UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

For the transition period from:                  to                  

Commission File Number:  001-11954

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.

ý Yes    o No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

ý Yes    o No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes    ý No

As of September 30, 2005, 140,544,221 of the registrant’s common shares of beneficial interest are outstanding.

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CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

See notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.    Organization

         Vornado Realty Trust is a fully-integrated real estate investment trust (“REIT”) and conducts its business through Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”).  All references to the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.  Vornado is the sole general partner of, and owned approximately 89.5% of the common limited partnership interest in, the Operating Partnership at September 30, 2005.

2.     Basis of Presentation

         The accompanying consolidated financial statements 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 accounting principles generally accepted in the United States of America 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 the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2004 and the Company’s Current Report on Form 8-K dated August 19, 2005, as filed with the Securities and Exchange Commission.  The results of operations for the three and nine months ended September 30, 2005, are not necessarily indicative of the operating results for the full year.

         The accompanying consolidated financial statements include the accounts of Vornado and its majority-owned subsidiary, the Operating Partnership, as well as certain partially-owned entities in which the Company owns (i) more than 50% unless a partner has shared board and management representation and authority and substantive participation rights on all significant business decisions or (ii) 50% or less when the Company is considered the primary beneficiary and the entity qualifies as a variable interest entity under Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (Revised) — Consolidation of Variable Interest Entities (“FIN 46R”).  All significant intercompany amounts have been eliminated.  Equity interests in partially-owned corporate entities are accounted for under the equity method of accounting when the Company’s ownership interest is more than 20% but less than 50%.  When partially-owned investments are in partnership form, the 20% threshold for equity method accounting is generally reduced to 3% to 5%, based on the Company’s ability to influence the operating and financial policies of the partnership.  Investments accounted for under the equity method are recorded initially at cost and subsequently adjusted for the Company’s share of the net income or loss and cash contributions and distributions to or from these entities.  For all other investments, the Company uses the cost method.

         Management has made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

         Certain prior year balances have been reclassified in order to conform to current year presentation.

         Subsequent to the issuance of the Company’s consolidated financial statements for the quarterly period ended March 31, 2005, management determined that the Company’s consolidated statements of cash flows for the nine months ended September 30, 2004 should be restated to reclassify $11,421,000 of “net cash used in investing activities” to “net cash provided by operating activities” as they relate to distributions of income received from partially-owned entities accounted for on the equity method.  The restatement did not affect the total net change in cash and cash equivalents for the nine months ended September 30, 2004 and had no impact on the Company’s consolidated balance sheet, consolidated statement of income or the related income per share amounts.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

3.       Recently Issued Accounting Literature

          On December 16, 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 153, Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29. The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have “commercial substance.” SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 on its effective date did not have a material effect on the Company’s consolidated financial statements.

         On December 16, 2004, the FASB issued SFAS No. 123: (Revised 2004) - Share-Based Payment (“SFAS No. 123R”).  SFAS No. 123R replaces SFAS No. 123, which the Company adopted on January 1, 2003. SFAS No. 123R requires that the compensation cost relating to share-based payment transactions be recognized in financial statements and measured based on the fair value of the equity or liability instruments issued. SFAS No. 123R is effective as of the first annual reporting period beginning after December 31, 2005.  The Company believes that the adoption of SFAS No. 123R on its effective date will not have a material effect on it’s consolidated financial statements.

         In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections — A Replacement of APB Opinion No. 20 and SFAS No. 3.  SFAS No. 154 changes the requirements for the accounting and reporting of a change in accounting principle by requiring retrospective application to prior periods’ financial statements of the change in accounting principle, unless it is impracticable to do so.  SFAS No. 154 also requires that a change in depreciation or amortization for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle.  SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.  The Company believes that the adoption of SFAS No. 154 will not have a material effect on the Company’s consolidated financial statements.

