UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)   

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended:   

September 30, 2016

 

 

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:

001-11954

 

 

VORNADO REALTY TRUST

(Exact name of registrant as specified in its charter)

 

Maryland

 

22-1657560

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

 

 

888 Seventh Avenue, New York, New York

 

10019

(Address of principal executive offices)

 

(Zip Code)

 

 

(212) 894-7000

(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.  Yes ☑   No ☐ 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☑   No ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer (Do not check if smaller reporting company)

 

Smaller Reporting Company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☑   No ☐ 

 

As of September 30, 2016, 188,994,234 of the registrant’s common shares of beneficial interest are outstanding.

  

 


 

 

 

 

 

 

 

 

PART I.

 

   

Financial Information:

 

Page Number

 

 

 

 

 

 

 

 

 

Item 1.

 

Financial Statements:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of

 

 

 

 

 

 

September 30, 2016 and December 31, 2015

 

3

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the

 

 

 

 

 

 

Three and Nine Months Ended September 30, 2016 and 2015

 

4

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited)

 

 

 

 

 

 

for the Three and Nine Months Ended September 30, 2016 and 2015

 

5

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Changes in Equity (Unaudited) for the

 

 

 

 

 

 

Nine Months Ended September 30, 2016 and 2015

 

6

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the

 

 

 

 

 

 

Nine Months Ended September 30, 2016 and 2015

 

8

 

 

 

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

10

 

 

 

 

 

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

35

 

 

 

 

 

 

 

 

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition

 

 

 

 

 

 

and Results of Operations

 

36

 

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

77

 

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

77

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART II.

 

 

Other Information:

 

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

78

 

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

78

 

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

78

 

 

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

78

 

 

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

78

 

 

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

78

 

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

78

 

 

 

 

 

 

 

SIGNATURES

 

 

 

79

 

 

 

 

 

 

 

EXHIBIT INDEX

 

 

 

80

 

 

 

 

 

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

 

VORNADO REALTY TRUST

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

 

 

 

 

 

(Amounts in thousands, except unit, share, and per share amounts)

September 30, 2016

 

December 31, 2015

ASSETS

 

 

 

Real estate, at cost:

 

 

 

 

 

 

Land

$

4,129,497

 

$

4,164,799

 

Buildings and improvements

 

12,654,086

 

 

12,582,671

 

Development costs and construction in progress

 

1,369,953

 

 

1,226,637

 

Leasehold improvements and equipment

 

114,026

 

 

116,030

 

 

Total

 

18,267,562

 

 

18,090,137

 

Less accumulated depreciation and amortization

 

(3,430,832)

 

 

(3,418,267)

Real estate, net

 

14,836,730

 

 

14,671,870

Cash and cash equivalents

 

1,352,697

 

 

1,835,707

Restricted cash

 

111,941

 

 

107,799

Marketable securities

 

198,165

 

 

150,997

Tenant and other receivables, net of allowance for doubtful accounts of $11,171 and $11,908

 

94,057

 

 

98,062

Investments in partially owned entities

 

1,497,925

 

 

1,550,422

Real estate fund investments

 

519,386

 

 

574,761

Receivable arising from the straight-lining of rents, net of allowance of $2,414 and $2,751

 

1,027,319

 

 

931,245

Deferred leasing costs, net of accumulated amortization of $234,330 and $218,239

 

462,179

 

 

480,421

Identified intangible assets, net of accumulated amortization of $201,164 and $187,360

 

201,450

 

 

227,901

Assets related to discontinued operations

 

5,546

 

 

37,020

Other assets

 

551,974

 

 

477,088

 

 

 

$

20,859,369

 

$

21,143,293

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

 

 

 

 

 

Mortgages payable, net

$

9,867,550

 

$

9,513,713

Senior unsecured notes, net

 

845,223

 

 

844,159

Unsecured revolving credit facilities

 

115,630

 

 

550,000

Unsecured term loan, net

 

371,835

 

 

183,138

Accounts payable and accrued expenses

 

461,234

 

 

443,955

Deferred revenue

 

301,017

 

 

346,119

Deferred compensation plan

 

118,359

 

 

117,475

Liabilities related to discontinued operations

 

3,284

 

 

12,470

Other liabilities

 

457,928

 

 

426,965

 

Total liabilities

 

12,542,060

 

 

12,437,994

Commitments and contingencies

 

-

 

 

-

Redeemable noncontrolling interests:

 

 

 

 

 

 

Class A units - 12,280,354 and 12,242,820 units outstanding

 

1,242,895

 

 

1,223,793

 

Series D cumulative redeemable preferred units - 177,101 units outstanding

 

5,428

 

 

5,428

 

 

Total redeemable noncontrolling interests

 

1,248,323

 

 

1,229,221

Vornado shareholders' equity:

 

 

 

 

 

 

Preferred shares of beneficial interest: no par value per share; authorized 110,000,000

 

 

 

 

 

 

 

shares; issued and outstanding 42,826,629 and 52,676,629 shares

 

1,038,111

 

 

1,276,954

 

Common shares of beneficial interest: $.04 par value per share; authorized

 

 

 

 

 

 

 

250,000,000 shares; issued and outstanding 188,994,234 and 188,576,853 shares

 

7,537

 

 

7,521

 

Additional capital

 

7,139,220

 

 

7,132,979

 

Earnings less than distributions

 

(1,951,411)

 

 

(1,766,780)

 

Accumulated other comprehensive income

 

82,374

 

 

46,921

 

 

Total Vornado shareholders' equity

 

6,315,831

 

 

6,697,595

Noncontrolling interests in consolidated subsidiaries

 

753,155

 

 

778,483

 

Total equity

 

7,068,986

 

 

7,476,078

 

 

 

$

20,859,369

 

$

21,143,293

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

3


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands, except per share amounts)

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

Property rentals

$

523,998

 

$

526,337

 

$

1,570,668

 

$

1,541,454

 

Tenant expense reimbursements

 

71,425

 

 

67,098

 

 

191,841

 

 

196,234

 

Fee and other income

 

37,774

 

 

34,161

 

 

105,433

 

 

112,998

Total revenues

 

633,197

 

 

627,596

 

 

1,867,942

 

 

1,850,686

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

260,826

 

 

256,561

 

 

762,313

 

 

753,744

 

Depreciation and amortization

 

138,968

 

 

141,920

 

 

423,238

 

 

402,999

 

General and administrative

 

40,442

 

 

36,157

 

 

134,710

 

 

133,838

 

Impairment loss and acquisition and transaction related costs

 

3,808

 

 

1,518

 

 

171,994

 

 

7,560

Total expenses

 

444,044

 

 

436,156

 

 

1,492,255

 

 

1,298,141

Operating income

 

189,153

 

 

191,440

 

 

375,687

 

 

552,545

Income (loss) from partially owned entities

 

4,127

 

 

(325)

 

 

529

 

 

(8,709)

Income from real estate fund investments

 

1,077

 

 

1,665

 

 

28,750

 

 

52,122

Interest and other investment income, net

 

6,508

 

 

3,160

 

 

20,262

 

 

19,618

Interest and debt expense

 

(98,365)

 

 

(95,344)

 

 

(304,430)

 

 

(279,110)

Net gain on disposition of wholly owned

 

 

 

 

 

 

 

 

 

 

 

 

and partially owned assets

 

-

 

 

103,037

 

 

160,225

 

 

104,897

Income before income taxes

 

102,500

 

 

203,633

 

 

281,023

 

 

441,363

Income tax (expense) benefit

 

(4,865)

 

 

(2,856)

 

 

(9,805)

 

 

84,245

Income from continuing operations

 

97,635

 

 

200,777

 

 

271,218

 

 

525,608

Income from discontinued operations

 

2,969

 

 

34,463

 

 

6,160

 

 

50,278

Net income

 

100,604

 

 

235,240

 

 

277,378

 

 

575,886

Less net income attributable to noncontrolling interests in:

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated subsidiaries

 

(3,658)

 

 

(3,302)

 

 

(26,361)

 

 

(38,370)

 

Operating Partnership

 

(4,366)

 

 

(12,704)

 

 

(11,410)

 

 

(28,189)

Net income attributable to Vornado

 

92,580

 

 

219,234

 

 

239,607

 

 

509,327

Preferred share dividends

 

(19,047)

 

 

(20,364)

 

 

(59,774)

 

 

(60,213)

Preferred share issuance costs (Series J redemption)

 

(7,408)

 

 

-

 

 

(7,408)

 

 

-

NET INCOME attributable to common shareholders

$

66,125

 

$

198,870

 

$

172,425

 

$

449,114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE - BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.34

 

$

0.88

 

$

0.88

 

$

2.13

 

Income from discontinued operations, net

 

0.01

 

 

0.17

 

 

0.03

 

 

0.25

 

Net income per common share

$

0.35

 

$

1.05

 

$

0.91

 

$

2.38

 

Weighted average shares outstanding

 

188,901

 

 

188,504

 

 

188,778

 

 

188,291

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE - DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.33

 

$

0.88

 

$

0.88

 

$

2.12

 

Income from discontinued operations, net

 

0.02

 

 

0.17

 

 

0.03

 

 

0.25

 

Net income per common share

$

0.35

 

$

1.05

 

$

0.91

 

$

2.37

 

Weighted average shares outstanding

 

190,048

 

 

189,581

 

 

190,086

 

 

189,789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS PER COMMON SHARE

$

0.63

 

$

0.63

 

$

1.89

 

$

1.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

4


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

Net income

$

100,604

 

$

235,240

 

$

277,378

 

$

575,886

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Increase (reduction) in unrealized net gain on

 

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities

 

3,685

 

 

(7,064)

 

 

42,798

 

 

(53,396)

 

Pro rata share of other comprehensive loss of

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiaries

 

(915)

 

 

(114)

 

 

(1,537)

 

 

(1,148)

 

Increase (reduction) in value of interest rate swaps and other

 

7,689

 

 

(289)

 

 

(3,482)

 

 

1,788

Comprehensive income

 

111,063

 

 

227,773

 

 

315,157

 

 

523,130

Less comprehensive income attributable to noncontrolling interests

 

(8,665)

 

 

(15,559)

 

 

(40,097)

 

 

(63,477)

Comprehensive income attributable to Vornado

$

102,398

 

$

212,214

 

$

275,060

 

$

459,653

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

5


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

controlling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings

 

Other

 

Interests in

 

 

 

 

 

 

 

Preferred Shares

 

Common Shares

 

Additional

 

Less Than

 

Comprehensive

 

Consolidated

 

Total

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Distributions

 

Income

 

Subsidiaries

 

Equity

Balance, December 31, 2015

 

 

52,677

 

$

1,276,954

 

 

188,577

 

$

7,521

 

$

7,132,979

 

$

(1,766,780)

 

$

46,921

 

$

778,483

 

$

7,476,078

Net income attributable to Vornado

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

239,607

 

 

-

 

 

-

 

 

239,607

Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests in 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

consolidated subsidiaries

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

26,361

 

 

26,361

Dividends on common shares

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(356,863)

 

 

-

 

 

-

 

 

(356,863)

Dividends on preferred shares

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(59,774)

 

 

-

 

 

-

 

 

(59,774)

Redemption of Series J

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred shares

 

 

(9,850)

 

 

(238,842)

 

 

-

 

 

-

 

 

-

 

 

(7,408)

 

 

-

 

 

-

 

 

(246,250)

Common shares issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upon redemption of Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

units, at redemption value

 

 

-

 

 

-

 

 

293

 

 

12

 

 

28,114

 

 

-

 

 

-

 

 

-

 

 

28,126

 

Under employees' share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

option plan

 

 

-

 

 

-

 

 

106

 

 

4

 

 

5,936

 

 

-

 

 

-

 

 

-

 

 

5,940

 

Under dividend reinvestment plan

 

 

-

 

 

-

 

 

12

 

 

-

 

 

1,080

 

 

-

 

 

-

 

 

-

 

 

1,080

Contributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

19,699

 

 

19,699

Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate fund investments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(59,843)

 

 

(59,843)

 

Other

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(11,631)

 

 

(11,631)

Deferred compensation shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and options

 

 

-

 

 

-

 

 

7

 

 

1

 

 

1,370

 

 

(186)

 

 

-

 

 

-

 

 

1,185

Increase in unrealized net gain on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

42,798

 

 

-

 

 

42,798

Pro rata share of other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

comprehensive loss of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiaries

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(1,537)

 

 

-

 

 

(1,537)

Reduction in value of interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

rate swaps

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(3,482)

 

 

-

 

 

(3,482)

Adjustments to carry redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A units at redemption value

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(30,260)

 

 

-

 

 

-

 

 

-

 

 

(30,260)

Redeemable noncontrolling interests'

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

share of above adjustments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(2,326)

 

 

-

 

 

(2,326)

Other

 

 

-

 

 

(1)

 

 

(1)

 

 

(1)

 

 

1

 

 

(7)

 

 

-

 

 

86

 

 

78

Balance, September 30, 2016

 

 

42,827

 

$

1,038,111

 

 

188,994

 

$

7,537

 

$

7,139,220

 

$

(1,951,411)

 

$

82,374

 

$

753,155

 

$

7,068,986

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

6


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

controlling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings

 

Other

 

Interests in

 

 

 

 

 

 

 

Preferred Shares

 

Common Shares

 

Additional

 

Less Than

 

Comprehensive

 

Consolidated

 

Total

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Distributions

 

Income

 

Subsidiaries

 

Equity

Balance, December 31, 2014

 

 

52,679

 

$

1,277,026

 

 

187,887

 

$

7,493

 

$

6,873,025

 

$

(1,505,385)

 

$

93,267

 

$

743,956

 

$

7,489,382

Net income attributable to Vornado

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

509,327

 

 

-

 

 

-

 

 

509,327

Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests in 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

consolidated subsidiaries

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

38,370

 

 

38,370

Distribution of Urban Edge

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Properties

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(464,262)

 

 

-

 

 

(341)

 

 

(464,603)

Dividends on common shares

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(355,945)

 

 

-

 

 

-

 

 

(355,945)

Dividends on preferred shares

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(60,213)

 

 

-

 

 

-

 

 

(60,213)

Common shares issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upon redemption of Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

units, at redemption value

 

 

-

 

 

-

 

 

437

 

 

17

 

 

46,676

 

 

-

 

 

-

 

 

-

 

 

46,693

 

Under employees' share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

option plan

 

 

-

 

 

-

 

 

198

 

 

8

 

 

14,197

 

 

(2,579)

 

 

-

 

 

-

 

 

11,626

 

Under dividend reinvestment plan

 

 

-

 

 

-

 

 

11

 

 

-

 

 

1,068

 

 

-

 

 

-

 

 

-

 

 

1,068

Contributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate fund investments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

51,725

 

 

51,725

Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate fund investments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(70,875)

 

 

(70,875)

 

Other

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(397)

 

 

(397)

Conversion of Series A preferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

shares to common shares

 

 

(1)

 

 

(41)

 

 

2

 

 

-

 

 

41

 

 

-

 

 

-

 

 

-

 

 

-

Deferred compensation shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and options

 

 

-

 

 

-

 

 

6

 

 

1

 

 

2,046

 

 

(359)

 

 

-

 

 

-

 

 

1,688

Reduction in unrealized net gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

on available-for-sale securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(53,396)

 

 

-

 

 

(53,396)

Pro rata share of other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

comprehensive loss of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

nonconsolidated subsidiaries

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(1,148)

 

 

-

 

 

(1,148)

Increase in value of interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

rate swap

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

1,783

 

 

-

 

 

1,783

Adjustments to carry redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A units at redemption value

 

 

-

 

 

-

 

 

-

 

 

-

 

 

295,713

 

 

-

 

 

-

 

 

-

 

 

295,713

Redeemable noncontrolling interests'

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

share of above adjustments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

3,082

 

 

-

 

 

3,082

Other

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

700

 

 

5

 

 

(84)

 

 

621

Balance, September 30, 2015

 

 

52,678

 

$

1,276,985

 

 

188,541

 

$

7,519

 

$

7,232,766

 

$

(1,878,716)

 

$

43,593

 

$

762,354

 

$

7,444,501

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

7


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Nine Months Ended September 30,

 

 

 

2016

 

2015

Cash Flows from Operating Activities:

 

 

 

 

 

Net income

$

277,378

 

$

575,886

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization (including amortization of deferred financing costs)

 

446,040

 

 

420,494

 

Real estate impairment losses

 

161,165

 

 

256

 

Net gain on disposition of wholly owned and partially owned assets

 

(160,225)

 

 

(104,897)

 

Straight-lining of rental income

 

(118,798)

 

 

(108,529)

 

Return of capital from real estate fund investments

 

71,888

 

 

91,036

 

Distributions of income from partially owned entities

 

58,692

 

 

51,650

 

Amortization of below-market leases, net

 

(41,676)

 

 

(45,918)

 

Other non-cash adjustments

 

33,971

 

 

35,190

 

Net realized and unrealized gains on real estate fund investments

 

(16,513)

 

 

(38,781)

 

Net gains on sale of real estate and other

 

(5,074)

 

 

(65,396)

 

Equity in net (income) loss of partially owned entities

 

(529)

 

 

7,961

 

Reversal of allowance for deferred tax assets

 

-

 

 

(90,030)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Real estate fund investments

 

-

 

 

(95,010)

 

 

Tenant and other receivables, net

 

(578)

 

 

1,892

 

 

Prepaid assets

 

(71,068)

 

 

(77,899)

 

 

Other assets

 

(50,938)

 

 

(92,413)

 

 

Accounts payable and accrued expenses

 

6,530

 

 

(5,799)

 

 

Other liabilities

 

(16,018)

 

 

(16,168)

Net cash provided by operating activities

 

574,247

 

 

443,525

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Development costs and construction in progress

 

(426,641)

 

 

(339,586)

 

Additions to real estate

 

(261,971)

 

 

(207,845)

 

Proceeds from sales of real estate and related investments

 

138,034

 

 

375,850

 

Investments in partially owned entities

 

(112,797)

 

