Vornado Realty Trust

1 EXHIBIT INDEX ON PAGE 35 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 1999 ------------------------------------------------- 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: 1-11954 ------------------------------------------------------ VORNADO REALTY TRUST - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) MARYLAND 22-1657560 --------------------------------------------- --------------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification Number) PARK 80 WEST, PLAZA II, SADDLE BROOK, NEW JERSEY 07663 ------------------------------------------------ ---------------------- (Address of principal executive offices) (Zip Code) (201) 587-1000 ---------------------------------------------------- (Registrant's telephone number, including area code) N/A - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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. [X] Yes [ ] No As of October 25, 1999 there were 85,948,399 common shares of the registrant's shares of beneficial interest outstanding. Page 1

2 INDEX PART I. FINANCIAL INFORMATION: ---------------------- Item 1. Financial Statements: PAGE NUMBER ------------- Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998......................................................... 3 Consolidated Statements of Income for the Three and Nine Months Ended September 30, 1999 and September 30, 1998........................... 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and September 30, 1998........................... 5 Notes to Consolidated Financial Statements................................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................. 16 Item 3. Quantitative and Qualitative Disclosures About Market Risks............... 32 PART II. OTHER INFORMATION: ------------------ Item 1. Legal Proceedings......................................................... 33 Item 6. Exhibits and Reports on Form 8-K.......................................... 33 Signatures .......................................................................... 34 Exhibit Index .......................................................................... 35 Page 2

3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VORNADO REALTY TRUST CONSOLIDATED BALANCE SHEETS (amounts in thousands except share amounts) SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ ASSETS Real estate, at cost: Land..................................... $ 826,824 $ 743,324 Buildings and improvements............... 2,999,869 2,561,383 Leasehold improvements and equipment............................ 14,251 11,184 ------------ ----------- Total.......................... 3,840,944 3,315,891 Less accumulated depreciation and amortization......................... (286,650) (226,816) ------------- ------------ Real estate, net......................... 3,554,294 3,089,075 Cash and cash equivalents, including U.S. government onligations under repurchase agreements of $81,090 and $56,500........ 140,752 167,808 Restricted cash............................... 18,410 44,195 Marketable securities......................... 77,472 77,156 Investments and advances to partially-owned entities, including Alexander's of $101,211 and $104,038.................... 1,194,404 827,840 Due from officers............................. 18,070 17,165 Accounts receivable, net of allowance for doubtful accounts of $6,340 and $3,044 41,913 35,517 Notes and mortgages receivable................ 50,063 10,683 Deposits in connection with real estate acquisitions............................. 25,529 22,947 Receivable arising from the straight-lining of rents.................................... 73,098 49,711 Other assets.................................. 114,115 83,682 ------------ ----------- TOTAL ASSETS.................................. $ 5,308,120 $ 4,425,779 ============ =========== SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Notes and mortgages payable.......................... $ 1,690,966 $ 1,363,750 Revolving credit facility............................ 382,000 687,250 Accounts payable and accrued expenses................ 101,057 109,925 Officer's deferred compensation payable.............. 33,339 35,628 Deferred leasing fee income.......................... 8,468 10,051 Other liabilities.................................... 3,882 3,196 -------------- ----------- 2,219,712 2,209,800 -------------- ----------- Minority interest.................................... 1,061,208 433,301 -------------- ----------- Commitments and contingencies Shareholders' equity: Preferred shares of beneficial interest: no par value per share; authorized, 45,000,000 shares; Series A: liquidation preference $50.00 per share; issued 5,789,239 shares........ 284,914 282,758 Series B: liquidation preference $25.00 per share; issued 3,400,000 shares........ 81,967 -- Series C: liquidation preference $25.00 per share; issued 4,600,000 shares........ 111,148 -- Common shares of beneficial interest: $.04 par value per share; authorized, 150,000,000 shares; issued 85,946,899 and 85,076,542 shares..................... 3,437 3,403 Additional capital............................. 1,683,740 1,653,208 Accumulated deficit............................ (112,992) (132,837) --------------- ------------ 2,052,214 1,806,532 Accumulated other comprehensive loss........... (20,227) (18,957) Due from officers for purchase of common shares.................................... (4,787) (4,897) --------------- ------------ Total shareholders' equity........... 2,027,200 1,782,678 --------------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... $ 5,308,120 $ 4,425,779 =============== =========== See notes to consolidated financial statements. Page 3

4 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF INCOME (amounts in thousands except per share amounts) FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------------- ---------------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------- Revenues: Property rentals......................... $ 153,598 $ 118,197 $ 434,215 $ 299,924 Expense reimbursements................... 24,841 20,210 66,712 53,000 Other income (including fee income from related parties of $500 and $450 in each three month period and $1,314 and $1,635 in each nine month period).. 4,382 2,265 12,380 6,482 ------------ ----------- ---------- ----------- Total revenues.............................. 182,821 140,672 513,307 359,406 ------------ ----------- ---------- ----------- Expenses: Operating................................ 74,644 58,607 206,340 144,214 Depreciation and amortization............ 21,438 16,210 60,315 41,605 General and administrative............... 7,722 6,775 27,519 18,792 ------------ ----------- ---------- ----------- Total expenses.............................. 103,804 81,592 294,174 204,611 ------------ ----------- ---------- ----------- Operating income............................ 79,017 59,080 219,133 154,795 Income (loss) applicable to Alexander's..... 1,610 (2,340) 4,951 806 Income from partially owned entities........ 19,664 11,195 60,682 20,871 Interest and other investment income........ 4,222 5,230 12,580 18,067 Interest and debt expense................... (35,085) (34,034) (105,986) (80,536) Net gain from insurance settlement and condemnation proceeding.................. -- 9,649 -- 9,649 Minority interest........................... (14,382) (3,698) (35,360) (10,767) ------------ ----------- ---------- ----------- Net income.................................. 55,046 45,082 156,000 112,885 Preferred stock dividends (including accretion of issuance expenses of $719 and $2,156 in each three and nine month period)......... (9,672) (5,423) (23,765) (16,268) ------------ ----------- ---------- ----------- Net income applicable to common shares...... $ 45,374 $ 39,659 $ 132,235 $ 96,617 ============ =========== ========== =========== Net income per common share - basic......... $ .53 $ .47 $ 1.55 $ 1.22 ============ =========== ========== =========== Net income per common share - diluted....... $ .52 $ .46 $ 1.51 $ 1.19 ============ =========== ========== =========== Dividends per common share.................. $ .44 $ .40 $ 1.32 $ 1.20 ============ =========== ========== =========== See notes to consolidated financial statements. Page 4

5 VORNADO REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) FOR THE NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------- 1999 1998 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................................... $ 156,000 $ 112,885 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization (including debt issuance costs)....... 60,315 41,605 Straight-lining of rental income.................................... (23,387) (14,977) Minority interest................................................... 35,360 10,767 Equity in income of Alexander's (including depreciation of $450 in each period).............................................. (4,951) (806) Equity in net income of partially-owned entities in excess of distributions........................................ (48,517) (9,122) Net gain from insurance settlement and condemnation proceedings..... -- (9,649) Gain on marketable securities....................................... (382) (1,530) Changes in operating assets and liabilities.............................. (46,605) (29,288) ----------- ----------- Net cash provided by operating activities................................ 127,833 99,885 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of real estate and other.................................... (182,400) (855,800) Investments in partially-owned entities.................................. (35,845) (308,800) Proceeds from sale of Cold Storage assets................................ 22,769 -- Investment in notes and mortgages receivable............................. (53,380) (6,562) Repayment of mortgage loans receivable................................... 14,000 67,663 Cash restricted for tenant improvements.................................. 25,785 (6,133) Additions to real estate................................................. (113,945) (67,392) Purchases of securities available for sale............................... (3,939) (73,773) Proceeds from sale or maturity of securities available for sale.......... 12,498 14,903 Real estate deposits and other........................................... (23,782) 53,712 ----------- ----------- Net cash used in investing activities.................................... (338,239) (1,182,182) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings................................................. 205,000 1,423,953 Repayments of borrowings................................................. (394,975) (883,043) Debt issuance costs...................................................... (8,059) (6,533) Proceeds from issuance of common shares.................................. -- 445,282 Proceeds from issuance of preferred stock................................ 193,282 -- Proceeds from issuance of units.......................................... 343,155 -- Distributions to minority partners....................................... (23,491) (2,577) Dividends paid on common shares.......................................... (112,390) (94,430) Dividends paid on preferred shares....................................... (21,608) (16,268) Exercise of stock options................................................ 2,436 812 ----------- ----------- Net cash provided by financing activities................................ 183,350 867,196 ----------- ----------- Net decrease in cash and cash equivalents................................ (27,056) (215,101) Cash and cash equivalents at beginning of period......................... 167,808 355,954 ----------- ----------- Cash and cash equivalents at end of period............................... $ 140,752 $ 140,853 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash payments for interest (including capitalized interest of $4,379 in 1999)....................................................... $ 108,713 $ 75,305 NON-CASH TRANSACTIONS: Financing assumed in acquisitions........................................ $ 188,000 $ 497,300 Minority interest in connection with acquisitions........................ 299,390 140,000 Unrealized gain (loss) on securities available for sale.................. 8,493 (1,589) See notes to consolidated financial statements. Page 5

6 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Vornado Realty Trust is a fully-integrated real estate investment trust ("REIT"). In April 1997, Vornado transferred substantially all of its assets to Vornado Realty L.P., a Delaware limited partnership (the "Operating Partnership"). As a result, Vornado conducts its business through the Operating Partnership. Vornado is the sole general partner of, and owned approximately 86% of the common limited partnership interest in, the Operating Partnership at October 25, 1999. All references to the "Company" and "Vornado" refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership. 2. BASIS OF PRESENTATION The consolidated balance sheet as of September 30, 1999, the consolidated statements of income for the three and nine months ended September 30, 1999 and 1998 and the consolidated statements of changes in cash flows for the nine months ended September 30, 1999 and 1998 are unaudited. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Vornado's annual report on Form 10-K for the year ended December 31, 1998 as filed with the Securities and Exchange Commission. The results of operations for the nine months ended September 30, 1999 are not necessarily indicative of the operating results for the full year. The accompanying consolidated financial statements include the accounts of Vornado Realty Trust and its majority-owned subsidiary, Vornado Realty L.P., as well as equity interests acquired that individually (or in the aggregate with prior interests) exceed a 50% interest and the Company exercises unilateral control. All significant intercompany amounts have been eliminated. Equity interests in partially-owned entities include partnerships, joint ventures and preferred stock affiliates (corporations in which the Company owns all of the preferred stock and none of the common equity) and are accounted for under the equity method of accounting as the Company exercises significant influence. These investments are recorded initially at cost and subsequently adjusted for net equity in income (loss) and cash contributions and distributions. Ownership of the preferred stock entitles the Company to substantially all of the economic benefits in the preferred stock affiliates. The common stock of the preferred stock affiliates is owned by Officers and Trustees of Vornado. Management has 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. Certain amounts in the prior year's financial statements have been reclassified to conform to the current year presentation. 3. ACQUISITIONS AND FINANCINGS ACQUISITIONS 888 Seventh Avenue On January 12, 1999, the Company completed the acquisition of 888 Seventh Avenue, a 46 story Manhattan office building, for approximately $100,000,000, of which $55,000,000 was indebtedness. Newkirk Joint Ventures On March 9, 1999, the Company and its joint venture partner completed the acquisition of additional equity interests in certain limited partnerships. The Company's additional investment of $52,435,000 consisted of $47,790,000 in Operating Partnership Units and $4,645,000 in cash. Page 6