4.       Acquisitions, Dispositions and Financings

          Acquisitions:

Beverly Connection

         On March 5, 2005, the Company acquired a 50% interest in a venture that owns Beverly Connection, a two-level urban shopping center, containing 322,000 square feet, located in Los Angeles, California for $10,700,000 in cash.  In addition, the Company provided the venture with $35,000,000 of preferred equity yielding 13.5% for up to a three-year term and a $59,500,000 first mortgage loan due February 2006 bearing interest at 13.5%.  The Company will also provide up to an additional $35,000,000 of preferred equity, if requested by the venture.  The shopping center is anchored by CompUSA, Old Navy and Sports Chalet.  The venture plans to redevelop the property and add retail, residential condominiums and assisted living facilities.  The redevelopment is subject to government approvals.  This investment is accounted for under the equity method of accounting.  The Company records its pro rata share of net income or loss in Beverly Connection on a one-month lag basis as the Company files its consolidated financial statements on Form 10-K and 10-Q prior to the time the venture reports its earnings (see Note 5 — Investments in Partially-Owned Entities).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

4.             Acquisitions, Dispositions and Financings - continued

        Westbury Retail Condominium

         On May 20, 2005, the Company acquired the retail condominium of the former Westbury Hotel in Manhattan for $113,000,000 in cash.  Simultaneously with the closing, the Company placed an $80,000,000 mortgage loan on the property bearing interest at 5.292% and maturing in 2018.  The remaining portion of the purchase price was funded as part of a Section 1031 tax-free “like-kind” exchange with a portion of the proceeds from the sale of 400 North LaSalle Residential Tower in April 2005.  The property contains approximately 17,000 square feet and is fully occupied by luxury retailers, Cartier, Chloe and Gucci under leases that expire in 2018.  The operations of Westbury Retail Condominium are consolidated into the accounts of the Company from the date of acquisition.

        Dune Capital L.P.

         On May 31, 2005, the Company contributed $50,000,000 in cash to Dune Capital L.P., a limited partnership involved in corporate, real estate and asset-based investments.  The Company’s investment represents a 3.5% limited partnership interest as at September 30, 2005.  The Company accounts for this investment on the cost method.

          Bowen Building

         On June 13, 2005, the Company acquired the 90% that it did not already own of the Bowen Building, a 231,000 square foot class A office building located at 875 15^th Street N.W. in the Central Business District of Washington, D.C.  The purchase price was $119,000,000, consisting of $63,000,000 in cash and an existing mortgage of $56,000,000, bearing interest at LIBOR plus 1.5%, due in February 2007.  At September 30, 2005, the building was 83% occupied by two tenants under leases that expire in 2015 and 2020.  The operations of the Bowen Building are consolidated into the accounts of the Company from the date of this acquisition.

          H Street Building Corporation (“H Street”)

         On July 20, 2005, the Company acquired H Street, which owns directly or indirectly through stock ownership in corporations, a 50% interest in real estate assets located in Pentagon City, Virginia, including 34 acres of land leased to various residential and retail operators, a 1,670 unit apartment complex, 10 acres of land and two office buildings located in Washington, DC containing 577,000 square feet. The purchase price was approximately $246,600,000, consisting of $194,500,000 in cash and $52,100,000 for the Company’s pro rata share of existing mortgage debt.  The operations of H Street are consolidated into the accounts of the Company from the date of acquisition.

         On July 22, 2005, these two corporations filed a complaint against the Company, H Street and three parties affiliated with the sellers of H Street in the Superior Court of the District of Columbia alleging that the Company encouraged H Street and the affiliated parties to breach their fiduciary duties to these corporations and interfered with prospective business and contractual relationships.  The complaint seeks an unspecified amount of damages and a rescission of the Company’s acquisition of H Street.   In addition, on July 29, 2005, a tenant under a ground lease with one of these corporations brought a separate suit in the Superior Court of the District of Columbia, alleging, among other things, that the Company’s acquisition of H Street violated a provision giving them a right of first offer and on that basis seeks a rescission of the Company’s acquisition and the right to acquire H Street for the price paid by the Company.  On September 12, 2005, the Company filed a complaint against each of these corporations and their acting directors seeking a restoration of H Street’s full shareholder rights and damages.   The Company believes that the actions filed against the Company are without merit and that it will ultimately be successful in defending against them.

         Because of the legal actions described above, the Company has not been granted access to the financial information of two corporations 50% owned by H Street and accordingly has not recorded its share of their net income or loss or disclosed its pro rata share of their outstanding debt in the accompanying consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

4.             Acquisitions, Dispositions and Financings - continued

Toys “R” Us, Inc. (“Toys”)

         On July 21, 2005, a joint venture owned equally by the Company, Bain Capital and Kohlberg Kravis Roberts & Co. acquired Toys (NYSE: TOY) for $26.75 per share in cash or approximately $6.6 billion.  In connection therewith, the Company provided $428,000,000 of the $1.3 billion of equity to the venture, consisting of $407,000,000 in cash and $21,000,000 in Toys common shares held by the Company.  This investment is accounted for under the equity method of accounting.

