "Project"). The Project 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 Project and made a $230,000,000 upfront contribution towards the construction of the train hall. At that time, we accounted for our investment in the joint venture under the equity method of accounting. 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 $257,941,000 is outstanding at December 31, 2018. The interest-only loan is at LIBOR plus 3.25% (4.64% at December 31, 2018) and matures in June 2019 with two one-year extension options. On October 30, 2018, we increased our ownership interest in the joint venture to 95.0% from 50.1% by acquiring a 44.9% additional ownership interest from Related. The purchase price was $41,500,000 plus the reimbursement of $33,026,000 of costs funded by Related through October 30, 2018. We consolidate the accounts of the joint venture from the date of acquisition as it is a variable interest entity and we are deemed to be the primary beneficiary. In connection therewith, we recorded a net gain of $44,060,000, which is included in "purchase price fair value adjustment" on our consolidated statements of income. As a result of this gain, because we hold our investment in the joint venture through a taxable REIT subsidiary, $16,771,000 of income tax expense was recognized in our consolidated statements of income. The joint venture has entered into a development agreement with ESD to build the adjacent Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture's obligations. The joint venture has entered into a design-build contract with Skanska Moynihan Train Hall Builders pursuant to which they will build the Moynihan Train Hall, thereby fulfilling all of the joint venture's obligations to ESD. The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bear a full guaranty from Skanska AB. The development expenditures for the Moynihan Train Hall are estimated to be approximately $1.6 billion, which will be funded by governmental agencies. Pursuant to ASC 840-40-55, the joint venture, which we consolidate on our consolidated balance sheets, is required to recognize all development expenditures for the Moynihan Train Hall. Accordingly, the development expenditures paid for by governmental agencies through December 31, 2018 of $445,693,000 are shown as “Moynihan Train Hall development expenditures” with a corresponding obligation recorded in “Moynihan Train Hall obligation” on our consolidated balance sheets. Upon completion of the development, the "Moynihan Train Hall development expenditures" and the offsetting “Moynihan Train Hall obligation” will be removed from our consolidated balance sheets. 124 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Real Estate Fund Investments We are the general partner and investment manager of Vornado Capital Partners Real Estate Fund (the “Fund”) and own a 25.0% interest in the Fund, which had an initial eight-year term ending February 2019. On January 29, 2018, the Fund's term was extended to February 2023. The Fund's three-year investment period ended in July 2013. 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. On January 17, 2018, the Fund completed the sale of the retail condominium at 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. In March 2011, a joint venture (the “Joint Venture”) owned 64.7% by the Fund, 30.3% by Vornado and 5.0% by a third party, acquired One Park Avenue for $394,000,000. In connection with the acquisition, the Joint Venture paid $3,000,000 of New York City real property transfer tax (the “Transfer Tax”) and filed a Real Property Tax Return (“RPTR”) with the New York City Department of Finance (the “Department of Finance”). The RPTR was audited by the Department of Finance in 2014 and an increased Transfer Tax was assessed. The Joint Venture appealed the increased Transfer Tax assessment and the Joint Venture's appeal was upheld by a New York City Administrative Law Judge (“ALJ”) in January 2017. The Department of Finance appealed the ALJ's decision and on February 16, 2018 the New York City Tax Appeals Tribunal (the “Tax Tribunal”) reversed the ALJ's decision and assessed $9,491,000 of additional Transfer Tax and $6,764,000 of interest. As a result of the Tax Tribunal's decision, we recorded an expense of $15,608,000, before noncontrolling interests, during the first quarter of 2018, which was subsequently paid on April 5, 2018, in order to permit us to appeal the Tax Tribunal's decision and stop the accrual of interest, of which $10,630,000 is included in “loss (income) from real estate fund investments” and $4,978,000 is included in “income from partially owned entities” (see Note 7 - Investments in Partially Owned Entities) on our consolidated statements of income for the twelve months ended December 31, 2018. We are appealing the Tax Tribunal's decision. Our appeal of the Tax Tribunal's decision is scheduled to be heard by the appellate court in the first half of 2019. On April 19, 2018, the joint venture between the Fund and the Crowne Plaza Joint Venture completed a $255,000,000 refinancing of the Crowne Plaza Times Square Hotel. The interest-only loan is at LIBOR plus 3.53% (6.00% at December 31, 2018) and matures in May 2020 with three one-year extension options. In connection therewith, the joint venture purchased an interest rate cap that caps LIBOR at a rate of 4.00%. The Crowne Plaza Times Square Hotel was previously encumbered by a $310,000,000 interest-only mortgage at LIBOR plus 2.80%, which was scheduled to mature in December 2018. As of December 31, 2018, we had four real estate fund investments through the Fund and the Crowne Plaza Joint Venture with an aggregate fair value of $318,758,000, or $6,806,000 below our cost, and had remaining unfunded commitments of $50,494,000, of which our share was $16,119,000. At December 31, 2017, we had five real estate fund investments with an aggregate fair value of $354,804,000. 125 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Real Estate Fund Investments - continued Below is a summary of (loss) income from the Fund and the Crowne Plaza Joint Venture for the years ended December 31, 2018, 2017 and 2016. (Amounts in thousands) Net investment income Net unrealized loss on held investments Net realized (loss) gain on exited investments Previously recorded unrealized gain on exited investment Transfer Tax (Loss) income from real estate fund investments Less loss (income) attributable to noncontrolling interests in consolidated subsidiaries Loss from real estate fund investments attributable to the Operating Partnership (includes $4,252 of loss related to One Park Avenue potential additional transfer taxes and reduction in carried interest for the year ended December 31, 2018) Less loss attributable to noncontrolling interests in the Operating Partnership Loss from real estate fund investments attributable to Vornado For the Year Ended December 31, 2018 2017 2016 $ $ 6,105 $ (83,794 ) (912 ) — (10,630 ) (89,231 ) 61,230 (28,001 ) 1,732 (26,269 ) $ 18,507 $ (25,807 ) 36,078 (25,538 ) — 3,240 (14,044 ) (10,804 ) 673 (10,131 ) $ 17,053 (41,162 ) 14,761 (14,254 ) — (23,602 ) 2,560 (21,042 ) 1,270 (19,772 ) 6. Marketable Securities Our portfolio of marketable securities is comprised of equity securities that are presented on our consolidated balance sheets at fair value. On January 1, 2018, we adopted ASU 2016-01, which requires changes in the fair value of our marketable securities to be recorded in current period earnings. Previously, changes in the fair value of marketable securities were recognized in "accumulated other comprehensive income" on our consolidated balance sheets. As a result, on January 1, 2018 we recorded a decrease to beginning accumulated deficit of $111,225,000 to recognize the unrealized gains previously recorded in “accumulated other comprehensive income” on our consolidated balance sheets. Subsequent changes in the fair value of our marketable securities are recorded to “interest and other investment income, net” on our consolidated statements of income. 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. The table below summarizes the changes of our marketable securities portfolio for the year ended December 31, 2018. (Amounts in thousands) Beginning balance (Decrease) increase in fair value of marketable securities(1) Sale of marketable securities Ending balance For the Year Ended December 31, 2018 Total Lexington Realty Trust Other $ $ 182,752 $ (26,453 ) (4,101 ) 152,198 $ 178,226 $ (26,596 ) — 151,630 $ 4,526 143 (4,101 ) 568 ________________________________________ (1) Included in “interest and other investment income, net” on our consolidated statements of income (see Note 17 - Interest and Other Investment Income, Net). 126 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. Investments in Partially Owned Entities Alexander’s As of December 31, 2018, 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, 2018 and 2017, Alexander’s owed us an aggregate of $708,000 and $2,490,000, respectively, pursuant to such agreements. As of December 31, 2018 the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s, based on Alexander’s December 31, 2018 closing share price of $304.74, was $504,061,000, or $396,078,000 in excess of the carrying amount on our consolidated balance sheet. As of December 31, 2018, 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 $39,046,000. 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. Alexander's paid $3,971,000 of Transfer Tax upon the November 2012 sale of its Kings Plaza Regional Shopping Center located in Brooklyn, New York. Alexander's accrued $23,797,000 of potential additional Transfer Tax and related interest based on the precedent established by the Tax Tribunal's decision regarding One Park Avenue (see Note 5 - Real Estate Fund Investments for details) during the first quarter of 2018 which was subsequently paid on April 5, 2018 in order to preserve Alexander's rights to continue litigation and stop accrual of interest, of which our 32.4% share is $7,708,000 and is included in “income from partially owned entities” on our consolidated statements of income for the year ended December 31, 2018. 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) $315,000, 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, 2018, 2017 and 2016, we recognized $2,705,000, $2,678,000 and $2,583,000 of income, respectively, for these services. 