7 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Charles E. Smith Commercial Realty L.P. ("CESCR") On March 4, 1999, the Company made an additional $242,000,000 investment in CESCR by contributing to CESCR the land under certain CESCR office properties in Crystal City, Arlington, Virginia and partnership interests in certain CESCR subsidiaries. The Company acquired these assets from Commonwealth Atlantic Properties, Inc. ("CAPI"), an affiliate of Lazard Freres Real Estate Investors L.L.C., immediately prior to the contribution to CESCR. Together with the Company's investment in CESCR made in 1997 and the units it reacquired in March 1999 from Vornado Operating Company, the Company owns approximately 34% of CESCR's limited partnership units. In addition, the Company acquired from CAPI for $8,000,000 the land under a Marriott Hotel located in Crystal City. The purchase price was paid to CAPI by the Company issuing $250,000,000 of 6% Convertible Preferred Units of the Company's Operating Partnership. The Preferred Units are convertible at $44 per unit and the coupon increases to 6.50% over the next three years and then fixes at 6.75% in year eight. The Company has the right to appoint one of three members to CESCR's Board of Managers, increasing under certain circumstances to two of four members in March 2002. In connection with these transactions, the Company made a five-year $41,000,000 loan to CAPI with interest at 8%, increasing to 9% ratably over the term. The loan is secured by approximately $55,000,000 of the Operating Partnership's units issued to CAPI as well as certain real estate assets. Acquisition of 909 Third Avenue On July 21, 1999, the Company acquired 909 Third Avenue, a 33 story Manhattan office building, for approximately $123,000,000, of which $109,000,000 was indebtedness. Hotel Pennsylvania On August 5, 1999, the Company increased its interest in the Hotel Pennsylvania to 100% by acquiring Planet Hollywood International, Inc.'s ("Planet Hollywood") 20% interest in the hotel for approximately $18,000,000 and assumed $24,000,000 of existing debt. In connection with the transaction, the Company terminated the licensing agreement with Planet Hollywood for an Official All-Star Hotel. The Hotel Pennsylvania is located in New York City on Seventh Avenue opposite Madison Square Garden. Acquisition of 595 Madison Avenue On September 15, 1999, the Company acquired 595 Madison Avenue (the "Fuller Building"), a 40 story Manhattan office building, for approximately $125,000,000 in cash. FINANCINGS Two Penn Plaza Refinancing On February 18, 1999, the Company completed a $165,000,000 refinancing of its Two Penn Plaza office building and prepaid the then existing $80,000,000 debt on the property. The new 5-year debt matures in February 2004 and bears interest at 7.08%. Hotel Pennsylvania On April 1, 1999, the Company entered into an interest rate swap agreement on the existing $120,000,000 mortgage on the property. The agreement swaps the stated interest rate of LIBOR + 1.60% for a fixed rate of 7% through the termination date of the agreement, March 31, 2000. Page 7

8 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 350 North Orleans Financing On July 8, 1999, the Company completed a $70,000,000 mortgage financing of its 350 North Orleans property in Chicago. The Company received proceeds of $40,000,000 and is expected to receive the remaining $30,000,000 during the next year upon meeting certain debt service coverage requirements. The new 3-year debt matures in June 2002 and bears interest at LIBOR + 1.65% (7.03% at October 31, 1999). Merchandise Mart Refinancing On September 21, 1999, the Company completed a $250,000,000 mortgage refinancing of its Merchandise Mart property in Chicago of which $50,000,000 is further secured by a letter of credit. The new 5-year debt matures in September 2004 and bears interest at LIBOR +1.50%. The initial interest rate on the loan through October 31, 1999 was 6.88%. The letter of credit will be reduced over the term of the loan as cash flow increases. The Company bought an interest rate cap, capping the interest rate in the event that LIBOR increases above 9.25% through the termination date of the agreement in September 2002. Simultaneously with this transaction, the Company sold an interest rate cap to a third party on the same terms as the cap the Company purchased. Offerings of Preferred Shares and Units On March 17, 1999, the Company completed the sale of 3 million 8.5% Series B Cumulative Redeemable Preferred Shares, at a price of $25.00 per share, pursuant to an effective registration statement with net proceeds to the Company of approximately $72,200,000. Also in March 1999, 400,000 shares were sold when the underwriters exercised their over-allotment option resulting in additional net proceeds to the Company of $9,700,000. The perpetual preferred shares may be called without penalty at the option of the Company commencing on March 17, 2004. On May 17, 1999, the Company completed the sale of 4 million 8.5% Series C Cumulative Redeemable Preferred Shares, at a price of $25.00 per share, pursuant to an effective registration statement with net proceeds to the Company of approximately $96,900,000. Also in May 1999, 600,000 shares were sold when the underwriters exercised their over-allotment option resulting in additional net proceeds to the Company of $14,500,000. The perpetual preferred shares may be called without penalty at the option of the Company commencing on May 17, 2004. On May 27, 1999, the Company sold an aggregate of $27,500,000 of 8.375% Series D-2 Cumulative Redeemable Preferred Units in the Operating Partnership to an institutional investor in a private placement, resulting in net proceeds of approximately $27,467,000. The perpetual Preferred Units may be called without penalty at the option of the Operating Partnership commencing on May 27, 2004. On September 3, 1999, the Company sold an aggregate of $325,000,000 of 8.25% Series D-3 and D-4 Cumulative Redeemable Preferred Units in the Operating Partnership to institutional investors in private placements, resulting in net proceeds of approximately $316,400,000. The Perpetual Preferred Units may be called without penalty at the option of the Operating Partnership commencing on September 7, 2004. Page 8

9 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) PRO FORMA INFORMATION The pro forma condensed consolidated operating results for Vornado for the nine months ended September 30, 1999 and 1998 are presented as if the acquisitions described above and those included in Investments and Advances to Partially-Owned Entities and the financings attributable thereto had occurred on January 1, 1998. Condensed Consolidated Pro Forma Operating Results Pro Forma ------------------------------------------ For the Nine Months Ended September 30, ------------------------------------------ 1999 1998 ------------------ ------------------- (amounts in thousands, except per share amounts) Revenues...................................................... $ 551,000 $ 511,500 ============ ============ Net income.................................................... $ 146,000 $ 142,400 Preferred stock dividends..................................... (23,800) (16,300) ------------ ------------ Net income applicable to common shares........................ $ 122,200 $ 126,100 ============ ============ Net income per common share - basic........................... $ 1.43 $ 1.47 ======== ======== Net income per common share - diluted......................... $ 1.40 $ 1.44 ======== ======== 4. INVESTMENTS AND ADVANCES TO PARTIALLY-OWNED ENTITIES The Company's investments and advances to partially-owned entities and income recognized from such investments are as follows: Investments and Advances September 30, 1999 December 31, 1998 -------------------- --------------------- (amounts in thousands) Alexander's........................................ $ 101,211 $ 104,038 Cold Storage Partnerships.......................... 464,604 459,172 CESCR.............................................. 317,952 49,151 Hotel Pennsylvania................................. 55,125 47,813 Newkirk Joint Ventures............................. 119,587 58,665 Mendik Partially-Owned Office Buildings............ 59,383 59,902 Vornado Management Corp., Mendik Management Company, Merchandise Mart Properties, Inc. and other............... 76,542 49,099 ----------- ----------- $ 1,194,404 $ 827,840 =========== =========== Page 9

10 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Income For The Three Months Ended For The Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------ ------------- ----------- (amounts in thousands) Income (loss) applicable to Alexander's.... $ 1,610 $ (2,340) $ 4,951 $ 806 ========== ========== ========== ========== Other Partially-owned entities: Cold Storage Partnerships................ $ 7,466 $ 5,008 $ 27,962 $ 8,172 CESCR.................................... 5,340 1,054 14,541 3,405 Hotel Pennsylvania....................... 830 1,361 3,398 2,750 Newkirk Joint Ventures................... 5,778 1,006 11,087 1,006 Mendik Partially-Owned Office Buildings................................ 626 959 1,376 2,181 Vornado Management Corp., Mendik Management Company, Merchandise Mart Properties Inc. and other...................... (376) 1,807 2,318 3,357 ---------- ---------- ---------- ---------- $ 19,664 $ 11,195 $ 60,682 $ 20,871 ========== ========== ========== ========== Alexander's The Company owned 29.3% of the outstanding shares of common stock of Alexander's as of September 30, 1999. In March 1995, the Company lent Alexander's $45,000,000. The loan, which was originally scheduled to mature in March 1998, has been renewed for two additional one year periods and currently matures in March 2000. The interest rate was reset in March 1999 from 13.87% per annum to 14.18% per annum. On October 20, 1999, the Company lent an additional $50,000,000 to Alexander's and on October 21, 1999, the Company increased its ownership percentage in Alexander's - see "Subsequent Events". Alexander's is managed by and its properties are leased by the Company, pursuant to agreements with a one-year term expiring in March of each year which are automatically renewable. Subject to the payments of rents by Alexander's tenants, the Company is due $2,333,000 under its leasing agreement with Alexander's which amount is included in Investments in and Advances to Alexander's. Included in income from Vornado Management Corp. is management fee income from Alexander's of $1,057,000 and $938,000 for the three months ended September 30, 1999 and 1998 and $3,271,000 and $2,813,000 for the nine months ended September 30, 1999 and 1998. Cold Storage Partnerships In March 1999, the partnerships in which affiliates of the Company have a 60% interest and affiliates of Crescent Real Estate Equities Company have a 40% interest ("Vornado/Crescent Partnerships") sold all of the non-real estate assets of the Cold Storage Partnerships encompassing the operations of the cold storage business for approximately $48,000,000 to a new partnership owned 60% by Vornado Operating Company ("Vornado Operating") and 40% by Crescent Operating Inc. The new partnership leases the underlying cold storage warehouses used in this business from the Vornado/Crescent Partnerships, which continue to own the real estate. The leases have a 15 year term with two-five year renewal options and provide for the payment of fixed base rent and percentage rent based on customer revenues. The new partnership is required to pay for all costs arising from the operation, maintenance and repair of the properties, as well as property capital expenditures in excess of $5,000,000 annually. Fixed base rent and percentage rent under the lease terms for the period from March 12, 1999 to September 30, 1999 was approximately $89,000,000. The new partnership has the right to defer a portion of the rent for up to three years beginning in March 1999 to the extent that available cash, as defined in the leases, is insufficient to pay such rent. Page 10

11 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) In October 1998, Vornado Operating was granted a $75,000,000 unsecured five-year revolving credit facility from Vornado. The balance outstanding under the facility is $4,587,000 at September 30, 1999. Borrowing under the facility bears interest at LIBOR plus 3% (8.4% at October 25, 1999). 5. OTHER RELATED PARTY TRANSACTIONS The Company currently manages and leases the real estate assets of Interstate Properties pursuant to a management agreement. Management fees earned by the Company pursuant to the management agreement were $352,000 and $184,000 for the three months ended September 30, 1999 and 1998 and $817,000 and $956,000 for the nine months ended September 30, 1999 and 1998. The Mendik Group owns an entity, which provides cleaning and related services and security services to office properties, including the Company's Manhattan office properties. The Company was charged fees in connection with these contracts of $10,280,000 and $7,356,000 for the three months ended September 30, 1999 and 1998 and $29,577,000 and $18,580,000 for the nine months ended September 30, 1999 and 1998. 6. MINORITY INTEREST The minority interest represents limited partners', other than Vornado, interests in the Operating Partnership and are comprised of: Outstanding Units at Preferred ----------------------------- Per Unit or Annual Conversion September 30, December 31, Liquidation Distribution Rate Into Unit Series 1999 1998 Preference Rate Class A Units - --------------- ------------- ------------ ------------- ------------ -------------- Class A.............................. 6,247,829 1,887,781 -- $ 1.76 (a) Class C.............................. -- 3,534,098 -- $ 1.69 (b) 1.0 (b) Class D.............................. 1,256,908 1,332,596 -- $ 2.015 1.0 (c) 5.0% B-1 Convertible Preferred....... 899,566 899,566 $50.00 $ 2.50 .914 8.0% B-2 Convertible Preferred....... 449,783 449,783 $50.00 $ 4.00 .914 6.5% C-1 Convertible Preferred....... 747,912 747,912 $50.00 $ 3.25 1.1431 8.5% D-1 Cumulative Redeemable Preferred.......................... 3,500,000 3,500,000 $25.00 $ 2.125 (d) 8.375% D-2 Cumulative Redeemable Preferred.......................... 549,336 -- $50.00 $ 4.1875 (d) 8.25% D-3 Cumulative Redeemable Preferred.......................... 8,000,000 -- $25.00 $ 2.0625 (d) 8.25% D-4 Cumulative Redeemable Preferred.......................... 5,000,000 -- $25.00 $ 2.0625 (d) 6.0% E-1 Convertible Preferred....... 4,998,000 -- $50.00 $ 3.00 1.1364 - -------------------------------- (a) Class A units are redeemable at the option of the holder for cash or, at Vornado's option, one common share of beneficial interest in Vornado. (b) Class C units automatically converted to Class A units in the third quarter of 1999. Prior to conversion, the Class C unit holders had participated in distributions at an annual rate of $1.69, then pari passu with the Class A units. (c) Mandatory conversion of Class D units into Class A units will occur after four consecutive quarters of distributions of at least $.50375 per Class A unit ($2.015 annually). (d) Redeemable for an equivalent Vornado preferred share. Page 11