 

(144,890)

 

Distributions of capital from partially owned entities

 

100,997

 

 

31,822

 

Acquisitions of real estate and other

 

(46,801)

 

 

(388,565)

 

Net deconsolidation of 7 West 34th Street

 

(42,000)

 

 

-

 

Restricted cash

 

(24,796)

 

 

201,895

 

Investments in loans receivable and other

 

(11,700)

 

 

(25,845)

 

Purchases of marketable securities

 

(4,379)

 

 

-

 

Proceeds from sales and repayments of mortgage and mezzanine loans receivable and other

 

33

 

 

16,781

Net cash used in investing activities

 

(692,021)

 

 

(480,383)

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

 

 

 

 

 

 

 

8


 

VORNADO REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Nine Months Ended September 30,

 

 

 

 

2016

 

2015

Cash Flows from Financing Activities:

 

 

 

 

 

 

Proceeds from borrowings

$

2,000,604

 

$

2,876,460

 

Repayments of borrowings

 

(1,591,554)

 

 

(2,539,677)

 

Dividends paid on common shares

 

(356,863)

 

 

(355,945)

 

Redemption of preferred shares

 

(246,250)

 

 

-

 

Distributions to noncontrolling interests

 

(95,055)

 

 

(93,738)

 

Dividends paid on preferred shares

 

(64,006)

 

 

(60,213)

 

Debt issuance and other costs

 

(30,846)

 

 

(37,467)

 

Contributions from noncontrolling interests

 

11,900

 

 

51,725

 

Proceeds received from exercise of employee share options

 

7,020

 

 

15,273

 

Repurchase of shares related to stock compensation agreements and related

 

 

 

 

 

 

 

tax withholdings and other

 

(186)

 

 

(4,900)

 

Cash included in the spin-off of Urban Edge Properties

 

-

 

 

(225,000)

Net cash used in financing activities

 

(365,236)

 

 

(373,482)

Net decrease in cash and cash equivalents

 

(483,010)

 

 

(410,340)

Cash and cash equivalents at beginning of period

 

1,835,707

 

 

1,198,477

Cash and cash equivalents at end of period

$

1,352,697

 

$

788,137

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Cash payments for interest, excluding capitalized interest of $21,297 and $40,924

$

275,979

 

$

256,254

 

Cash payments for income taxes

$

7,602

 

$

7,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

Write-off of fully depreciated assets

$

(283,496)

 

$

(127,788)

 

Accrued capital expenditures included in accounts payable and accrued expenses

 

129,704

 

 

95,535

 

Change in unrealized net gain on securities available-for-sale

 

42,798

 

 

(53,396)

 

Adjustments to carry redeemable Class A units at redemption value

 

(30,260)

 

 

295,713

 

Decrease in assets and liabilities resulting from the deconsolidation of investments

 

 

 

 

 

 

 

that were previously consolidated

 

 

 

 

 

 

 

 

Real estate, net

 

(122,047)

 

 

-

 

 

 

Mortgages payable, net

 

(290,418)

 

 

-

 

Non-cash distribution of Urban Edge Properties:

 

 

 

 

 

 

 

 

Assets

 

-

 

 

1,722,263

 

 

 

Liabilities

 

-

 

 

(1,482,660)

 

 

 

Equity

 

-

 

 

(239,603)

 

Transfer of interest in real estate to Pennsylvania Real Estate Investment Trust

 

-

 

 

(145,313)

 

Class A units in connection with acquisition

 

-

 

 

80,000

 

Financing assumed in acquisitions

 

-

 

 

62,000

 

Like-kind exchange of real estate:

 

 

 

 

 

 

 

 

Acquisitions

 

46,698

 

 

80,269

 

 

 

Dispositions

 

(29,639)

 

 

(213,621)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

9


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

1.     Organization

Vornado Realty Trust (“Vornado”) is a fully‑integrated real estate investment trust (“REIT”) and conducts its business through, and all of its interests in properties are held by, Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”).  Vornado is the sole general partner of, and owned approximately 93.7% of the common limited partnership interest in, the Operating Partnership at September 30, 2016.  All references to “we,” “us,” “our,” the “Company” and “Vornado” refer to Vornado Realty Trust and its consolidated subsidiaries, including the Operating Partnership.

  

 

2.    Basis of Presentation

 

The accompanying consolidated financial statements are unaudited and include the accounts of Vornado and its consolidated subsidiaries, including the Operating Partnership.  All inter-company amounts have been eliminated. In our opinion, 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 (“GAAP”) have been condensed or omitted.  These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2015, as filed with the SEC.

 

We have made estimates and assumptions that affect the reported amounts of assets and liabilities, 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.  The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the operating results for the full year.    

 

3.    Recently Issued Accounting Literature  

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update ("ASU 2014-09") establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).  ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance.  ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.  In August 2015, the FASB issued an update (“ASU 2015-14”) to ASC 606, Deferral of the Effective Date, which defers the adoption of ASU 2014-09 to interim and annual reporting periods in fiscal years that begin after December 15, 2017.  In March 2016, the FASB issued an update (“ASU 2016-08”) to ASC 606, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard pursuant to ASU 2014-09.  In April 2016, the FASB issued an update (“ASU 2016-10”) to ASC 606, Identifying Performance Obligations and Licensing, which clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in ASU 2014-09.  In May 2016, the FASB issued an update (“ASU 2016-12”) to ASC 606, Narrow-Scope Improvements and Practical Expedients, which amends certain aspects of the new revenue recognition standard pursuant to ASU 2014-09.  We are currently evaluating the impact of the adoption of these ASUs on our consolidated financial statements.

 

In June 2014, the FASB issued an update (“ASU 2014-12”) to ASC Topic 718, Compensation – Stock Compensation (“ASC 718”).  ASU 2014-12 requires an entity to treat performance targets that can be met after the requisite service period of a share based award has ended, as a performance condition that affects vesting.  ASU 2014-12 is effective for interim and annual reporting periods in fiscal years that began after December 15, 2015.  The adoption of this update as of January 1, 2016, did not have any impact on our consolidated financial statements.

10


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

3.    Recently Issued Accounting Literature - continued

In February 2015, the FASB issued an update (“ASU 2015-02”) Amendments to the Consolidation Analysis to ASC Topic 810, Consolidation.  ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities.  Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with VIEs, and (iv) provide a scope exception for certain entities.  ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015.  The adoption of this update on January 1, 2016 resulted in the identification of additional VIEs, but did not have an impact on our consolidated financial statements other than additional disclosures (see Note 14 - Variable Interest Entities)

 

In January 2016, the FASB issued an update (“ASU 2016-01”) Recognition and Measurement of Financial Assets and Financial Liabilities to ASC Topic 825, Financial Instruments.  ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income.  ASU 2016-01 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017.  We are currently evaluating the impact of the adoption of ASU 2016-01 on our consolidated financial statements.

 

In February 2016, the FASB issued (“ASU 2016-02”) Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.  ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase.  Lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases.  Lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases.  The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance.  ASU 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted.  We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

 

In March 2016, the FASB issued an update (“ASU 2016-09”) Improvements to Employee Share-Based Payment Accounting to ASC 718.  ASU 2016-09 amends several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  ASU 2016-09 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017.  We are currently evaluating the impact of the adoption of ASU 2016-09 on our consolidated financial statements.

 

In August 2016, the FASB issued an update (“ASU 2016-15”) Classification of Certain Cash Receipts and Cash Payments to ASC Topic 230, Statement of Cash Flows. ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice with respect to (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions, and (viii) separately identifiable cash flows and application of the predominance principle.  ASU 2016-15 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted.  The adoption of this update is not expected to have a significant impact on our consolidated financial statements.

 

4.    Acquisitions

 

On May 20, 2016, we contributed $19,650,000 for a 50.0% equity interest in a joint venture that will develop 606 Broadway, a 33,000 square foot office and retail building, located on Houston Street in Manhattan.  The development cost of this project is estimated to be approximately $104,000,000.  At closing, the joint venture obtained a $65,000,000 construction loan, of which approximately $22,500,000 was outstanding at September 30, 2016.  The loan, which bears interest at LIBOR plus 3.00% (3.52% at September 30, 2016), matures in May 2019 with two one-year extension options.  Because this joint venture is a VIE and we determined we are the primary beneficiary, we consolidate the accounts of this joint venture from the date of our investment.

11


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

5.     Real Estate Fund Investments

 

We are the general partner and investment manager of Vornado Capital Partners Real Estate Fund (the “Fund”), which has an eight-year term and a three-year investment period that ended in July 2013.  The Fund is accounted for under ASC 946, Financial Services – Investment Companies (“ASC 946”) and its investments are reported on its balance sheet at fair value, with changes in value each period recognized in earnings.  We consolidate the accounts of the Fund into our consolidated financial statements, retaining the fair value basis of accounting.

 

We are also the general partner and investment manager of Crowne Plaza Times Square Hotel Co-Investment (the “Co-Investment”), which owns the 24.7% interest in the Crowne Plaza Times Square Hotel not owned by the Fund.  The Co-Investment is also accounted for under ASC 946.  We consolidate the accounts of the Co-Investment into our consolidated financial statements, retaining the fair value basis of accounting.

 

At September 30, 2016, we had six real estate fund investments with an aggregate fair value of $519,386,000, or $210,451,000 in excess of cost, and had remaining unfunded commitments of $117,907,000, of which our share was $34,422,000.  Below is a summary of income from the Fund and the Co-Investment for the three and nine months ended September 30, 2016 and 2015.

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

  

September 30,

 

September 30,

 

 

 

2016

  

2015

 

2016

  

2015

Net investment income

$

5,841

 

$

5,116

 

$

12,237

 

$

13,716

Net unrealized (losses) gains on held investments

 

(4,764)

 

 

(2,544)

 

 

16,091

 

 

37,001

Net realized (losses) gains on exited investments

 

-

 

 

(907)

 

 

14,676

 

 

24,684

Previously recorded unrealized gain on exited investment

 

-

 

 

-

 

 

(14,254)

 

 

(23,279)

Income from real estate fund investments

 

1,077

 

 

1,665

 

 

28,750

 

 

52,122

Less income attributable to noncontrolling interests

 

(270)

 

 

(42)

 

 

(15,088)

 

 

(29,453)

Income from real estate fund investments

 

 

 

 

 

 

 

 

 

 

 

 

attributable to Vornado (1)

$

807

 

$

1,623

 

$

13,662

 

$

22,669

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excludes management, leasing and development fees of $804 and $678 for the three months ended September 30, 2016 and 2015, respectively, and $2,499 and $2,015 for the nine months ended September 30, 2016 and 2015, respectively, which are included as a component of "fee and other income" in our consolidated statements of income.

 

6.    Marketable Securities

 

Below is a summary of our marketable securities portfolio as of September 30, 2016 and December 31, 2015.

 

(Amounts in thousands)

As of September 30, 2016

 

As of December 31, 2015

 

 

 

 

 

GAAP

 

Unrealized

 

 

 

 

GAAP

 

Unrealized

 

 

Fair Value

 

Cost

 

Gain

 

Fair Value

 

Cost

 

Gain

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lexington Realty Trust

$

190,230

 

$

72,549

 

$

117,681

 

$

147,752

 

$

72,549

 

$

75,203

 

Other

 

7,935

 

 

4,379

 

 

3,556

 

 

3,245

 

 

-

 

 

3,245

 

 

$

198,165

 

$

76,928

 

$

121,237

 

$

150,997

 

$

72,549

 

$

78,448

12


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

7.    Investments in Partially Owned Entities

 

Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX)

As of September 30, 2016, we own 1,654,068 Alexander’s common shares, representing a 32.4% interest in Alexander’s.  We account for our investment in Alexander’s under the equity method.  We manage, lease and develop Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable.

As of September 30, 2016, the market value (“fair value” pursuant to ASC Topic 820, Fair Value Measurements (“ASC 820”)) of our investment in Alexander’s, based on Alexander’s September 30, 2016 closing share price of $419.60, was $694,047,000, or $563,562,000 in excess of the carrying amount on our consolidated balance sheet.  As of September 30, 2016, the carrying amount of our investment in Alexander’s, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander’s by approximately $39,778,000.  The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets.  Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to real estate (land and buildings).  We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives.  This depreciation is not material to our share of equity in Alexander’s net income.  The basis difference related to the land will be recognized upon disposition of our investment.

 

Urban Edge Properties (“UE”) (NYSE: UE)

 

As of September 30, 2016, we own 5,717,184 UE operating partnership units, representing a 5.4% ownership interest in UE.  We account for our investment in UE under the equity method and record our share of UE’s net income or loss on a one-quarter lag basis.  During 2015, we provided transition services to UE, primarily for information technology, human resources, tax and financial planning.  In 2016, we continue to provide UE information technology support.  UE is providing us with leasing and property management services for (i) certain small retail properties that we plan to sell, and (ii) our affiliate, Alexander’s, Rego Park retail assets.  As of September 30, 2016, the fair value of our investment in UE, based on UE’s September 30, 2016 closing share price of $28.14, was $160,882,000, or $135,065,000 in excess of the carrying amount on our consolidated balance sheet.

 

Pennsylvania Real Estate Investment Trust (“PREIT”) (NYSE: PEI)

 

As of September 30, 2016, we own 6,250,000 PREIT operating partnership units, representing an 8.0% interest in PREIT.  We account for our investment in PREIT under the equity method and record our share of PREIT’s net income or loss on a one-quarter lag basis.  As of September 30, 2016, the fair value of our investment in PREIT, based on PREIT’s September 30, 2016 closing share price of $23.03, was $143,938,000, or $19,638,000 in excess of the carrying amount on our consolidated balance sheet.  As of September 30, 2016, the carrying amount of our investment in PREIT exceeds our share of the equity in the net assets of PREIT by approximately $66,596,000.  The majority of this basis difference resulted from the excess of the fair value of the PREIT operating units received over our share of the book value of PREIT’s net assets.  Substantially all of this basis difference was allocated, based on our estimates of the fair values of PREIT’s assets and liabilities, to real estate (land and buildings).  We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives.  This depreciation is not material to our share of equity in PREIT’s net loss.  The basis difference related to the land will be recognized upon disposition of our investment.

13


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

7.    Investments in Partially Owned Entities – continued

 

One Park Avenue

 

On March 7, 2016, the joint venture, in which we have a 55% ownership interest, completed a $300,000,000 refinancing of One Park Avenue, a 947,000 square foot Manhattan office building.  The loan matures in March 2021 and is interest only at LIBOR plus 1.75% (2.28% at September 30, 2016).  The property was previously encumbered by a 4.995%, $250,000,000 mortgage which matured in March 2016.

 

Mezzanine Loan – New York

 

On March 17, 2016, we entered into a joint venture, in which we own a 33.3% interest, which owns a $146,004,000 mezzanine loan.  The interest rate is LIBOR plus 8.875% (9.38% at September 30, 2016) and the debt matures in November 2016, with two three-month extension options.  At September 30, 2016, the joint venture has a $3,996,000 remaining commitment, of which our share is $1,332,000.  The joint venture’s investment is subordinate to $350,000,000 of third party debt.  We account for our investment in the joint venture under the equity method.

 

The Warner Building

 

On May 6, 2016, the joint venture, in which we have a 55% ownership interest, completed a $273,000,000 refinancing of The Warner Building, a 621,000 square foot Washington, DC office building.  The loan matures in June 2023, has a fixed rate of 3.65%, is interest only for the first two years and amortizes based on a 30-year schedule beginning in year three. The property was previously encumbered by a 6.26%, $293,000,000 mortgage which matured in May 2016.

 

280 Park Avenue

 

On May 11, 2016, the joint venture, in which we have a 50% ownership interest, completed a $900,000,000 refinancing of 280 Park Avenue, a 1,250,000 square foot Manhattan office building.  The three-year loan with four one-year extensions is interest only at LIBOR plus 2.00% (2.51% at September 30, 2016).  The property was previously encumbered by a 6.35%, $721,000,000 mortgage which was scheduled to mature in June 2016.

 

7 West 34th Street

 

On May 16, 2016, we completed a $300,000,000 recourse financing of 7 West 34th Street, a 477,000 square foot Manhattan office building leased to Amazon.  The ten-year loan is interest only at a fixed rate of 3.65% and matures in June 2026.  Subsequently, on May 27, 2016, we sold a 47% ownership interest in this property and retained the remaining 53% interest.  This transaction was based on a property value of approximately $561,000,000 or $1,176 per square foot.  We received net proceeds of $127,382,000 from the sale and realized a net gain of $203,324,000, of which $159,511,000 was recognized in the second quarter and is included in “net gain on disposition of wholly owned and partially owned assets” in our consolidated statements of income.  The remaining net gain of $43,813,000 has been deferred until our guarantee of payment of loan principal and interest is removed or the loan is repaid.   We realized a net tax gain of $90,017,000.  We continue to manage and lease the property.  We share control over major decisions with our joint venture partner.  Accordingly, this property is accounted for under the equity method from the date of sale.

 

50-70 West 93rd Street

 

On August 3, 2016, the joint venture, in which we have 49.9% ownership interest, completed an $80,000,000 refinancing of 50-70 West 93rd Street, a 326 unit Manhattan residential complex.  The three-year loan with two one-year extensions is interest only at LIBOR plus 1.70% (2.22% at September 30, 2016).  The property was previously encumbered by a $44,980,000 first mortgage at LIBOR plus 1.90% and an $18,481,000 second mortgage at LIBOR plus 1.65%, which were scheduled to mature in September 2016.

14


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

7.    Investments in Partially Owned Entities – continued

Below are schedules summarizing our investments in, and income (loss) from, partially owned entities.