127 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. Investments in Partially Owned Entities – continued Urban Edge Properties (“UE”) (NYSE: UE) As of December 31, 2018, 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 2018, 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, (ii) our affiliate, Alexander’s, Rego Park retail assets and (iii) Interstate Properties ("Interstate") retail assets. As of December 31, 2018, the fair value of our investment in UE, based on UE’s December 31, 2018 closing share price of $16.62, was $95,020,000, or $49,676,000 in excess of the carrying amount on our consolidated balance sheet. Pennsylvania Real Estate Investment Trust (“PREIT”) (NYSE: PEI) As of December 31, 2018, we own 6,250,000 PREIT operating partnership units, representing a 7.9% interest in PREIT. We account for our investment in PREIT under the equity method and record our share of PREIT’s net income or loss on a one-quarter lag basis. As of December 31, 2018, the fair value of our investment in PREIT, based on PREIT’s December 31, 2018 closing share price of $5.94, was $37,125,000, or $22,366,000 below the carrying amount on our consolidated balance sheet. As of December 31, 2018, the carrying amount of our investment in PREIT exceeds our share of the equity in the net assets of PREIT by approximately $35,744,000. 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. Independence Plaza We have a 50.1% economic interest in a joint venture that owns Independence Plaza, a three-building 1,327 unit residential complex in the Tribeca submarket of Manhattan. The joint venture paid $1,730,000 of Transfer Tax upon its acquisition of the property in December 2012. The joint venture accrued $13,103,000 of potential additional Transfer Tax and related interest based on the precedent established by the Tax Tribunal's decision regarding One Park Avenue (see Note 5 - Real Estate Fund Investments for details) during the first quarter of 2018, which was subsequently paid on April 5, 2018, in order to preserve the joint venture's rights to continue litigation and stop accrual of interest. Because we consolidate the entity that incurred the potential additional Transfer Tax, $13,103,000 of expense is included in “transaction related costs, impairment loss and other” and $6,538,000 is allocated to “noncontrolling interests in consolidated subsidiaries” on our consolidated statements of income. On June 11, 2018, the joint venture completed a $675,000,000 refinancing of Independence Plaza. The seven-year interest-only loan matures in July 2025 and has a fixed rate of 4.25%. Our share of net proceeds, after repayment of the existing 3.48% $550,000,000 mortgage and closing costs, was $55,618,000. Toys "R" Us, Inc. ("Toys") On September 18, 2017, Toys filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. In the second quarter of 2018, Toys ceased U.S. operations. On February 1, 2019, the plan of reorganization for Toys "R" Us, Inc., in which we owned a 32.5% interest, was declared effective, and our stock in Toys was canceled. At December 31, 2018 and 2017, we carried our Toys investment at zero. The canceling of our stock in Toys will result in approximately a $420,000,000 capital loss deduction for tax purposes in 2019 (which if not offset by capital gains will result in a capital loss carry over available for five years). 128 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. Investments in Partially Owned Entities – continued 666 Fifth Avenue Office Condominium On August 3, 2018, we completed the sale of our 49.5% interests in the 666 Fifth Avenue Office Condominium. We received net proceeds of $120,000,000 and recognized a financial statement gain of $134,032,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. The gain for tax purposes was approximately $254,000,000. We continue to own all of the 666 Fifth Avenue Retail Condominium encompassing the Uniqlo, Tissot and Hollister stores with 125 linear feet of frontage on Fifth Avenue between 52nd and 53rd Street. Concurrently with the sale of our interests, the existing mortgage loan on the property was repaid and we received net proceeds of $55,244,000 for the participation we held in the mortgage loan. We recognized a financial statement gain of $7,308,000, which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. 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, 2018 As of December 31, 2018 2017 Various 32.4% 7.9% 4.5% Various 25.0% 53.0% $ $ $ $ 499,005 $ 107,983 59,491 45,344 146,290 858,113 $ (58,117 ) $ (51,579 ) (109,696 ) $ 504,393 126,400 66,572 46,152 313,312 1,056,829 (53,999 ) (47,369 ) (101,368 ) ________________________________________ (1) (2) Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 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, Farley Office and Retail Building (in 2017 only) and others. On October 30, 2018, we increased our ownership interest in the joint venture which owns the Farley Office and Retail Building to 95.0% when we acquired a 44.9% additional ownership interest. Accordingly, beginning October 30, 2018 we consolidated the accounts of the joint venture (see page 124 for details). (3) Our negative basis resulted from a refinancing distribution and is included in "other liabilities" on our consolidated balance sheets. (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. 129 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. 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): Alexander's (see page 127 for details): Equity in net income(1) Management, leasing and development fees UE (see page 128 for details): Equity in net income(2) Management fees Partially owned office buildings(3) PREIT (see page 128 for details)(4) Other investments(5) Percentage Ownership at December 31, 2018 As of December 31, 2018 2017 2016 32.4% $ 10,485 $ 4,560 15,045 25,820 $ 6,033 31,853 4.5% Various 7.9% Various 4,227 233 4,460 (3,085 ) 26,658 670 27,328 2,109 (3,015 ) (53,325 ) (5,213 ) (4,256 ) 7,235 128,309 $ 9,149 $ 15,200 $ 168,948 27,470 6,770 34,240 5,003 836 5,839 5,773 ____________________ (1) 2018 includes (i) our $7,708 share of Alexander's potential additional Transfer Tax, (ii) our $3,882 share of expense related to the decrease in fair value of marketable securities held by Alexander’s, (iii) our $1,085 share of a non-cash straight-line rent write-off adjustment related to Sears Roebuck and Co. which filed for Chapter 11 bankruptcy relief and (iv) our $518 share of Alexander’s litigation expense due to a settlement. (2) 2017 includes $21,100 of net gains resulting from UE operating partnership unit issuances. (3) 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 and others. 2018 includes our $4,978 share of potential additional Transfer Tax related to the March 2011 acquisition of One Park Avenue (see Note 5 - Real Estate Fund Investments). (4) 2017 includes a $44,465 non-cash impairment loss. (5) Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, 666 Fifth Avenue Office Condominium (sold on August 3, 2018) and others. In 2017, we recognized $26,687 of net gains, comprised of $15,314 for our share of a net gain on the sale of Suffolk Downs and $11,373 for the net gain on repayment of our debt investments in Suffolk Downs JV. In 2018, 2017 and 2016, we recognized net losses of $4,873, $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. 130 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. Investments in Partially Owned Entities – continued Below is a summary of the debt of our partially owned entities as of December 31, 2018 and 2017. (Amounts in thousands) Partially owned office buildings(2): Mortgages payable Percentage Ownership at December 31, 2018 Maturity Interest Rate at December 31, 2018 100% Partially Owned Entities’ Debt at December 31,(1) 2018 2017 Various 2019-2026 4.18% $ 3,985,855 $ 3,934,894 PREIT: Mortgages payable UE: Mortgages payable Alexander's: Mortgages payable Other(3): 7.9% 2020-2025 3.81% 1,642,408 1,586,045 4.5% 2021-2034 4.09% 1,563,375 1,415,806 32.4% 2021-2025 3.67% 1,170,544 1,252,440 Mortgages payable and other ________________________________________ (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 interest 2019-2025 Various 4.57% 1,358,706 8,601,383 (2) (3) 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, Rosslyn Plaza, Fashion Centre Mall/Washington Tower, 50-70 West 93rd Street, Toys, 666 Fifth Avenue Office Condominium (sold on August 3, 2018), Farley Office and Retail Building (in 2017 only) and others. On October 30, 2018, we increased our ownership interest in the joint venture which owns the Farley Office and Retail Building to 95.0% when we acquired a 44.9% additional ownership interest. Accordingly, beginning October 30, 2018 we consolidated the accounts of the joint venture (see page 124 for details). Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $2,682,865,000 and $5,288,276,000 as of December 31, 2018 and 2017, 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 Alexander’s, as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016. (Amounts in thousands) Balance Sheet: Assets Liabilities Noncontrolling interests Equity (Amounts in thousands) Income Statement: Total revenue Net loss Balance as of December 31, 2018 2017 $ 13,258,000 $ 10,456,000 139,000 2,663,000 24,812,000 22,739,000 140,000 1,933,000 For the Year Ended December 31, 2018 2017 2016 $ 1,798,000 $ 52,000 12,991,000 $ (542,000 ) 13,600,000 (65,000 ) 131 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. 220 Central Park South ("220 CPS") We are constructing a residential condominium tower containing 397,000 salable square feet at 220 CPS. The development cost of this project (exclusive of land cost) is estimated to be approximately $1.4 billion, of which $1.2 billion has been expended as of December 31, 2018. GAAP income from our 220 CPS project is recognized when legal title transfers upon closing of the condominium unit sales. During the fourth quarter of 2018, we completed the sale of 11 condominium units at 220 CPS for net proceeds aggregating $214,776,000 and resulting in a financial statement net gain of $81,224,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. In connection with these sales, $13,888,000 of income tax expense was recognized in our consolidated statements of income and $213,000,000 of the $950,000,000 220 CPS loan was repaid. For income tax purposes, we recognize revenue associated with our 220 CPS project using the percentage of completion method. On May 25, 2018, the 220 CPS condominium offering plan was declared effective by the Attorney General of the State of New York. We paid $52,200,000 for estimated Federal, state and local income taxes due, which is included in "other assets" on our consolidated balance sheet as of December 31, 2018. As of December 31, 2018, 83% of the condominium units are sold or under sales contracts, with closings scheduled through 2020. 