12 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 7. COMMITMENTS AND CONTINGENCIES At September 30, 1999, in addition to the $382,000,000 balance outstanding under the Company's revolving credit facility, the Company had utilized approximately $89,050,000 of availability under the facility for letters of credit and guarantees primarily related to pending acquisitions. There are various legal actions against the Company in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the outcome of such matters will not have a material effect on the Company's financial condition, results of operations or cash flows. 8. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: For The Three Months Ended For The Nine Months Ended September 30, September 30, ------------------------------ --------------------------- 1999 1998 1999 1998 ------------- ------------- ------------ ----------- (amounts in thousands except per share amounts) Numerator: Net income................................... $ 55,046 $ 45,082 $ 156,000 $ 112,885 Preferred stock dividends.................... (9,672) (5,423) (23,765) (16,268) ----------- ----------- ----------- ----------- Numerator for basic and diluted earnings per share - net income applicable to common shares....................................... $ 45,374 $ 39,659 $ 132,235 $ 96,617 =========== =========== =========== =========== Denominator: Denominator for basic earnings per share - weighted average shares...................... 85,936 83,755 85,555 79,407 Effect of dilutive securities: Employee stock options..................... 1,553 1,673 1,783 2,075 ----------- ----------- ----------- ----------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions........................ 87,489 85,428 87,338 81,482 =========== =========== =========== =========== Net income per common share - basic.......... $ .53 $ .47 $ 1.55 $ 1.22 =========== =========== =========== =========== Net income per common share - diluted......... $ .52 $ .46 $ 1.51 $ 1.19 =========== =========== =========== =========== 9. COMPREHENSIVE INCOME The following table sets forth the Company's comprehensive income: For The Three Months Ended For The Nine Months Ended September 30, September 30, ------------------------------ --------------------------- 1999 1998 1999 1998 ------------- ------------- ------------ ----------- (amounts in thousands) Net income applicable to common shares......... $ 45,374 $ 39,659 $ 132,235 $ 96,617 Other comprehensive loss....................... (2,623) (4,893) (1,270) (1,589) ----------- ----------- ----------- ----------- Comprehensive income........................... $ 42,751 $ 34,766 $ 130,965 $ 95,028 =========== =========== =========== =========== Page 12

13 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 10. SEGMENT INFORMATION The Company has four business segments: Office, Retail, Merchandise Mart Properties and Cold Storage. (amounts in thousands) For The Three Months Ended September 30, ------------------------------------------------------------------------------------------- 1999 ------------------------------------------------------------------------------------------- Merchandise Cold Office Retail Mart Storage Other(2) Total ---------- ---------- ----------- ---------- ---------- ----------- Total revenues............... $100,701 $43,318 $ 35,622 $ -- $ 3,180 $182,821 Total expenses............... 61,248 18,161 19,352 -- 5,043 103,804 ---------- ---------- ---------- ---------- ---------- ---------- Operating income............. 39,453 25,157 16,270 -- (1,863) 79,017 Income (loss) applicable to Alexander's.............. -- -- -- -- 1,610 1,610 Income (loss) from partially- owned entities........... 5,976 217 (703) 7,466 6,708 19,664 Interest and other investment income (loss)............ 436 -- 199 -- 3,587 4,222 Interest and debt expense.... (13,185) (5,486) (8,166) -- (8,248) (35,085) Net gain from insurance settlement and condemnation proceeding............... -- -- -- -- -- -- Minority interest............ (6,868) (4,126) (1,693) (1,695) -- (14,382) ---------- ---------- ---------- ---------- ---------- ---------- Net income................... 25,812 15,762 5,907 5,771 1,794 55,046 Minority interest............ 6,868 4,126 1,693 1,695 -- 14,382 Interest and debt expense(4). 22,465 6,139 8,166 6,532 15,568 58,870 Depreciation and amortization(4).......... 15,513 4,144 4,463 7,591 3,387 35,098 Net gain from insurance settlement and condemnation proceeding............... -- -- -- -- -- -- Straight-lining of rents(4).. (4,503) (684) (1,224) (544) (577) (7,532) Other........................ (42) -- -- 2,757(3) (1,589) 1,126 ---------- ---------- ---------- ---------- --------- ---------- EBITDA(1).................... $ 66,113 $29,487 $ 19,005 $ 23,802 $18,583 $156,990 ========== ========== ========== ========== ========= ========== (amounts in thousands) For The Three Months Ended September 30, ----------------------------------------------------------------------------------------- 1998 ----------------------------------------------------------------------------------------- Merchandise Cold Office Retail Mart Storage Other(2) Total ---------- ---------- ----------- ---------- ---------- ----------- Total revenues............... $68,643 $40,928 $ 28,878 $ -- $ 2,223 $ 140,672 Total expenses............... 42,531 16,608 17,606 -- 4,847 81,592 ---------- ---------- ---------- ---------- ---------- ---------- Operating income............. 26,112 24,320 11,272 -- (2,624) 59,080 Income (loss) applicable to Alexander's.............. -- -- -- (2,340) (2,340) Income (loss) from partially- owned entities........... 3,356 -- 324 5,008 2,507 11,195 Interest and other investment income (loss)............ 924 (40) 29 -- 4,317 5,230 Interest and debt expense.... (7,660) (8,273) (5,770) -- (12,331) (34,034) Net gain from insurance settlement and condemnation proceeding............... -- -- -- -- 9,649 9,649 Minority interest............ (1,690) (1,168) (447) (393) -- (3,698) ---------- ---------- ---------- ---------- ---------- ---------- Net income................... 21,042 14,839 5,408 4,615 (822) 45,082 Minority interest............ 1,690 1,168 447 393 -- 3,698 Interest and debt expense(4). 11,867 8,273 5,770 6,601 14,397 46,908 Depreciation and amortization(4).......... 10,504 3,751 3,212 9,800 1,653 28,920 Net gain from insurance settlement condemnation proceeding............... -- -- -- -- (9,649) (9,649) Straight-lining of rents(4).. (1,726) (937) (1,375) -- (341) (4,379) Other........................ 299 -- -- 712(3) 4,712 (5) 5,723 ---------- ---------- ---------- ---------- ---------- ---------- EBITDA(1).................... $43,676 $27,094 $ 13,462 $ 22,121 $ 9,950 $ 116,303 ========== ========== ========== ========== ========== ========== - ----------------------------------- See footnotes 1-5 on page 15. Page 13

14 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) (amounts in thousands) For The Nine Months Ended September 30, ---------------------------------------------------------------------------------------------- 1999 ---------------------------------------------------------------------------------------------- Merchandise Cold Office Retail Mart Storage Other(2) Total ---------- ---------- ----------- ---------- ---------- --------- Total revenues.............. $275,853 $127,684 $102,711 $ -- $ 7,059 $513,307 Total expenses.............. 165,045 53,202 56,441 -- 19,486 294,174 ---------- ---------- ---------- ---------- ---------- ---------- Operating income............ 110,808 74,482 46,270 -- (12,427) 219,133 Income applicable to Alexander's.............. -- -- -- -- 4,951 4,951 Income from partially- owned entities........... 16,000 640 1,201 27,962 14,879 60,682 Interest and other investment income................... 1,292 -- 566 -- 10,722 12,580 Interest and debt expense.................. (35,444) (21,603) (21,331) -- (27,608) (105,986) Net gain from insurance settlement and condemnation proceeding............... -- -- -- -- -- -- Minority interest........... (16,313) (9,422) (4,703) (4,922) -- (35,360) ---------- ---------- ---------- ---------- ---------- ---------- Net income.................. 76,343 44,097 22,003 23,040 (9,483) 156,000 Minority interest........... 16,313 9,422 4,703 4,922 -- 35,360 Interest and debt expense(4)............... 59,171 23,568 21,331 20,090 43,747 167,907 Depreciation and amortization(4).......... 43,490 12,528 12,641 23,603 7,246 99,508 Net gain from insurance settlement and condemnation proceeding............... -- -- -- -- -- -- Straight-lining of rents(4) (13,118) (2,001) (3,504) (1,171) (271) (20,065) Other....................... (42) -- -- (252) (3) 1,521 1,227 ---------- ---------- ---------- ---------- ---------- ---------- EBITDA(1)................... $182,157 $87,614 $57,174 $70,232 $42,760 $439,937 ========== ========== ========== ========== ========== ========== September 30, 1999 ------------------------------------------------------------------------------------------- Balance sheet data: Real estate, net......... $2,163,304 $575,561 $739,487 $-- $75,942 $3,554,294 Investments and advances to partially-owned entities............... 385,070 2,436 31,344 464,604 310,950 1,194,404 (amounts in thousands) For The Nine Months Ended September 30, ---------------------------------------------------------------------------------------------- 1998 ---------------------------------------------------------------------------------------------- Merchandise Cold Office Retail Mart Storage Other(2) Total ---------- ---------- ----------- ---------- ---------- ----------- Total revenues.............. $172,358 $123,367 $57,188 $ -- $6,493 $359,406 Total expenses.............. 104,691 50,915 34,058 -- 14,947 204,611 ---------- ---------- ---------- ---------- ---------- --------- Operating income............ 67,667 72,452 23,130 -- (8,454) 154,795 Income applicable to Alexander's.............. -- -- -- -- 806 806 Income from partially- owned entities........... 7,228 -- 1,272 8,172 4,199 20,871 Interest and other investment income................... 3,868 2,119 350 -- 11,730 18,067 Interest and debt expense.................. (16,367) (24,152) (12,182) -- (27,835) (80,536) Net gain from insurance settlement and condemnation proceeding............... -- -- -- -- 9,649 9,649 Minority interest........... (5,030) (4,065) (1,013) (659) -- (10,767) ---------- ---------- ---------- ---------- ---------- ---------- Net income.................. 57,366 46,354 11,557 7,513 (9,905) 112,885 Minority interest........... 5,030 4,065 1,013 659 -- 10,767 Interest and debt expense(4)............... 28,414 24,152 12,182 20,211 32,199 117,158 Depreciation and amortization(4)......... 27,725 11,506 6,438 27,619 4,276 77,564 Net gain from insurance settlement and condemnation proceeding............... -- -- -- -- (9,649) (9,649) Straight-lining of rents(4) (5,223) (2,591) (2,658) -- (863) (11,335) Other....................... 299 -- -- 2,498(3) 5,561(5) 8,358 ---------- ---------- --------- -------- ---------- ----------- EBITDA(1)................... $113,611 $ 83,486 $28,532 $58,500 $21,619 $305,748 ========== =========== ======== ======== ========== =========== December 31, 1998 ---------------------------------------------------------------------------------------- Balance sheet data: Real estate, net......... $1,777,919 $565,723 $729,485 $-- $15,948 $3,089,075 Investments and advances to partially-owned entities............... 118,337 2,946 26,638 459,172 220,747 827,840 - --------------------------------------- See footnotes 1-5 on the next page. Page 14

15 VORNADO REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Notes to segment information: (1) EBITDA represents net income before interest, taxes, depreciation and amortization, extraordinary or non-recurring items, gains or losses on sales of real estate, the effect of straight-lining of property rentals for rent escalations and minority interest. Management considers EBITDA a supplemental measure for making decisions and assessing the performance of its segments. EBITDA may not be comparable to similarly titled measures employed by other companies. (2) Other includes (i) the operations of the Company's warehouse and industrial properties, (ii) investments in the Hotel Pennsylvania, Alexander's, and Newkirk Joint Ventures, (iii) corporate general and administrative expenses and (iv) unallocated investment income and interest and debt expense. (3) Includes (i) the reversal of income taxes (benefit for the nine months ended September 30, 1999) which are considered non-recurring because of the expected conversion of the Cold Storage Companies to REIT's and (ii) the add back of non-recurring unification costs. (4) Interest and debt expense, depreciation and amortization and straight-lining of rents included in the reconciliation of net income to EBITDA reflects amounts which are netted in income from partially-owned entities. (5) Primarily represents the Company's equity in Alexander's loss for the write-off resulting from the razing of Alexander's building formerly located at its Lexington Avenue site. 11. SUBSEQUENT EVENTS On October 15, 1999, the Company completed the acquisition of $15,600,000 of securitized debt from the Newkirk Joint Ventures which has a yield of 14.28%. On October 20, 1999, the Company lent Alexander's $50,000,000 on the same terms and conditions as the Company's existing $45,000,000 loan to Alexander's, including the interest rate of 14.18% and the maturity date of March 15, 2000. In conjunction with the additional loan, Alexander's paid the Company $11,200,000 (the Company's cost plus $200,000 in interest and carrying costs) for 112,000 square feet of air rights which the Company had recently entered into contracts to purchase. The Company paid for the air rights at the time it entered into the contracts with closing to take place when the developments which give rise to the air rights are completed in the year 2000. On October 21, 1999, the Company increased its ownership interest in Alexander's from 29.3% to 32% by acquiring an additional 135,600 shares of Alexander's common stock for approximately $8,956,000. Page 15

16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All of the amounts presented are in thousands, except share amounts and percentages) 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. Certain factors could cause actual results to differ materially from those in the forward-looking statements. Factors that might cause such a material difference include, but are not limited to, (a) changes in the general economic climate, (b) local conditions such as an oversupply of space or a reduction in demand for real estate in the area, (c) conditions of tenants, (d) competition from other available space, (e) increased operating costs and interest expense, (f) the timing of and costs associated with property improvements, (g) changes in taxation or zoning laws, (h) government regulations, (i) failure of Vornado to continue to qualify as a REIT, (j) availability of financing on acceptable terms, (k) potential liability under environmental or other laws or regulations, (l) general competitive factors and (m) failure by Vornado, or by other companies with which it does business, to remediate possible Year 2000 problems in computer software or embedded technology. OVERVIEW The Company's net income was $55,046 in the three months ended September 30, 1999, as compared to $45,082 in the prior year's quarter, an increase of $9,964. The Company's net income was $156,000 in the nine months ended September 30, 1999, as compared to $112,885 in the prior year's nine months, an increase of $43,115. EBITDA, as defined,(1) was $156,990 in the three months ended September 30, 1999, as compared to $116,303 in the prior year's quarter, an increase of $40,687. EBITDA was $439,937 in the nine months ended September 30, 1999 as compared to $305,748 in the prior year's nine months, an increase of $134,189. Page 16