         Because Toys’ fiscal year ends on the Saturday nearest January 31, the Company will record its 32.95% share of Toys’ net income or loss on a one-quarter lag basis.  Equity in net loss from Toys for the three months ended September 30, 2005 was $530,000, which consisted of (i) $1,977,000, representing the Company’s share of Toys’ net loss in Toys’ second quarter ended July 30, 2005 for the period from July 21, 2005 (the date of the Toys acquisition) to July 30, 2005, partially offset by (ii) $1,333,000 of interest income on the Company’s $150,000,000 share of the $1.9 billion senior unsecured bridge loan described below and (iii) $114,000 of management fees.

         On August 29, 2005, the Company acquired $150,000,000 of the senior unsecured bridge loan financing provided to Toys.  The loan is senior to the acquisition equity of $1.3 billion and $1.6 billion of existing debt.  The loan bears interest at LIBOR plus 5.25% (8.88% as of September 30, 2005) not to exceed 11% and provides for an initial .375% placement fee and additional fees of .375% at the end of three and six months if the loan has not been repaid.  The loan is prepayable at any time without penalty.

         The unaudited pro forma information set forth below presents the condensed consolidated statements of income for the Company for the three and nine months ended September 30, 2005 and 2004 (including Toys’ results for the three and nine months ended July 30, 2005 and July 31, 2004, respectively) as if the above transactions had occurred on January 1, 2004.   The unaudited pro forma information below is not necessarily indicative of what the Company’s actual results would have been had these transactions been consummated on January 1, 2004, nor does it represent the results of operations for any future periods.  In management’s opinion, all adjustments necessary to reflect these transactions have been made.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

4.             Acquisitions, Dispositions and Financings - continued

East 66^th Street

         On July 25, 2005, the Company acquired a property located at Madison Avenue and East 66^th Street in Manhattan for $158,000,000 in cash.  The property contains 37 rental apartments with an aggregate of 85,000 square feet, and 10,000 square feet of retail space.  The operations of East 66^th Street are consolidated into the accounts of the Company from the date of acquisition.  The rental apartment operations are included in the Company’s Other segment and the retail operations are included in the Retail segment.

        220 Central Park South

         On August 26, 2005, a joint venture in which the Company has a 90% interest, acquired a property located at 220 Central Park South in Manhattan for $136,550,000, including closing costs.  The Company and its partner contributed cash of $43,400,000 and $4,800,000, respectively, to the venture to acquire the property.  The venture also obtained a $95,000,000 mortgage loan which bears interest at LIBOR plus 3.50% (7.02% as of September 30, 2005) and is due in August 2006, with two six-month extensions.  The property contains 122 rental apartments with an aggregate of 133,000 square feet and 5,700 square feet of commercial space.  The operations of 220 Central Park South are consolidated into the accounts of the Company from the date of acquisition and are included in the Company’s Other segment.

        Boston Design Center

         On September 26, 2005, the Company entered into an agreement to acquire the Boston Design Center which contains 552,500 square feet, is located in South Boston and will be operated by the Merchandise Mart division.  The purchase price is approximately $96,000,000, consisting of $24,000,000 in cash and the assumption of an existing $72,000,000 mortgage.  The sale, which is expected to close by the second quarter of 2006, is subject to customary closing conditions.

        Investment in Sears, Roebuck and Co. (“Sears”)

         As a result of the merger between Sears and Kmart on March 30, 2005, in exchange for 1,176,600 Sears common shares owned, the Company received 370,330 common shares of Sears Holdings Corporation (Nasdaq:  SHLD) (“Sears Holdings”) valued at $48,143,000 based on the $130.00 closing share price that day and $21,797,000 of cash.  The Company recognized a net gain of $27,651,000 in the first quarter of 2005, which was the difference between the aggregate cost basis in the Sears shares of $42,289,000 and the market value of the total consideration received on March 30, 2005 of $69,940,000.  On April 4, 2005, 99,393 of the Company’s Sears Holdings common shares were utilized to satisfy the third-party participation discussed below.  The remaining 270,937 Sears Holdings shares are recorded as marketable equity securities on the Company’s consolidated balance sheet and are classified as “available-for-sale.”  At September 30, 2005, based on Sears Holdings’ closing stock price of $124.43 per share, the Company reversed $5,383,000 of previously recorded appreciation and recorded $1,510,000 of depreciation to “accumulated other comprehensive income” in the shareholders’ equity section of the Company’s consolidated balance sheet.