132 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. Dispositions New York On June 21, 2018 we completed the $45,000,000 sale of 27 Washington Square North, which resulted in a net gain of $23,559,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of 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. 133 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. Dispositions – continued Discontinued Operations - continued 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 to “income (loss) from discontinued operations” and the related assets and liabilities to “other assets” and “other liabilities” for all of the periods presented in the accompanying financial statements. The tables below set forth the assets and liabilities related to discontinued operations as of December 31, 2018 and 2017, and their combined results of operations and cash flows for the years ended December 31, 2018, 2017 and 2016. (Amounts in thousands) Assets related to discontinued operations (included in other assets) Liabilities related to discontinued operations (included in other liabilities) Balance as of December 31, 2018 2017 $ $ 113 $ 55 $ 1,357 3,620 (Amounts in thousands) Income (loss) from discontinued operations: Total revenues Total expenses Net gains on sale of real estate, a lease position and other JBGS spin-off transaction costs Income (loss) from partially-owned entities Net gain on early extinguishment of debt Impairment losses Pretax income (loss) from discontinued operations Income tax expense Income (loss) from discontinued operations Cash flows related to discontinued operations: Cash flows from operating activities Cash flows from investing activities For the Year Ended December 31, 2018 2017 2016 1,114 $ 1,094 20 618 — — — — 638 — 638 $ (1,683 ) $ — 261,290 $ 212,169 49,121 6,605 (68,662 ) 435 — — (12,501 ) (727 ) (13,228 ) $ 42,578 $ (48,377 ) 521,084 442,032 79,052 20,376 (16,586 ) (3,559 ) 487,877 (161,165 ) 405,995 (1,083 ) 404,912 157,484 (216,125 ) $ $ $ 134 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. 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, 2018 and 2017. (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, 2018 2017 $ $ $ $ 308,895 $ (172,114 ) 136,781 $ 503,373 $ (341,779 ) 161,594 $ 310,097 (150,837 ) 159,260 530,497 (324,897 ) 205,600 Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $38,573,000, $46,103,000 and $51,849,000 for the years ended December 31, 2018, 2017 and 2016, 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, 2019 is as follows: (Amounts in thousands) 2019 2020 2021 2022 2023 $ 24,661 23,591 18,857 15,746 13,215 Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $18,018,000, $25,057,000 and $28,897,000 for the years ended December 31, 2018, 2017 and 2016, 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, 2019 is as follows: (Amounts in thousands) 2019 2020 2021 2022 2023 $ 13,726 13,513 11,974 10,244 10,157 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, 2018, 2017 and 2016, respectively. Estimated annual amortization of these below-market leases, net of above-market leases, for each of the five succeeding years commencing January 1, 2019 is as follows: (Amounts in thousands) 2019 2020 2021 2022 2023 $ 1,747 1,747 1,747 1,747 1,747 135 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. Debt Secured Debt 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%. We realized net proceeds of approximately $37,200,000 after repayment of the existing 4.43% $59,800,000 mortgage and closing costs. On August 9, 2018, we completed a $120,000,000 refinancing of 4 Union Square South, a 206,000 square foot Manhattan retail property. The interest-only loan carries a rate of LIBOR plus 1.40% (3.75% as of December 31, 2018) and matures in 2025, as extended. The property was previously encumbered by a $113,000,000 mortgage at LIBOR plus 2.15%, which was scheduled to mature in 2019. On November 16, 2018, we completed a $205,000,000 refinancing of 150 West 34th Street, a 78,000 square foot Manhattan retail property. The interest-only loan carries a rate of LIBOR plus 1.88% (4.26% as of December 31, 2018) and matures in 2024, as extended. Concurrently, we invested $105,000,000 in a participation in the refinanced mortgage loan, which earns interest at a rate of LIBOR plus 2.00% (4.38% as of December 31, 2018) and also matures in 2024, as extended, and is included in "other assets" on our consolidated balance sheets. The property was previously encumbered by a mortgage of the same amount at LIBOR plus 2.25%, which was scheduled to mature in 2020. Unsecured Term Loan On October 26, 2018, we extended our $750,000,000 unsecured term loan from October 2020 to February 2024. The interest rate on the extended unsecured term loan was lowered from LIBOR plus 1.15% to LIBOR plus 1.00% (3.52% as of December 31, 2018). In connection with the extension of our unsecured term loan, we entered into an interest rate swap from LIBOR plus 1.00% to a fixed rate of 3.87% through October 2023. 136 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. 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 Unsecured revolving credit facilities Total, net Weighted Average Interest Rate at December 31, 2018 Balance at December 31, 2018 2017 3.53% 4.33% 3.84% 4.21% 3.87% 3.46% $ $ $ 5,003,465 $ 3,212,382 8,215,847 (48,049 ) 8,167,798 $ 850,000 $ (5,998 ) 844,002 750,000 (5,179 ) 744,821 80,000 5,461,706 2,742,133 8,203,839 (66,700 ) 8,137,139 850,000 (6,386 ) 843,614 750,000 (1,266 ) 748,734 — $ 1,668,823 $ 1,592,348 The net carrying amount of properties collateralizing the mortgages payable amounted to $9.1 billion at December 31, 2018. As of December 31, 2018, the principal repayments required for the next five years and thereafter are as follows: (Amounts in thousands) Year Ended December 31, 2019 2020 2021 2022 2023 Thereafter Senior Unsecured Debt and Unsecured Resolving Credit Unsecured Facilities Mortgages Payable $ 2,569,332 $ 2,192,567 1,613,948 950,000 391,800 498,200 — — 80,000 400,000 — 1,200,000 137 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. 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, 2018 and 2017. (Amounts in thousands, except units and per unit amounts) Unit Series 2018 2017 2018 2017 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 $ 778,134 $ 979,509 12,544,477 12,528,899 n/a $ 2.52 Perpetual Preferred/Redeemable Preferred(1): 5.00% D-16 Cumulative Redeemable 3.25% D-17 Cumulative Redeemable $ $ 1,000 $ 4,428 $ 1,000 4,428 1 177,100 1 $ 1,000,000.00 $ 25.00 $ 177,100 $ 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, 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 Net income Other comprehensive loss Distributions Redemption of Class A units for Vornado common shares, at redemption value Adjustments to carry redeemable Class A units at redemption value Other, net Balance, December 31, 2018 $ $ 1,278,446 10,910 643 (33,229 ) (38,747 ) (268,494 ) 35,408 984,937 25,672 (836 ) (31,828 ) (17,068 ) (198,064 ) 20,749 783,562 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, 2018 and 2017. Changes in the value from period to period, if any, are charged to “interest and debt expense” on our consolidated statements of income. 138 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Shareholders' Equity/Partners' Capital Common Shares (Vornado Realty Trust) As of December 31, 2018, there were 190,535,499 common shares outstanding. During 2018, we paid an aggregate of $479,348,000 of common dividends comprised of quarterly common dividends of $0.63 per share. Class A Units (Vornado Realty L.P.) As of December 31, 2018, there were 190,535,499 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, 2018, there were 12,544,477 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 12 – Redeemable Noncontrolling Interests/Redeemable Partnership Units). During 2018, the Operating Partnership paid an aggregate of $479,348,000 of distributions to Vornado comprised of quarterly common distributions of $0.63 per unit. Preferred Share/Preferred Units On January 4 and 11, 2018, we redeemed all of the outstanding 6.625% Series G and 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, and expensed $14,486,000 of previously capitalized issuance costs. 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, 2018 and 2017. (Amounts in thousands, except share/unit and per share/per unit amounts) Convertible Preferred: Preferred Shares/Units Balance as of December 31, Shares/Units Outstanding at December 31, 2018 2017 2018 2017 Liquidation Preference Annual Dividend/ Distribution(1) Per Share/Unit 6.5% Series A: authorized 83,977 shares/units(2) $ 1,071 $ 1,102 18,580 19,573 $ 50.00 $ 3.25 Cumulative Redeemable Preferred: 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) 290,971 290,306 308,946 $ 891,294 $ 290,971 290,306 309,609 891,988 12,000,000 12,000,000 12,780,000 36,798,580 12,000,000 12,000,000 12,780,000 36,799,573 25.00 25.00 25.00 1.425 1.35 1.3125 ________________________________________ (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. During 2018, we paid an aggregate of $55,115,000 of preferred dividends. 