(Amounts in thousands)

 

Percentage

 

 

 

 

 

Ownership at

 

Balance as of

 

 

 

September 30, 2016

 

September 30, 2016

 

December 31, 2015

Investments: 

 

 

 

 

 

 

 

 

 

 

Partially owned office buildings (1)

 

 

Various

 

$

811,062

 

$

909,782

 

Alexander’s

 

 

32.4%

 

 

130,485

 

 

133,568

 

PREIT

 

 

8.0%

 

 

124,300

 

 

133,375

 

India real estate ventures

 

 

4.1%-36.5%

 

 

44,671

 

 

48,310

 

UE

 

 

5.4%

 

 

25,817

 

 

25,351

 

Other investments (2)

 

 

Various

 

 

361,590

 

 

300,036

 

 

 

 

 

 

$

1,497,925

 

$

1,550,422

 

 

 

 

 

 

 

 

 

 

 

 

7 West 34th Street (3)

 

 

53.0%

 

$

(41,439)

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 330 Madison Avenue, 512 West 22nd Street and others.

(2)

Includes interests in Independence Plaza, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street, Toys "R" Us, Inc. (which has a carrying amount of zero) and others.

(3)

Our negative basis results from a $43,813 deferred gain from the sale of a 47.0% ownership interest in the property and is included in "other liabilities" on our consolidated balance sheet.

 

(Amounts in thousands)

 

Percentage

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

 

 

 

 

Ownership at

 

September 30,

 

September 30,

 

 

 

 

 

 

 

September 30, 2016

 

2016

 

2015

 

2016

 

2015

 

Our Share of Net Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alexander's (see page 13 for details):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in net income

 

32.4%

 

$

6,891

 

$

5,716

 

$

20,640

 

$

16,757

 

 

 

 

Management, leasing and development fees

 

 

 

 

1,894

 

 

1,828

 

 

5,307

 

 

5,801

 

 

 

 

 

 

 

 

 

 

 

8,785

 

 

7,544

 

 

25,947

 

 

22,558

 

 

 

UE (see page 13 for details):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in net earnings

 

5.4%

 

 

1,949

 

 

934

 

 

3,896

 

 

1,338

 

 

 

 

Management fees

 

 

 

 

209

 

 

466

 

 

627

 

 

1,550

 

 

 

 

 

 

 

 

 

 

 

2,158

 

 

1,400

 

 

4,523

 

 

2,888

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partially owned office buildings (1)

 

Various

 

 

(9,157)

 

 

(2,039)

 

 

(35,868)

 

 

(14,573)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

India real estate ventures

 

4.1%-36.5%

 

 

(917)

 

 

(1,704)

 

 

(3,537)

 

 

(18,380)

 (2) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PREIT (see page 13 for details):

 

8.0%

 

 

52

 

 

(3,481)

 

 

(4,763)

 

 

(3,845)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other investments (3)

 

Various

 

 

3,206

 

 

(2,045)

 

 

14,227

 

 

2,643

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

4,127

 

$

(325)

 

$

529

 

$

(8,709)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 7 West 34th Street, 330 Madison Avenue, 512 West 22nd Street and others.  We recognized our share of a write-off of a below market lease liability related to a tenant vacating at 650 Madison of $7,364 and $12,751 for the three and nine months ended September 30, 2015, respectively.

 

(2)

Includes $14,806 for our share of non-cash impairment losses.

 

(3)

Includes interests in Independence Plaza, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street, Toys "R" Us, Inc. and others.

 

15


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

8.    Dispositions

 

Discontinued Operations

 

The tables below set forth the assets and liabilities related to discontinued operations at September 30, 2016 and December 31, 2015 and their combined results of operations and cash flows for the three and nine months ended September 30, 2016 and 2015.

 

(Amounts in thousands)

Balance as of

 

 

September 30, 2016

 

December 31, 2015

Assets related to discontinued operations:

 

 

 

 

 

Real estate, net

$

2,642

 

$

29,561

Other assets

 

2,904

 

 

7,459

 

$

5,546

 

$

37,020

 

 

 

 

 

 

 

Liabilities related to discontinued operations:

 

 

 

 

 

Other liabilities

$

3,284

 

$

12,470

 

(Amounts in thousands)

For the Three Months Ended

 

For the Nine Months Ended

 

September 30,

 

September 30,

 

 

2016

 

2015

 

2016

 

2015

Income from discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Total revenues

$

676

 

$

2,589

 

$

2,805

 

$

24,868

Total expenses

 

106

 

 

1,279

 

 

1,254

 

 

16,672

 

 

570

 

 

1,310

 

 

1,551

 

 

8,196

Net gains on sale of real estate and a lease position

 

2,864

 

 

33,153

 

 

5,074

 

 

65,396

Impairment losses

 

(465)

 

 

-

 

 

(465)

 

 

(256)

UE spin-off transaction related costs

 

-

 

 

-

 

 

-

 

 

(22,972)

Pretax income from discontinued operations

 

2,969

 

 

34,463

 

 

6,160

 

 

50,364

Income tax expense

 

-

 

 

-

 

 

-

 

 

(86)

Income from discontinued operations

$

2,969

 

$

34,463

 

$

6,160

 

$

50,278

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

 

 

 

 

2016

 

2015

Cash flows related to discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

$

850

 

$

(34,490)

Cash flows from investing activities

 

 

 

 

 

 

 

2,785

 

 

348,697

16


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

9.    Identified Intangible Assets and Liabilities

 

The following summarizes our identified intangible assets (primarily above-market leases) and liabilities (primarily acquired below-market leases) as of September 30, 2016 and December 31, 2015.

 

 

(Amounts in thousands)

 Balance as of

 

 

 

September 30, 2016

 

December 31, 2015

 

 

Identified intangible assets:

 

 

 

 

 

 

 

Gross amount

$

402,614

 

$

415,261

 

 

Accumulated amortization

 

(201,164)

 

 

(187,360)

 

 

Net

$

201,450

 

$

227,901

 

 

Identified intangible liabilities (included in deferred revenue):

 

 

 

 

 

 

 

Gross amount

$

587,157

 

$

643,488

 

 

Accumulated amortization

 

(310,685)

 

 

(325,340)

 

 

Net

$

276,472

 

$

318,148

 

 

Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $11,868,000 and $19,786,000 for the three months ended September 30, 2016 and 2015, respectively, and $41,676,000 and $45,614,000 for the nine months ended September 30, 2016 and 2015, respectively.  Estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing January 1, 2017 is as follows:

 

 

(Amounts in thousands)

 

 

 

 

2017

$

45,591

 

 

2018

 

44,331

 

 

2019

 

32,168

 

 

2020

 

23,342

 

 

2021

 

18,159

 

 

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $6,918,000 and $12,908,000 for the three months ended September 30, 2016 and 2015, respectively, and $22,777,000 and $24,402,000 for the nine months ended September 30, 2016 and 2015, respectively.  Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2017 is as follows:

 

 

(Amounts in thousands)

 

 

 

 

2017

$

24,502

 

 

2018

 

20,251

 

 

2019

 

15,912

 

 

2020

 

12,441

 

 

2021

 

11,209

 

 

We are a tenant under ground leases for certain properties.  Amortization of these acquired below-market leases, net of above-market leases, resulted in an increase to rent expense of $458,000 and $458,000 for the three months ended September 30, 2016 and 2015, respectively, and $1,374,000 and $1,374,000 for the nine months ended September 30, 2016 and 2015.  Estimated annual amortization of these below-market leases, net of above-market leases, for each of the five succeeding years commencing January 1, 2017 is as follows:

 

 

(Amounts in thousands)

 

 

 

 

2017

$

1,832

 

 

2018

 

1,832

 

 

2019

 

1,832

 

 

2020

 

1,832

 

 

2021

 

1,832

 

17


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

10.    Debt

The following is a summary of our debt:

 

(Amounts in thousands)

Interest Rate at

 

Balance at

 

 

 

 

 

September 30, 2016

 

September 30, 2016

 

December 31, 2015

Mortgages Payable:

 

 

 

 

 

 

 

 

 

Fixed rate

 

3.90%

 

$

6,685,606

 

$

6,356,634

 

Variable rate

 

2.34%

 

 

3,282,893

 

 

3,258,204

 

 

Total

 

 

 

3.39%

 

 

9,968,499

 

 

9,614,838

 

Deferred financing costs, net and other

 

 

 

 

(100,949)

 

 

(101,125)

 

 

Total, net

 

 

 

 

 

$

9,867,550

 

$

9,513,713

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured Debt:

 

 

 

 

 

 

 

 

 

Senior unsecured notes

 

3.68%

 

$

850,000

 

$

850,000

 

Deferred financing costs, net and other

 

 

 

 

(4,777)

 

 

(5,841)

 

 

Senior unsecured notes, net

 

 

 

 

845,223

 

 

844,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured term loan

 

1.67%

 

 

375,000

 

 

187,500

 

Deferred financing costs, net and other

 

 

 

 

(3,165)

 

 

(4,362)

 

 

Unsecured term loan, net

 

 

 

 

371,835

 

 

183,138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured revolving credit facilities

 

1.57%

 

 

115,630

 

 

550,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total, net

 

 

 

 

 

$

1,332,688

 

$

1,577,297

 

On February 8, 2016, we completed a $700,000,000 refinancing of 770 Broadway, a 1,158,000 square foot Manhattan office building.  The five-year loan is interest only at LIBOR plus 1.75%, (2.28% at September 30, 2016) which was swapped for four and a half years to a fixed rate of 2.56%.  The Company realized net proceeds of approximately $330,000,000.  The property was previously encumbered by a 5.65%, $353,000,000 mortgage which was scheduled to mature in March 2016.

 

On September 6, 2016, we completed a $675,000,000 refinancing of theMART, a 3,644,000 square foot commercial building in Chicago.  The five-year loan is interest only and has a fixed rate of 2.70%.  The Company realized net proceeds of approximately $124,000,000.  The property was previously encumbered by a 5.57%, $550,000,000 mortgage which was scheduled to mature in December 2016.

 

Skyline Properties

 

On March 15, 2016, we notified the servicer of the $678,000,000 non-recourse mortgage loan on the Skyline properties in Virginia that cash flow will be insufficient to service the debt and pay other property related costs and expenses and that we were not willing to fund additional cash shortfalls.  Accordingly, at our request, the loan has been transferred to the special servicer.  Consequently, based on our shortened estimated holding period for the underlying assets, we concluded that the excess of carrying amount over our estimate of fair value was not recoverable and recognized a $160,700,000 non-cash impairment loss in the first quarter of 2016.  The Company’s estimate of fair value was derived from a discounted cash flow model based upon market conditions and expectations of growth and utilized unobservable quantitative inputs including a capitalization rate of 8.0% and a discount rate of 8.2%.  In the second quarter of 2016, cash flow became insufficient to service the debt and we ceased making debt service payments.  Pursuant to the loan agreement, the loan is in default, causing the loan to be immediately due and payable, and is subject to incremental default interest which increased the weighted average interest rate from 2.97% to 4.51% while the outstanding balance remains unpaid. For the three and nine months ended September 30, 2016, we accrued $2,632,000 and $5,343,000 of default interest expense, respectively.  We continue to negotiate with the special servicer. There can be no assurance as to the timing or ultimate resolution of this matter.

18


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

11.    Redeemable Noncontrolling Interests

 

Redeemable noncontrolling interests on our consolidated balance sheets are comprised primarily of Class A Operating Partnership units held by third parties and are recorded at the greater of their carrying amount or redemption value at the end of each reporting period.  Changes in the value from period to period are charged to “additional capital” in our consolidated statements of changes in equity.  Below is a table summarizing the activity of redeemable noncontrolling interests.

 

 

(Amounts in thousands)

 

 

 

 

Balance at December 31, 2014

$

1,337,780

 

 

Net income

 

28,189

 

 

Other comprehensive loss

 

(3,082)

 

 

Distributions

 

(22,502)

 

 

Redemption of Class A units for common shares, at redemption value

 

(46,693)

 

 

Adjustments to carry redeemable Class A units at redemption value

 

(295,713)

 

 

Issuance of Class A units

 

80,000

 

 

Issuance of Series D-17 preferred units

 

4,428

 

 

Other, net

 

31,478

 

 

Balance at September 30, 2015

$

1,113,885

 

 

 

 

 

 

 

Balance at December 31, 2015

$

1,229,221

 

 

Net income

 

11,410

 

 

Other comprehensive income

 

2,326

 

 

Distributions

 

(23,582)

 

 

Redemption of Class A units for common shares, at redemption value

 

(28,126)

 

 

Adjustments to carry redeemable Class A units at redemption value

 

30,260

 

 

Other, net

 

26,814

 

 

Balance at September 30, 2016

$

1,248,323

 

 

As of September 30, 2016 and December 31, 2015, the aggregate redemption value of redeemable Class A units was $1,242,895,000 and $1,223,793,000, respectively. 

 

Redeemable noncontrolling interests exclude our Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units, as they are accounted for as liabilities in accordance with ASC 480, Distinguishing Liabilities and Equity, because of their possible settlement by issuing a variable number of Vornado common shares.  Accordingly, the fair value of these units is included as a component of “other liabilities” on our consolidated balance sheets and aggregated $50,561,000 as of September 30, 2016 and December 31, 2015.    Changes in the value from period to period, if any, are charged to “interest and debt expense” in our consolidated statements of income. 

 

12.    Shareholders’ Equity

 

On September 1, 2016, we redeemed all of the outstanding 6.875% Series J cumulative redeemable preferred shares at their redemption price of $25.00 per share, or $246,250,000 in the aggregate, plus accrued and unpaid dividends through the date of redemption.  In connection therewith, we expensed $7,408,000 of issuance costs, which reduced net income attributable to common shareholders in the three months ended September 30, 2016.  These costs had been initially recorded as a reduction of shareholders’ equity.

19


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

13.    Accumulated Other Comprehensive Income (“AOCI”)

The following tables set forth the changes in accumulated other comprehensive income by component.

 

(Amounts in thousands)

 

 

 

Securities

 

Pro rata share of

 

Interest

 

 

 

 

 

 

available-

 

nonconsolidated

 

rate

 

 

 

 

Total

 

for-sale

 

subsidiaries' OCI

 

swaps

 

Other

For the Three Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2016

 

$

72,556

 

$

117,561

 

$

(9,941)

 

$

(30,538)

 

$

(4,526)

 

OCI before reclassifications

 

 

9,818

 

 

3,685

 

 

(915)

 

 

7,688

 

 

(640)

 

Amounts reclassified from AOCI

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Net current period OCI

 

 

9,818

 

 

3,685

 

 

(915)

 

 

7,688

 

 

(640)

Balance as of September 30, 2016

 

$

82,374

 

$

121,246

 

$

(10,856)

 

$

(22,850)

 

$

(5,166)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2015

 

$

50,613

 

$

87,442

 

$

(10,026)

 

$

(23,730)

 

$

(3,073)

 

OCI before reclassifications

 

 

(7,020)

 

 

(7,064)

 

 

(114)

 

 

(290)

 

 

448

 

Amounts reclassified from AOCI

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Net current period OCI

 

 

(7,020)

 

 

(7,064)

 

 

(114)

 

 

(290)

 

 

448

Balance as of September 30, 2015

 

$

43,593

 

$

80,378

 

$

(10,140)

 

$

(24,020)

 

$

(2,625)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2015

 

$

46,921

 

$

78,448

 

$

(9,319)

 

$

(19,368)

 

$

(2,840)

 

OCI before reclassifications

 

 

35,453

 

 

42,798

 

 

(1,537)

 

 

(3,482)

 

 

(2,326)

 

Amounts reclassified from AOCI

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Net current period OCI

 

 

35,453

 

 

42,798

 

 

(1,537)

 

 

(3,482)

 

 

(2,326)

Balance as of September 30, 2016

 

$

82,374

 

$

121,246

 

$

(10,856)

 

$

(22,850)

 

$

(5,166)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2014

 

$

93,267

 

$

133,774

 

$

(8,992)

 

$

(25,803)

 

$

(5,712)

 

OCI before reclassifications

 

 

(49,674)

 

 

(53,396)

 

 

(1,148)

 

 

1,783

 

 

3,087

 

Amounts reclassified from AOCI

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Net current period OCI

 

 

(49,674)

 

 

(53,396)

 

 

(1,148)

 

 

1,783

 

 

3,087

Balance as of September 30, 2015

 

$

43,593

 

$

80,378

 

$

(10,140)

 

$

(24,020)

 

$

(2,625)



14.    Variable Interest Entities

 

At September 30, 2016 and December 31, 2015, we have several unconsolidated VIEs.  We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities does not give us power over decisions that significantly affect these entities’ economic performance.  We account for our investment in these entities under the equity method (see Note 7 – Investments in Partially Owned Entities).  As of September 30, 2016 and December 31, 2015, the net carrying amounts of our investment in these entities were $402,592,000 and $379,939,000, respectively, and our maximum exposure to loss in these entities, is limited to our investments.

 

We adopted ASU 2015-02 on January 1, 2016 which resulted in the identification of several VIEs which, prior to the adoption of ASU 2015-02, were consolidated under the voting interest model.  Our most significant consolidated VIEs are our Operating Partnership, real estate fund investments, and certain properties that have non-controlling interests.  These entities are VIEs because the non-controlling interests do not have substantive kick-out or participating rights.  We consolidate these entities because we control all significant business activities.

 

We conduct our business through, and all of our assets and liabilities are held by, our Operating Partnership which is a VIE.

20


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

15.    Fair Value Measurements

ASC 820 defines fair value and establishes a framework for measuring fair value.  The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).  ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in our assessment of fair value.  Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities.  Accordingly, our fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon sale or disposition of these assets.   

 

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

Financial assets and liabilities that are measured at fair value on our consolidated balance sheets consist of (i) marketable securities, (ii) real estate fund investments, (iii) the assets in our deferred compensation plan (for which there is a corresponding liability on our consolidated balance sheet), (iv) mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units), and (v) interest rate swaps.  The tables below aggregate the fair values of these financial assets and liabilities by their levels in the fair value hierarchy as of September 30, 2016 and December 31, 2015, respectively.