17 Below is a summary of net income and EBITDA by segment for the three and nine months ended September 30, 1999 and 1998: For The Three Months Ended September 30, 1999 --------------------------------------------------------------------- Merchandise Cold Total Office Retail Mart Storage Other(2) ----- ------ ------ ----------- ------- -------- Total revenues ............. $ 182,821 $ 100,701 $ 43,318 $ 35,622 $ -- $ 3,180 Total expenses ............. 103,804 61,248 18,161 19,352 -- 5,043 -------- ------- -------- -------- -------- -------- Operating income ........... 79,017 39,453 25,157 16,270 -- (1,863) Income (loss) applicable to Alexander's .............. 1,610 -- -- -- -- 1,610 Income (loss) from partially-owned entities .. 19,664 5,976 217 (703) 7,466 6,708 Interest and other investment income (loss) ............. 4,222 436 -- 199 -- 3,587 Interest and debt expense ... (35,085) (13,185) (5,486) (8,166) -- (8,248) Minority interest ........... (14,382) (6,868) (4,126) (1,693) (1,695) -- -------- ------- -------- -------- -------- -------- Net income ................. 55,046 25,812 15,762 5,907 5,771 1,794 Minority interest ........... 14,382 6,868 4,126 1,693 1,695 -- Interest and debt expense (4) 58,870 22,465 6,139 8,166 6,532 15,568 Depreciation and amortization (4).. 35,098 15,513 4,144 4,463 7,591 3,387 Straight-lining of rents (4) (7,532) (4,503) (684) (1,224) (544) (577) Other ....................... 1,126 (42) -- -- 2,757(3) (1,589) -------- ------- -------- -------- -------- -------- EBITDA....................... $ 156,990 $ 66,113 $ 29,487 $ 19,005 $ 23,802 $ 18,583 ========= ======== ======== ======== ======== ======== For The Three Months Ended September 30, 1998 --------------------------------------------------------------------- Merchandise Cold Total Office Retail Mart Storage Other(2) ----- ------ ------ ----------- ------- -------- Total revenues ............... $ 140,672 $ 68,643 $ 40,928 $ 28,878 $ -- $ 2,223 Total expenses ............... 81,592 42,531 16,608 17,606 -- 4,847 --------- -------- -------- -------- -------- ------- Operating income ............. 59,080 26,112 24,320 11,272 -- (2,624) Income (loss) applicable to Alexander's ................ (2,340) -- -- -- -- (2,340) Income (loss) from partially-owned entities ... 11,195 3,356 -- 324 5,008 2,507 Interest and other investment income (loss) ............... 5,230 924 (40) 29 -- 4,317 Interest and debt expense ..... (34,034) (7,660) (8,273) (5,770) -- (12,331) Net gain from insurance settlement and condemnation proceeding.. 9,649 -- -- -- -- 9,649 Minority interest ............. (3,698) (1,690) (1,168) (447) (393) -- --------- -------- -------- -------- -------- ------- Net income ................... 45,082 21,042 14,839 5,408 4,615 (822) Minority interest ............. 3,698 1,690 1,168 447 393 -- Interest and debt expense (4) . 46,908 11,867 8,273 5,770 6,601 14,397 Depreciation and amortization (4) 28,920 10,504 3,751 3,212 9,800 1,653 Net gain from insurance settlement and condemnation proceeding.. (9,649) -- -- -- -- (9,649) Straight-lining of rents (4)... (4,379) (1,726) (937) (1,375) -- (341) Other ......................... 5,723 299 -- -- 712(3) 4,712(5) --------- -------- -------- -------- -------- ------- EBITDA ....................... $ 116,303 $ 43,676 $ 27,094 $ 13,462 $ 22,121 $ 9,950 ========= ======== ======== ======== ======== ======= Footnotes 1-5 are explained on the following page. Page 17

18 For The Nine Months Ended September 30, 1999 ---------------------------------------------------------------------- Merchandise Cold Total Office Retail Mart Storage Other(2) ----- ------ ------ ----------- ------- -------- Total revenues..................... $ 513,307 $275,853 $127,684 $ 102,711 $ -- $ 7,059 Total expenses..................... 294,174 165,045 53,202 56,441 -- 19,486 --------- -------- -------- --------- -------- -------- Operating income................... 219,133 110,808 74,482 46,270 -- (12,427) Income applicable to Alexander's... 4,951 -- -- -- -- 4,951 Income from partially-owned entities......................... 60,682 16,000 640 1,201 27,962 14,879 Interest and other investment income........................... 12,580 1,292 -- 566 -- 10,722 Interest and debt expense.......... (105,986) (35,444) (21,603) (21,331) -- (27,608) Minority interest.................. (35,360) (16,313) (9,422) (4,703) (4,922) -- --------- -------- -------- --------- -------- -------- Net income......................... 156,000 76,343 44,097 22,003 23,040 (9,483) Minority interest.................. 35,360 16,313 9,422 4,703 4,922 -- Interest and debt expense (4)...... 167,907 59,171 23,568 21,331 20,090 43,747 Depreciation and amortization (4).. 99,508 43,490 12,528 12,641 23,603 7,246 Straight-lining of rents (4)....... (20,065) (13,118) (2,001) (3,504) (1,171) (271) Other.............................. 1,227 (42) -- -- (252)(3) 1,521 --------- -------- -------- --------- -------- -------- EBITDA........................... $ 439,937 $182,157 $ 87,614 $57,174 $ 70,232 $ 42,760 ========= ======== ======== ======== ======== ======== For The Nine Months Ended September 30, 1998 ----------------------------------------------------------------------- Merchandise Cold Total Office Retail Mart Storage Other(2) ----- ------ ------ ----------- ------- -------- Total revenues..................... $ 359,406 172,358 $ 123,367 $ 57,188 $-- $ 6,493 Total expenses..................... 204,611 104,691 50,915 34,058 -- 14,947 -------- -------- --------- ------- ------- ------- Operating income................... 154,795 67,667 72,452 23,130 -- (8,454) Income applicable to Alexander's... 806 -- -- -- -- 806 Income from partially-owned entities......................... 20,871 7,228 -- 1,272 8,172 4,199 Interest and other investment income........................... 18,067 3,868 2,119 350 -- 11,730 Interest and debt expense.......... (80,536) (16,367) (24,152) (12,182) -- (27,835) Net gain from insurance settlement and condemnation proceeding....... 9,649 -- -- -- -- 9,649 Minority interest ................. (10,767) (5,030) (4,065) (1,013) (659) -- ------- ------ ------- ------ ------- ------ Net income ....................... 112,885 57,366 46,354 11,557 7,513 (9,905) Minority interest ................. 10,767 5,030 4,065 1,013 659 -- Interest and debt expense (4)...... 117,158 28,414 24,152 12,182 20,211 32,199 Depreciation and amortization (4).. 77,564 27,725 11,506 6,438 27,619 4,276 Net gain from insurance settlement and condemnation proceeding...... (9,649) -- -- -- -- (9,649) Straight-lining of rents (4)....... (11,335) (5,223) (2,591) (2,658) -- (863) Other.............................. 8,358 299 -- -- 2,498(3) 5,561(5) --------- --------- -------- -------- -------- -------- EBITDA............................. $ 305,748 $ 113,611 $ 83,486 $ 28,532 $ 58,500 $ 21,619 ========= ========= ======== ======== ======== ======== (1) EBITDA represents net income before interest, taxes, depreciation and amortization, extraordinary or non-recurring items, gains or losses on sales of real estate, the effect of straight-lining of property rentals for rent escalations and minority interest. Management considers EBITDA a supplemental measure for making decisions and assessing the performance of its segments. EBITDA may not be comparable to similarly titled measures employed by other companies. (2) Other includes (i) the operations of the Company's warehouse and industrial properties, (ii) investments in the Hotel Pennsylvania, Alexander's, and Newkirk Joint Ventures, (iii) corporate general and administrative expenses and (iv) unallocated investment income and interest and debt expense. (3) Includes (i) the reversal of income taxes (benefit for the nine months ended September 30, 1999) which are considered non-recurring because of the expected conversion of the Cold Storage Companies to REIT's and (ii) the add back of non-recurring unification costs. (4) Interest and debt expense, depreciation and amortization and straight-lining of rents included in the reconciliation of net income to EBITDA reflects amounts which are netted in income from partially-owned entities. (5) Primarily represents the Company's equity in Alexander's loss for the write-off resulting from the razing of Alexander's building formerly located at its Lexington Avenue site. Page 18

19 RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 Below are the details of the changes by segment in EBITDA. The change in Cold Storage EBITDA is discussed in Income from partially-owned entities. Merchandise Cold Total Office Retail Mart Storage(2) Other --------- -------- -------- ----------- ----------- -------- Three months ended September 30, 1998.............. $ 116,303 $ 43,676 $ 27,094 $ 13,462 $ 22,121 $ 9,950 1999 Operations: Same store operations(1)........ 8,806 4,759 1,226 2,704 N/A 117 Acquisitions and other.......... 31,881 17,678 1,167 2,839 391 8,516 --------- -------- -------- -------- -------- -------- Three months ended September 30, 1999............. $156,990 $ 66,113 $29,487 $ 19,005 $ 23,802 $ 18,583 ========= ======== ======== ======== ======== ======== % increase in same store operations............ 9.3% 10.9% 4.5% 20.0% N/A(2) 1.2% (1) Represents operations, which were owned for the same period in each year. (2) Not comparable because prior to March 12, 1999 (date the operations of the Cold Storage Partnerships were sold - see Note 4), the Company reflected its equity in the operations of the Cold Storage Partnerships. Subsequent thereto, the Company reflects its equity in the rent it receives from the Cold Storage Partnerships. Page 19

20 Revenues The Company's revenues, which consist of property rentals, tenant expense reimbursements and other income were $182,821 in the three months ended September 30, 1999, compared to $140,672 in the prior year's quarter, an increase of $42,149. This increase by segment resulted from: Date of Merchandise Acquisition Total Office Retail Mart Other ----------- ----- ------ ------ ----------- ----- Property Rentals: Acquisitions: 595 Madison Avenue........... September 1999 $ 611 $ 611 $ -- $ -- $ -- Hotel Pennsylvania (20%) ... August 1999 1,433 -- -- -- 1,433 909 Third Avenue ........... July 1999 5,052 5,052 -- -- -- 888 Seventh Avenue........... January 1999 5,152 5,152 -- -- -- Market Square Complex ...... December 1998 3,221 -- -- 3,221 -- Mendik RELP Properties ...... December 1998 7,483 7,483 -- -- -- 20 Broad Street ............. August 1998 2,668 2,668 -- -- -- 689 Fifth Avenue............. August 1998 430 430 -- -- -- -------- ------- ------ ------- ------ 26,050 21,396 -- 3,221 1,433 -------- ------- ------ ------- ------ Leasing activity, including $435 of step-ups in Retail.................... 9,351 7,039 676 1,594 42 -------- ------- ------ ------- ------ Total increase in property rentals...................... 35,401 28,435 676 4,815 1,475 -------- ------- ------ ------- ------ Tenant expense reimbursements: Increase in tenant expense reimbursements due to acquisitions.................. 3,343 2,531 -- 812 -- Other.......................... 1,288 (742) 1,280 829 (79) -------- ------- ------ ------- ------ Total increase in tenant expense reimbursements....... 4,631 1,789 1,280 1,641 (79) -------- ------- ------ ------- ------ Other income................... 2,117 1,835 102 288 (108) -------- ------- ------ ------- ------ Total increase in revenues..... $ 42,149 $ 32,059 $2,058 $ 6,744 $1,288 ======== ======= ====== ======= ====== Page 20