139 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Shareholders' Equity/Partners' Capital - continued 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, 2018 Total 128,682 $ (108,374 ) (12,644 ) 7,664 $ $ $ Securities available- for-sale Pro rata share of nonconsolidated subsidiaries' OCI Interest rate swap 109,554 $ (109,554 ) — — $ 3,769 $ (1,671 ) 1,155 3,253 $ 23,542 $ 2,851 (14,634 ) 11,759 $ Other (8,183 ) — 835 (7,348 ) Balance as of December 31, 2017 Cumulative effect of accounting change (see Note 2) Net current period other comprehensive income Balance as of December 31, 2018 14. Variable Interest Entities (“VIEs”) Unconsolidated VIEs As of December 31, 2018 and 2017, 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 7 – Investments in Partially Owned Entities). As of December 31, 2018 and 2017, the net carrying amount of our investments in these entities was $257,882,000 and $352,925,000, respectively, and our maximum exposure to loss in these entities is limited to the carrying amount of our investments. Consolidated VIEs Our most significant consolidated VIEs are the Operating Partnership (for Vornado), the Fund and the Crowne Plaza Joint Venture, the Farley joint venture 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, 2018, the total assets and liabilities of our consolidated VIEs, excluding the Operating Partnership, were $4,445,436,000 and $2,533,753,000 respectively. 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. 140 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. 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 Series I cumulative redeemable preferred shares/units which were redeemed on January 4 and 11, 2018 (See Note 13 - Shareholders' Equity/Partners' Capital)). The tables below aggregate the fair values of these financial assets and liabilities by their levels in the fair value hierarchy as of December 31, 2018 and 2017, respectively. (Amounts in thousands) Marketable securities Real estate fund investments Deferred compensation plan assets ($8,402 included in restricted cash and $88,122 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 ($11,545 included in restricted cash and $97,632 in other assets) Interest rate swaps (included in other assets) Total assets Mandatorily redeemable instruments ($50,561 included in other liabilities) Interest rate swaps (included in other liabilities) Total liabilities As of December 31, 2018 Total Level 1 Level 2 Level 3 152,198 $ 318,758 96,524 27,033 594,513 $ 50,561 $ 15,236 65,797 $ 152,198 $ — 58,716 — 210,914 $ 50,561 $ — 50,561 $ — $ — — 27,033 27,033 $ — $ 15,236 15,236 $ — 318,758 37,808 — 356,566 — — — As of December 31, 2017 Total Level 1 Level 2 Level 3 182,752 $ 354,804 109,177 27,472 674,205 $ 520,561 $ 1,052 521,613 $ 182,752 $ — 69,049 — 251,801 $ 520,561 $ — 520,561 $ — $ — — 27,472 27,472 $ — $ 1,052 1,052 $ — 354,804 40,128 — 394,932 — — — $ $ $ $ $ $ $ $ 141 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. Fair Value Measurements – continued Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued Real Estate Fund Investments As of December 31, 2018, we had four real estate fund investments through the Fund and the Crowne Plaza Joint Venture with an aggregate fair value of $318,758,000, or $6,806,000 below our 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 4.0 years. Cash flows are derived from property rental revenue (base rents plus reimbursements) less operating expenses, real estate taxes and capital and other costs, plus projected sales proceeds in the year of exit. Property rental revenue is based on leases currently in place and our estimates for future leasing activity, which are based on current market rents for similar space plus a projected growth factor. Similarly, estimated operating expenses and real estate taxes are based on amounts incurred in the current period plus a projected growth factor for future periods. Anticipated sales proceeds at the end of an investment’s expected holding period are determined based on the net cash flow of the investment in the year of exit, divided by a terminal capitalization rate, less estimated selling costs. The fair value of each property is calculated by discounting the future cash flows (including the projected sales proceeds), using an appropriate discount rate and then reduced by the property’s outstanding debt, if any, to determine the fair value of the equity in each investment. Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates. These rates are based on the location, type and nature of each property, and current and anticipated market conditions, industry publications and from the experience of our Acquisitions and Capital Markets departments. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these real estate fund investments as of December 31, 2018 and 2017. Unobservable Quantitative Input Discount rates December 31, 2018 10.0% to 15.0% December 31, 2017 2.0% to 14.9% December 31, 2018 13.4% Terminal capitalization rates 5.4% to 7.7% 4.7% to 6.7% 5.7% December 31, 2017 11.9% 5.5% 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, 2018 and 2017. (Amounts in thousands) Beginning balance Net unrealized loss on held investments Purchases/additional fundings Dispositions Net realized (loss) gain on exited investments Previously recorded unrealized gain on exited investment Other, net Ending balance For the Year Ended December 31, 2018 2017 $ $ 354,804 $ (83,794 ) 68,950 (20,290 ) (912 ) — — 318,758 $ 462,132 (25,807 ) — (91,606 ) 36,078 (25,538 ) (455 ) 354,804 142 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. 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, 2018 and 2017. (Amounts in thousands) Beginning balance Sales Purchases Realized and unrealized (losses) gains Other, net Ending balance For the Year Ended December 31, 2018 2017 $ $ 40,128 $ (12,621 ) 9,183 (274 ) 1,392 37,808 $ 57,444 (27,715 ) 5,786 2,519 2,094 40,128 Fair Value Measurements on a Nonrecurring Basis Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist primarily of real estate assets required to be measured for impairment at December 31, 2018. There were no assets measured at fair value on a nonrecurring basis on our consolidated balance sheets at December 31, 2017. The fair values of real estate assets required to be measured for impairment were determined using comparable sales activity. (Amounts in thousands) Real estate asset As of December 31, 2018 Total Level 1 Level 2 Level 3 $ 14,971 $ — $ — $ 14,971 143 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. 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, 2018 and 2017. (Amounts in thousands) As of December 31, 2018 As of December 31, 2017 Cash equivalents Debt: Mortgages payable Senior unsecured notes Unsecured term loan Unsecured revolving credit facilities Total Carrying Amount Fair Value 261,981 $ 262,000 $ 8,215,847 850,000 750,000 80,000 9,895,847 (1) $ 8,179,000 847,000 750,000 80,000 9,856,000 Carrying Amount Fair Value 1,500,227 $ 1,500,000 $ 8,203,839 850,000 750,000 — 9,803,839 (1) $ 8,194,000 878,000 750,000 — 9,822,000 $ $ $ $ $ $ ____________________ (1) Excludes $59,226 and $74,352 of deferred financing costs, net and other as of December 31, 2018 and 2017 respectively. 16. 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, Appreciation-Only Long-Term Incentive Plan Units ("AO LTIP Units"), restricted Operating Partnership units (the "OP Units") and out-performance plan awards (the "OPPs" 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, 2018, Vornado has approximately 1,848,000 shares available for future grants under the Plan, if all awards granted are Full Value Awards, as defined. On February 8, 2019, the Committee approved an amendment to our previously issued OP Units and Vornado restricted stock agreements which provides that the time-based vesting requirement no longer applies to participants who have reached 65 years of age. However, the right to convert such OP units and to sell such Vornado restricted stock are still subject to time-based vesting. 144 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. Stock-based Compensation - continued We account for all equity-based compensation in accordance with ASC 718. Below is a summary of our stock-based based compensation expense, a component of "general and administrative" expenses on our consolidated statements of income, during the years ended December 31, 2018, 2017 and 2016. (Amounts in thousands) OP Units OPPs AO LTIP Units Vornado stock options Vornado restricted stock December 31, 2018 2017 2016 $ $ 17,763 $ 10,689 2,113 587 570 31,722 $ 20,630 $ 10,723 — 747 729 32,829 $ 21,136 11,055 — 937 851 33,979 Below is a summary of unrecognized compensation expense for the year ended December 31, 2018. (Amounts in thousands) OP Units OPPs AO LTIP Units Vornado stock options Vornado restricted stock OPPs December 31, 2018 $ Weighted-Average Remaining Contractual Term 1.6 1.8 1.6 1.7 1.7 1.6 17,930 3,798 1,371 902 913 24,914 $ 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 during the three-year performance period (the “Performance Period”) 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 2017 OPP may be earned if Vornado (i) achieves a TSR level greater than 21% over the Performance Period (the “2017 Absolute Component”) and/or (ii) achieves a TSR above that of the SNL US Equity REIT Index over the three-year performance period (the “2017 Relative Component”). Awards under the 2018 OPP may be earned if Vornado (i) achieves a TSR level greater than 21% over the Performance Period (the “2018 Absolute Component”, collectively with the 2017 Absolute Component, the “Absolute Components”) and/or (ii) achieves a TSR above a benchmark weighted index comprised of 70% of the SNL US Office REIT Index and 30% of the SNL US Retail Index over the Performance Period (the “2018 Relative Component”, collectively with the 2017 Relative Component, the “Relative Components”). The value of awards under the Relative Components and Absolute Components will be calculated separately and will each be subject to an aggregate $35,000,000 maximum award cap for all participants. The two components will be added together to determine the aggregate award size, which shall also be subject to the aggregate $35,000,000 maximum award cap for all participants. In the event awards are earned under the Absolute Components, but Vornado underperforms the index by more than 200 basis points per annum over the Performance Period (600 basis points over the three years), the amount earned under the Absolute Components will be reduced (and potentially fully negated) based on the degree by which the index exceeds Vornado’s TSR. In the event 2017 awards are earned under the 2017 Relative Component, but Vornado fails to achieve a TSR of at least 3% per annum, award earned under the 2017 Relative Component will be reduced on a ratable sliding scale based on Vornado’s absolute TSR performance, with no awards being earned in the event Vornado’s TSR during the applicable measurement period is 0% or negative. In the event 2018 awards are earned under the 2018 Relative Component, but Vornado fails to achieve a TSR of at least 3% per annum, awards earned under the 2018 Relative Component will be reduced on a ratable sliding scale based on Vornado’s absolute TSR performance, with awards earned under the Relative Component being reduced by a maximum of 50% in the event Vornado’s TSR during the applicable measurement period is 0% or negative. 