 

(Amounts in thousands)

As of September 30, 2016

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

Marketable securities

$

198,165

 

$

198,165

 

$

-

 

$

-

Real estate fund investments

 

519,386

 

 

-

 

 

-

 

 

519,386

Deferred compensation plan assets (included in other assets)

 

118,359

 

 

61,444

 

 

-

 

 

56,915

Interest rate swap (included in other assets)

 

3,064

 

 

-

 

 

3,064

 

 

-

 

Total assets

$

838,974

 

$

259,609

 

$

3,064

 

$

576,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mandatorily redeemable instruments (included in other liabilities)

$

50,561

 

$

50,561

 

$

-

 

$

-

Interest rate swaps (included in other liabilities)

 

23,646

 

 

-

 

 

23,646

 

 

-

 

Total liabilities

$

74,207

 

$

50,561

 

$

23,646

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

As of December 31, 2015

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

Marketable securities

$

150,997

 

$

150,997

 

$

-

 

$

-

Real estate fund investments

 

574,761

 

 

-

 

 

-

 

 

574,761

Deferred compensation plan assets (included in other assets)

 

117,475

 

 

58,289

 

 

-

 

 

59,186

 

Total assets

$

843,233

 

$

209,286

 

$

-

 

$

633,947

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mandatorily redeemable instruments (included in other liabilities)

$

50,561

 

$

50,561

 

$

-

 

$

-

Interest rate swaps (included in other liabilities)

 

19,600

 

 

-

 

 

19,600

 

 

-

 

Total liabilities

$

70,161

 

$

50,561

 

$

19,600

 

$

-

 

21


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

15.    Fair Value Measurements – continued

 

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued

 

Real Estate Fund Investments

 

At September 30, 2016, we had six real estate fund investments with an aggregate fair value of $519,386,000, or $210,451,000 in excess of cost.  These investments are classified as Level 3.  We use a discounted cash flow valuation technique to estimate the fair value of each of these investments, which is updated quarterly by personnel responsible for the management of each investment and reviewed by senior management at each reporting period.  The discounted cash flow valuation technique requires us to estimate cash flows for each investment over the anticipated holding period, which currently ranges from 1.0 to 4.3 years.  Cash flows are derived from property rental revenue (base rents plus reimbursements) less operating expenses, real estate taxes and capital and other costs, plus projected sales proceeds in the year of exit.  Property rental revenue is based on leases currently in place and our estimates for future leasing activity, which are based on current market rents for similar space plus a projected growth factor.  Similarly, estimated operating expenses and real estate taxes are based on amounts incurred in the current period plus a projected growth factor for future periods.  Anticipated sales proceeds at the end of an investment’s expected holding period are determined based on the net cash flow of the investment in the year of exit, divided by a terminal capitalization rate, less estimated selling costs. 

 

The fair value of each property is calculated by discounting the future cash flows (including the projected sales proceeds), using an appropriate discount rate and then reduced by the property’s outstanding debt, if any, to determine the fair value of the equity in each investment. Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates.  These rates are based on the location, type and nature of each property, and current and anticipated market conditions, industry publications and from the experience of our Acquisitions and Capital Markets departments.  Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these real estate fund investments at September 30, 2016 and December 31, 2015.

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Range

 

(based on fair value of investments)

Unobservable Quantitative Input

 

September 30, 2016

 

December 31, 2015

 

September 30, 2016

 

December 31, 2015

Discount rates

 

12.0% to 14.9%

 

12.0% to 14.9%

 

13.7%

 

13.6%

Terminal capitalization rates

 

4.7% to 5.8%

 

4.8% to 6.1%

 

5.4%

 

5.5%

 

The above inputs are subject to change based on changes in economic and market conditions and/or changes in use or timing of exit.  Changes in discount rates and terminal capitalization rates result in increases or decreases in the fair values of these investments.  The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates and the amount and timing of cash flows.  Therefore, a change in the fair value of these investments resulting from a change in the terminal capitalization rate, may be partially offset by a change in the discount rate.  It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values. 

 

The table below summarizes the changes in the fair value of real estate fund investments that are classified as Level 3, for the three and nine months ended September 30, 2016 and 2015.

 

(Amounts in thousands)

For the Three Months Ended

 

For the Nine Months Ended

 

September 30,

 

September 30,

 

 

 

2016

 

 

2015

 

2016

 

2015

Beginning balance

$

524,150

 

$

565,976

 

$

574,761

 

$

513,973

Purchases

 

-

 

 

11

 

 

-

 

 

95,011

Dispositions / distributions

 

-

 

 

(8,029)

 

 

(71,888)

 

 

(91,450)

Net unrealized (losses) gains

 

(4,764)

 

 

(2,544)

 

 

16,091

 

 

37,001

Net realized (losses) gains

 

-

 

 

(907)

 

 

422

 

 

1,405

Other, net

 

-

 

 

907

 

 

-

 

 

(526)

Ending balance

$

519,386

 

$

555,414

 

$

519,386

 

$

555,414

                         

 

22


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

15.    Fair Value Measurements – continued

 

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued

 

Deferred Compensation Plan Assets

 

Deferred compensation plan assets that are classified as Level 3 consist of investments in limited partnerships and investment funds, which are managed by third parties.  We receive quarterly financial reports from a third-party administrator, which are compiled from the quarterly reports provided to them from each limited partnership and investment fund.  The quarterly reports provide net asset values on a fair value basis which are audited by independent public accounting firms on an annual basis.  The third-party administrator does not adjust these values in determining our share of the net assets and we do not adjust these values when reported in our consolidated financial statements.

 

The table below summarizes the changes in the fair value of deferred compensation plan assets that are classified as Level 3, for the three and nine months ended September 30, 2016 and 2015. 

 

(Amounts in thousands)

For the Three Months Ended

 

For the Nine Months Ended

 

September 30,

 

September 30,

 

 

 

2016

 

 

2015

 

2016

 

2015

Beginning balance

$

60,140

 

$

67,668

 

$

59,186

 

$

63,315

Purchases

 

1,251

 

 

2,153

 

 

3,523

 

 

8,384

Sales

 

(3,737)

 

 

(171)

 

 

(5,888)

 

 

(5,264)

Realized and unrealized (losses) gains

 

(1,055)

 

 

(1,466)

 

 

(743)

 

 

1,256

Other, net

 

316

 

 

24

 

 

837

 

 

517

Ending balance

$

56,915

 

$

68,208

 

$

56,915

 

$

68,208

                         

23


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

15.    Fair Value Measurements – continued

 

Financial Assets and Liabilities not Measured at Fair Value

 

Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents (primarily money market funds, which invest in obligations of the United States government), and our secured and unsecured debt.  Estimates of the fair value of these instruments are determined by the standard practice of modeling the contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk adjusted interest rate, which is provided by a third-party specialist.  For floating rate debt, we use forward rates derived from observable market yield curves to project the expected cash flows we would be required to make under the instrument.  The fair value of cash equivalents and borrowings under our unsecured revolving credit facilities and unsecured term loan are classified as Level 1.  The fair value of our secured and unsecured debt is classified as Level 2.  The table below summarizes the carrying amounts and fair value of these financial instruments as of September 30, 2016 and December 31, 2015.

 

(Amounts in thousands)

 

As of September 30, 2016

 

As of December 31, 2015

 

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

 

 

Amount

 

Value

 

Amount

 

Value

Cash equivalents

$

1,003,149

 

$

1,003,000

 

$

1,295,980

 

$

1,296,000

Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgages payable

$

9,968,499

 

$

9,371,000

 

$

9,614,838

 

$

9,306,000

 

Senior unsecured notes

 

850,000

 

 

896,000

 

 

850,000

 

 

868,000

 

Unsecured term loan

 

375,000

 

 

375,000

 

 

187,500

 

 

188,000

 

Unsecured revolving credit facilities

 

115,630

 

 

116,000

 

 

550,000

 

 

550,000

 

Total

$

11,309,129

 (1) 

$

10,758,000

 

$

11,202,338

 (1) 

$

10,912,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (1) 

Excludes $108,891 and $111,328 of deferred financing costs, net and other as of September 30, 2016 and December 31, 2015, respectively.

 

16.    Incentive Compensation

 

Our 2010 Omnibus Share Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted shares, restricted Operating Partnership units and Out-Performance Plan awards to certain of our employees and officers.  We account for all equity-based compensation in accordance with ASC 718.  Equity-based compensation expense was $6,117,000 and $6,501,000 for the three months ended September 30, 2016 and 2015, respectively, and $27,903,000 and $33,328,000 for the nine months ended September 30, 2016 and 2015, respectively.

24


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

17.    Fee and Other Income

The following table sets forth the details of fee and other income:

 

(Amounts in thousands)

For the Three Months Ended

  

For the Nine Months Ended

 

September 30,

  

September 30,

 

 

2016

  

2015

 

2016

  

2015

BMS cleaning fees

$

20,820

 

$

18,563

 

$

57,760

 

$

62,937

Management and leasing fees

 

6,644

 

 

4,045

 

 

16,047

 

 

12,511

Lease termination fees

 

2,118

 

 

1,517

 

 

7,722

 

 

8,157

Other income

 

8,192

 

 

10,036

 

 

23,904

 

 

29,393

 

$

37,774

 

$

34,161

 

$

105,433

 

$

112,998

                         

 

Management and leasing fees include management fees from Interstate Properties, a related party, of $128,000 and $132,000 for the three months ended September 30, 2016 and 2015, and $390,000 and $403,000 for the nine months ended September 30, 2016 and 2015, respectively.  The above table excludes fee income from partially owned entities, which is included in “income (loss) from partially owned entities” (see Note 7 – Investments in Partially Owned Entities). 

 

18.     Interest and Other Investment Income, Net

 

The following table sets forth the details of interest and other investment income, net:

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

Dividends on marketable securities

$

3,354

 

$

3,215

 

$

9,799

 

$

9,620

Interest on loans receivable

 

754

 

 

1,154

 

 

2,250

 

 

5,113

Mark-to-market income (loss) of investments in our

 

 

 

 

 

 

 

 

 

 

 

 

deferred compensation plan (1)

 

204

 

 

(2,577)

 

 

2,625

 

 

(327)

Other, net

 

2,196

 

 

1,368

 

 

5,588

 

 

5,212

 

$

6,508

 

$

3,160

 

$

20,262

 

$

19,618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

This income (loss) is entirely offset by the income (expense) resulting from the mark-to-market of the deferred compensation plan liability, which is included in "general and administrative" expense.

 

19.     Interest and Debt Expense

 

The following table sets forth the details of interest and debt expense:

 

(Amounts in thousands)

For the Three Months Ended

 

For the Nine Months Ended

 

September 30,

 

September 30,

 

 

2016

 

2015

 

2016

 

2015

Interest expense

$

98,210

 

$

113,485

 

$

302,940

 

$

305,110

Amortization of deferred financing costs

 

8,539

 

 

7,864

 

 

26,312

 

 

22,817

Capitalized interest and debt expense

 

(8,384)

 

 

(11,005)

 

 

(24,822)

 

 

(33,817)

Capitalized standby loan commitment termination fee

 

 

 

 

 

 

 

 

 

 

 

 

(220 Central Park South development project)

 

-

 

 

(15,000)

 

 

-

 

 

(15,000)

 

$

98,365

 

$

95,344

 

$

304,430

 

$

279,110

25


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

20.          Income Per Share

 

 

The following table provides a reconciliation of both net income and the number of common shares used in the computation of (i) basic income per common share - which includes the weighted average number of common shares outstanding without regard to dilutive potential common shares, and (ii) diluted income per common share - which includes the weighted average common shares and dilutive share equivalents. Dilutive share equivalents may include our Series A convertible preferred shares, employee stock options, restricted stock awards and Out-Performance Plan awards.

 

(Amounts in thousands, except per share amounts)

For the Three Months Ended

 

For the Nine Months Ended

 

 

September 30,

 

September 30,

 

 

 

 

 

2016

 

2015

 

2016

 

2015

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to noncontrolling interests

$

89,793

 

$

186,833

 

$

233,826

 

$

462,040

 

 

Income from discontinued operations, net of income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to noncontrolling interests

 

2,787

 

 

32,401

 

 

5,781

 

 

47,287

 

 

Net income attributable to Vornado

 

92,580

 

 

219,234

 

 

239,607

 

 

509,327

 

 

Preferred share dividends

 

(19,047)

 

 

(20,364)

 

 

(59,774)

 

 

(60,213)

 

 

Preferred share issuance costs (Series J redemption)

 

(7,408)

 

 

-

 

 

(7,408)

 

 

-

 

 

Net income attributable to common shareholders

 

66,125

 

 

198,870

 

 

172,425

 

 

449,114

 

 

Earnings allocated to unvested participating securities

 

(13)

 

 

(18)

 

 

(43)

 

 

(56)

 

 

Numerator for basic income per share

 

66,112

 

 

198,852

 

 

172,382

 

 

449,058

 

 

Impact of assumed conversions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred share dividends

 

-

 

 

23

 

 

-

 

 

69

 

 

 

Earnings allocated to Out-Performance Plan units

 

-

 

 

-

 

 

96

 

 

628

 

 

Numerator for diluted income per share

$

66,112

 

$

198,875

 

$

172,478

 

$

449,755

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic income per share – weighted average shares

 

188,901

 

 

188,504

 

 

188,778

 

 

188,291

 

 

Effect of dilutive securities(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock options and restricted share awards

 

1,147

 

 

1,032

 

 

1,067

 

 

1,187

 

 

 

Convertible preferred shares

 

-

 

 

45

 

 

-

 

 

46

 

 

 

Out-Performance Plan units

 

-

 

 

-

 

 

241

 

 

265

 

 

Denominator for diluted income per share – weighted average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

shares and assumed conversions

 

190,048

 

 

189,581

 

 

190,086

 

 

189,789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.34

 

$

0.88

 

$

0.88

 

$

2.13

 

 

Income from discontinued operations, net

 

0.01

 

 

0.17

 

 

0.03

 

 

0.25

 

 

Net income per common share

$

0.35

 

$

1.05

 

$

0.91

 

$

2.38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE – DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net

$

0.33

 

$

0.88

 

$

0.88

 

$

2.12

 

 

Income from discontinued operations, net

 

0.02

 

 

0.17

 

 

0.03

 

 

0.25

 

 

Net income per common share

$

0.35

 

$

1.05

 

$

0.91

 

$

2.37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The effect of dilutive securities for the three months ended September 30, 2016 and 2015 excludes an aggregate of 12,315 and 11,871 weighted average common share equivalents, respectively, and 12,072 and 11,341 weighted average common share equivalents for the nine months ended September 30, 2016 and 2015, respectively, as their effect was anti-dilutive.

 

26


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

21.          Commitments and Contingencies

Insurance 

 

We maintain general liability insurance with limits of $300,000,000 per occurrence and per property, and all risk property and rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as flood and earthquake. Our California properties have earthquake insurance with coverage of $180,000,000 per occurrence and in the annual aggregate, subject to a deductible in the amount of 5% of the value of the affected property. We maintain coverage for terrorism acts with limits of $4.0 billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization Act of 2015, which expires in December 2020.

 

Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for acts of terrorism including NBCR acts. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC. For NBCR acts, PPIC is responsible for a deductible of $2,400,000 per occurrence and 16% of the balance of a covered loss and the Federal government is responsible for the remaining 84% of a covered loss. We are ultimately responsible for any loss incurred by PPIC.

 

We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism.  However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future.

 

Our debt instruments, consisting of mortgage loans secured by our properties which are non-recourse to us, senior unsecured notes and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance our properties and expand our portfolio.

 

Other Commitments and Contingencies

 

We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

 

Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.

 

Generally, our mortgage loans are non-recourse to us.  However, in certain cases we have provided guarantees or master leased tenant space.  These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans.  As of September 30, 2016, the aggregate dollar amount of these guarantees and master leases is approximately $811,000,000.

 

At September 30, 2016, $38,882,000 of letters of credit were outstanding under one of our unsecured revolving credit facilities.  Our unsecured revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our unsecured revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

 

As of September 30, 2016, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $66,000,000.

 

As of September 30, 2016, we have construction commitments aggregating approximately $687,000,000. 

27


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

22.    Segment Information

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three and nine months ended September 30, 2016 and 2015.  

 

(Amounts in thousands)

For the Three Months Ended September 30, 2016

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

633,197

 

$

432,869

 

$

134,446

 

$

65,882

 

Total expenses

 

 

444,044

 

 

280,689

 

 

90,756

 

 

72,599

 

Operating income (loss)

 

 

189,153

 

 

152,180

 

 

43,690

 

 

(6,717)

 

Income (loss) from partially owned entities

 

 

4,127

 

 

(579)

 

 

(452)

 

 

5,158

 

Income from real estate fund investments

 

 

1,077

 

 

-

 

 

-

 

 

1,077

 

Interest and other investment income, net

 

 

6,508

 

 

1,355

 

 

49

 

 

5,104

 

Interest and debt expense

 

 

(98,365)

 

 

(51,212)

 

 

(18,644)

 

 

(28,509)

 

Income (loss) before income taxes

 

 

102,500

 

 

101,744

 

 

24,643

 

 

(23,887)

 

Income tax expense

 

 

(4,865)

 

 

(2,356)

 

 

(302)

 

 

(2,207)

 

Income (loss) from continuing operations

 

 

97,635

 

 

99,388

 

 

24,341

 

 

(26,094)

 

Income from discontinued operations

 

 

2,969

 

 

-

 

 

-

 

 

2,969

 

Net income (loss)

 

 

100,604

 

 

99,388

 

 

24,341

 

 

(23,125)

 

Less net income attributable to noncontrolling interests

 

 

(8,024)

 

 

(2,985)

 

 

-

 

 

(5,039)

 

Net income (loss) attributable to Vornado

 

 

92,580

 

 

96,403

 

 

24,341

 

 

(28,164)

 

Net income attributable to noncontrolling interests in the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

4,366

 

 

-

 

 

-

 

 

4,366

 

Interest and debt expense(2)

 

 

122,979

 

 

66,314

 

 

20,991

 

 

35,674

 

Depreciation and amortization(2)

 

 

172,980

 

 

111,731

 

 

37,123

 

 

24,126

 

Income tax expense(2)

 

 

5,102

 

 

2,445

 

 

310

 

 

2,347

 

EBITDA(1)

 

$

398,007

 

$

276,893

(3)

$

82,765

(4)

$

38,349

(5)

                               

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on pages 31 and 32.