21 Expenses The Company's expenses were $103,804 in the three months ended September 30, 1999 compared to $81,592 in the prior year's quarter, an increase of $22,212. This increase by segment resulted from: Merchandise Total Office Retail Mart Other -------- ------- ------- ----------- ------- Operating: Acquisitions ............. $ 15,027 $13,488 $ -- $ 946 $ 593 Same store operations .... 1,010 815 1,452 (1,209) (48) -------- ------- ------- ------- ------- 16,037 14,303 1,452 (263) 545 -------- ------- ------- ------- ------- Depreciation and amortization: Acquisitions ............. 3,326 2,457 -- 644 225 Same store operations .... 1,902 1,263 97 607 (65) -------- ------- ------- ------- ------- 5,228 3,720 97 1,251 160 -------- ------- ------- ------- ------- General and Administrative: Corporate expenses(2) .... 3,833 694 4 758 2,377(1) Reduction in value of Vornado shares and other securities held in officer's deferred compensation trust ...... (2,886) -- -- -- (2,886) -------- ------- ------- ------- ------- 947 694 4 758 (509) -------- ------- ------- ------- ------- $ 22,212 $18,717 $ 1,553 $ 1,746 $ 196 ======== ======= ======= ======= ======= (1) Retail general and administrative expenses are included in corporate expenses, which are not allocated. (2) Of this increase: (i) $596 is attributable to acquisitions, (ii) $2,752 resulted from payroll, primarily for additional employees, and corporate office expenses, and (iii) $485 resulted from professional fees. Income applicable to Alexander's (loan interest income, equity in income and depreciation) was $1,610 in the three months ended September 30, 1999, compared to a loss of $2,340 in the prior year's quarter, an increase of $3,950. This increase resulted primarily from the Company's equity in Alexander's loss in 1998 of $4,423. Alexander's loss included the write-off resulting from the razing of its building formerly located at its Lexington Avenue site. Income from partially-owned entities was $19,664 in the three months ended September 30, 1999, compared to $11,195 in the prior year's quarter, a net increase of $8,469. This net increase by segment resulted from: Date of Merchandise Cold Acquisition Total Office Retail Mart Storage Other --------------- ------- --------- ------- ------------ --------- -------- Acquisitions: CESCR..................... March 1999 $ 4,286 $ 4,286 $ -- $ -- $ -- $ -- Newkirk Joint Ventures.... March 1999 4,778 -- -- -- -- 4,778 Las Catalinas............. November 1998 217 -- 217 -- -- -- ------- ------- ------ --------- -------- ------- 9,281 4,286 217 -- -- 4,778 Increase (decrease) in equity in income: Cold Storage............. 2,291 -- -- -- 2,291(1) -- Hotel Pennsylvania....... (531) -- -- -- -- (531)(2) Mendik partially-owned office buildings....... (333) (333)(2) -- -- -- -- Other.................... (2,239) (1,333) -- (1,027) 167 (46) ------- ------- ------ --------- -------- ------- $ 8,469 $ 2,620 $217 $ (1,027) $ 2,458 $ 4,201 ======= ======= ====== ========= ======== ======= (1) Primarily reflects equity interest in lease payments in 1999 in excess of equity in the operations of such companies in 1998. (2) Reflects the elimination of the Company's equity in income of Two Park Avenue as of November 1998 and the commercial portion of the Hotel Pennsylvania as of August 1999, both of which became wholly-owned and accordingly consolidated. Page 21

22 Interest and other investment income (interest income on mortgage loans receivable, other interest income, dividend income and net gains on marketable securities) was $4,222 for the three months ended September 30, 1999, compared to $5,230 in the prior year's quarter, a decrease of $1,008. This decrease resulted primarily from lower average investments this year. Interest and debt expense was $35,085 for the three months ended September 30, 1999, compared to $34,034 in the prior year's quarter, an increase of $1,051. This increase resulted primarily from debt in connection with acquisitions. Minority interest was $14,382 for the three months ended September 30, 1999, compared to $3,698 in the prior year's quarter, an increase of $10,684. Of this increase $9,032 is due to acquisitions and $1,652 results from higher income. Preferred stock dividends were $9,672 for the three months ended September 30, 1999, compared to $5,423 in the prior year's quarter, an increase of $4,249. This increase resulted from the issuance of the Company's Series B Cumulative Redeemable Preferred shares in March 1999 and Series C Cumulative Redeemable Preferred Shares in May 1999. NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 Below are the details of the changes by segment in EBITDA. The change in Cold Storage EBITDA is discussed in Income from partially-owned entities. Merchandise Cold Total Office Retail Mart Storage(2) Other --------- --------- -------- ----------- ----------- -------- Nine months ended $ 305,748 $ 113,611 $ 83,486 $ 28,532 $ 58,500 $ 21,619 September 30, 1998. . . . . 1999 Operations: Same store operations(1) . 19,002 12,955 3,293 3,460 N/A (706) Acquisitions and other. . . 115,187 55,591 835 25,182 9,860 21,847 --------- --------- -------- --------- --------- -------- Nine months ended September 30, 1999. . . . . $ 439,937 $ 182,157 $ 87,614 $ 57,174 $ 70,232 $ 42,760 ========= ========= ======== ========= ========= ======== % increase in same store operations. . . . . . 7.7% 11.4% 3.9% 12.1% N/A(2) (3.3%) (1) Represents operations which were owned for the same period in each year. (2) Not comparable because prior to March 12, 1999 (date the operations of the Cold Storage Partnerships were sold - see Note 4), the Company reflected its equity in the operations of the Cold Storage Partnerships. Subsequent thereto, the Company reflects its equity in the rent it receives from the Cold Storage Partnerships. Page 22

23 Revenues The Company's revenues, which consist of property rentals, tenant expense reimbursements and other income were $513,307 in the nine months ended September 30, 1999, compared to $359,406 in the prior year's nine months, an increase of $153,901. This increase by segment resulted from: Date of Merchandise Acquisition Total Office Retail Mart Other --------------- --------- --------- --------- ----------- --------- Property Rentals: Acquisitions: 595 Madison Avenue. . . . . . . . . . . September 1999 $ 611 $ 611 $ -- $ -- $ -- Hotel Pennsylvania (20%). . . . . . . . August 1999 1,433 -- -- -- 1,433 909 Third Avenue. . . . . . . . . . . . July 1999 5,052 5,052 -- -- -- 888 Seventh Avenue. . . . . . . . . . . January 1999 16,516 16,516 -- -- -- Market Square Complex . . . . . . . . . December 1998 10,611 -- -- 10,611 -- Mendik RELP Properties. . . . . . . . . December 1998 21,647 21,647 -- -- -- 20 Broad Street . . . . . . . . . . . . August 1998 8,112 8,112 -- -- -- 689 Fifth Avenue. . . . . . . . . . . . August 1998 2,152 2,152 -- -- -- 770 Broadway . . . . . . . . . . . . . July 1998 5,747 5,747 -- -- -- 40 Fulton Street. . . . . . . . . . . . June 1998 2,605 2,605 -- -- -- Merchandise Mart Properties. . . . . . . . . . . . . . April 1998 27,227 -- -- 27,227 -- 150 East 58th Street . . . . . . . . . March 1998 2,403 2,403 -- -- -- One Penn Plaza. . . . . . . . . . . . . February 1998 5,478 5,478 -- -- -- Westport . . . . . . . . . . . . . . . January 1998 274 274 -- -- -- --------- --------- ------ ------- ------ 109,868 70,597 -- 37,838 1,433 --------- --------- ------ ------- ------ Leasing activity, including $1,059 of step-ups in Retail . . . . . 24,423 20,776 1,348 2,694 (395) --------- --------- ------ ------- ------ Total increase in property rentals . . . 134,291 91,373 1,348 40,532 1,038 --------- --------- ------ ------- ------ Tenant expense reimbursements: Increase in tenant expense reimbursements due to acquisitions . . . . . . . . . . . . . 9,670 6,272 -- 3,398 -- Other. . . . . . . . . . . . . . . . . . 4,042 427 2,965 792 (142) --------- --------- ------ ------- ------ Total increase in tenant expense reimbursements . . . . . . . . 13,712 6,699 2,965 4,190 (142) --------- --------- ------ ------- ------ Other income . . . . . . . . . . . . . . 5,898 5,424 (328) 801 1 --------- --------- ------ ------- ------ Total increase in revenues . . . . . . . $ 153,901 $ 103,496 $3,985 $45,523 $ 897 ========= ========= ====== ======= ====== Page 23

24 Expenses The Company's expenses were $294,174 in the nine months ended September 30, 1999 compared to $204,611 in the prior year's nine months, an increase of $89,563. This increase by segment resulted from: Merchandise Total Office Retail Mart Other -------- -------- -------- ----------- -------- Operating: Acquisitions. . . . . . . . . . . . $ 54,475 $ 38,947 $ -- $ 14,935 $ 593 Same store operations . . . . . . . 7,651 6,698 2,148 (1,295) 100 -------- -------- -------- --------- -------- 62,126 45,645 2,148 13,640 693 -------- -------- -------- --------- -------- Depreciation and amortization: Acquisitions. . . . . . . . . . . . 13,926 8,336 -- 5,365 225 Same store operations . . . . . . . 4,784 3,952 133 838 (139) -------- -------- -------- --------- -------- 18,710 12,288 133 6,203 86 -------- -------- -------- --------- -------- General and Administrative: Corporate expenses (2). . . . . . . 10,846 2,421 6 2,540 5,879(1) Reduction in value of Vornado shares and other securities held in officer's deferred compensation trust (2,119) -- -- -- (2,119) -------- -------- -------- --------- -------- 8,727 2,421 6 2,540 3,760 -------- -------- -------- --------- -------- $ 89,563 $ 60,354 $ 2,287 $ 22,383 $ 4,539 ======== ======== ======== ========= ======== (1) Retail general and administrative expenses are included in corporate expenses which are not allocated. (2) Of this increase: (i) $2,802 is attributable to acquisitions, (ii) $5,906 resulted from payroll, primarily for additional employees, and corporate office expenses, and (iii) $2,138 resulted from professional fees. Page 24

25 Income applicable to Alexander's (loan interest income, equity in income and depreciation) was $4,951 in the nine months ended September 30, 1999, compared to $806 in the prior year's nine months, an increase of $4,145. This increase resulted primarily from the Company's equity in Alexander's loss in 1998 of $4,423. Alexander's loss included the write-off resulting from the razing of its building formerly located at its Lexington Avenue site. Income from partially-owned entities was $60,682 in the nine months ended September 30, 1999, compared to $20,871 in the prior year's nine months, a net increase of $39,811. This net increase by segment resulted from: Date of Acquisition Total Office Retail --------------- -------- --------- --------- Acquisitions: CESCR....................... March 1999 $11,136 $11,136 $ -- Newkirk Joint Ventures...... July 98/Mar. 99 10,087 -- -- Las Catalinas............... November 1998 640 -- 640 Cold Storage................ June/July 1998 7,628 -- -- Merchandise Mart Management Company....... April 1998 956 -- -- -------- ------- --------- 30,447 11,136 640 Increase (decrease) in equity in income: Cold Storage.............. 11,660 -- -- Hotel Pennsylvania........ 648 -- -- Mendik partially-owned office buildings........ (905) (905)(2) -- Other..................... (2,039) (1,459) -- -------- ------- --------- $39,811 $ 8,772 $640 ======== ======= ========= Merchandise Mart Cold Storage Other ------------ ------------ --------- Acquisitions: CESCR....................... $ -- $ -- $ -- Newkirk Joint Ventures...... -- -- 10,087 Las Catalinas............... -- -- -- Cold Storage................ -- 7,628 -- Merchandise Mart Management Company....... 956 -- -- ------------ ---------- --------- 956 7,628 10,087 Increase (decrease) in equity in income: Cold Storage.............. -- 11,660(1) -- Hotel Pennsylvania........ -- -- 648 Mendik partially-owned office buildings........ -- -- -- Other..................... (1,027) 502 (55) ------------ ---------- --------- $ (71) $19,790 $10,680 ============ ========== ========= (1) Primarily reflects equity interest in lease payments (March 12, 1999-September 30, 1999) and equity interest in the operations (January 1, 1999-March 12, 1999) for 1999 in excess of equity in the operations of such companies in 1998. (2) Reflects the elimination of the Company's equity in income of Two Park Avenue which is wholly-owned as of November 17, 1998 and accordingly is consolidated in 1999. Interest and other investment income (interest income on mortgage loans receivable, other interest income, dividend income and net gains on marketable securities) was $12,580 for the nine months ended September 30, 1999, compared to $18,067 in the prior year's nine months, a decrease of $5,487. This decrease resulted primarily from lower average investments this year. Interest and debt expense was $105,986 for the nine months ended September 30, 1999, compared to $80,536 in the prior year's nine months, an increase of $25,450. This increase resulted primarily from debt in connection with acquisitions. Minority interest was $35,360 for the nine months ended September 30, 1999, compared to $10,767 in the prior year's nine months, an increase of $24,593. Of this increase $18,889 is due to acquisitions and $5,704 results from higher income. Preferred stock dividends were $23,765 for the nine months ended September 30, 1999, compared to $16,268 in the prior year's nine months, an increase of $7,497. This increase resulted from the issuance of the Company's Series B Cumulative Redeemable Preferred shares in March 1999 and Series C Cumulative Redeemable Preferred Shares in May 1999. Page 25