145 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. Stock-based Compensation - continued OPPs - continued If the designated performance objectives are achieved, awards under the 2017 and 2018 OPP will vest ratably in each of years three, four and five. In addition, all of Vornado’s Named Executive Officers (as defined in Vornado’s Proxy Statement filed on Schedule 14A with the Securities and Exchange Commission on April 6, 2018) are required to hold any earned and vested awards for one year following each such vesting date. Dividends on awards granted under the 2017 and 2018 OPP accrue during the Performance Period and are paid to participants if awards are ultimately earned based on the achievement of the designated performance objectives. Below is the summary of the OPP units granted during the years December 31, 2018, 2017 and 2016. Plan Year 2018 2017 2016 $ Total Plan Notional Amount Percentage of Notional Amount Granted Grant Date Fair Value(1) 35,000,000 35,000,000 40,000,000 78.2 % $ 86.6 % 86.7 % 10,300,000 10,800,000 11,800,000 OPP Units Earned To be determined in 2021 To be determined in 2020 Not earned ________________________________________ (1) During the years ended December 31, 2018, 2017 and 2016, $8,040,000, $7,558,000, and $7,250,000, respectively, was immediately expensed on the respective grant date due to acceleration of vesting for employees who are retirement eligible (have reached age 65 or age 60 with at least 20 years of service). The remaining $10,052,000, in aggregate, is being amortized into expense over a 5-year period from the date of each grant, using a graded vesting attribution model. 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. Below is a summary of Vornado’s stock option activity for the year ended December 31, 2018. Outstanding at January 1, 2018 Granted Exercised Cancelled or expired Outstanding at December 31, 2018 Options vested and expected to vest at December 31, 2018 Options exercisable at December 31, 2018 Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value 46.62 72.40 28.52 75.25 51.95 52.13 51.15 1.6 $ 1.6 $ 1.4 $ 26,464,877 26,472,765 26,464,877 Shares 2,823,900 $ 33,897 (620,157 ) (7,347 ) 2,230,293 $ 2,240,526 $ 2,162,843 $ 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, 2018, 2017 and 2016. Expected volatility Expected life Risk free interest rate Expected dividend yield 2018 35% 5.0 years 2.25% 2.9% December 31, 2017 35% 5.0 years 1.95% 3.0% 2016 35% 5.0 years 1.76% 3.2% The weighted average grant date fair value of options granted during the years ended December 31, 2018, 2017 and 2016 was $18.42, $25.84 and $22.14 , respectively. Cash received from option exercises for the years ended December 31, 2018, 2017 and 2016 was $5,927,000, $28,253,000 and $6,825,000, respectively. The total intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was $25,820,000, $9,178,000 and $5,519,000, respectively. 146 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. Stock-based Compensation – continued 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 10 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. Below is a summary of AO LTIP Units activity for the year ended December 31, 2018. Granted at January 12, 2018 Cancelled or expired Outstanding at December 31, 2018 Units 185,046 $ (6,200 ) 178,846 Weighted-Average Grant-Date Fair Value 72.40 72.40 72.40 AO LTIP Units granted during the year ended December 31, 2018 had a fair value of $3,484,000. The fair value of each AO LTIP Units granted is estimated on the date of grant using an option-pricing model with the following weighted-average assumptions for grants in the year ended December 31, 2018. Expected volatility Expected life Risk free interest rate Expected dividend yield December 31, 2018 35% 5.0 years 2.25% 2.9% 147 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. Stock-based Compensation – continued 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. 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 $2,559,000, $2,310,000 and $1,968,000 in the years ended December 31, 2018, 2017 and 2016, respectively. Below is a summary of restricted OP unit activity for the year ended December 31, 2018. Unvested Units Unvested at January 1, 2018 Granted Vested Cancelled or expired Unvested at December 31, 2018 Units Weighted-Average Grant-Date Fair Value 628,962 $ 267,203 (246,670 ) (7,651 ) 641,844 76.13 65.36 73.12 76.62 72.79 OP Units granted in 2018, 2017 and 2016 had a fair value of $17,463,000, $24,927,000 and $18,492,000, respectively. The fair value of OP Units that vested during the years ended December 31, 2018, 2017 and 2016 was $18,037,000, $20,903,000 and $22,701,000, respectively. 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. Dividends paid on unvested Vornado restricted stock are charged directly to retained earnings and amounted to $44,000, $46,000 and $56,000 for the years ended December 31, 2018, 2017 and 2016, respectively. Below is a summary of Vornado’s restricted stock activity for the year ended December 31, 2018. Unvested Shares Unvested at January 1, 2018 Granted Vested Cancelled or expired Unvested at December 31, 2018 Shares Weighted-Average Grant-Date Fair Value 14,845 $ 8,602 (6,247 ) (514 ) 16,686 81.05 72.40 78.75 78.38 77.54 Vornado restricted stock awards granted in 2018, 2017 and 2016 had a fair value of $623,000, $601,000 and $927,000, respectively. The fair value of restricted stock that vested during the years ended December 31, 2018, 2017 and 2016 was $492,000, $645,000 and $641,000, respectively. 148 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. Interest and Other Investment Income, Net The following table sets forth the details of our interest and other investment income, net: (Amounts in thousands) (Decrease) increase in fair value of marketable securities: Lexington Realty Trust Other Interest on cash and cash equivalents and restricted cash Dividends on marketable securities Interest on loans receivable(1) Other, net For the Year Ended December 31, 2018 2017 2016 $ $ (26,596 ) $ 143 (26,453 ) 15,827 13,339 10,298 4,046 17,057 $ — $ — — 8,171 13,276 4,352 5,062 30,861 $ — — — 3,622 13,135 3,890 3,688 24,335 ________________________________________ (1) Includes $6,707 of profit participation in connection with an investment in a mezzanine loan which was previously repaid to us for the year ended December 31, 2018. 18. 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, 2018 2017 2016 $ $ 389,136 $ 31,979 (73,166 ) 347,949 $ 359,819 $ 34,066 (48,231 ) 345,654 $ 328,398 32,185 (30,343 ) 330,240 149 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. Income Per Share/Income Per Class A Unit Vornado Realty Trust The following table provides a reconciliation of both net income attributable to Vornado 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, OP Units, AO LTIP Units and OPPs. (Amounts in thousands, except per share amounts) Numerator: Income from continuing operations, net of income attributable to noncontrolling interests $ Income (loss) from discontinued operations, net of income attributable to noncontrolling interests Net income attributable to Vornado Preferred share dividends Preferred share issuance costs 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 conversions INCOME PER COMMON SHARE – BASIC: Income from continuing operations, net Income (loss) from discontinued operations, net Net income per common share INCOME PER COMMON SHARE – DILUTED: Income from continuing operations, net Income (loss) from discontinued operations, net Net income per common share $ $ $ $ $ Year Ended December 31, 2018 2017 2016 449,356 $ 598 449,954 (50,636 ) (14,486 ) 384,832 (44 ) 384,788 174 62 385,024 $ 190,219 933 101 37 191,290 2.02 $ — 2.02 $ 2.01 $ — 2.01 $ 239,824 $ (12,408 ) 227,416 (65,399 ) — 162,017 (46 ) 161,971 230 — 162,201 $ 189,526 1,448 284 — 191,258 0.92 $ (0.07 ) 0.85 $ 0.91 $ (0.06 ) 0.85 $ 526,686 380,231 906,917 (75,903 ) (7,408 ) 823,606 (96 ) 823,510 806 86 824,402 188,837 1,064 230 42 190,173 2.35 2.01 4.36 2.34 2.00 4.34 ________________________________________ (1) The effect of dilutive securities in the years ended December 31, 2018, 2017 and 2016 excludes an aggregate of 12,232, 12,165 and 12,022 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) 19. Income Per Share/Income Per Class A Unit – continued Vornado Realty L.P. The following table provides a reconciliation of both net income attributable to Vornado Realty L.P. 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, Vornado restricted stock awards, OP Units, AO LTIP Units and OPPs. (Amounts in thousands, except per unit amounts) Numerator: Income from continuing operations, net of income attributable to noncontrolling interests $ Income (loss) from discontinued operations Net income attributable to Vornado Realty L.P. Preferred unit distributions Preferred unit issuance costs Net income attributable to Class A unitholders Earnings allocated to unvested participating securities Numerator for basic income per Class A unit Impact of assumed conversions: Convertible preferred unit distributions Numerator for diluted income per Class A unit Denominator: Denominator for basic income per Class A unit – weighted average units Effect of dilutive securities (1): Vornado stock options and restricted unit awards Convertible preferred units Denominator for diluted income per Class A unit – weighted average units and assumed conversions INCOME PER CLASS A UNIT – BASIC: Income from continuing operations, net Income (loss) from discontinued operations, net Net income per Class A unit INCOME PER CLASS A UNIT – DILUTED: Income from continuing operations, net Income (loss) from discontinued operations, net Net income per Class A unit $ $ $ $ Year Ended December 31, 2018 2017 2016 474,988 $ 638 475,626 (50,830 ) (14,486 ) 410,310 (2,973 ) 407,337 62 407,399 $ 251,554 $ (13,228 ) 238,326 (65,593 ) — 172,733 (3,232 ) 169,501 — 169,501 $ 555,659 404,912 960,571 (76,097 ) (7,408 ) 877,066 (4,177 ) 872,889 86 872,975 202,068 201,214 200,350 1,307 37 2,086 — 1,625 42 203,412 203,300 202,017 2.01 $ 0.01 2.02 2.00 $ — 2.00 $ 0.91 $ (0.07 ) 0.84 0.90 $ (0.07 ) 0.83 $ 2.34 2.02 4.36 2.32 2.00 4.32 ________________________________________ (1) The effect of dilutive securities in the years ended December 31, 2018, 2017 and 2016 excludes an aggregate of 110, 124 and 178 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) 20. Leases As lessor: We lease space to tenants under operating leases. Most of the leases provide for the payment of fixed base rentals payable monthly in advance. Office building leases generally require the tenants to reimburse us for operating costs and real estate taxes above their base year costs. 