28


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

22.    Segment Information – continued

 

(Amounts in thousands)

For the Three Months Ended September 30, 2015

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

627,596

 

$

429,433

 

$

132,704

 

$

65,459

 

Total expenses

 

 

436,156

 

 

263,805

 

 

102,114

 

 

70,237

 

Operating income (loss)

 

 

191,440

 

 

165,628

 

 

30,590

 

 

(4,778)

 

(Loss) income from partially owned entities

 

 

(325)

 

 

4,010

 

 

(1,909)

 

 

(2,426)

 

Income from real estate fund investments

 

 

1,665

 

 

-

 

 

-

 

 

1,665

 

Interest and other investment income, net

 

 

3,160

 

 

1,888

 

 

34

 

 

1,238

 

Interest and debt expense

 

 

(95,344)

 

 

(50,480)

 

 

(16,580)

 

 

(28,284)

 

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

103,037

 

 

-

 

 

102,404

 

 

633

 

Income (loss) before income taxes

 

 

203,633

 

 

121,046

 

 

114,539

 

 

(31,952)

 

Income tax expense

 

 

(2,856)

 

 

(1,147)

 

 

(287)

 

 

(1,422)

 

Income (loss) from continuing operations

 

 

200,777

 

 

119,899

 

 

114,252

 

 

(33,374)

 

Income from discontinued operations

 

 

34,463

 

 

-

 

 

-

 

 

34,463

 

Net income

 

 

235,240

 

 

119,899

 

 

114,252

 

 

1,089

 

Less net income attributable to noncontrolling interests

 

 

(16,006)

 

 

(2,582)

 

 

-

 

 

(13,424)

 

Net income (loss) attributable to Vornado

 

 

219,234

 

 

117,317

 

 

114,252

 

 

(12,335)

 

Net income attributable to noncontrolling interests in the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

12,704

 

 

-

 

 

-

 

 

12,704

 

Interest and debt expense(2)

 

 

118,977

 

 

64,653

 

 

20,010

 

 

34,314

 

Depreciation and amortization(2)

 

 

174,209

 

 

99,206

 

 

48,132

 

 

26,871

 

Income tax expense (2)

 

 

3,043

 

 

1,214

 

 

294

 

 

1,535

 

EBITDA(1)

 

$

528,167

 

$

282,390

(3)

$

182,688

(4)

$

63,089

(5)

                               

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on pages 31 and 32.

29


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

22.    Segment Information – continued

(Amounts in thousands)

For the Nine Months Ended September 30, 2016

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

1,867,942

 

$

1,269,464

 

$

389,926

 

$

208,552

 

Total expenses

 

 

1,492,255

 

 

818,419

 

 

436,427

 

 

237,409

 

Operating income (loss)

 

 

375,687

 

 

451,045

 

 

(46,501)

 

 

(28,857)

 

Income (loss) from partially owned entities

 

 

529

 

 

(5,143)

 

 

(5,453)

 

 

11,125

 

Income from real estate fund investments

 

 

28,750

 

 

-

 

 

-

 

 

28,750

 

Interest and other investment income, net

 

 

20,262

 

 

3,684

 

 

141

 

 

16,437

 

Interest and debt expense

 

 

(304,430)

 

 

(162,193)

 

 

(54,396)

 

 

(87,841)

 

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

160,225

 

 

159,511

 

 

-

 

 

714

 

Income (loss) before income taxes

 

 

281,023

 

 

446,904

 

 

(106,209)

 

 

(59,672)

 

Income tax expense

 

 

(9,805)

 

 

(4,131)

 

 

(884)

 

 

(4,790)

 

Income (loss) from continuing operations

 

 

271,218

 

 

442,773

 

 

(107,093)

 

 

(64,462)

 

Income from discontinued operations

 

 

6,160

 

 

-

 

 

-

 

 

6,160

 

Net income (loss)

 

 

277,378

 

 

442,773

 

 

(107,093)

 

 

(58,302)

 

Less net income attributable to noncontrolling interests

 

 

(37,771)

 

 

(9,811)

 

 

-

 

 

(27,960)

 

Net income (loss) attributable to Vornado

 

 

239,607

 

 

432,962

 

 

(107,093)

 

 

(86,262)

 

Net income attributable to noncontrolling interests in the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

11,410

 

 

-

 

 

-

 

 

11,410

 

Interest and debt expense(2)

 

 

376,898

 

 

208,683

 

 

63,038

 

 

105,177

 

Depreciation and amortization(2)

 

 

521,143

 

 

331,448

 

 

119,109

 

 

70,586

 

Income tax expense (2)

 

 

13,067

 

 

4,424

 

 

2,780

 

 

5,863

 

EBITDA(1)

 

$

1,162,125

 

$

977,517

(3)

$

77,834

(4)

$

106,774

(5)

                               

 

(Amounts in thousands)

 

For the Nine Months Ended September 30, 2015

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

1,850,686

 

$

1,243,208

 

$

401,528

 

$

205,950

 

Total expenses

 

 

1,298,141

 

 

766,863

 

 

293,772

 

 

237,506

 

Operating income (loss)

 

 

552,545

 

 

476,345

 

 

107,756

 

 

(31,556)

 

(Loss) income from partially owned entities

 

 

(8,709)

 

 

1,523

 

 

(3,583)

 

 

(6,649)

 

Income from real estate fund investments

 

 

52,122

 

 

-

 

 

-

 

 

52,122

 

Interest and other investment income, net

 

 

19,618

 

 

5,642

 

 

60

 

 

13,916

 

Interest and debt expense

 

 

(279,110)

 

 

(143,004)

 

 

(52,223)

 

 

(83,883)

 

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

104,897

 

 

-

 

 

102,404

 

 

2,493

 

Income (loss) before income taxes

 

 

441,363

 

 

340,506

 

 

154,414

 

 

(53,557)

 

Income tax benefit (expense)

 

 

84,245

 

 

(3,185)

 

 

(79)

 

 

87,509

 

Income from continuing operations

 

 

525,608

 

 

337,321

 

 

154,335

 

 

33,952

 

Income from discontinued operations

50,278

 

 

-

 

 

-

 

 

50,278

 

Net income

 

 

575,886

 

 

337,321

 

 

154,335

 

 

84,230

 

Less net income attributable to noncontrolling interests

 

 

(66,559)

 

 

(6,640)

 

 

-

 

 

(59,919)

 

Net income attributable to Vornado

 

 

509,327

 

 

330,681

 

 

154,335

 

 

24,311

 

Net income attributable to noncontrolling interests in the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

28,189

 

 

-

 

 

-

 

 

28,189

 

Interest and debt expense(2)

 

 

348,725

 

 

184,377

 

 

62,413

 

 

101,935

 

Depreciation and amortization(2)

 

 

493,904

 

 

288,897

 

 

136,687

 

 

68,320

 

Income tax (benefit) expense(2)

 

 

(85,349)

 

 

3,368

 

 

(1,856)

 

 

(86,861)

 

EBITDA(1)

 

$

1,294,796

 

$

807,323

(3)

$

351,579

(4)

$

135,894

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on the following pages.

 

 

 

 

 

 

 

 

 

 

 

 

 

30


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

22.    Segment Information – continued

 

Notes to preceding tabular information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

EBITDA represents "Earnings Before Interest, Taxes, Depreciation and Amortization."  We calculate EBITDA on an Operating Partnership basis which is before allocation to noncontrolling interests in the Operating Partnership.  We consider EBITDA a non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

Interest and debt expense, depreciation and amortization and income tax expense (benefit) in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

The elements of "New York" EBITDA are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

 

 

 

 

 

September 30,

 

September 30,

 

 

 

 

 

 

 

 

2016

 

2015

 

2016

 

2015

 

 

Office(a)

 

$

159,937

 

$

161,168

 

$

475,726

 

$

480,508

 

 

Retail(b)

 

 

95,274

 

 

97,604

 

 

284,212

 

 

265,060

 

 

Residential

 

 

6,214

 

 

5,495

 

 

18,901

 

 

16,254

 

 

Alexander's

 

 

11,506

 

 

10,502

 

 

34,880

 

 

31,150

 

 

Hotel Pennsylvania

 

 

3,962

 

 

7,621

 

 

4,287

 

 

14,351

 

 

 

 

 

 

 

 

 

276,893

 

 

282,390

 

 

818,006

 

 

807,323

 

 

Net gain on sale of 47% ownership interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in 7 West 34th Street

 

 

-

 

 

-

 

 

159,511

 

 

-

 

 

 

 

Total New York

 

$

276,893

 

$

282,390

 

$

977,517

 

$

807,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

The three and nine months ended September 30, 2015 include $5,151 and $16,954, respectively, of EBITDA from sold properties and other. Excluding these items, EBITDA was $156,017 and $463,554, respectively. The nine months ended September 30, 2016 includes $2,935 of EBITDA from a sold property. Excluding this item, EBITDA was $472,791.

 

 

(b)

The three and nine months ended September 30, 2015 include $524 and $1,597, respectively, of EBITDA from a sold property. Excluding this item, EBITDA was $97,080 and $263,463, respectively. The nine months ended September 30, 2016 includes $185 of EBITDA from a sold property. Excluding this item, EBITDA was $284,027.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4)

The elements of "Washington, DC" EBITDA are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

 

 

 

 

 

September 30,

 

September 30,

 

 

 

 

 

 

 

 

2016

 

2015

 

2016

 

2015

 

 

Office, excluding the Skyline properties (a)

 

$

67,073

 

$

63,879

 

$

191,646

 

$

199,757

 

 

Skyline properties

 

 

4,222

 

 

5,998

 

 

14,177

 

 

19,037

 

 

Skyline properties impairment loss

 

 

-

 

 

-

 

 

(160,700)

 

 

-

 

 

Net gain on sale of 1750 Pennsylvania Avenue

 

 

-

 

 

102,404

 

 

-

 

 

102,404

 

 

 

 

Total Office

 

 

71,295

 

 

172,281

 

 

45,123

 

 

321,198

 

 

Residential

 

 

11,470

 

 

10,407

 

 

32,711

 

 

30,381

 

 

 

 

Total Washington, DC

 

$

82,765

 

$

182,688

 

$

77,834

 

$

351,579

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

The three and nine months ended September 30, 2015 include $1,601 and $5,591, respectively, of EBITDA from a sold property. Excluding this item, EBITDA was $62,278 and $194,166, respectively.

31


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

22.    Segment Information – continued

 

Notes to preceding tabular information - continued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5)

The elements of "Other" EBITDA are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

 

 

 

 

September 30,

 

September 30,

 

 

 

 

 

 

 

2016

 

2015

 

2016

 

2015

 

 

Our share of real estate fund investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before net realized/unrealized gains and losses

$

2,552

 

$

2,594

 

$

6,309

 

$

6,879

 

 

 

Net realized/unrealized (losses) gains on investments

 

(2,118)

 

 

(922)

 

 

3,333

 

 

9,542

 

 

 

Carried interest

 

373

 

 

(49)

 

 

4,020

 

 

6,248

 

 

Total

 

807

 

 

1,623

 

 

13,662

 

 

22,669

 

 

theMART (including trade shows)

 

21,696

 

 

19,044

 

 

70,689

 

 

62,229

 

 

555 California Street

 

11,405

 

 

13,005

 

 

35,137

 

 

38,237

 

 

India real estate ventures

 

836

 

 

13

 

 

2,585

 

 

2,229

 

 

Other investments

 

19,092

 

 

11,009

 

 

46,180

 

 

31,705

 

 

 

 

53,836

 

 

44,694

 

 

168,253

 

 

157,069

 

 

Corporate general and administrative expenses(a)(b)

 

(21,519)

 

 

(22,341)

 

 

(76,364)

 

 

(82,043)

 

 

Investment income and other, net(a)

 

6,871

 

 

5,952

 

 

19,317

 

 

21,275

 

 

Acquisition and transaction related costs

 

(3,808)

 

 

(1,518)

 

 

(11,319)

 

 

(7,560)

 

 

UE and residual retail properties discontinued operations(c)

 

2,969

 

 

2,516

 

 

6,173

 

 

26,313

 

 

Net gain on sale of Monmouth Mall

 

-

 

 

33,153

 

 

-

 

 

33,153

 

 

Net gain on sale of residential condominiums

 

-

 

 

633

 

 

714

 

 

2,493

 

 

Our share of impairment loss on India real estate ventures

 

-

 

 

-

 

 

-

 

 

(14,806)

 

 

 

 

Total Other

$

38,349

 

$

63,089

 

$

106,774

 

$

135,894

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

The amounts in these captions (for this table only) exclude the results of the mark-to-market of our deferred compensation plan of $204 of income and $2,577 of loss for the three months ended September 30, 2016 and 2015, respectively, and $2,625 of income and $327 of loss for the nine months ended September 30, 2016 and 2015, respectively.

 

 

(b)

The nine months ended September 30, 2015 includes a cumulative catch up of $4,542 from the acceleration of recognition of compensation expense related to the modification of the 2012-2014 Out-Performance Plans.

 

 

(c)

The nine months ended September 30, 2015 includes $22,972 of transaction costs related to the spin-off of our strip shopping centers and malls.

32


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

22.    Segment Information – continued

Subsequent to the issuance of our consolidated financial statements for the quarterly period ended June 30, 2016, we determined to correct our calculation of “Other" EBITDA as previously presented to add back net income attributable to the noncontrolling interest of the Operating Partnership in order to report “Other" EBITDA on an Operating Partnership basis, consistent with the manner that EBITDA is reported for the New York and Washington DC segments.  This change results in an increase (decrease) in both “Other” EBITDA and “Total” EBITDA as follows:



(Amounts in thousands)

Total EBITDA

 

Other EBITDA

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

attributable to

 

 

 

 

 

 

 

attributable to

 

 

 

 

 

 

 

 

 

 

noncontrolling

 

 

 

 

 

 

 

noncontrolling

 

 

 

 

 

 

 

 

 

 

interests in the

 

 

 

 

 

 

 

interests in the

 

 

 

 

 

 

 

 

 

 

Operating

 

 

 

 

 

 

 

Operating

 

 

 

 

 

 

 

As reported

 

Partnership

 

As restated

 

As reported

 

Partnership

 

As restated

For the year ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

$

1,809,535

 

$

43,231

 

$

1,852,766

 

$

128,246

 

$

43,231

 

$

171,477

 

December 31, 2014

 

2,229,471

 

 

47,613

 

 

2,277,084

 

 

454,692

 

 

47,613

 

 

502,305

 

December 31, 2013

 

1,993,880

 

 

24,817

 

 

2,018,697

 

 

572,975

 

 

24,817

 

 

597,792

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016

 

546,681

 

 

14,531

 

 

561,212

 

 

27,102

 

 

14,531

 

 

41,633

 

March 31, 2016

 

210,393

 

 

(7,487)

 

 

202,906

 

 

34,279

 

 

(7,487)

 

 

26,792

 

December 31, 2015

 

542,928

 

 

15,042

 

 

557,970

 

 

20,541

 

 

15,042

 

 

35,583

 

September 30, 2015

 

515,463

 

 

12,704

 

 

528,167

 

 

50,385

 

 

12,704

 

 

63,089

 

June 30, 2015

 

376,681

 

 

10,198

 

 

386,879

 

 

15,059

 

 

10,198

 

 

25,257

 

March 31, 2015

 

374,463

 

 

5,287

 

 

379,750

 

 

42,261

 

 

5,287

 

 

47,548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016

 

757,074

 

 

7,044

 

 

764,118

 

 

61,381

 

 

7,044

 

 

68,425

 

June 30, 2015

 

751,144

 

 

15,485

 

 

766,629

 

 

57,320

 

 

15,485

 

 

72,805

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

1,266,607

 

 

28,189

 

 

1,294,796

 

 

107,705

 

 

28,189

 

 

135,894

33


VORNADO REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(UNAUDITED)

 

 

23.    Subsequent Event

 

On October 31, 2016, our Board of Trustees approved the tax-free spin-off of our Washington, DC business and we entered into a definitive agreement to merge it with the business and certain select assets of The JBG Companies (“JBG”), a Washington, DC real estate company.  Steven Roth, our Chairman and Chief Executive Officer, will be Chairman of the Board of Trustees of the new combined company.  Mitchell Schear, President of our Washington, DC business, will be a member of management’s Executive Committee and a Trustee of the new combined company. 

 

The pro rata distribution to Vornado common shareholders and Vornado Realty L.P. common unitholders is intended to be treated as a tax-free spin-off for U.S. federal income tax purposes. It is expected to be made on a pro rata 1:2 basis. 

 

The initial Form 10 registration statement relating to the spin-off is expected to be filed with the SEC in the fourth quarter of 2016, and the distribution and combination are expected to be completed in the second quarter of 2017. The transactions are subject to certain conditions, including the SEC declaring the Form 10 registration statement effective, filing and approval of the new company’s listing application, receipt of regulatory approvals and third party consents by each of Vornado and JBG, and formal declaration of the distribution by our Board of Trustees. The transactions are not subject to a vote by Vornado shareholders. Our Board of Trustees has approved the transaction.  JBG’s investors have consented to the transaction.  There can be no assurance that this transaction will be completed.

  

 

34


  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Shareholders and Board of Trustees

Vornado Realty Trust

New York, New York

 

We have reviewed the accompanying consolidated balance sheet of Vornado Realty Trust (the “Company”) as of September 30, 2016, and the related consolidated statements of income and comprehensive income for the three and nine month periods ended September 30, 2016 and 2015 and changes in equity and cash flows for the nine month periods ended September 30, 2016 and 2015.  These interim financial statements are the responsibility of the Company’s management.