         Pursuant to the terms of the contract, the Company’s derivative position representing 7,916,900 Sears common shares became a derivative position representing 2,491,819 common shares of Sears Holdings valued at $323,936,000 based on the $130.00 per share closing price on March 30, 2005, the date of the merger, and $146,663,000 of cash.  As a result, the Company recognized a net gain of approximately $58,443,000 based on the fair value of the Company’s derivative position.  In the three months ended September 30, 2005, the Company recorded a charge of $66,627,000 from the mark-to-market of this derivative position based on Sears Holdings’ September 30, 2005 closing share price of $124.43.  For the nine months ended September 30, 2005, the Company’s net income from this derivative position was $37,575,000.

         As a result of these transactions, on September 30, 2005, the Company owns 270,937 common shares of Sears Holdings and has an economic interest in an additional 2,491,819 common shares through its derivative position.  The Company’s aggregate net gain recognized on the owned shares and the derivative position from inception to September 30, 2005 was $146,955,000, based on Sears Holdings’ September 30, 2005 closing share price of $124.43 and after deducting $13,975,000 for a third-party performance-based participation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

4.             Acquisitions, Dispositions and Financings - continued

          Investment in McDonald’s Corporation (“McDonalds”)

         In July 2005, the Company acquired an aggregate of 858,000 common shares of McDonalds for $25,346,000, an average price of $29.54 per share. These shares are recorded as marketable equity securities on the Company’s consolidated balance sheet and are classified as “available for sale.”  Appreciation or depreciation in the fair market value of these shares is recorded as an increase or decrease in “accumulated other comprehensive income” in the shareholders’ equity section of the Company’s consolidated balance sheet and not recognized in income.  At September 30, 2005, based on McDonalds’ closing stock price of $33.49 per share, $3,388,000 of appreciation in the value of these shares was included in “accumulated other comprehensive income.”

         During the three months ended September 30, 2005, the Company acquired an economic interest in an additional 14,565,000 McDonalds common shares through a series of privately negotiated transactions with a financial institution pursuant to which the Company purchased a call option and simultaneously sold a put option at the same strike price on McDonalds’ common shares.  These call and put options have an initial weighted-average strike price of  $32.66 per share, or an aggregate of $475,692,000, expire on various dates between July 30, 2007 and September 10, 2007 and provide for net cash settlement.  Under these agreements, the strike price for each pair of options increases at an annual rate of LIBOR plus 45 basis points (up to 95 basis points under certain circumstances) and is credited for the dividends received on the shares.  The options provide the Company with the same economic gain or loss as if it had purchased the underlying common shares and borrowed the aggregate strike price at an annual rate of LIBOR plus 45 basis points.  Because these options are derivatives and do not qualify for hedge accounting treatment, the gains or losses resulting from the mark-to-market of the options at the end of each reporting period are recognized as an increase or decrease in “interest and other investment income” on the Company’s consolidated statement of income.  During the quarter ended September 30, 2005, the Company recorded net income of $9,859,000, comprised of $12,090,000 from the mark-to-market of the options on September 30, 2005, based on McDonalds’ closing stock price of $33.49 per share, partially offset by $2,231,000 for the increase in strike price resulting from the LIBOR charge.

         Based on McDonalds’ most recent filing with the Securities and Exchange Commission, the Company’s aggregate investment in McDonalds represents 1.2% of its outstanding common shares.

          Moynihan Station Project

         On July 19, 2005, a joint venture, owned equally by the Company and The Related Companies, entered into a Memorandum of Understanding and has been conditionally designated as the developer to convert the Farley Post Office in Manhattan into the new Moynihan Train Station.  The Moynihan Station project involves 300,000 square feet for a new transportation facility to be financed with public funding, as well as 850,000 square feet of commercial space and up to 1,000,000 square feet of air rights intended to be transferred to an adjacent site. The commercial space is currently anticipated to include a variety of retail uses, restaurants, a boutique hotel and merchandise mart space.