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, 2018, 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: 2019 2020 2021 2022 2023 Thereafter $ 1,547,162 1,510,097 1,465,024 1,407,615 1,269,141 5,832,467 These amounts do not include percentage rentals based on tenants’ sales. These percentage rents approximated $4,746,000, $4,062,000 and $3,590,000, for the years ended December 31, 2018, 2017 and 2016, respectively. None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2018, 2017 and 2016. As lessee: We are a tenant under operating leases for certain properties. These leases have terms that expire during the next ninety-nine years. Future minimum lease payments under operating leases at December 31, 2018 are as follows: (Amounts in thousands) Year Ending December 31: 2019 2020 2021 2022 2023 Thereafter $ 46,147 45,258 42,600 43,840 44,747 1,612,627 Rent expense, a component of “operating" expenses on our consolidated statements of income, was $41,063,000, $40,219,000 and $40,170,000 for the years ended December 31, 2018, 2017 and 2016, respectively. 152 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 21. Multiemployer Benefit Plans Our subsidiaries make contributions to certain multiemployer defined benefit plans (“Multiemployer Pension Plans”) and health plans (“Multiemployer Health Plans”) for our union represented employees, pursuant to the respective collective bargaining agreements. Multiemployer Pension Plans Multiemployer Pension Plans differ from single-employer pension plans in that (i) contributions to multiemployer plans may be used to provide benefits to employees of other participating employers and (ii) if other participating employers fail to make their contributions, each of our participating subsidiaries may be required to bear its then pro rata share of unfunded obligations. If a participating subsidiary withdraws from a plan in which it participates, it may be subject to a withdrawal liability. As of December 31, 2018, our subsidiaries’ participation in these plans was not significant to our consolidated financial statements. In the years ended December 31, 2018, 2017 and 2016, we contributed $10,377,000, $10,113,000 and $9,479,000, 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, 2018, 2017 and 2016. 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, 2018, 2017 and 2016, our subsidiaries contributed $30,354,000, $29,549,000 and $32,998,000, respectively, towards these plans, which is included as a component of “operating” expenses on our consolidated statements of income. 22. 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 $260,000,000 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 $1,453,000 and 19% 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 and other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for uninsured losses and 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, 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 or refinance our properties and expand our portfolio. 153 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 22. 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. Our mortgage loans are non-recourse to us, except for the mortgage loan secured by 7 West 34th Street, which we guaranteed and therefore is part of our tax basis. 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, 2018, the aggregate dollar amount of these guarantees and master leases is approximately $660,000,000. As of December 31, 2018, $13,337,000 of letters of credit were outstanding under one of our unsecured revolving credit facilities. Our unsecured revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our unsecured revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal. A joint venture in which we own a 95.0% ownership interest was designated by ESD, an entity of New York State, to develop the Farley Office and Retail Building (see Note 4 - Acquisitions). 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, 2018, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $18,000,000. As of December 31, 2018, we have construction commitments aggregating approximately $404,000,000. 154 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. 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 of Directors 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 7 - 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, respectively, are Interstate’s two other general partners. As of December 31, 2018, Interstate and its partners beneficially owned an aggregate of approximately 7.1% 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 one year and is automatically renewable unless terminated by either of the parties on 60 days’ notice at the end of the term. We believe, based upon comparable fees charged by other real estate companies, that the management agreement terms are fair to us. We earned $453,000, $501,000, and $521,000 of management fees under the agreement for the years ended December 31, 2018, 2017 and 2016, respectively. Urban Edge Properties We own 4.5% of UE. In 2018, 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 retail assets. Fees paid to UE for servicing the retail assets of Alexander’s are similar to the fees that we are receiving from Alexander’s. 155 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 24. Summary of Quarterly Results (Unaudited) Vornado Realty Trust The following summary represents the results of operations for each quarter in 2018 and 2017: (Amounts in thousands, except per share amounts) Net Income (Loss) Attributable to Common Shareholders (1) Net Income (Loss) Per Common Share (2) Basic Diluted Revenues 543,417 $ 542,048 541,818 536,437 100,494 $ 190,645 111,534 (17,841 ) 0.53 $ 1.00 0.59 (0.09 ) 0.53 1.00 0.58 (0.09 ) 2018 2017 December 31 September 30 June 30 March 31 December 31 September 30 June 30 $ $ March 31 ____________________ (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 536,226 $ 528,755 511,087 508,058 27,319 $ (29,026 ) 115,972 47,752 0.14 $ (0.15 ) 0.61 0.25 0.14 (0.15 ) 0.61 0.25 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 2018 and 2017: (Amounts in thousands, except per unit amounts) 2018 2017 December 31 September 30 June 30 March 31 December 31 September 30 June 30 $ $ Net Income (Loss) Attributable to Class A Unitholders (1) Net Income (Loss) Per Class A Unit (2) Basic Diluted Revenues 543,417 $ 542,048 541,818 536,437 107,125 $ 203,268 118,931 (19,014 ) 0.53 $ 1.00 0.58 (0.10 ) 0.52 0.99 0.58 (0.10 ) 536,226 $ 528,755 511,087 508,058 29,123 $ (30,952 ) 123,630 50,932 0.14 $ (0.16 ) 0.61 0.25 0.14 (0.16 ) 0.61 0.25 March 31 ____________________ (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. 156 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 25. Segment Information 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 at share and NOI at share - cash basis for the years ended December 31, 2018, 2017 and 2016. (Amounts in thousands) Net income Deduct: Income from partially owned entities Loss (income) from real estate fund investments Interest and other investment income, net Net gains on disposition of wholly owned and partially owned assets Purchase price fair value adjustment (Income) loss from discontinued operations NOI attributable to noncontrolling interests in consolidated subsidiaries Add: Depreciation and amortization expense General and administrative expense Transaction related costs, impairment loss and other NOI from partially owned entities Interest and debt expense Income tax expense NOI at share For the Year Ended December 31, 2018 2017 $ 422,603 $ 264,128 $ 2016 981,922 (9,149 ) 89,231 (17,057 ) (246,031 ) (44,060 ) (638 ) (71,186 ) 446,570 141,871 31,320 253,564 347,949 37,633 1,382,620 (15,200 ) (3,240 ) (30,861 ) (501 ) — 13,228 (65,311 ) 429,389 150,782 1,776 269,164 345,654 42,375 1,401,383 (168,948 ) 23,602 (24,335 ) (160,433 ) — (404,912 ) (66,182 ) 421,023 143,643 9,451 271,114 330,240 7,923 1,364,108 (170,477 ) 1,193,631 Non cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other NOI at share - cash basis (44,704 ) 1,337,916 $ (86,842 ) 1,314,541 $ $ 157 VORNADO REALTY TRUST AND VORNADO REALTY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 25. Segment Information - continued Below is a summary of NOI at share and selected balance sheet data by segment for the years ended December 31, 2018, 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 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 158 For the Year Ended December 31, 2018 Total New York Other 2,163,720 $ 963,478 1,200,242 (71,186 ) 253,564 1,382,620 (44,704 ) 1,337,916 $ 1,836,036 $ 806,464 1,029,572 (48,490 ) 195,908 1,176,990 (45,427 ) 1,131,563 $ 327,684 157,014 170,670 (22,696 ) 57,656 205,630 723 206,353 16,237,883 $ 858,113 17,180,794 12,351,943 $ 719,456 14,628,712 3,885,940 138,657 2,552,082 For the Year Ended December 31, 2017 Total New York Other 2,084,126 $ 886,596 1,197,530 (65,311 ) 269,164 1,401,383 (86,842 ) 1,314,541 $ 1,779,307 $ 756,670 1,022,637 (45,899 ) 189,327 1,166,065 (79,202 ) 1,086,863 $ 304,819 129,926 174,893 (19,412 ) 79,837 235,318 (7,640 ) 227,678 14,756,295 $ 1,056,829 17,397,934 11,025,092 $ 861,430 13,780,817 3,731,203 195,399 3,617,117 For the Year Ended December 31, 2016 Total New York Other 2,003,742 $ 844,566 1,159,176 (66,182 ) 271,114 1,364,108 (170,477 ) 1,193,631 $ 1,713,374 $ 716,754 996,620 (47,480 ) 159,386 1,108,526 (143,239 ) 965,287 $ 290,368 127,812 162,556 (18,702 ) 111,728 255,582 (27,238 ) 228,344 $ $ $ $ $ $ $ $ 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, 2018, 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, 2018 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, 2018 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, 2018. 