 

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

 

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Vornado Realty Trust as of December 31, 2015, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the year then ended (not presented herein); and in our report dated February 16, 2016, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph regarding the Company’s adoption of Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2015 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

/s/ DELOITTE & TOUCHE LLP

 

Parsippany, New Jersey

October 31, 2016

35


  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

Certain statements contained in this Quarterly Report constitute forward‑looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10‑Q.  We also note the following forward-looking statements: in the case of our development and redevelopment projects, the estimated completion date, estimated project cost and cost to complete; and estimates of future capital expenditures, dividends to common and preferred shareholders and operating partnership distributions.  Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2015.  For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our consolidated financial statements for the three and nine months ended September 30, 2016.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.  The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the operating results for the full year.  Certain prior year balances have been reclassified in order to conform to current year presentation.

 

36


  

Overview

 

Business Objective and Operating Strategy

Our business objective is to maximize shareholder value, which we measure by the total return provided to our shareholders. Below is a table comparing our performance to the FTSE NAREIT Office Index (“Office REIT”) and the MSCI US REIT Index (“MSCI”) for the following periods ended September 30, 2016:

 

 

 

 

 

Total Return(1)

 

 

 

 

 

Vornado

 

Office REIT

 

MSCI

 

 

Three-month

1.7%

 

3.2%

 

(1.5%)

 

 

Nine-month

3.3%

 

12.5%

 

11.9%

 

 

One-year

14.9%

 

20.6%

 

19.8%

 

 

Three-year

44.2%

 

42.9%

 

48.6%

 

 

Five-year

76.1%

 

88.1%

 

108.1%

 

 

Ten-year

48.7%

 

45.7%

 

82.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

 Past performance is not necessarily indicative of future performance.

 

 

We intend to achieve our business objective by continuing to pursue our investment philosophy and executing our operating strategies through:

 

·       Maintaining a superior team of operating and investment professionals and an entrepreneurial spirit

·       Investing in properties in select markets, such as New York City, where we believe there is a high likelihood of capital appreciation

·       Acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents

·       Investing in retail properties in select under-stored locations such as the New York City metropolitan area

·       Developing and redeveloping existing properties to increase returns and maximize value

·       Investing in operating companies that have a significant real estate component

 

We expect to finance our growth, acquisitions and investments using internally generated funds, proceeds from asset sales and by accessing the public and private capital markets.  We may also offer Vornado common or preferred shares or Operating Partnership units in exchange for property and may repurchase or otherwise reacquire these securities in the future.

 

We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition are rents charged, sales prices, attractiveness of location, the quality of the property and the breadth and the quality of services provided. Our success depends upon, among other factors, trends of the global, national, regional and local economies, the financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population and employment trends.  See “Item 1A. Risk Factors” in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2015, for additional information regarding these factors.

 

On October 31, 2016, our Board of Trustees approved the tax-free spin-off of our Washington, DC business and we entered into a definitive agreement to merge it with the business and certain select assets of The JBG Companies (“JBG”), a Washington, DC real estate company.  See Note 23 – Subsequent Event in our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding this transaction.

  

 

37


  

Overview – continued

 

Quarter Ended September 30, 2016 Financial Results Summary

 

Net income attributable to common shareholders for the quarter ended September 30, 2016 was $66,125,000, or $0.35 per diluted share, compared to $198,870,000, or $1.05 per diluted share, for the prior year’s quarter.  The quarters ended September 30, 2016 and 2015 include certain items that impact net income attributable to common shareholders, which are listed in the table on the following page.  The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased net income attributable to common shareholders for the quarter ended September 30, 2016 by $8,552,000, or $0.04, and increased net income attributable to common shareholders for the quarter ended September 30, 2015 by $128,793,000, or $0.68 per diluted share.

 

Funds From Operations attributable to common shareholders plus assumed conversions (“FFO”) for the quarter ended September 30, 2016 was $225,529,000, or $1.19 per diluted share, compared to $236,039,000, or $1.25 per diluted share, for the prior year’s quarter.  FFO for the quarters ended September 30, 2016 and 2015 include certain items that impact FFO, which are listed in the table on the following page.  The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO for the quarter ended September 30, 2016 by $10,228,000, or $0.05 per diluted share, and increased FFO for the quarter ended September 30, 2015 by $6,636,000, or $0.04 per diluted share.

 

Nine Months Ended September 30, 2016 Financial Results Summary

 

Net income attributable to common shareholders for the nine months ended September 30, 2016 was $172,425,000, or $0.91 per diluted share, compared to $449,114,000, or $2.37 per diluted share, for the nine months ended September 30, 2015.   The nine months ended September 30, 2016 and 2015 include certain items that impact net income attributable to common shareholders, which are listed in the table on the following page.  The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased net income attributable to common shareholders for the nine months ended September 30, 2016 by $17,839,000, or $0.09 per diluted share, and increased net income attributable to common shareholders for the nine months ended September 30, 2015 by $229,269,000, or $1.21 per diluted share.

 

FFO for the nine months ended September 30, 2016 was $658,880,000, or $3.47 per diluted share, compared to $779,506,000, or $4.11 per diluted share, for the nine months ended September 30, 2015.  FFO for the nine months ended September 30, 2016 and 2015 include certain items that impact FFO, which are listed in the table on the following page. The aggregate of these items, net of amounts attributable to noncontrolling interests, decreased FFO for the nine months ended September 30, 2016 by $15,466,000, or $0.08 per diluted share, and increased FFO for the nine months ended September 30, 2015 by $109,539,000, or $0.58 per diluted share.

 

38


  

Overview – continued  

 

 

(Amounts in thousands)

For the Three Months Ended

 

For the Nine Months Ended

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

Items that impact net income attributable to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred share issuance costs (Series J redemption)

$

(7,408)

 

$

-

 

$

(7,408)

 

$

-

 

Acquisition and transaction related costs

 

(3,808)

 

 

(1,518)

 

 

(11,319)

 

 

(7,560)

 

Net income from discontinued operations and sold properties

 

2,969

 

 

6,599

 

 

8,285

 

 

23,605

 

Default interest on Skyline properties mortgage loan

 

(2,632)

 

 

-

 

 

(5,343)

 

 

-

 

Net gains on sale of real estate and residential condominiums

 

2,522

 

 

136,190

 

 

163,066

 

 

153,430

 

Real estate impairment losses

 

(1,134)

 

 

(2,313)

 

 

(166,236)

 

 

(17,375)

 

Reversal of allowance for deferred tax assets (re: taxable

 

 

 

 

 

 

 

 

 

 

 

 

 

REIT subsidiary's ability to utilize NOLs)

 

-

 

 

-

 

 

-

 

 

90,030

 

Other

 

-

 

 

(1,821)

 

 

-

 

 

1,333

 

 

 

 

(9,491)

 

 

137,137

 

 

(18,955)

 

 

243,463

Noncontrolling interests' share of above adjustments

 

939

 

 

(8,344)

 

 

1,116

 

 

(14,194)

Items that impact net income attributable to common shareholders, net

$

(8,552)

 

$

128,793

 

$

(17,839)

 

$

229,269



Items that impact FFO:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred share issuance costs (Series J redemption)

$

(7,408)

 

$

-

 

$

(7,408)

 

$

-

 

Acquisition and transaction related costs

 

(3,808)

 

 

(1,518)

 

 

(11,319)

 

 

(7,560)

 

FFO from discontinued operations and sold properties

 

2,969

 

 

9,346

 

 

6,926

 

 

34,142

 

Default interest on Skyline properties mortgage loan

 

(2,632)

 

 

-

 

 

(5,343)

 

 

-

 

Net gain on sale of residential condominiums

 

-

 

 

633

 

 

714

 

 

2,493

 

Reversal of allowance for deferred tax assets (re: taxable

 

 

 

 

 

 

 

 

 

 

 

 

 

REIT subsidiary's ability to utilize NOLs)

 

-

 

 

-

 

 

-

 

 

90,030

 

Our share of impairment loss on India real estate venture's

 

 

 

 

 

 

 

 

 

 

 

 

 

non-depreciable real estate

 

-

 

 

-

 

 

-

 

 

(4,502)

 

Other

 

-

 

 

(1,821)

 

 

-

 

 

1,333

 

 

 

 

(10,879)

 

 

6,640

 

 

(16,430)

 

 

115,936

Noncontrolling interests' share of above adjustments

 

651

 

 

(4)

 

 

964

 

 

(6,397)

Items that impact FFO, net

$

(10,228)

 

$

6,636

 

$

(15,466)

 

$

109,539

39


  

Overview – continued

 

Same Store EBITDA

 

The percentage increase (decrease) in same store Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and cash basis same store EBITDA of our operating segments are summarized below.

 

 

 

 

 

New York

 

Washington, DC

Same store EBITDA % increase (decrease):

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2016 vs. September 30, 2015

 

4.9

%

(1)

 

5.2

%

 

Nine months ended September 30, 2016 vs. September 30, 2015

 

5.7

%

(2)

 

0.7

%

 

Three months ended September 30, 2016 vs. June 30, 2016

 

(1.4

%)

(3)

 

1.2

%

 

 

 

 

 

 

 

 

 

 

 

Cash basis same store EBITDA % increase:

 

 

 

 

 

 

 

 

Three months ended September 30, 2016 vs. September 30, 2015

 

9.6

%

(1)

 

6.7

%

 

Nine months ended September 30, 2016 vs. September 30, 2015

 

5.6

%

(2)

 

0.8

%

 

Three months ended September 30, 2016 vs. June 30, 2016

 

1.3

%

(3)

 

1.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excluding Hotel Pennsylvania, same store EBITDA increased by 6.5% and by 11.7% on a cash basis.

(2)

Excluding Hotel Pennsylvania, same store EBITDA increased by 7.2% and by 7.3% on a cash basis.

(3)

Excluding Hotel Pennsylvania, same store EBITDA decreased by 1.5% and increased by 1.2% on a cash basis.

 

Calculations of same store EBITDA, reconciliations of our net income to EBITDA and FFO and the reasons we consider these non-GAAP financial measures useful are provided in the following pages of Management’s Discussion and Analysis of the Financial Condition and Results of Operations.

 

2016 Investments

 

On March 17, 2016, we entered into a joint venture, in which we own a 33.3% interest, which owns a $146,004,000 mezzanine loan.  The interest rate is LIBOR plus 8.875% (9.38% at September 30, 2016) and the debt matures in November 2016, with two three-month extension options.  At September 30, 2016, the joint venture has a $3,996,000 remaining commitment, of which our share is $1,332,000.  The joint venture’s investment is subordinate to $350,000,000 of third party debt.  We account for our investment in the joint venture under the equity method.

 

On May 20, 2016, we contributed $19,650,000 for a 50.0% equity interest in a joint venture that will develop 606 Broadway, a 33,000 square foot office and retail building, located on Houston Street in Manhattan.  The development cost of this project is estimated to be approximately $104,000,000.  At closing, the joint venture obtained a $65,000,000 construction loan, of which approximately $22,500,000 was outstanding at September 30, 2016.  The loan, which bears interest at LIBOR plus 3.00% (3.52% at September 30, 2016), matures in May 2019 with two one-year extension options.  Because this joint venture is a VIE and we determined we are the primary beneficiary, we consolidate the accounts of this joint venture from the date of our investment.

 

2016 Dispositions

  

On May 27, 2016, we sold a 47% ownership interest in 7 West 34th Street, a 477,000 square foot Manhattan office building leased to Amazon, and retained the remaining 53% interest.  This transaction was based on a property value of approximately $561,000,000 or $1,176 per square foot.  We received net proceeds of $127,382,000 from the sale and realized a net gain of $203,324,000, of which $159,511,000 was recognized in the second quarter and is included in “net gain on disposition of wholly owned and partially owned assets” in our consolidated statements of income.  The remaining net gain of $43,813,000 has been deferred until our guarantee of payment of loan principal and interest is removed or the loan is repaid.  We realized a net tax gain of $90,017,000.   We continue to manage and lease the property.  We share control over major decisions with our joint venture partner.  Accordingly, this property is accounted for under the equity method from the date of sale.

40


  

Overview – continued

 

2016 Financings

 

Secured Debt

 

On February 8, 2016, we completed a $700,000,000 refinancing of 770 Broadway, a 1,158,000 square foot Manhattan office building.  The five-year loan is interest only at LIBOR plus 1.75%, (2.28% at September 30, 2016) which was swapped for four and a half years to a fixed rate of 2.56%.  The Company realized net proceeds of approximately $330,000,000.  The property was previously encumbered by a 5.65%, $353,000,000 mortgage which was scheduled to mature in March 2016.

 

On March 7, 2016, the joint venture, in which we have a 55% ownership interest, completed a $300,000,000 refinancing of One Park Avenue, a 947,000 square foot Manhattan office building.  The loan matures in March 2021 and is interest only at LIBOR plus 1.75% (2.28% at September 30, 2016).  The property was previously encumbered by a 4.995%, $250,000,000 mortgage which matured in March 2016.

 

On May 6, 2016, the joint venture, in which we have a 55% ownership interest, completed a $273,000,000 refinancing of The Warner Building, a 621,000 square foot Washington, DC office building.  The loan matures in June 2023, has a fixed rate of 3.65%, is interest only for the first two years and amortizes based on a 30-year schedule beginning in year three. The property was previously encumbered by a 6.26%, $293,000,000 mortgage which matured in May 2016.

 

On May 11, 2016, the joint venture, in which we have a 50% ownership interest, completed a $900,000,000 refinancing of 280 Park Avenue, a 1,250,000 square foot Manhattan office building.  The three-year loan with four one-year extensions is interest only at LIBOR plus 2.00% (2.51% at September 30, 2016).  The property was previously encumbered by a 6.35%, $721,000,000 mortgage which was scheduled to mature in June 2016.

 

On May 16, 2016, we completed a $300,000,000 recourse financing of 7 West 34th Street.  The ten-year loan is interest only at a fixed rate of 3.65% and matures in June 2026.

 

On August 3, 2016, the joint venture, in which we have 49.9% ownership interest, completed an $80,000,000 refinancing of 50-70 West 93rd Street, a 326 unit Manhattan residential complex.  The three-year loan with two one-year extensions is interest only at LIBOR plus 1.70% (2.22% at September 30, 2016).  The property was previously encumbered by a $44,980,000 first mortgage at LIBOR plus 1.90% and an $18,481,000 second mortgage at LIBOR plus 1.65%, which were scheduled to mature in September 2016.

 

On September 6, 2016, we completed a $675,000,000 refinancing of theMART, a 3,644,000 square foot commercial building in Chicago.  The five-year loan is interest only and has a fixed rate of 2.70%.  The Company realized net proceeds of approximately $124,000,000.  The property was previously encumbered by a 5.57%, $550,000,000 mortgage which was scheduled to mature in December 2016.

 

Preferred Securities

 

On September 1, 2016, we redeemed all of the outstanding 6.875% Series J cumulative redeemable preferred shares at their redemption price of $25.00 per share, or $246,250,000 in the aggregate, plus accrued and unpaid dividends through the date of redemption.  In connection therewith, we expensed $7,408,000 of issuance costs, which reduced net income attributable to common shareholders in the three months ended September 30, 2016.  These costs had been initially recorded as a reduction of shareholders’ equity.

41


  

Overview – continued

 

Recently Issued Accounting Literature

  

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update ("ASU 2014-09") establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).  ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance.  ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.  In August 2015, the FASB issued an update (“ASU 2015-14”) to ASC 606, Deferral of the Effective Date, which defers the adoption of ASU 2014-09 to interim and annual reporting periods in fiscal years that begin after December 15, 2017.  In March 2016, the FASB issued an update (“ASU 2016-08”) to ASC 606, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard pursuant to ASU 2014-09.  In April 2016, the FASB issued an update (“ASU 2016-10”) to ASC 606, Identifying Performance Obligations and Licensing, which clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in ASU 2014-09.  In May 2016, the FASB issued an update (“ASU 2016-12”) to ASC 606, Narrow-Scope Improvements and Practical Expedients, which amends certain aspects of the new revenue recognition standard pursuant to ASU 2014-09.  We are currently evaluating the impact of the adoption of these ASUs on our consolidated financial statements.

 

In June 2014, the FASB issued an update (“ASU 2014-12”) to ASC Topic 718, Compensation – Stock Compensation (“ASC 718”).  ASU 2014-12 requires an entity to treat performance targets that can be met after the requisite service period of a share based award has ended, as a performance condition that affects vesting.  ASU 2014-12 is effective for interim and annual reporting periods in fiscal years that began after December 15, 2015.  The adoption of this update as of January 1, 2016, did not have any impact on our consolidated financial statements.

 

In February 2015, the FASB issued an update (“ASU 2015-02”) Amendments to the Consolidation Analysis to ASC Topic 810, Consolidation.  ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities.  Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with VIEs, and (iv) provide a scope exception for certain entities.  ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015.  The adoption of this update on January 1, 2016 resulted in the identification of additional VIEs, but did not have an impact on our consolidated financial statements other than additional disclosures

 

In January 2016, the FASB issued an update (“ASU 2016-01”) Recognition and Measurement of Financial Assets and Financial Liabilities to ASC Topic 825, Financial Instruments.  ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income.  ASU 2016-01 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017.  We are currently evaluating the impact of the adoption of ASU 2016-01 on our consolidated financial statements.

42


  

Overview – continued

 

Recently Issued Accounting Literature – continued

 

In February 2016, the FASB issued (“ASU 2016-02”) Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.  ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase.  Lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases.  Lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases.  The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance.  ASU 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted.  We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

 

In March 2016, the FASB issued an update (“ASU 2016-09”) Improvements to Employee Share-Based Payment Accounting to ASC 718.  ASU 2016-09 amends several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  ASU 2016-09 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017.  We are currently evaluating the impact of the adoption of ASU 2016-09 on our consolidated financial statements.

 

In August 2016, the FASB issued an update (“ASU 2016-15”) Classification of Certain Cash Receipts and Cash Payments to ASC Topic 230, Statement of Cash Flows. ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice with respect to (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions, and (viii) separately identifiable cash flows and application of the predominance principle.  ASU 2016-15 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted.  The adoption of this update is not expected to have a significant impact on our consolidated financial statements.



Critical Accounting Policies

 

A summary of our critical accounting policies is included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2015 in Management’s Discussion and Analysis of Financial Condition. There have been no significant changes to our policies during 2016.

