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 sharebasic
Net income per sharediluted
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 sharebasic
Net income per sharediluted
Total assets
Net operating income
Funds from operations
Funds from operations per share
% increase in funds from operations per share
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Year Ended December 31,
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
.
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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
***
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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.