159 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, 2018, 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, 2018, 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, 2018, of the Company and our report dated February 11, 2019, 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 11, 2019 160 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, 2018, 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, 2018 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, 2018 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, 2018. 161 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, 2018, 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, 2018, 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, 2018, of the Partnership and our report dated February 11, 2019, 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 11, 2019 162 ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information relating to trustees of Vornado, the Operating Partnership’s sole general partner, including its audit committee and audit committee financial expert, will be contained in Vornado’s definitive Proxy Statement involving the election of Vornado’s trustees 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, 2018, 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 Age Steven Roth 77 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 67 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 50 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 73 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. Mr. Iocco, 48 years of age, has been the Executive Vice President - Chief Accounting Officer of Vornado since May 2015 and Chief Financial Officer of Alexanders, Inc. since April 2017. From May 2012 to May 2015, Mr. Iocco was the Senior Vice President - Chief Accounting Officer of Vornado. This Code is available on Vornado’s website at www.vno.com. 163 ITEM 11. EXECUTIVE COMPENSATION Information relating to Vornado’s executive officer and trustee compensation will be contained in Vornado’s Proxy Statement referred to above in Item 10, “Directors, Executive Officers and Corporate Governance,” 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,” and such information is incorporated herein by reference. Equity compensation plan information The following table provides information as of December 31, 2018 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) 4,567,784 (1) $ — 4,567,784 $ 51.95 — 51.95 1,847,679 (2) — 1,847,679 ________________________________________ (1) Includes an aggregate of 2,337,491 shares/units, comprised of (i) 16,686 restricted Vornado common shares, (ii) 641,844 restricted Operating Partnership units, (iii) 178,846 Appreciation-Only Long-Term Incentive Plan units and (iv) 1,500,115 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 3,695,358. 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,” 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 The Appointment of Independent Accounting Firm” and such information is incorporated herein by reference. 164 Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: PART IV 1. The consolidated financial statements are set forth in Item 8 of this Annual Report on Form 10-K. The following financial statement schedules should be read in conjunction with the financial statements included in Item 8 of this Annual Report on Form 10-K. II--Valuation and Qualifying Accounts--years ended December 31, 2018, 2017 and 2016 III--Real Estate and Accumulated Depreciation as of December 31, 2018, 2017 and 2016 Pages in this Annual Report on Form 10-K 166 167 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. 165 VORNADO REALTY TRUST AND VORNADO REALTY L.P. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS December 31, 2018 (Amounts in Thousands) Column A Description Year Ended December 31, 2018 Allowance for doubtful accounts Year Ended December 31, 2017 Allowance for doubtful accounts Year Ended December 31, 2016 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 $ $ $ 6,480 $ 1,910 $ (2,592 ) $ 8,621 $ 26 $ (2,167 ) $ 10,075 $ 1,827 $ (3,281 ) $ 5,798 6,480 8,621 166 . . P L Y T L A E R O D A N R O V D N A T S U R T Y T L A E R O D A N R O V I I I E L U D E H C S N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R ) s d n a s u o h t n i s t n u o m A ( n o e f i L h c i h w n o i t a i c e r p e d t s e t a l n i e m o c n i t n e m e t a t s d e t u p m o c s i e t a D d e r i u q c a f o e t a D n o i t c u r t s n o c d e t a l u m u c c A n o i t a i c e r p e d d n a h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c t a d e i r r a c s g n i d l i u B d n a ) 4 ( n o i t a z i t r o m a ) 3 ( l a t o T s t n e m e v o r p m i d n a L s t s o C d e z i l a t i p a c t n e u q e s b u s n o i t i s i u q c a o t s g n i d l i u B d n a ) 1 ( y n a p m o c o t t s o c l a i t i n I s t n e m e v o r p m i d n a L ) 2 ( s e c n a r b m u c n E I N M U L O C H N M U L O C G N M U L O C F N M U L O C E N M U L O C D N M U L O C C N M U L O C B N M U L O C A N M U L O C ) 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 ( ) 5 ( 7 0 0 2 4 1 0 2 6 0 0 2 2 1 0 2 8 9 9 1 7 0 0 2 2 1 0 2 5 1 0 2 6 0 0 2 3 1 0 2 7 9 9 1 7 9 9 1 7 0 0 2 8 9 9 1 8 9 9 1 7 9 9 1 7 9 9 1 9 9 9 1 8 9 9 1 9 9 9 1 8 9 9 1 5 0 0 2 5 1 0 2 1 0 0 2 7 0 0 2 3 9 9 1 8 1 0 2 8 1 0 2 5 1 0 2 0 1 0 2 6 1 0 2 8 9 9 1 8 9 9 1 3 1 0 2 3 6 9 1 0 6 9 1 2 7 9 1 1 1 9 1 0 0 9 1 8 6 9 1 4 6 9 1 9 0 0 2 7 0 9 1 0 8 9 1 3 2 9 1 0 5 9 1 9 6 9 1 9 6 9 1 8 6 9 1 5 2 9 1 5 1 9 1 3 2 9 1 9 0 0 2 4 0 0 2 / 5 6 9 1 2 1 9 1 2 1 9 1 1 1 9 1 7 8 9 1 5 2 9 1 7 0 8 , 6 3 3 4 1 0 , 1 6 9 5 0 , 3 7 8 2 8 , 0 3 1 9 9 3 , 0 0 3 4 5 0 , 8 8 9 3 4 , 6 3 4 5 0 , 4 2 2 5 2 , 1 6 1 8 6 , 0 3 9 0 9 , 1 6 1 3 8 9 , 8 2 1 6 4 6 , 5 6 8 3 2 , 3 9 4 0 2 , 2 2 1 3 7 3 , 9 7 4 7 3 , 1 6 2 9 9 , 8 9 8 7 0 , 0 6 0 2 9 , 1 4 2 3 4 , 0 3 8 5 6 , 9 1 3 8 , 9 6 4 3 , 9 0 9 7 , 3 1 2 2 0 , 1 2 — — — 4 3 7 , 7 6 1 6 , 9 6 4 1 , 2 2 6 8 9 , 3 1 1 2 8 , 5 1 2 6 , 7 3 7 5 3 5 , 9 7 6 7 7 0 , 0 6 6 2 7 9 , 9 6 6 6 4 9 , 5 2 5 0 8 7 , 4 1 6 6 6 1 , 8 8 3 0 9 9 , 8 4 3 7 9 4 , 4 3 3 8 3 4 , 8 3 3 2 7 7 , 7 6 3 4 6 6 , 3 7 2 4 7 8 , 3 8 2 9 4 2 , 0 6 2 3 7 8 , 5 3 2 8 0 3 , 4 2 2 0 8 1 , 8 2 2 1 5 2 , 7 6 1 4 5 9 , 5 6 1 5 8 0 , 4 5 1 3 1 3 , 8 3 1 9 4 2 , 0 4 1 2 5 1 , 0 9 0 7 1 , 6 8 6 3 3 , 2 8 3 2 2 , 0 1 5 3 9 6 , 5 4 4 8 4 4 , 2 8 5 7 8 , 8 8 0 2 2 , 4 9 7 4 6 , 5 6 2 4 7 , 8 5 3 7 3 , 2 5 6 9 7 , 4 8 5 6 4 6 , 3 1 4 2 7 0 , 1 7 4 2 7 9 , 9 6 6 0 7 1 , 3 8 2 1 4 3 , 4 8 4 9 0 5 , 8 6 2 6 7 0 , 3 4 2 3 0 9 , 1 3 2 9 4 7 , 5 8 2 2 7 7 , 9 5 3 9 6 0 , 5 8 1 6 7 9 , 0 3 2 9 4 2 , 0 6 2 0 4 5 , 5 9 1 4 8 0 , 6 8 1 0 8 1 , 8 2 2 8 4 9 , 7 2 1 3 2 2 , 3 0 1 5 8 0 , 4 5 1 6 7 3 , 0 3 4 4 7 , 3 9 2 5 1 , 7 2 0 7 1 , 6 5 7 5 2 , 8 5 3 2 2 , 0 1 5 3 9 6 , 5 4 4 8 4 4 , 2 8 2 7 4 , 0 4 0 2 2 , 4 9 5 1 9 , 9 4 1 2 0 , 9 3 6 8 1 , 1 4 $ 7 3 4 , 0 7 6 , 1 $ 8 9 8 , 4 5 1 , 1 $ 9 3 5 , 5 1 5 5 2 8 , 2 5 1 9 8 8 , 5 6 2 5 0 0 , 9 8 1 — 6 7 7 , 2 4 2 9 3 4 , 0 3 1 7 5 6 , 9 1 1 4 1 9 , 5 0 1 4 9 5 , 2 0 1 0 0 0 , 8 9 8 6 , 2 5 5 9 5 , 8 8 8 9 8 , 2 5 — — 3 3 3 , 0 4 4 2 2 , 8 3 3 0 3 , 9 3 1 3 7 , 2 6 — 5 0 5 , 6 4 0 0 0 , 3 6 0 0 0 , 0 3 9 7 0 , 4 2 7 3 9 , 7 0 1 — — — — 3 0 4 , 8 4 2 3 7 , 5 1 1 2 7 , 9 1 7 8 1 , 1 1 — 6 6 5 5 6 2 , 0 5 0 0 2 , 5 3 3 0 8 , 7 5 2 6 6 7 , 1 6 1 — 8 6 8 , 8 2 — 0 2 9 , 9 1 1 2 8 8 , 3 8 1 6 9 5 , 1 7 0 9 2 , 5 3 1 0 8 9 , 2 4 1 1 8 2 , 0 1 1 2 9 0 , 0 6 1 7 5 4 , 7 0 1 2 3 7 , 7 4 5 3 3 , 0 4 6 8 4 , 5 4 1 5 1 1 , 2 8 1 5 , 7 9 4 2 , 3 6 7 0 1 , 6 3 7 3 0 , 3 8 8 9 , 3 3 7 6 7 , 8 9 6 6 9 , 1 5 4 5 , 5 3 1 2 8 , 9 3 7 2 5 , 3 2 5 7 5 , 5 2 — 7 6 1 0 3 2 , 4 8 5 1 8 3 , 3 6 3 2 7 0 , 1 7 4 9 6 1 , 2 1 4 0 7 9 , 7 4 2 1 8 5 , 2 2 3 9 0 5 , 8 6 2 8 0 2 , 4 1 2 3 0 9 , 1 3 2 3 0 9 , 4 6 1 0 9 8 , 5 7 1 3 7 4 , 3 1 1 6 8 6 , 5 9 9 6 2 , 7 1 1 9 5 2 , 5 8 2 9 9 , 5 2 3 2 7 , 0 2 1 6 1 2 , 0 8 8 8 8 , 2 6 9 9 5 , 8 1 6 2 , 8 2 6 2 2 , 6 8 3 0 9 , 6 2 3 6 0 , 0 2 0 2 2 , 5 5 5 3 2 , 6 7 4 6 2 9 , 6 4 3 2 8 4 , 0 8 8 2 7 , 8 1 3 9 9 , 8 8 8 3 , 6 2 6 4 4 , 3 1 6 8 1 , 1 4 $ 5 4 2 , 1 3 2 $ 3 5 6 , 3 2 9 $ 9 3 5 , 5 1 5 5 2 8 , 2 5 1 9 8 8 , 5 6 2 5 0 0 , 9 8 1 — 6 7 7 , 2 4 2 3 3 4 , 0 3 1 7 5 6 , 9 1 1 4 1 9 , 5 0 1 4 9 5 , 2 0 1 0 0 0 , 8 5 1 6 , 3 5 5 9 5 , 8 8 8 9 8 , 2 5 — — 3 3 3 , 0 4 4 2 2 , 8 3 3 0 3 , 9 3 1 3 7 , 2 6 — 5 0 5 , 6 4 7 3 9 , 7 0 1 — 0 0 0 , 0 3 9 7 0 , 4 2 — — — 2 0 6 , 4 3 6 0 4 , 5 4 2 3 7 , 5 1 1 2 7 , 9 1 7 8 1 , 1 1 $ , 0 0 0 0 5 9 , 0 0 0 0 5 4 , 0 0 0 0 0 4 , 0 0 0 0 9 3 — , 2 0 4 8 9 3 — — , 0 0 0 5 0 2 — , 0 0 0 0 4 1 , 0 0 0 5 7 5 , 8 9 5 1 8 1 , 0 0 0 0 0 7 , 0 0 0 5 7 3 , 0 0 0 0 5 4 — , 0 0 0 0 5 3 — — — — — — , 0 0 0 0 0 1 , 0 0 0 0 2 1 , 1 4 9 7 5 2 — — — 0 9 2 1 5 , — — — $ s a c i r e m A e h t f o e u n e v A 0 9 2 1 ) o d n o C l i a t e R ( e u n e v A h t f i F 6 6 6 e u n e v A h t f i F 3 0 7 - 7 9 6 e u n e v A k r a P 0 5 3 n a t t a h n a M k r o Y w e N t e e r t S d r 3 3 t s e W 0 0 1 t e e r t S h t 4 3 t s e W 0 5 1 y a w d a o r B 5 3 5 1 1 N N E P e u n e v A h t f i F 5 5 6 y a w d a o r B 0 4 5 1 e u n e v A k r a P 0 9 l l a M n a t t a h n a M y a w d a o r B 0 7 7 2 N N E P e u n e v A h t n e v e S 8 8 8 1 1 N N E P t e e r t S h t 8 5 t s a E 0 5 1 e u n e v A n o s i d a M 5 9 5 t e e r t S h t 4 3 t s e W 0 3 3 e u n e v A h t f i F 0 4 6 e u n e v A d r i h T 9 0 9 g n i d l i u B l i a t e R d n a e c i f f O y e l r a F e u n e v A n o s i d a M 0 5 8 - 8 2 8 d r a v e l u o B n r e h t r o N 0 0 - 3 3 e u n e v A n o t g n i x e L 5 1 7 h t u o S e r a u q S n o i n U 4 y a w d a o r B 6 8 4 - 8 7 4 l l a H n i a r T n a h i n y o M e u n e v A h t n e v e l E 0 6 2 e u n e v A h t f i F 0 1 5 y a w d a o r B 6 0 6 e u n e v A h t f i F 9 8 6 t e e r t S n o t l u F 0 4 y a w d a o r B 3 4 4 I N M U L O C H N M U L O C G N M U L O C F N M U L O C E N M U L O C D N M U L O C C N M U L O C B N M U L O C A N M U L O C I I I E L U D E H C S D E U N I T N O C - N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R ) s d n a s u o h t n i s t n u o m A ( . . 