26 SUPPLEMENTAL INFORMATION The following table sets forth certain information for the properties the Company owns directly or indirectly: Office Merchandise Mart Cold Storage -------------------- ------------------------ ------------------- New York City CESCR Retail Office(1) Showroom(1) Owned Managed -------- ----- ------ --------- ----------- ----- ------- (square feet and cubic feet in thousands) As of September 30, 1999: Square feet .............. 14,115 3,620 12,133 2,322 4,473 16,998 2,772 Cubic feet ............... -- -- -- -- -- 428,400 86,150 Number of properties ..... 23 38 59 7 7 89 14 Occupancy rate ........... 94% 98% 91% 95% 96% 95% 95% As of June 30, 1999: Square feet .............. 12,479 3,620 12,133 2,322 4,457 16,687 2,670 Cubic feet ............... -- -- -- -- -- 423,100 83,200 Number of properties ..... 21 38 59 7 7 87 13 Occupancy rate ........... 92% 98% 93% 95% 96% 92% 92% As of December 31, 1998: Square feet .............. 12,437 914 12,133 2,274 4,377 18,887 2,574 Cubic feet ............... -- -- -- -- -- 449,900 80,200 Number of properties ..... 20 38 59 7 7 88 13 Occupancy rate ........... 91% 98% 92% 95% 95% 90% 90% As of September 30, 1998: Square feet .............. 10,106 905 11,955 2,221 3,189 18,887 2,574 Cubic feet ............... -- -- -- -- -- 449,900 80,200 Number of properties ..... 18 25 59 5 5 88 13 Occupancy rate ........... 91% 97% 93% 93% 90% 90% 90% (1) The office and showroom space is contained in the same mixed-use properties. Page 26

27 LIQUIDITY AND CAPITAL RESOURCES Nine Months Ended September 30, 1999 Cash flows provided by operating activities of $127,833 was primarily comprised of (i) net income of $156,000 and (ii) adjustments for non-cash items of $18,438, offset by (iii) the net change in operating assets and liabilities of $46,605 (primarily prepaid expenses). The adjustments for non-cash items are primarily comprised of (i) depreciation and amortization of $60,315 and (ii) minority interest of $35,360, partially offset by (iii) the effect of straight-lining of rental income of $23,387 and (iv) equity in net income of partially-owned entities in excess of distributions of $48,517. Net cash used in investing activities of $338,239 was primarily comprised of (i) capital expenditures of $113,945 (see detail below), (ii) investment in notes and mortgages receivable of $53,380 (including $41,200 loan to CAPI and $18,587 loan to Vornado Operating Company), (iii) acquisitions of real estate of $182,400 (see detail below) and (iv) investments in partially-owned entities of $35,845 (see detail below), partially offset by (v) the use of cash restricted for tenant improvements of $25,785, (vi) proceeds from the sale of Cold Storage assets of $22,769 and (vii) proceeds from the repayment of mortgage loans receivable of $14,000 (Vornado Operating Company). Acquisitions of real estate and investments in partially-owned entities are comprised of: Debt Value of Units Assets Cash Assumed Issued Acquired ---------- ---------- -------------- ------------- Real Estate: 595 Madison Avenue Office Building................ $ 125,000 $ -- $ -- $ 125,000 909 Third Avenue Office Building.................. 12,400 109,000 1,600 123,000 888 Seventh Avenue Office Building................ 45,000 55,000 -- 100,000 ---------- ---------- ----------- ------------- $ 182,400 $ 164,000 $ 1,600 $ 348,000 ========== ========== =========== ============= Investments in Partially Owned Entities: Charles E. Smith Commercial Realty L.P.: Additional investment........................... $ -- $ -- $ 242,000 $ 242,000 Reacquired units from Vornado Operating Company....................................... 13,200 -- -- 13,200 Crystal City hotel land......................... -- -- 8,000 8,000 Additional investment in Newkirk Joint Ventures... 4,645 -- 47,790 52,435 Additional 20% investment in Hotel Pennsylvania... 18,000 24,000 -- 42,000 ---------- ---------- ----------- ------------- $ 35,845 $ 24,000 $ 297,790 $ 357,635 ========== ========== =========== ============= Capital expenditures were comprised of: New York City Merchandise Office Retail Mart Other Total -------- ------ ----------- ----- ----- Expenditures to maintain the assets....... $ 8,564 $ 984 $ 5,433 $ 4,912 $ 19,893 Tenant allowances......................... 14,604 953 11,294 -- 26,851 Redevelopment expenditures................ 43,854 17,745 5,602 -- 67,201 -------- ------- ----------- ------- -------- $ 67,022 $19,682 $ 22,329 $ 4,912 $113,945 ======== ======= =========== ======= ======== Net cash provided by financing activities of $183,350 was primarily comprised of (i) repayments of borrowings of $394,975, (ii) dividends paid on common shares of $112,390, (iii) dividends paid on preferred shares of $21,608, and (iv) distributions to minority partners of $23,491 partially offset by, (v) proceeds from issuance of preferred shares of $193,282, (vi) proceeds from issuance of units of $343,155 and (vii) proceeds from borrowings of $205,000. Page 27

28 Nine Months Ended September 30, 1998 Cash flows provided by operating activities of $99,885 was primarily comprised of (i) income of $103,236 (net income of $112,885 less net gain from insurance settlement and condemnation proceeding of $9,649) and (ii) adjustments for non-cash items of $25,937, offset by (iii) the net change in operating assets and liabilities of $29,288. The adjustments for non-cash items are primarily comprised of (i) depreciation and amortization of $41,605 and (ii) minority interest of $10,767, partially offset by (iii) the effect of straight-lining of rental income of $14,977 and (iv) equity in net income of partially-owned entities in excess of distributions of $9,122. The net change in operating assets and liabilities reflects an increase in prepaid real estate taxes of $15,792. Net cash used in investing activities of $1,182,182 was primarily comprised of (i) acquisitions of real estate of $855,800 (see detail below), (ii) investments in partially-owned entities of $308,000 (see detail below), (iii) capital expenditures of $67,392 and investments in securities of $73,773 (including $48,500 purchase of Capital Trust Preferred Stock), partially offset by (v) proceeds from the repayment of mortgage loans receivable of $67,663. Acquisitions of real estate and investments in partially-owned entities are comprised of: Debt Value of Total Cash Assumed Units Issued Consideration ----------- ----------- ------------ ------------- Real Estate: Merchandise Mart Properties................ $ 187,000 $ 327,000(1) $ 116,000 $ 630,000 One Penn Plaza Office Building............. 317,000 93,000 -- 410,000 770 Broadway Office Building............... 131,000 -- 18,000 149,000 150 East 58th Street Office Building....... 118,000 -- -- 118,000 40 Fulton Street Office Building........... 54,000 -- -- 54,000 689 Fifth Avenue Office Building........... 33,000 -- -- 33,000 Other...................................... 15,800 -- -- 15,800 ---------- ---------- ---------- ---------- $ 855,800 $ 420,000 $ 134,000 $1,409,800 ========== ========== ========== ========== Investments in Partially Owned Entities: Hotel Pennsylvania (acquisition of additional 40% interest increasing ownership to 80%).................................. $ 22,000 $ 48,000 $ -- $ 70,000 570 Lexington Avenue Office Building (increased interest from 5.6% to approximately 50%)....................... 32,300 4,900 -- 37,200 Acquisition of Freezer Services, Inc. (60% interest)................................ 58,000 16,000 6,000 80,000 Reduction in Cold Storage Partnerships debt (60% interest)........................... 44,000 -- -- 44,000 Acquisition of Carmar Group (60% interest). 86,400 8,400 -- 94,800 Investment in Newkirk Joint Ventures....... 56,000 -- -- 56,000 Other...................................... 9,300 -- -- 9,300 ---------- ---------- ---------- ---------- $ 308,000 $ 77,300 $ 6,000 $ 391,300 ========== ========== ========== ========== (1) Reflects July 1998 repayment of $26,000 of debt. Net cash provided by financing activities of $867,196 was primarily comprised of (i) proceeds from borrowings of $1,423,953 and (ii) proceeds from the issuance of common shares of $445,282 partially offset by (iii) repayment of borrowings of $883,043, (iv) dividends paid on common shares of $94,430 and (v) dividends paid on preferred shares of $16,268. Page 28

29 Funds from Operations for the Three and Nine Months Ended September 30, 1999 and 1998 Funds from operations was $76,462 in the three months ended September 30, 1999, compared to $58,608 in the prior year's quarter, an increase of $17,854. Funds from operations was $216,876 in the nine months ended September 30, 1999, compared to $157,789 in the prior year's nine months, an increase of $59,087. The following table reconciles funds from operations and net income: For The Three Months Ended For The Nine Months Ended September 30, September 30, -------------------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net income applicable to common shares..... $ 45,374 $ 39,659 $ 132,235 $ 96,617 Depreciation and amortization of real property............................... 21,623 15,969 59,320 41,002 Straight-lining of property rentals for rent escalations............................ (6,467) (3,804) (18,317) (10,218) Leasing fees received in excess of income recognized.............................. 727 310 1,528 1,047 Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at funds from operations..... 15,605 17,315 38,110 41,691 Reduction in value of Vornado shares held in officer's deferred compensation trust... (2,007) -- (340) -- Gain on sale of securities available for sale............................... -- -- (383) -- Net gain from insurance settlement and condemnation proceeding................ -- (9,649) -- (9,649) Minority interest in excess of preferential distributions.......................... (3,815) (1,192) (6,122) (2,701) ---------- ----------- ----------- ----------- 71,040 58,608 206,031 157,789 Dilutive effect of Series A preferred shares 5,422 -- 10,845 -- ---------- ----------- ----------- ----------- Funds from Operations-diluted.............. $ 76,462 $ 58,608 $ 216,876 $ 157,789 ========== =========== =========== =========== The number of shares that should be used for determining funds from operations per share is as follows: For The Three Months Ended For The Nine Months Ended September 30, September 30, -------------------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Weighted average shares.................... 85,936 83,755 85,555 79,407 Effect of dilutive securities: Employee stock options................. 1,553 1,673 1,783 2,075 Series A preferred shares.............. 8,018 -- 5,345 -- Denominator for diluted funds from operations ------- ------- ------- ------- per share - adjusted weighted average shares and assumed conversions.................... 95,507 85,428 92,683 81,482 ======= ======= ======= ======= Page 29

30 Funds from operations does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs, which is disclosed in the Consolidated Statements of Cash Flows for the applicable periods. There are no material legal or functional restrictions on the use of funds from operations. Funds from operations should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flows as a measure of liquidity. Management considers funds from operations a supplemental measure of operating performance and along with cash flow from operating activities, financing activities and investing activities, it provides investors with an indication of the ability of the Company to incur and service debt, to make capital expenditures and to fund other cash needs. Funds from operations may not be comparable to similarly titled measures reported by other REITs since a number of REITs, including the Company, calculate funds from operations in a manner different from that used by the National Association of Real Estate Investment Trusts ("NAREIT"). Funds from operations, as defined by NAREIT, represents net income applicable to common shares before depreciation and amortization, extraordinary items and gains or losses on sales of real estate. Funds from operations as disclosed above has been modified to adjust for the effect of straight-lining of property rentals for rent escalations and leasing fee income. Below are the cash flows provided by (used in) operating, investing and financing activities: For The Three Months Ended September For The Nine Months Ended September 30, 30, ------------------------------------- ------------------------------------- 1999 1998 1999 1998 ---------------- --------------- --------------- -------------- Operating activities......... $ 41,037 $ 17,674 $ 127,833 $ 99,885 =============== =============== =============== =============== Investing activities......... $ (195,919) $ (202,501) $ (338,239) $ (1,182,182) =============== =============== =============== =============== Financing activities......... $ 234,120 $ 68,096 $ 183,350 $ 867,196 =============== =============== =============== =============== Financings On February 18, 1999, the Company completed a $165,000 refinancing of its Two Penn Plaza office building and prepaid the then existing $80,000 debt on the property. The new 5-year debt matures in February 2004 and bears interest at 7.08%. On July 8, 1999, the Company completed a $70,000 mortgage financing of its 350 North Orleans property in Chicago. The Company received proceeds of $40,000 and is expected to receive the remaining $30,000 during the next year upon meeting certain debt service coverage requirements. The new 3-year debt matures in June 2002 and bears interest at LIBOR + 1.65% (7.03% at October 31, 1999). On September 21, 1999, the Company completed a $250,000 mortgage refinancing of its Merchandise Mart property in Chicago of which $50,000 is further secured by a letter of credit. The new 5-year debt matures in September 2004 and bears interest at LIBOR + 1.50%. The initial interest rate on the loan through October 31, 1999 was 6.88%. The letter of credit will be reduced over the term of the loan as cash flow increases. The Company bought an interest rate cap, capping the interest rate in the event that LIBOR increases above 9.25% through the termination date of the agreement in September 2002. Simultaneously with this transaction, the Company sold an interest rate cap to a third party on the same terms as the cap the Company purchased. Offerings of Preferred Shares and units On March 17, 1999, the Company completed the sale of 3 million 8.5% Series B Cumulative Redeemable Preferred Shares, at a price of $25.00 per share, pursuant to an effective registration statement with net proceeds to the Company of approximately $72,200. Further in March 1999, 400,000 shares were sold when the underwriters exercised their over-allotment option resulting in additional net proceeds to the Company of $9,700. The perpetual preferred shares may be called without penalty at the option of the Company commencing on March 17, 2004. Page 30