43


  

Overview – continued

 

Leasing Activity

 

The leasing activity and related statistics in the table below are based on leases signed during the period and are not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  Second generation relet space represents square footage that has not been vacant for more than nine months and tenant improvements and leasing commissions are based on our share of square feet leased during the period.

 

(Square feet in thousands)

 

New York

 

Washington, DC

 

 

 

 

 

 

 

 

Office

 

 

Retail

 

Office

Three Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

Total square feet leased

 

 

335

 

 

 

7

 

 

177

 

Our share of square feet leased:

 

 

308

 

 

 

7

 

 

138

 

 

Initial rent(1)

 

$

68.11

 

 

$

338.50

 

$

40.62

 

 

Weighted average lease term (years)

 

 

6.5

 

 

 

8.4

 

 

5.0

 

 

Second generation relet space:

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

 

278

 

 

 

7

 

 

92

 

 

 

GAAP basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent(2)

 

$

65.87

 

 

$

335.58

 

$

43.75

 

 

 

 

Prior straight-line rent

 

$

61.48

 

 

$

198.36

 

$

45.96

 

 

 

 

Percentage increase (decrease)

 

 

7.1%

 

 

 

69.2%

 

 

(4.8%)

 

 

 

Cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial rent(1)

 

$

67.29

 

 

$

308.11

 

$

43.75

 

 

 

 

Prior escalated rent

 

$

63.39

 

 

$

200.80

 

$

48.75

 

 

 

 

Percentage increase (decrease)

 

 

6.2%

 

 

 

53.4%

 

 

(10.3%)

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

 

 

$

49.49

 

 

$

103.45

 

$

37.86

 

 

 

 

Per square foot per annum

 

 

$

7.61

 

 

$

12.32

 

$

7.57

 

 

 

 

     Percentage of initial rent

 

 

11.2%

 

 

 

3.6%

 

 

18.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on the following page.

44


  

Overview - continued

 

Leasing Activity – continued

 

(Square feet in thousands)

New York Office

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long Island City

 

New York

 

Washington, DC

 

 

 

 

 

 

 

Manhattan

 

(Center Building)

 

Retail

 

Office

Nine Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Total square feet leased

 

1,330

 

 

285

 

 

101

 

 

1,098

 

Our share of square feet leased:

 

1,109

 

 

285

 

 

80

 

 

1,039

 

 

Initial rent(1)

$

79.23

 

$

40.10

 

$

206.71

 

$

40.05

 

 

Weighted average lease term (years)

 

9.9

 

 

5.8

 

 

9.0

 

 

4.1

 

 

Second generation relet space:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square feet

 

1,024

 

 

285

 

 

62

 

 

800

 

 

 

GAAP basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent(2)

$

78.72

 

$

38.68

 

$

208.06

 

$

37.92

 

 

 

 

Prior straight-line rent

$

64.12

 

$

28.69

 

$

166.36

 

$

39.67

 

 

 

 

Percentage increase (decrease)

 

22.8%

 

 

34.8%

 

 

25.1%

 

 

(4.4%)

 

 

 

Cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial rent(1)

$

78.79

 

$

40.10

 

$

198.28

 

$

40.80

 

 

 

 

Prior escalated rent

$

66.50

 

$

30.53

 

$

174.08

 

$

42.93

 

 

 

 

Percentage increase (decrease)

 

18.5%

 

 

31.4%

 

 

13.9%

 

 

(5.0%)

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per square foot

 

$

72.47

 

$

18.47

 

$

105.45

 

$

18.55

 

 

 

 

Per square foot per annum

 

$

7.32

 

$

3.18

 

$

11.72

 

$

4.52

 

 

 

 

     Percentage of initial rent

 

9.2%

 

 

7.9%

 

 

5.7%

 

 

11.3%

 

 

 

 

 

 

 

 

(1)

Represents the cash basis weighted average starting rent per square foot, which is generally indicative of market rents.  Most leases include free rent and periodic step-ups in rent which are not included in the initial cash basis rent per square foot but are included in the GAAP basis straight-line rent per square foot.

 

 

 

 

 

(2)

Represents the GAAP basis weighted average rent per square foot that is recognized over the term of the respective leases, and includes the effect of free rent and periodic step-ups in rent.

 

 

 

45


  

Overview - continued

 

 

 

 

 

 

 

 

 

 

 

 

 

Square footage (in service) and Occupancy as of September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Square feet in thousands)

 

 

 

 

Square Feet (in service)

 

 

 

 

 

 

 

 

Number of

 

Total

 

Our

 

 

 

 

 

 

 

 

Properties

 

Portfolio

 

Share

 

Occupancy %

New York:

 

 

 

 

 

 

 

 

 

 

 

Office

 

36

 

20,219

 

16,956

 

95.5%

 

 

Retail

 

70

 

2,697

 

2,476

 

96.7%

 

 

Residential - 1,690 units

11

 

1,559

 

826

 

96.0%

 

 

Alexander's, including 312 residential units

 

7

 

2,437

 

790

 

99.7%

 

 

Hotel Pennsylvania

 

1

 

1,400

 

1,400

 

 

 

 

 

 

 

 

 

 

28,312

 

22,448

 

95.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Washington, DC:

 

 

 

 

 

 

 

 

 

 

 

Office, excluding the Skyline properties

48

 

12,875

 

10,450

 

89.1%

 

 

Skyline properties

 

8

 

2,649

 

2,649

 

47.2%

 

 

Total Office

 

56

 

15,524

 

13,099

 

80.6%

 

 

Residential - 3,058 units

9

 

3,164

 

3,022

 

98.1%

 

 

Other

 

5

 

330

 

330

 

100.0%

 

 

 

 

 

 

 

 

19,018

 

16,451

 

83.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

theMART

1

 

3,665

 

3,656

 

98.2%

 

 

555 California Street

3

 

1,736

 

1,215

 

90.3%

 

 

Other

2

 

784

 

784

 

100.0%

 

 

 

 

 

 

 

 

6,185

 

5,655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total square feet as of September 30, 2016

 

 

 

53,515

 

44,554

 

 

 

46


  

Overview - continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square footage (in service) and Occupancy as of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Square feet in thousands)

 

 

 

 

Square Feet (in service)

 

 

 

 

 

 

 

 

Number of

 

Total

 

Our

 

 

 

 

 

 

 

 

properties

 

Portfolio

 

Share

 

Occupancy %

New York:

 

 

 

 

 

 

 

 

 

 

 

Office

 

35

 

21,288

 

17,412

 

96.3%

 

 

Retail

 

65

 

2,641

 

2,408

 

96.2%

 

 

Residential - 1,711 units

11

 

1,561

 

827

 

94.1%

 

 

Alexander's, including 296 residential units

 

7

 

2,419

 

784

 

99.7%

 

 

Hotel Pennsylvania

 

1

 

1,400

 

1,400

 

 

 

 

 

 

 

 

 

 

29,309

 

22,831

 

96.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Washington, DC:

 

 

 

 

 

 

 

 

 

 

 

Office, excluding the Skyline properties

49

 

13,136

 

10,781

 

90.0%

 

 

Skyline Properties

 

8

 

2,648

 

2,648

 

50.1%

 

 

Total Office

 

57

 

15,784

 

13,429

 

82.1%

 

 

Residential - 2,630 units

9

 

2,808

 

2,666

 

96.4%

 

 

Other

 

5

 

386

 

386

 

100.0%

 

 

 

 

 

 

 

 

18,978

 

16,481

 

84.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

theMART

 

1

 

3,658

 

3,649

 

98.5%

 

 

555 California Street

 

3

 

1,736

 

1,215

 

93.3%

 

 

Other

 

2

 

763

 

763

 

100.0%

 

 

 

 

 

 

 

 

6,157

 

5,627

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total square feet as of December 31, 2015

 

 

 

54,444

 

44,939

 

 

 

47


  

Overview - continued

 

 

Washington, DC Segment

 

EBITDA, as adjusted for the nine months ended September 30, 2016, was $5,050,000 behind the prior year's nine months.  We expect that Washington’s 2016 EBITDA, as adjusted, will be approximately $7,000,000 to $11,000,000 lower than 2015, comprised of:

 

(i)            core business being flat to $4,000,000 higher, offset by, 

(ii)          occupancy of Skyline properties declining further, decreasing EBITDA by approximately $6,500,000, and

(iii)         1726 M Street and 1150 17th Street being taken out of service (to prepare for the development in the future of a new Class A office building) decreasing EBITDA by approximately $4,500,000.

 

Of the 2,395,000 square feet subject to the effects of the Base Realignment and Closure (“BRAC”) statute, 348,000 square feet has been taken out of service for redevelopment, and 1,466,000 square feet has been leased or is pending.  The table below summarizes the status of the BRAC space as of September 30, 2016.

 

 

 

Rent Per

 

Square Feet

 

 

 

 

 

Square Foot

 

Total

 

Crystal City

 

Skyline

 

Rosslyn

Resolved:

 

 

 

 

 

 

 

 

 

 

 

 

Relet as of September 30, 2016

 

$

37.39

 

1,456,000

 

983,000

 

389,000

 

84,000

 

Leases pending

 

 

39.39

 

10,000

 

-

 

10,000

 

-

 

Taken out of service for redevelopment

 

 

 

 

348,000

 

348,000

 

-

 

-

 

 

 

 

 

 

 

 

1,814,000

 

1,331,000

 

399,000

 

84,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To be resolved:

 

 

 

 

 

 

 

 

 

 

 

 

Vacated as of September 30, 2016

 

 

34.63

 

581,000

 

105,000

 

412,000

 

64,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total square feet subject to BRAC

 

 

 

 

2,395,000

 

1,436,000

 

811,000

 

148,000

48


  

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2016 and 2015

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the three months ended September 30, 2016 and 2015.

 

(Amounts in thousands)

For the Three Months Ended September 30, 2016

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

633,197

 

$

432,869

 

$

134,446

 

$

65,882

 

Total expenses

 

 

444,044

 

 

280,689

 

 

90,756

 

 

72,599

 

Operating income (loss)

 

 

189,153

 

 

152,180

 

 

43,690

 

 

(6,717)

 

Income (loss) from partially owned entities

 

 

4,127

 

 

(579)

 

 

(452)

 

 

5,158

 

Income from real estate fund investments

 

 

1,077

 

 

-

 

 

-

 

 

1,077

 

Interest and other investment income, net

 

 

6,508

 

 

1,355

 

 

49

 

 

5,104

 

Interest and debt expense

 

 

(98,365)

 

 

(51,212)

 

 

(18,644)

 

 

(28,509)

 

Income (loss) before income taxes

 

 

102,500

 

 

101,744

 

 

24,643

 

 

(23,887)

 

Income tax expense

 

 

(4,865)

 

 

(2,356)

 

 

(302)

 

 

(2,207)

 

Income (loss) from continuing operations

 

 

97,635

 

 

99,388

 

 

24,341

 

 

(26,094)

 

Income from discontinued operations

 

 

2,969

 

 

-

 

 

-

 

 

2,969

 

Net income (loss)

 

 

100,604

 

 

99,388

 

 

24,341

 

 

(23,125)

 

Less net income attributable to noncontrolling interests

 

 

(8,024)

 

 

(2,985)

 

 

-

 

 

(5,039)

 

Net income (loss) attributable to Vornado

 

 

92,580

 

 

96,403

 

 

24,341

 

 

(28,164)

 

Net income attributable to noncontrolling interests in the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

4,366

 

 

-

 

 

-

 

 

4,366

 

Interest and debt expense(2)

 

 

122,979

 

 

66,314

 

 

20,991

 

 

35,674

 

Depreciation and amortization(2)

 

 

172,980

 

 

111,731

 

 

37,123

 

 

24,126

 

Income tax expense(2)

 

 

5,102

 

 

2,445

 

 

310

 

 

2,347

 

EBITDA(1)

 

$

398,007

 

$

276,893

(3)

$

82,765

(4)

$

38,349

(5)

                               

 

(Amounts in thousands)

For the Three Months Ended September 30, 2015

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

627,596

 

$

429,433

 

$

132,704

 

$

65,459

 

Total expenses

 

 

436,156

 

 

263,805

 

 

102,114

 

 

70,237

 

Operating income (loss)

 

 

191,440

 

 

165,628

 

 

30,590

 

 

(4,778)

 

(Loss) income from partially owned entities

 

 

(325)

 

 

4,010

 

 

(1,909)

 

 

(2,426)

 

Income from real estate fund investments

 

 

1,665

 

 

-

 

 

-

 

 

1,665

 

Interest and other investment income, net

 

 

3,160

 

 

1,888

 

 

34

 

 

1,238

 

Interest and debt expense

 

 

(95,344)

 

 

(50,480)

 

 

(16,580)

 

 

(28,284)

 

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

103,037

 

 

-

 

 

102,404

 

 

633

 

Income (loss) before income taxes

 

 

203,633

 

 

121,046

 

 

114,539

 

 

(31,952)

 

Income tax expense

 

 

(2,856)

 

 

(1,147)

 

 

(287)

 

 

(1,422)

 

Income (loss) from continuing operations

 

 

200,777

 

 

119,899

 

 

114,252

 

 

(33,374)

 

Income from discontinued operations

 

 

34,463

 

 

-

 

 

-

 

 

34,463

 

Net income

 

 

235,240

 

 

119,899

 

 

114,252

 

 

1,089

 

Less net income attributable to noncontrolling interests

 

 

(16,006)

 

 

(2,582)

 

 

-

 

 

(13,424)

 

Net income (loss) attributable to Vornado

 

 

219,234

 

 

117,317

 

 

114,252

 

 

(12,335)

 

Net income attributable to noncontrolling interests in the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

12,704

 

 

-

 

 

-

 

 

12,704

 

Interest and debt expense(2)

 

 

118,977

 

 

64,653

 

 

20,010

 

 

34,314

 

Depreciation and amortization(2)

 

 

174,209

 

 

99,206

 

 

48,132

 

 

26,871

 

Income tax expense (2)

 

 

3,043

 

 

1,214

 

 

294

 

 

1,535

 

EBITDA(1)

 

$

528,167

 

$

282,390

(3)

$

182,688

(4)

$

63,089

(5)

                               

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on the following pages.

 

 

 

 

 

 

 

 

 

 

 

 

 

49


  

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2016 and 2015 - continued

Notes to preceding tabular information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

We calculate EBITDA on an Operating Partnership basis which is before allocation to the noncontrolling interest of the Operating Partnership.  We consider EBITDA a non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.

 

 

 

 

 

 

 

 

 

 

 

 

(2)

Interest and debt expense, depreciation and amortization and income tax expense in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.

 

 

 

 

 

 

 

 

 

 

 

 

(3)

The elements of "New York" EBITDA are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended September 30,

 

 

 

 

 

 

 

2016

 

2015

 

Office(a)

$

159,937

 

$

161,168

 

Retail(b)

 

95,274

 

 

97,604

 

Residential

 

6,214

 

 

5,495

 

Alexander's

 

11,506

 

 

10,502

 

Hotel Pennsylvania

 

3,962

 

 

7,621

 

 

 

Total New York

$

276,893

 

$

282,390

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

2015 includes $5,151 of EBITDA from sold properties. Excluding these items, EBITDA was $156,017.

 

(b)

2015 includes $524 of EBITDA from a sold property. Excluding this item, EBITDA was $97,080.

 

 

 

 

 

 

 

 

 

 

 

 

(4)

The elements of "Washington, DC" EBITDA are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

For the Three Months Ended September 30,

 

 

 

 

 

 

 

2016

 

2015

 

Office, excluding the Skyline properties (a)

$

67,073

 

$

63,879

 

Skyline properties

 

4,222

 

 

5,998

 

Net gain on sale of 1750 Pennsylvania Avenue

 

-

 

 

102,404

 

 

 

Total Office

 

71,295

 

 

172,281

 

Residential

 

11,470

 

 

10,407

 

 

 

Total Washington, DC

$

82,765

 

$

182,688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

2015 includes $1,601 of EBITDA from a sold property. Excluding this item, EBITDA was $62,278.

50


  

Net Income and EBITDA by Segment for the Three Months Ended September 30, 2016 and 2015 - continued

Notes to preceding tabular information - continued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5)

The elements of "Other" EBITDA are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Three Months Ended September 30,

 

 

 

 

 

 

 

2016

 

2015

 

Our share of real estate fund investments:

 

 

 

 

 

 

 

Income before net realized/unrealized gains and losses

$

2,552

 

$

2,594

 

 

Net realized/unrealized losses on investments

 

(2,118)

 

 

(922)

 

 

Carried interest 

 

 

373

 

 

(49)

 

Total

 

 

 

 

807

 

 

1,623

 

theMART (including trade shows)

 

21,696

 

 

19,044

 

555 California Street

 

 

11,405

 

 

13,005

 

India real estate ventures

 

 

836

 

 

13

 

Other investments

 

 

19,092

 

 

11,009

 

 

 

 

 

 

 

 

53,836

 

 

44,694

 

Corporate general and administrative expenses(a)

 

(21,519)

 

 

(22,341)

 

Investment income and other, net(a)

 

6,871

 

 

5,952

 

Acquisition and transaction related costs

 

(3,808)

 

 

(1,518)

 

UE and residual retail properties discontinued operations

 

2,969

 

 

2,516

 

Net gain on sale of Monmouth Mall

 

-

 

 

33,153

 

Net gain on sale of residential condominiums

 

-

 

 

633

 

 

 

Total Other

$

38,349

 

$

63,089

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

The amounts in these captions (for this table only) exclude the results of the mark-to-market of our deferred compensation plan of $204 of income and $2,577 of loss for the three months ended September 30, 2016 and 2015, respectively.

 

EBITDA by Region

 

Below is a summary of the percentages of EBITDA by geographic region, excluding gains on sale of real estate, non-cash impairment losses and operations of sold properties.