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n a t t a h n a M d e u n i t n o c - k r o Y w e N t e e r t S h t 6 6 t s a E 0 4 t e e r t S g n i r p S 5 5 1 e u n e v A h t n e v e S 5 3 4 e u n e v A h t f i F 8 0 6 y a w d a o r B 2 9 6 t e e r t S M 0 4 0 3 t e e r t S d r 3 3 t s e W 5 3 1 - 1 3 1 t e e r t S h t 4 3 t s e W 5 6 2 t e e r t S l a n a C 4 0 3 e u n e v A n o s i d a M 9 7 6 - 7 7 6 e u n e v A d r i h T 5 3 1 1 e u n e v A h t h g i E 6 8 4 e u n e v A h t n e v e S 1 3 4 t e e r t S d n 2 3 t s e W 2 4 1 - 8 3 1 e g a r a G y a w d a o r B 0 4 5 1 t e e r t S h t 4 3 t s e W 7 6 2 t e e r t S l a n a C 4 3 3 e u n e v A d r i h T 6 6 9 t e e r t S g n i r p S 8 4 1 t e e r t S g n i r p S 0 5 1 t e e r t S d r 3 3 t s e W 7 3 1 e u n e v A h t h g i E 8 8 4 e u n e v A h t h g i E 4 8 4 e u n e v A h t n e v e S 5 2 8 t e e r t S h t 6 2 t s e W 7 3 5 h c i w n e e r G 9 3 3 ) e g a n g i S g n i d u l c n I ( r e h t O n a t t a h n a M l a t o T s e i t r e p o r P r e h t O a i n a v l y s n n e P l e t o H s u m a r a P s e i t r e p o r P r e h t O l a t o T k r o Y w e N l a t o T n o e f i L h c i h w n o i t a i c e r p e d t s e t a l n i e m o c n i t n e m e t a t s d e t u p m o c s i e t a D d e r i u q c a f o e t a D n o i t c u r t s n o c d e t a l u m u c c A n o i t a i c e r p e d d n a h c i h w t a t n u o m a s s o r G d o i r e p f o e s o l c t a d e i r r a c s g n i d l i u B d n a s t s o C d e z i l a t i p a c t n e u q e s b u s s g n i d l i u B d n a ) 1 ( y n a p m o c o t t s o c l a i t i n I ) 4 ( n o i t a z i t r o m a ) 3 ( l a t o T s t n e m e v o r p m i d n a L n o i t i s i u q c a o t s t n e m e v o r p m i d n a L ) 2 ( s e c n a r b m u c n E I N M U L O C H N M U L O C G N M U L O C F N M U L O C E N M U L O C D N M U L O C C N M U L O C B N M U L O C A N M U L O C I I I E L U D E H C S D E U N I T N O C - N O I T A I C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R ) s d n a s u o h t n i s t n u o m A ( . . 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D n m u l o C e e s – – n o i t c u r t s n o c l a n o i t i d d a r o n o i t a v o n e r l a i t n a t s b u s d a h e v a h s e i t r e p o r p y n a m – – n o i t c u r t s n o c l a n i g i r o f o e t a D . s r a e y y t r o f o t e s a e l e h t f o e f i l e h t m o r f g n i g n a r s e v i l r e v o d e t a l u c l a c e r a s t n e m e v o r p m i d n a s g n i d l i u b e h t f o n o i t a i c e r p e D . H n m u l o C e e s e t a d t a h t o t t n e u q e s b u s d e r i u q c a s s e l n u ) s n o i t a r e p o e t a t s e l a e r d e c n e m m o c e w h c i h w n o e t a d e h t ( 2 8 9 1 , 0 3 y r a u n a J f o s a t s o c s i t s o c l a i t i n I . s n o i t a g i l b o t b e d l a u t c a r t n o c e h t s t n e s e r p e R ) 1 ( ) 2 ( ) 3 ( ) 4 ( ) 5 ( o g a c i h C , e i z n i K t s e W 7 2 5 o g a c i h C , T R A M e h t s i o n i l l I l a t o T s r e i P I P M M k r o Y w e N T R A M e h t s i o n i l l I r e h t O 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, 2018 2017 2016 $ 14,756,295 $ 14,187,820 $ 13,545,295 170,065 1,665,684 16,592,044 354,161 16,237,883 $ 21,298 598,820 14,807,938 51,643 14,756,295 $ 2,885,283 $ 381,500 3,266,783 86,608 3,180,175 $ 2,581,514 $ 360,391 2,941,905 56,622 2,885,283 $ 30,805 854,194 14,430,294 242,474 14,187,820 2,356,728 346,755 2,703,483 121,969 2,581,514 $ $ $ 170 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 * 171 * * * * * * * * * * * * * 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 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 March 3, 2004 __________________________________________ Incorporated by reference * 172 * * * * * * * * * * * * * * * 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 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 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 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 173 * * * * * * * * * * * * * * 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 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 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 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 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 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 April 2, 2015 3.53 ** — Forty-Seventh Amendment to Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P., dated December 13, 2017 - Incorporated by reference to Exhibit 3.2 to Vornado Realty L.P.'s Current Report on Form 8-K (File No. 001-34482), filed on December 13, 2017 3.54 ** — Forty-Eighth Amendment to Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P dated as of January 12, 2018 - Incorporated by reference to Exhibit 3.53 to Vornado Realty Trust's Annual Report on 10-K for the year ended December 31, 2017 (File No. 001-11954), filed on February 12, 2018 3.55 — Articles of Amendment to Declaration of Trust, dated June 13, 2018 - Incorporated by reference to Exhibit 3.54 to Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 (File No. 001-11954), filed on July 30, 2018 __________________________________________ * ** Incorporated by reference Management contract or compensatory agreement 174 * * * * * * * * * * * * * * 3.56 — Amended and Restated Bylaws of Vornado Related Trust, as amended on July 25, 2018 - Incorporated by reference to Exhibit 3.55 to Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 (File No. 001-11954), filed on July 30, 2018 4.1 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 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, upon request, copies of such instruments 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 on Form 10-Q 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 __________________________________________ * ** Incorporated by reference Management contract or compensatory agreement 175 * * * * * * * * * * * * 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 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 176 * * * * * * * * * * * * * * * * * * * * * * 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 * ** 177 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. Incorporated by reference to Exhibit 10.33 to Vornado Realty Trust's Annual Report on Form 10-K for the year ended December 31, 2017 (File No. 001-11954), filed on February 12, 2018 10.34 ** — Form of Vornado Realty Trust 2010 Omnibus Share Plan AO LTIP Unit Award Agreement Incorporated by reference to Exhibit 10.33 to Vornado Realty Trust's Annual Report on Form 10-K for the year ended December 31, 2017 (File No. 001-11954), filed on February 12, 2018 10.35 ** — Form of Vornado Realty Trust 2018 Outperformance Plan Award Agreement Incorporated by reference to Exhibit 10.35 to Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 (File No. 001-11954) filed on April 30, 2018 10.36 10.37 10.38 10.39 ** — Form of Performance Conditioned AO LTIP Award Agreement ** — Form of 2019 Amendment to Restricted LTIP Unit and Restricted Stock Agreements ** — Form of Vornado Realty Trust 2010 Omnibus Share Plan Restricted LTIP Unit Agreement ** — Form of Vornado Realty Trust 2010 Omnibus Share Plan Restricted Stock Agreement * ** *** __________________________________________ Incorporated by reference Management contract or compensatory agreement Filed herewith * * * * *** *** *** *** 178 21 23.1 23.2 31.1 31.2 31.3 31.4 32.1 32.2 32.3 32.4 — Subsidiaries of Vornado Realty Trust and Vornado Realty L.P. — Consent of Independent Registered Public Accounting Firm for Vornado Realty Trust — Consent of Independent Registered Public Accounting Firm for Vornado Realty L.P. — Rule 13a-14 (a) Certification of the Chief Executive Officer of Vornado Realty Trust — Rule 13a-14 (a) Certification of the Chief Financial Officer of Vornado Realty Trust — Rule 13a-14 (a) Certification of the Chief Executive Officer of Vornado Realty L.P. — Rule 13a-14 (a) Certification of the Chief Financial Officer of Vornado Realty L.P. — Section 1350 Certification of the Chief Executive Officer of Vornado Realty Trust — Section 1350 Certification of the Chief Financial Officer of Vornado Realty Trust — Section 1350 Certification of the Chief Executive Officer of Vornado Realty L.P. — Section 1350 Certification of the Chief Financial Officer of Vornado Realty L.P. 101.INS — XBRL Instance Document of Vornado Realty Trust and Vornado Realty L.P. 101.SCH — XBRL Taxonomy Extension Schema of Vornado Realty Trust and Vornado Realty L.P. 101.CAL — XBRL Taxonomy Extension Calculation Linkbase of Vornado Realty Trust and Vornado Realty L.P. 101.DEF — XBRL Taxonomy Extension Definition Linkbase of Vornado Realty Trust and Vornado Realty L.P. 101.LAB — XBRL Taxonomy Extension Label Linkbase of Vornado Realty Trust and Vornado Realty L.P. 101.PRE — XBRL Taxonomy Extension Presentation Linkbase of Vornado Realty Trust and Vornado Realty L.P. __________________________________________ *** Filed herewith *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** ITEM 16. FORM 10-K SUMMARY None. 179 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 WILLIAM W. HELMAN IV General Partner, Greylock Partners ROBERT P. KOGOD President of Charles E. Smith Management LLC 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 ED HOGAN Executive Vice President Retail Leasing – New York Division MICHAEL DOHERTY President – BMS Division ROBERT ENTIN Executive Vice President Chief Information Officer MARK HUDSPETH Executive Vice President Head of Capital Markets MATTHEW IOCCO Executive Vice President Chief Accounting Officer CORPORATE OFFICERS STEVEN ROTH Chairman of the Board Chief Executive Officer DAVID R. GREENBAUM Vice Chairman MICHAEL J. FRANCO President JOSEPH MACNOW Executive Vice President – Chief Financial Officer and Chief Administrative Officer GLEN J.WEISS Executive Vice President – Office Leasing – Co-Head of Real Estate BARRY S. LANGER Executive Vice President – Development – Co-Head of Real Estate 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, 2018. In addition, as required by Section 303A.12(a) of the New York Stock Exchange (NYSE) Listed Company Manual, on June 19, 2018, 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 May 16, 2019 at the Saddle Brook Marriott, Interstate 80 and the Garden State Parkway, Saddle Brook, New Jersey 07663. 2 0 1 8 A N N U A L R E P O R T This Annual Report is printed on recycled paper and is recyclable. 

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