          Springfield Mall

         On October 31, 2005, the Company entered into an option agreement to purchase the 1.4 million square foot Springfield Mall which is located on 79 acres of land at the intersection of Interstate 95 and Fraconia Road in Springfield, Fairfax County, Virginia, and is anchored by Macy’s, J.C. Penney and Target.  The option becomes exerciseable upon the passing of one of the existing principals of the selling entity and may be deferred at the Company’s election through November 2012.  The Company paid $36,000,000 for the option and upon exercise will pay $80,000,000 and acquire the Mall, subject to the existing mortgage which is presently $181,000,000 and will be amortized to $149,000,000 in 2013 when it matures.  During the option period the Company will manage the Mall and receive the Mall’s net cash flow.  The Company has a 2.5% partner in this transaction.  The Company intends to redevelop, reposition and retenant the Mall.  The acquisition of the option, which is expected to close by the end of 2005, is subject to lender approval and customary closing conditions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

4.             Acquisitions, Dispositions and Financings - continued

          Broadway Mall

         On October 31, 2005, the Company entered into an agreement to acquire the 1.2 million square foot Broadway Mall for approximately $153,000,000, including $95,800,000 of existing debt.  The Broadway Mall is located on Route 106 in Hicksville, Long Island, New York and is anchored by Macy’s, Ikea, Target and Multiplex Cinemas.  The purchase, which is expected to close in the fourth quarter of 2005, is subject to lender approval and customary closing conditions.

          Other

         In addition to the acquisitions and investments described above, the Company made $216,300,000 of other acquisitions and investments during 2005, which are summarized below:

          Dispositions:

         On April 21, 2005, the Company, through its 85% owned joint venture, sold 400 North LaSalle, a 452-unit high-rise residential tower in Chicago, Illinois, for $126,000,000, which resulted in a net gain on sale after closing costs of $31,614,000.  All of the proceeds from the sale were reinvested in tax-free “like-kind” exchange investments pursuant to Section 1031 of the Internal Revenue Code.

         At June 30, 2005, the Company owned 3,972,447 common shares of Prime Group Realty Trust (“Prime”) with a carrying amount of $4.98 per share or an aggregate of $19,783,000.  The investment was recorded as marketable equity securities on the Company’s consolidated balance sheet and classified as “available-for-sale”.  On July 1, 2005, The Lightstone Group, LLC completed its acquisition of Prime by acquiring all of Prime’s outstanding common shares and limited partnership units for $7.25 per share or unit.  In connection therewith, the Company recognized a gain of $9,017,000, representing the difference between the purchase price and the Company’s carrying amount, which is reflected as a component of “net gains on disposition of wholly-owned and partially-owned assets other than depreciable real estate” in the Company’s consolidated statement of income for the three and nine months ended September 30, 2005.

         Net gains on disposition of wholly-owned and partially-owned assets other than depreciable real estate of $13,448,000 and $16,936,000 for the three and nine months ended September 30, 2005 primarily represent net gains on sales of marketable equity securities, including a $9,017,000 net gain on sale of Prime Group Realty Trust common shares.  Net gains on disposition of wholly-owned and partially-owned assets other than depreciable real estate for the nine months ended September 30, 2004 of $776,000 represent a net gain on sale of residential condominiums.

          Financings:

         On January 19, 2005, the Company redeemed all of its Series C Cumulative Redeemable Preferred Shares at a redemption price equal to $25.00 per share or $115,000,000 plus accrued distributions.  In addition, the Company also redeemed $80,000,000 of Series D-3 Perpetual Preferred Units of the Operating Partnership.  The redemption amounts exceeded the carrying amounts by $6,052,000, representing the original issuance costs.  Upon redemption, these issuance costs were recorded as a reduction to earnings in arriving at net income applicable to common shares, in accordance with the July 2003 EITF clarification of Topic D-42.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