31 On May 17, 1999, the Company completed the sale of 4 million 8.5% Series C Cumulative Redeemable Preferred Shares, at a price of $25.00 per share, pursuant to an effective registration statement with net proceeds to the Company of approximately $96,900. Additionally in May 1999, 600,000 shares were sold when the underwriters exercised their over-allotment option resulting in additional net proceeds to the Company of $14,500. The perpetual preferred shares may be called without penalty at the option of the Company commencing on May 17, 2004. On May 27, 1999, the Company sold an aggregate of $27,500 of 8.375% Series D-2 Cumulative Redeemable Preferred Units in the Operating Partnership to an institutional investor in a private placement, resulting in net proceeds of approximately $27,467. The perpetual Preferred Units may be called without penalty at the option of the Operating Partnership commencing on May 27, 2004. On September 3, 1999, the Company sold an aggregate of $325,000 of 8.25% Series D-3 and D-4 Cumulative Redeemable Preferred Units in the Operating Partnership to institutional investors in private placements, resulting in net proceeds of approximately $316,400. The Perpetual Preferred Units may be called without penalty at the option of the Operating Partnership commencing on September 7, 2004. On March 12, 1999, the Vornado/Crescent Partnerships sold all of the non-real estate assets of Cold Storage Partnerships encompassing the operations of the cold storage business for approximately $48,000 to a new partnership owned 60% by Vornado Operating Company and 40% by Crescent Operating Inc. On October 15, 1999, the Company completed the acquisition of $15,600 of securitized debt from the Newkirk Joint Ventures which has a yield of 14.28%. On October 20, 1999, the Company lent Alexander's $50,000 loan on the same terms and conditions as the Company's existing $45,000 loan to Alexander's, including the interest rate of 14.18% and the maturity date of March 15, 2000. In conjunction with the additional loan, Alexander's paid $11,200 (the Company's cost plus $200,000 interest) for approximately 112,000 square feet of air rights which the Company had recently contracted to purchase. On October 21, 1999, the Company increased its ownership interest in Alexander's from 29.3% to 32% by acquiring an additional 135,600 shares of Alexander's common stock for approximately $8,956. The Company anticipates that cash from continuing operations will be adequate to fund business operations and the payment of dividends and distributions on an on-going basis for more than the next twelve months; however, capital outlays for any significant acquisitions will require funding from borrowings or equity offerings. Year 2000 Issues Year 2000 compliance programs and information systems modification were initiated by the Company in early 1998 to address the risk posed by the year 2000 issue. The Company developed a plan to address their affected informational (accounting, billing and payroll) and operational (refrigeration, HVAC, security, elevators, lighting and energy management) systems. The Company's plan also considers statements from outside vendors as to their year 2000 readiness. The Company and its partially-owned entities have completed the assessment, inventory and planning phases of the plan and have determined that all mission critical systems are year 2000 compliant. The Company believes that any issues encountered with informational or operational systems have been remediated. The Company completed its testing of all mission critical systems during the quarter ended September 30, 1999. The cost of the Company's year 2000 plan had no material impact to 1999 operations. Page 31

32 The Company believes that its exposure may be the failure of third parties (e.g., energy providers) in meeting their commitments which may result in temporary business interruption at the Company's buildings, retail centers, mart properties, cold storage warehouses and other real estate properties. The Company has contingency plans for its own day to day informational and operational systems that were completed by October 31, 1999. Failure of third parties with which the Company conducts business to successfully respond to their year 2000 issues may have an adverse effect on the Company. Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Management does not anticipate that implementation of this statement will have a material effect on the Company's financial statements. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5"), which was effective for the Company in the first quarter of 1999. The Company has no deferred organization costs or other deferred start-up costs as defined in SOP 98-5, and therefore adoption of SOP 98-5 had no material effect to the Company's financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS At September 30, 1999, the Company's exposure to a change in interest rates on its wholly-owned and partially-owned debt is as follows: (amounts in thousands except per share amounts) Weighted Effect of 1% Average Increase In Balance Interest Rate Base Rates ----------- ----------------- -------------- Wholly-owned debt: Variable rate.................. $ 1,243,007 6.60% $ 12,430 Fixed rate..................... 829,959 7.02% -- ----------- ---------- $ 2,072,966 12,430 =========== ---------- Partially-owned debt: Variable rate.................. $ 76,182 7.51% 762 Fixed rate..................... 1,119,273 7.47% -- ----------- ---------- $ 1,195,455 762 =========== ---------- Minority interest..................... (1,847) ---------- Total decrease in the Company's annual net income......... $ 11,345 ========== Per share-diluted................ $ .13 ========== Page 32

33 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is from time to time involved in legal actions arising in the ordinary course of its business. In the opinion of management, after consultation with legal counsel, the outcome of such matters will not have a material adverse effect on the Company's financial condition, results of operations or cash flows. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-K are incorporated herein by reference and are listed in the attached Exhibit Index. (b) Reports on Form 8-K During the quarter ended September 30, 1999, Vornado Realty Trust filed the reports on Form 8-K described below: Date of Report (Date of Earliest Event Reported) Item Reported Date Filed ----------------- ------------- ---------- May 17, 1999 Sale of Series C Preferred Shares in public offering and issuance July 7, 1999 of Series D-2 Preferred Units by Vornado Realty L.P. Page 33

34 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VORNADO REALTY TRUST ----------------------------------------- (Registrant) Date: November 4, 1999 By: /s/ Irwin Goldberg ----------------------------------------- IRWIN GOLDBERG Vice President, Chief Financial Officer Page 34

35 EXHIBIT INDEX EXHIBIT NO. - -------- 3.1 -- Amended and Restated Declaration of Trust of Vornado, amended April 3, 1997--Incorporated by reference to Exhibit 3.1 of Vornado's Registration Statement on Form S-8 (File No. 333-29011), filed on June 12, 1997......................................................................... * 3.2 -- Articles of Amendment of Declaration of Trust of Vornado, as filed with the State Department of Assessments and Taxation of Maryland on April 22, 1998 - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated April 22, 1998 (File No. 001-11954), filed on April 28, 1998.............................................................................. * 3.3 -- Articles Supplementary Classifying Vornado's $3.25 Series A Preferred Shares of Beneficial Interest, liquidation preference $50.00 per share - Incorporated by reference to Exhibit 4.1 of Vornado's Current Report on Form 8-K, dated April 3, 1997 (File No. 001-11954), filed on April 8, 1997.................................................................................. * 3.4 -- Articles Supplementary Classifying Vornado's Series D-1 8.5% Cumulative Redeemable Preferred Shares of Beneficial Interest, no par value (the "Series D-1 Preferred Shares") - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated November 12, 1998 (File No. 001-11954), filed on November 30, 1998............................................... * 3.5 -- Articles Supplementary Classifying Additional Series D-1 Preferred Shares - Incorporated by reference to Exhibit 3.2 of Vornado's Current Report on Form 8-K/A, dated November 12, 1998 (File No. 001-11954), filed on February 9, 1999................................................ * 3.6 -- Articles Supplementary Classifying 8.5% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by reference to Exhibit 3.3 of Vornado's Current Report on Form 8-K, dated March 3, 1999 (File No. 001-11954), filed on March 17, 1999........................................................ * 3.7 -- Articles Supplementary to Declaration of Trust of Vornado Realty Trust with Respect to Series C Preferred Shares - Incorporated by reference to Exhibit 3.7 of Vornado's Registration Statement on Form 8-A (File No. 001-11954), filed on May 19, 1999.............................. * 3.8 -- Articles Supplementary to Declaration of Trust of Vornado Realty Trust with respect to the Series D-2 Preferred Shares, dated as of May 27, 1999, as filed with the State Department of Assessments and Taxation of Maryland on May 27, 1999 - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed July 7, 1999................................................................................... * 3.9 -- Articles Supplementary to Declaration of Trust of Vornado Realty Trust with respect to the Series D-3 Preferred Shares, dated as of September 3, 1999, as filed with the State Department of Assessments and Taxation of Maryland on September 3, 1999 - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated September 3, 1999 (File No. 001-11954), filed October 25, 1999............................................................. * 3.10 -- Articles Supplementary to Declaration of Trust of Vornado Realty Trust with respect to the Series D-4 Preferred Shares, dated as of September 3, 1999, as filed with the State Department of Assessments and Taxation of Maryland on September 3, 1999 - Incorporated by reference to Exhibit 3.2 of Vornado's Current Report on Form 8-K, dated September 3, 1999 (File No. 001-11954), filed October 25, 1999............................................................. * - -------------- * Incorporated by reference Page 35

36 EXHIBIT NO. - -------- 3.11 -- By-laws of Vornado, as amended on April 28, 1997 - Incorporated by reference to Exhibit 3(b) of Vornado's Quarterly Report on Form 10-Q for the period ended March 31, 1997 (File No. 001-11954), filed on May 14, 1997.............................................................. * 3.12 -- Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated as of October 20, 1997 - Incorporated by reference to Exhibit 3.4 of Vornado's Annual Report on Form 10-K for the year ended December 31, 1997 filed on March 31, 1998 (the "1997 10-K").... * 3.13 -- Amendment to Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P., dated as of December 16, 1997- Incorporated by reference to Exhibit 3.5 of the 1997 10-K........................................................................................... * 3.14 -- Second Amendment to Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated as of April 1, 1998 - Incorporated by reference to Exhibit 3.5 of Vornado's Registration Statement on Form S-3 (File No. 333-50095), filed on April 14, 1998..... * 3.15 -- Third Amendment to Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated as of November 12, 1998 - Incorporated by reference to Exhibit 3.2 of Vornado's Current Report on Form 8-K, dated November 12, 1998 (File No. 001-11954), filed on November 30, 1998.............................................................................. * 3.16 -- Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated as of November 30, 1998 - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated December 1, 1998 (File No. 001-11954), filed on February 9, 1999...................................................................... * 3.17 -- Exhibit A, dated as of December 22, 1998, to Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership - Incorporated by reference to Exhibit 3.4 of Vornado's Current Report on Form 8-K/A, dated November 12, 1998 (File No. 001-11954), filed on February 9, 1999............................................................................... * 3.18 -- Fifth Amendment to Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated as of March 3, 1999 - Incorporated by reference to Exhibit 3.1 of Vornado's Current Report on Form 8-K, dated March 3, 1999 (File No. 001-11954), filed on March 17, 1999... * 3.19 -- Exhibit A to Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated as of March 11, 1999 - Incorporated by reference to Exhibit 3.2 of Vornado's Current Report on Form 8-K, dated March 3, 1999 (File No. 001-11954), filed on March 17, 1999....................................................................................... * 3.20 -- Sixth Amendment to Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P., dated as of March 17, 1999 - Incorporated by reference to Exhibit 3.2 of Vornado's Current Report on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed on July 7, 1999........................................................................................ * 3.21 -- Seventh Amendment to Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P., dated as of May 20, 1999 - Incorporated by reference to Exhibit 3.3 of Vornado's Current Report on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed on July 7, 1999..... * - -------------- * Incorporated by reference Page 36

37 EXHIBIT NO. - -------- 3.22 -- Eighth Amendment to Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P., dated as of May 27, 1999 - Incorporated by reference to Exhibit 3.4 of Vornado's Current Report on Form 8-K, dated May 27, 1999 (File No. 001-11954), filed on July 7, 1999..... * 3.23 -- Ninth Amendment to Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P., dated as of September 3, 1999 - Incorporated by reference to Exhibit 3.3 of Vornado's Current Report on Form 8-K (File No. 001-11954), dated September 3, 1999 (File No. 001-11954), filed October 25, 1999............................................................. * 3.24 -- Tenth Amendment to Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P., dated as of September 3, 1999 - Incorporated by reference to Exhibit 3.4 of Vornado's Current Report on Form 8-K (File No. 001-11954), dated September 3, 1999 (File No. 001-11954), filed October 25, 1999............................................................. * 4.1 -- Instruments defining the rights of security holders (see Exhibits 3.1 through 3.24 of this Quarterly Report on Form 10-Q)................................................................. 4.2 -- Indenture dated as of November 24, 1993 between Vornado Finance Corp. and Bankers Trust Company, as Trustee - Incorporated by reference to Vornado's current Report on Form 8-K dated November 24, 1993 (File No. 001-11954), filed December 1, 1993.......................................... * 4.3 -- Specimen certificate representing Vornado's Common Shares of Beneficial Interest, par value $0.04 per share - Incorporated by reference to Exhibit 4.1 of Amendment No. 1 to Registration Statement on Form S-3 (File No. 33-62395), filed on October 26, 1995........................... * 4.4 -- Specimen certificate representing Vornado's $3.25 Series A Preferred Shares of Beneficial Interest, liquidation preference $50.00 per share - Incorporated by reference to Exhibit 4.2 of Vornado's Current Report on Form 8-K, dated April 3, 1997 (File No. 001-11954), filed on April 8, 1997.................................................................................. * 4.5 -- Specimen certificate evidencing Vornado's Series B 8.5% Cumulative Redeemable Preferred Shares of Beneficial Interest - Incorporated by reference to Exhibit 4.2 of Vornado's Registration Statement on Form 8-A (File No. 001-11954), filed on March 15, 1999............................ * 4.6 -- Specimen certificate evidencing Vornado's 8.5% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by reference to Exhibit 4.2 of Vornado's Registration Statement on Form 8-A (File No. 001-11954), filed on May 19, 1999.............................................................. * 10.1 -- Second Amendment, dated as of June 12, 1997, to Vornado's 1993 Omnibus Share Plan, as amended - Incorporated by reference to Vornado's Registration Statement on Form S-8 (File No. 333-29011) filed on June 12, 1997......................................................................... * 10.2 -- Master Agreement and Guaranty, between Vornado, Inc. and Bradlees New Jersey, Inc. dated as of May 1, 1992 - Incorporated by reference to Vornado's Quarterly Report on Form 10-Q for quarter ended March 31, 1992 (File No. 001-11954), filed May 8, 1992................................... * 10.3** -- Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing dated as of November 24, 1993 made by each of the entities listed therein, as mortgagors to Vornado Finance Corp., as mortgagee - Incorporated by reference to Vornado's Current Report on Form 8-K dated November 24, 1993 (File No. 001-11954), filed December 1, 1993....................... * - -------------- * Incorporated by reference ** Management contract or compensatory plan Page 37

38 EXHIBIT NO. - -------- 10.4** -- 1985 Stock Option Plan as amended - Incorporated by reference to Vornado's Quarterly Report on Form 10-Q for quarter ended May 2, 1987 (File No. 001-11954), filed June 9, 1987............... * 10.5** -- Form of Stock Option Agreement for use in connection with incentive stock options issued pursuant to Vornado, Inc. 1985 Stock Option Plan - Incorporated by reference to Vornado's Quarterly Report on Form 10-Q for quarter ended October 26, 1985 (File No. 001-11954), filed December 9, 1985............................................................................... * 10.6** -- Form of Stock Option Agreement for use in connection with incentive stock options issued pursuant to Vornado, Inc. 1985 Stock Option Plan--Incorporated by reference to Vornado's Quarterly Report on Form 10-Q for quarter ended May 2, 1987 (File No. 001-11954), filed June 9, 1987........................................................................................ * 10.7** -- Form of Stock Option Agreement for use in connection with incentive stock options issued pursuant to Vornado, Inc. 1985 Stock Option Plan--Incorporated by reference to Vornado's Quarterly Report on Form 10-Q for quarter ended October 26, 1985 (File No. 001-11954), filed December 9, 1985............................................................................... * 10.8** -- Employment Agreement between Vornado Realty Trust and Joseph Macnow dated January 1, 1998 - Incorporated by reference to Exhibit 10.7 of Vornado's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (File No. 001-11954), filed November 12, 1998................. * 10.9** -- Employment Agreement between Vornado Realty Trust and Richard Rowan dated January 1, 1998 - Incorporated by reference to Exhibit 10.8 of Vornado's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (File No. 001-11954), filed November 12, 1998................. * 10.10** -- Employment Agreement between Vornado Realty Trust and Irwin Goldberg, dated December 11, 1997 - Incorporated by reference to Exhibit 10.10 of Vornado's Annual Report on Form 10-K/A for the year ended December 31, 1997 (File No. 001-11954), filed on April 14, 1998..................... * 10.11** -- Employment Agreement between Vornado Realty Trust and Michael D. Fascitelli dated December 2, 1996 - Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 001-11954), filed March 13, 1997.................................. * 10.12 -- Promissory Notes from Steven Roth to Vornado, Inc. dated December 29, 1992 and January 15, 1993 - Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 001-11954), filed February 16, 1993................................ * 10.13 -- Registration Rights Agreement between Vornado, Inc. and Steven Roth Dated December 29, 1992 - Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 001-11954), filed February 16, 1993......................................... * 10.14 -- Stock Pledge Agreement between Vornado, Inc. and Steven Roth dated December 29, 1992 - Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 001-11954), filed February 16, 1993......................................... * 10.15 -- Promissory Note from Steven Roth to Vornado Realty Trust dated April 15, 1993 and June 17, 1993 - Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 001-11954), filed March 24, 1994................................... * - -------------- * Incorporated by reference ** Management contract or compensatory plan Page 38

39 EXHIBIT NO. - -------- 10.16 -- Promissory Note from Richard Rowan to Vornado Realty Trust - Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 001-11954), filed March 24, 1994............................................................... * 10.17 -- Promissory Note from Joseph Macnow to Vornado Realty Trust - Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 001-11954), filed March 24, 1994............................................................... * 10.18 -- Management Agreement between Interstate Properties and Vornado, Inc. dated July 13, 1992 -Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 001-11954), filed February 16, 1993......................................... * 10.19 -- Real Estate Retention Agreement between Vornado, Inc., Keen Realty Consultants, Inc. and Alexander's, Inc., dated as of July 20, 1992 - Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 001-11954), filed February 16, 1993....................................................................................... * 10.20 -- Amendment to Real Estate Retention Agreement dated February 6, 1995 - Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 001-11954), filed March 23, 1995............................................................... * 10.21 -- Stipulation between Keen Realty Consultants Inc. and Vornado Realty Trust re: Alexander's Retention Agreement - Incorporated by reference to Vornado's annual Report on Form 10-K for the year ended December 31, 1993 (File No. 001-11954), filed March 24, 1994.................... * 10.22 -- Stock Purchase Agreement, dated February 6, 1995, among Vornado Realty Trust and Citibank, N.A. Incorporated by reference to Vornado's Current Report on Form 8-K dated February 6, 1995 (File No. 001-11954), filed February 21, 1995........................................................ * 10.23 -- Management and Development Agreement, dated as of February 6, 1995 - Incorporated by reference to Vornado's Current Report on Form 8-K dated February 6, 1995 (File No. 001-11954), filed February 21, 1995............................................................................... * 10.24 -- Standstill and Corporate Governance Agreement, dated as of February 6, 1995 - Incorporated by reference to Vornado's Current Report on Form 8-K dated February 6, 1995 (File No. 001-11954), filed February 21, 1995........................................................................ * 10.25 -- Credit Agreement, dated as of March 15, 1995, among Alexander's Inc., as borrower, and Vornado Lending Corp., as lender - Incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 001 - 11954), filed March 23, 1995...................... * 10.26 -- Subordination and Intercreditor Agreement, dated as of March 15, 1995 among Vornado Lending Corp., Vornado Realty Trust and First Fidelity Bank, National Association - Incorporated by reference to Vornado's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 001-11954), filed March 23, 1995........................................................... * 10.27 -- Revolving Credit Agreement dated as of February 27, 1995 among Vornado Realty Trust, as borrower, and Union Bank of Switzerland, as Bank and Administrative Agent - Incorporated by reference to Exhibit 10(F)9 of Vornado's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 001-11954), filed March 23, 1995................................... * 10.28 -- Form of Intercompany Agreement between Vornado Realty L.P. and Vornado Operating, Inc. -Incorporated by reference to Exhibit 10.1 of Amendment No. 1 to Vornado Operating, Inc.'s Registration Statement on Form S-11 (File No. 333-40701), filed on January 23, 1998............ * - -------------- * Incorporated by reference Page 39

40 EXHIBIT NO. - -------- 10.29 -- Form of Revolving Credit Agreement between Vornado Realty L.P. and Vornado Operating, Inc., together with related form of Note - Incorporated by reference to Exhibit 10.2 of Amendment No. 1 to Vornado Operating, Inc.'s Registration Statement on Form S-11 (File No.333-40701)..... * 10.30 -- Amended and Restated Revolving Credit Agreement, dated as of February 23, 1998, between Vornado Realty L.P., as Borrower, Vornado Realty Trust, as General Partner and Union Bank of Switzerland (New York Branch), as Bank, the other banks signatory hereto, each as a bank, Union Bank of Switzerland (New York Branch), as Administrative Agent and Citicorp Real Estate, Inc., The Chase Manhattan Bank and Nationsbank, as Syndication Agents - Incorporated by reference to Exhibit 10.29 of the 1997 10-K.................................................... * 10.31 -- Registration Rights Agreement, dated as of April 15, 1997, between Vornado Realty Trust and the holders of Units listed on Schedule A thereto - Incorporated by reference to Exhibit 10.2 of Vornado's Current Report on Form 8-K (File No. 001-11954), filed on April 30, 1997............. * 10.32 -- Noncompetition Agreement, dated as of April 15, 1997, by and among Vornado Realty Trust, the Mendik Company, L.P., and Bernard H. Mendik - Incorporated by reference to Exhibit 10.3 of Vornado's Current Report on Form 8-K (File No. 001-11954), filed on April 30, 1997............. * 10.33 -- 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 of Vornado's Current Report on Form 8-K (File No. 001-11954), filed on April 30, 1997....................... * 10.34 -- Agreement, dated September 28, 1997, between Atlanta Parent Incorporated, Portland Parent Incorporated and Crescent Real Estate Equities, Limited Partnership - Incorporated by reference to Exhibit 99.6 of Vornado's Current Report on Form 8-K (File No. 001-11954), filed on October 8, 1997............................................................................. * 10.35 -- Contribution Agreement between Vornado Realty Trust, Vornado Realty L.P. and The Contributors Signatory - thereto - Merchandise Mart Properties, Inc. (DE) and Merchandise Mart Enterprises, Inc. Incorporated by reference to Exhibit 10.34 of Vornado's Annual Report on Form 10-K/A for the year ended December 31, 1997 (File No. 001-11954), filed on April 8, 1998.................. * 10.36 -- Sale Agreement executed November 18, 1997, and effective December 19, 1997, between MidCity Associates, a New York partnership, as Seller, and One Penn Plaza LLC, a New York Limited liability company; as purchaser. Incorporated by reference to Exhibit 10.35 of Vornado's Annual Report on Form 10-K/A for the year ended December 31, 1997 (File No. 001-11954), filed on April 8, 1998............................................................................... * 10.37 -- Promissory Notes from Michael D. Fascitelli to Vornado Realty Trust dated March 2, 1998 and April 30, 1998. Incorporated by reference to Exhibit 10.37 of Vornado's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 (File No. 001-11954), filed May 13, 1998........ * 10.38 -- Credit Agreement dated as of June 22, 1998 among One Penn Plaza, LLC, as Borrower, The Lenders Party Hereto, The Chase Manhattan Bank, as Administrative Agent Incorporated by reference to Exhibit 10 of Vornado's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 001-11954), filed August 13, 1998.................................................... * 10.39 -- Registration Rights Agreement, dated as of April 1, 1998 between Vornado and the Unit Holders named herein - Incorporated by reference to Exhibit 10.2 of Amendment No. 1 to Vornado's Registration Statement on Form S-3 (File No. 333-50095), filed on May 6, 1998.................. * - -------------- * Incorporated by reference Page 40

41 EXHIBIT NO. - -------- 10.40 -- Underwriting Agreement, dated April 9, 1998, among Vornado, Vornado Realty L.P. and Goldman, Sachs & Co. - Incorporated by reference to Exhibit 1.1 of Vornado's Current Report on Form 8-K, dated April 9, 1998 (File No. 001-11954), filed on April 16, 1998......................... * 10.41 -- Pricing Agreement, dated April 9, 1998, between Vornado and Goldman, Sachs & Co. - Incorporated by reference to Exhibit 1.2 of Vornado's Current Report on Form 8-K, dated April 9,1998 (File No. 001-11954), filed on April 16, 1998........................................................ * 10.42 -- Underwriting Agreement, dated April 23, 1998, among Vornado, Vornado Realty L.P. and Merrill Lynch, Pierce, Fenner & Smith Incorporated - Incorporated by reference to Exhibit 1.1 of Vornado's Current Report on Form 8-K, dated April 22, 1998 (File No. 001-11954), filed on April 28, 1998................................................................................. * 10.43 -- Underwriting Agreement, dated March 12, 1999, among Vornado, Vornado Realty L.P., Merrill Lynch, Pierce, Fenner & Smith Incorporated - Incorporated by reference to Exhibit 1.1 of Vornado's Current Report on Form 8-K, dated March 3, 1999 (File No. 001-11954), filed on March 17, 1999.. * 27 -- Financial Data Schedule - -------------- * Incorporated by reference Page 41

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

9-MOS DEC-31-1999 SEP-30-1999 140,752 77,472 48,253 6,340 0 0 3,840,944 (286,650) 5,308,120 0 2,072,966 0 478,029 3,437 1,545,734 5,308,120 0 513,307 0 206,340 87,834 3,049 105,986 156,000 0 156,000 0 0 0 132,235 1.55 1.51