4.             Acquisitions, Dispositions and Financings - continued

         On March 29, 2005, the Company completed a public offering of $500,000,000 aggregate principal amount of 3.875% exchangeable senior debentures due 2025 pursuant to an effective registration statement.  The notes were sold at 98.0% of their aggregate principal amount.  The aggregate net proceeds from this offering, after the underwriters’ discount were approximately $490,000,000.  The debentures are exchangeable, under certain circumstances, for common shares of the Company at an initial exchange rate of 10.9589 common shares per $1,000 of principal amount of debentures.  The initial exchange price of $91.25 represented a premium of 30% to the closing price for the Company’s common shares on March 22, 2005 of $70.25.  The Company may elect to settle any exchange right in cash.  The debentures permit the Company to increase its common dividend 5% per annum, cumulatively, without an increase to the exchange rate.  The debentures are redeemable at the Company’s option beginning in 2012 for the principal amount plus accrued and unpaid interest.  Holders of the debentures have the right to require the issuer to repurchase their debentures in 2012, 2015 and 2020 and in the event of a change in control.  The net proceeds from the offering were used for working capital and to fund the commitment with respect to the acquisition of Toys.

         On March 31, 2005, the Company completed a $225,000,000 refinancing of its 1.4 million square foot New York City office building located at 909 Third Avenue.  The loan bears interest at a fixed rate of 5.64% and matures in April 2015.  The Company realized net proceeds of approximately $100,000,000 after repaying the existing floating rate loan on the property and closing costs.

         On June 13, 2005, the Company sold 4,000,000 perpetual 6.75% Series H Cumulative Redeemable Preferred Shares, at a price of $25.00 per share, pursuant to an effective registration statement.  The Company may redeem the Series H Preferred Shares at a price of $25.00 per share after June 17, 2010.  In addition, on June 17, 2005, the underwriters exercised their option and purchased an additional 500,000 Preferred Shares to cover over-allotments.  The Company used the net proceeds of the offering of $108,956,000, together with existing cash balances, to redeem the remaining $120,000,000 8.25% Series D-3 Perpetual Preferred Units and the $125,000,000 8.25% Series D-4 Perpetual Preferred Units on July 14, 2005 at a redemption price equal to $25.00 per unit plus accrued dividends.  In conjunction with the redemptions, the Company wrote-off approximately $6,400,000 of issuance costs in the third quarter of 2005.

         On August 10, 2005, the Company sold 9,000,000 common shares at a price of $86.75 per share in a public offering pursuant to an effective registration statement.  The net proceeds after closing costs of $780,750,000 were used to fund acquisitions and investments and for working capital.

         On August 23, 2005, the Company sold 7,000,000 perpetual 6.625% Series I Cumulative Redeemable Preferred Shares at a price of $25.00 per share, in a public offering pursuant to an effective registration statement.  The Company may redeem the Series I preferred shares at a price of $25.00 per share after August 31, 2010.  In addition, on August 31, 2005, the underwriters exercised their option and purchased an additional 400,000 Series I preferred shares to cover over-allotments.  On September 12, 2005, the Company sold an additional 3,400,000 Series I preferred shares at a price of $25.00 per share, pursuant to an effective registration statement.  Combined with the earlier sale, the Company sold a total of 10,800,000 Series I preferred shares for net proceeds of $262,898,000.  The net proceeds were used primarily to redeem outstanding perpetual preferred units.

         On September 12, 2005, the Company sold $100,000,000 of 6.75% Series D-14 Cumulative Redeemable Preferred Units to an institutional investor in a private placement.  The perpetual preferred units may be called without penalty at the Company’s option commencing in September 2010.  The net proceeds were used primarily to redeem outstanding perpetual preferred units.

         On September 19, 2005, the Company redeemed all of its 8.25% Series D-5 and D-7 Cumulative Redeemable Preferred Units at a redemption price of $25.00 per unit for an aggregate of $342,000,000 plus accrued distributions.  In conjunction with the redemptions, the Company wrote-off $9,642,000 of issuance costs in the current quarter.  In addition, on December 20, 2005, the Company will redeem the 8.25% Series D-6 and D-8 Cumulative Redeemable Preferred Units at a redemption price of $25.00 per unit for an aggregate of $30,000,000 plus accrued distributions.  In conjunction with these redemptions, the Company will write-off $750,000 of issuance costs in the fourth quarter.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

5.       Investments in Partially-Owned Entities

         The Company’s investments in partially-owned entities and income recognized from such investments are as follows:

          Investments:

          Equity in Net Income (Loss):