 

 

 

 

 

For the Three Months Ended September 30,

 

 

 

 

 

2016

 

2015

 

 

Region:

 

 

 

 

 

 

 

New York City metropolitan area

 

70%

 

71%

 

 

 

Washington, DC / Northern Virginia area

21%

 

21%

 

 

 

Chicago, IL

 

6%

 

5%

 

 

 

San Francisco, CA

 

3%

 

3%

 

 

 

 

100%

 

100%

 

 

51


  

Results of Operations – Three Months Ended September 30, 2016 Compared to September 30, 2015

 

 

Revenues

Our revenues, which consist primarily of property rentals, tenant expense reimbursements, and fee and other income, were $633,197,000 for the three months ended September 30, 2016, compared to $627,596,000 for the prior year’s quarter, an increase of $5,601,000.  Below are the details of the increase by segment:

  

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

Washington, DC

 

 

Other

 

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property rentals:

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Acquisitions, dispositions and other

 

$

(9,803)

 

 

$

(7,737)

 

 

$

(2,066)

 

 

$

-

 

 

Development and redevelopment

 

 

1,719

 

 

 

-

 

 

 

1,225

 

 

 

494

 

 

Hotel Pennsylvania

 

 

(3,932)

 

 

 

(3,932)

 

 

 

-

 

 

 

-

 

 

Trade shows

 

 

115

 

 

 

-

 

 

 

-

 

 

 

115

 

 

Same store operations

 

 

9,562

 

 

 

9,213

 

 

 

429

 

 

 

(80)

 

 

 

 

(2,339)

 

 

 

(2,456)

 

 

 

(412)

 

 

 

529

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant expense reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions, dispositions and other

 

 

(1,781)

 

 

 

(1,673)

 

 

 

(108)

 

 

 

-

 

 

Development and redevelopment

 

 

329

 

 

 

-

 

 

 

(253)

 

 

 

582

 

 

Same store operations

 

 

5,779

 

 

 

5,116

 

 

 

1,132

 

 

 

(469)

 

 

 

 

 

4,327

 

 

 

3,443

 

 

 

771

 

 

 

113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS cleaning fees

 

 

2,256

 

 

 

1,983

 

 

 

-

 

 

 

273

 

 

Management and leasing fees

 

 

2,599

 

 

 

111

 

 

 

2,304

 

 

 

184

 

 

Lease termination fees

 

 

601

 

 

 

1,222

 

 

 

(1,115)

 

 

 

494

 

 

Other income

 

 

(1,843)

 

 

 

(867)

 

 

 

194

 

 

 

(1,170)

 

 

 

 

3,613

 

 

 

2,449

 

 

 

1,383

 

 

 

(219)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase in revenues

 

$

5,601

 

 

$

3,436

 

 

$

1,742

 

 

$

423

 

 

52


  

Results of Operations – Three Months Ended September 30, 2016 Compared to September 30, 2015 - continued

 

 

Expenses

Our expenses, which consist primarily of operating, depreciation and amortization, general and administrative expenses, and acquisition and transaction related costs were $444,044,000 for the three months ended September 30, 2016, compared to $436,156,000 for the prior year’s quarter, an increase of $7,888,000.  Below are the details of the increase (decrease) by segment:

  

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

Washington, DC

 

 

Other

 

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions, dispositions and other

 

$

(2,140)

 

 

$

(1,071)

 

 

$

(1,069)

 

 

$

-

 

 

Development and redevelopment

 

 

(37)

 

 

 

14

 

 

 

(449)

 

 

 

398

 

 

Non-reimbursable expenses, including

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

bad debt reserves

 

 

(1,550)

 

 

 

(1,165)

 

 

 

(354)

 

 

 

(31)

 

 

Hotel Pennsylvania

 

 

112

 

 

 

112

 

 

 

-

 

 

 

-

 

 

Trade shows

 

 

264

 

 

 

-

 

 

 

-

 

 

 

264

 

 

BMS expenses

 

 

1,497

 

 

 

1,240

 

 

 

-

 

 

 

257

 

 

Same store operations

 

 

6,119

 

 

 

6,325

 

 

 

812

 

 

 

(1,018)

 

 

 

 

 

4,265

 

 

 

5,455

 

 

 

(1,060)

 

 

 

(130)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions, dispositions and other

 

 

(1,241)

 

 

 

(846)

 

 

 

(395)

 

 

 

-

 

 

Development and redevelopment

 

 

(11,714)

 

 

 

-

 

 

 

(11,515)

 

 

 

(199)

 

 

Same store operations

 

 

10,003

 

 

 

10,797

 

 

 

1,037

 

 

 

(1,831)

 

 

 

 

 

 

(2,952)

 

 

 

9,951

 

 

 

(10,873)

 

 

 

(2,030)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark-to-market of deferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation plan liability

 

 

2,781

 

 

 

-

 

 

 

-

 

 

 

2,781

 (1) 

 

Same store operations

 

 

1,504

 

 

 

1,478

 

 

 

575

 

 

 

(549)

 

 

 

 

 

4,285

 

 

 

1,478

 

 

 

575

 

 

 

2,232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition and transaction related costs

 

 

2,290

 

 

 

-

 

 

 

-

 

 

 

2,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in expenses

 

$

7,888

 

 

$

16,884

 

 

$

(11,358)

 

 

$

2,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

This increase in expense is entirely offset by a corresponding increase in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment income, net” on our consolidated statements of income.

 

53


  

Results of Operations – Three Months Ended September 30, 2016 Compared to September 30, 2015 - continued

 

 

Income (Loss) from Partially Owned Entities

Summarized below are the components of income (loss) from partially owned entities for the three months ended September 30, 2016 and 2015.

(Amounts in thousands)

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

Ownership at

 

For the Three Months Ended September 30,

 

 

 

 

 

September 30, 2016

 

2016

 

2015

Our Share of Net Income (Loss):

 

 

 

 

 

 

 

 

Partially owned office buildings (1)

 

Various

 

$

(9,157)

 

$

(2,039)

Alexander's

 

32.4%

 

 

8,785

 

 

7,544

Urban Edge Properties ("UE")

 

5.4%

 

 

2,158

 

 

1,400

India real estate ventures

 

4.1%-36.5%

 

 

(917)

 

 

(1,704)

Pennsylvania Real Estate Investment Trust ("PREIT")

 

8.0%

 

 

52

 

 

(3,481)

Other investments (2)

 

Various

 

 

3,206

 

 

(2,045)

 

 

 

 

 

 

 

$

4,127

 

$

(325)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 7 West 34th Street, 330 Madison Avenue, 512 West 22nd Street and others.  In 2015, we recognized our $7,364 share of a write-off of a below market lease liability related to a tenant vacating at 650 Madison.

(2)

Includes interests in Independence Plaza, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street, Toys "R" Us, Inc. and others.

 

Income from Real Estate Fund Investments

Below are the components of the income from our real estate fund investments for the three months ended September 30, 2016 and 2015.

(Amounts in thousands)

 

 

For the Three Months Ended September 30,

 

 

 

 

2016

  

2015

Net investment income

 

$

5,841

 

$

5,116

Net unrealized losses on held investments

 

 

(4,764)

 

 

(2,544)

Net realized losses on exited investments

 

 

-

 

 

(907)

Income from real estate fund investments

 

 

1,077

 

 

1,665

Less income attributable to noncontrolling interests

 

 

(270)

 

 

(42)

Income from real estate fund investments attributable to Vornado (1)

 

$

807

 

$

1,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excludes management, leasing and development fees of $804 and $678 for the three months ended September 30, 2016 and 2015, respectively, which are included as a component of "fee and other income" in our consolidated statements of income.

 

Interest and Other Investment Income, net

 

Interest and other investment income, net was $6,508,000 for the three months ended September 30, 2016, compared to $3,160,000 in the prior year’s quarter, an increase of $3,348,000. This increase resulted primarily from an increase in the value of investments in our deferred compensation plan (offset by a corresponding decrease in the liability for plan assets in general and administrative expenses).

 

Interest and Debt Expense

 

Interest and debt expense was $98,365,000 for the three months ended September 30, 2016, compared to $95,344,000 in the prior year’s quarter, an increase of $3,021,000.  This increase was primarily due to (i) $5,417,000 of higher interest expense from the financings of the St. Regis - retail, 150 West 34th Street, 100 West 33rd Street, and our $750,000,000 delayed draw term loan, (ii) $2,632,000 of accrued default interest on our Skyline properties mortgage loan, and (iii) $2,621,000 of lower capitalized interest, partially offset by (iv) $4,894,000 of interest savings from the financings of 888 Seventh Avenue and 770 Broadway, and (v) $1,804,000 of interest savings from the repayment of the Bowen Building loan.

54


  

Results of Operations – Three Months Ended September 30, 2016 Compared to September 30, 2015 - continued

 

Net Gain on Disposition of Wholly Owned and Partially Owned Assets

For the three months ended September 30, 2015, we recognized a $103,037,000 net gain on disposition of wholly owned and partially owned assets primarily from the sale of 1750 Pennsylvania Avenue. 

 

Income Tax Expense

 

For the three months ended September 30, 2016, income tax expense was $4,865,000, compared to $2,856,000 for the prior year’s quarter, an increase of $2,009,000.  This increase was primarily attributable to higher income from our taxable REIT subsidiaries.

 

Income from Discontinued Operations

 

We have reclassified the revenues and expenses of the UE portfolio and other retail properties that were sold or are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all the periods presented in the accompanying financial statements.  The table below sets forth the combined results of assets related to discontinued operations for the three months ended September 30, 2016 and 2015. 

(Amounts in thousands)

For the Three Months Ended September 30,

 

 

2016

 

2015

Total revenues

$

676

 

$

2,589

Total expenses

 

106

 

 

1,279

 

 

570

 

 

1,310

Net gains on sale of real estate and a lease position

 

2,864

 

 

33,153

Impairment losses

 

(465)

 

 

-

Income from discontinued operations

$

2,969

 

$

34,463

             

 

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

 

Net income attributable to noncontrolling interests in consolidated subsidiaries was $3,658,000 for the three months ended September 30, 2016, compared to $3,302,000 for the prior year’s quarter, an increase of $356,000.

 

Net Income Attributable to Noncontrolling Interests in the Operating Partnership

 

Net income attributable to noncontrolling interests in the Operating Partnership was $4,366,000 for the three months ended September 30, 2016, compared to $12,704,000 for the prior year’s quarter, a decrease of $8,338,000.  This decrease resulted primarily from higher net income subject to allocation to unitholders in the prior year’s quarter primarily due to the net gain of $102,404,000 on the sale of 1750 Pennsylvania Avenue.

 

Preferred Share Dividends

Preferred share dividends were $19,047,000 for the three months ended September 30, 2016, compared to $20,364,000 for the prior year’s quarter, a decrease of $1,317,000.  The decrease is primarily due to the redemption of the 6.875% Series J cumulative redeemable preferred shares on September 1, 2016. 

 

Preferred Share Issuance Costs

In the three months ended September 30, 2016, we recognized a $7,408,000 expense in connection with the write-off of issuance costs upon the redemption all of the outstanding 6.875% Series J cumulative redeemable preferred shares on September 1, 2016. 

  

 

55


  

Results of Operations – Three Months Ended September 30, 2016 Compared to September 30, 2015 - continued

 

 

Same Store EBITDA

Same store EBITDA represents EBITDA from property level operations which are owned by us in both the current and prior year reporting periods.  Same store EBITDA excludes segment-level overhead expenses, which are expenses that we do not consider to be property-level expenses, as well as other non-operating items.  We also present same store EBITDA on a cash basis which excludes income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash adjustments. We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers.  Same store EBITDA should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies. 

 

Below are reconciliations of EBITDA to same store EBITDA for each of our segments for the three months ended September 30, 2016, compared to the three months ended September 30, 2015.

 

(Amounts in thousands)

 

 

New York

 

Washington, DC

 

EBITDA for the three months ended September 30, 2016

 

$

276,893

 

$

82,765

 

 

Add-back:

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

9,783

 

 

6,858

 

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

(3,853)

 

 

-

 

 

 

Dispositions

 

 

(51)

 

 

(5)

 

 

 

Properties taken out of service for redevelopment

 

 

(6,691)

 

 

(1,581)

 

 

 

Other non-operating loss (income), net

 

 

748

 

 

(563)

 

Same store EBITDA for the three months ended September 30, 2016

 

$

276,829

 

$

87,474

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the three months ended September 30, 2015

 

$

282,390

 

$

182,688

 

 

Add-back:

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

8,305

 

 

6,283

 

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

(712)

 

 

-

 

 

 

Dispositions, including net gains on sale

 

 

(5,399)

 

 

(104,005)

 

 

 

Properties taken out of service for redevelopment

 

 

(5,632)

 

 

(427)

 

 

 

Other non-operating income, net

 

 

(15,121)

 

 

(1,415)

 

Same store EBITDA for the three months ended September 30, 2015

 

$

263,831

 

$

83,124

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase in same store EBITDA -

 

 

 

 

 

 

 

 

Three months ended September 30, 2016 vs. September 30, 2015

 

$

12,998

(1)

$

4,350

(3)

 

 

 

  

 

  

 

 

  

 

 

  

% increase in same store EBITDA

 

 

4.9%

(2)

 

5.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on the following page

 

56


  

Results of Operations – Three Months Ended September 30, 2016 Compared to September 30, 2015 - continued

 

 

Notes to preceding tabular information:

 

 

New York:

 

(1)     The $12,998,000 increase in New York same store EBITDA resulted primarily from increases in Office and Retail EBITDA of $9,916,000 and $6,098,000, respectively, partially offset by a decrease in Hotel Pennsylvania EBITDA of $3,659,000.  The Office and Retail EBITDA increases resulted primarily from higher rents, partially offset by higher operating expenses, net of reimbursements.

 

(2)     Excluding Hotel Pennsylvania, same store EBITDA increased by 6.5%.

 

 

Washington, DC:

 

(3)     The $4,350,000 increase in Washington, DC same store EBITDA resulted primarily from higher management and leasing fee income of $2,304,000, higher rental income of $1,074,000 and lower net operating expenses of $674,000.

 

 

Reconciliation of Same Store EBITDA to Cash basis Same Store EBITDA

(Amounts in thousands)

 

 

New York

 

 

Washington, DC

Same store EBITDA for the three months ended September 30, 2016

 

$

276,829

 

 

$

87,474

Less: Adjustments for straight-line rents, amortization of acquired

 

 

 

 

 

 

 

 

below-market leases, net, and other non-cash adjustments

 

 

(42,208)

 

 

 

(7,024)

Cash basis same store EBITDA for the three months ended

 

 

 

 

 

 

 

 

September 30, 2016

 

$

234,621

 

 

$

80,450

 

 

 

 

 

 

 

 

 

 

 

 

Same store EBITDA for the three months ended September 30, 2015

 

$

263,831

 

 

$

83,124

Less: Adjustments for straight-line rents, amortization of acquired

 

 

 

 

 

 

 

 

below-market leases, net, and other non-cash adjustments

 

 

(49,749)

 

 

 

(7,743)

Cash basis same store EBITDA for the three months ended

 

 

 

 

 

 

 

 

September 30, 2015

 

$

214,082

 

 

$

75,381

 

 

 

 

 

 

 

 

 

 

 

 

Increase in cash basis same store EBITDA -

 

 

 

 

 

 

 

 

Three months ended September 30, 2016 vs. September 30, 2015

 

$

20,539

 

 

$

5,069

 

 

 

  

 

 

 

 

  

  

 

 

% increase in cash basis same store EBITDA

 

 

9.6%

(1)

 

 

6.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excluding Hotel Pennsylvania, same store EBITDA increased by 11.7% on a cash basis.

57


  

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2016 and 2015

Below is a summary of net income and a reconciliation of net income to EBITDA(1) by segment for the nine months ended September 30, 2016 and 2015.

 

(Amounts in thousands)

For the Nine Months Ended September 30, 2016

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

1,867,942

 

$

1,269,464

 

$

389,926

 

$

208,552

 

Total expenses

 

 

1,492,255

 

 

818,419

 

 

436,427

 

 

237,409

 

Operating income (loss)

 

 

375,687

 

 

451,045

 

 

(46,501)

 

 

(28,857)

 

Income (loss) from partially owned entities

 

 

529

 

 

(5,143)

 

 

(5,453)

 

 

11,125

 

Income from real estate fund investments

 

 

28,750

 

 

-

 

 

-

 

 

28,750

 

Interest and other investment income, net

 

 

20,262

 

 

3,684

 

 

141

 

 

16,437

 

Interest and debt expense

 

 

(304,430)

 

 

(162,193)

 

 

(54,396)

 

 

(87,841)

 

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

160,225

 

 

159,511

 

 

-

 

 

714

 

Income (loss) before income taxes

 

 

281,023

 

 

446,904

 

 

(106,209)

 

 

(59,672)

 

Income tax expense

 

 

(9,805)

 

 

(4,131)

 

 

(884)

 

 

(4,790)

 

Income (loss) from continuing operations

 

 

271,218

 

 

442,773

 

 

(107,093)

 

 

(64,462)

 

Income from discontinued operations

 

 

6,160

 

 

-

 

 

-

 

 

6,160

 

Net income (loss)

 

 

277,378

 

 

442,773

 

 

(107,093)

 

 

(58,302)

 

Less net income attributable to noncontrolling interests

 

 

(37,771)

 

 

(9,811)

 

 

-

 

 

(27,960)

 

Net income (loss) attributable to Vornado

 

 

239,607

 

 

432,962

 

 

(107,093)

 

 

(86,262)

 

Net income attributable to noncontrolling interests in the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

11,410

 

 

-

 

 

-

 

 

11,410

 

Interest and debt expense(2)

 

 

376,898

 

 

208,683

 

 

63,038

 

 

105,177

 

Depreciation and amortization(2)

 

 

521,143

 

 

331,448

 

 

119,109

 

 

70,586

 

Income tax expense (2)

 

 

13,067

 

 

4,424

 

 

2,780

 

 

5,863

 

EBITDA(1)

 

$

1,162,125

 

$

977,517

(3)

$

77,834

(4)

$

106,774

(5)

                               

 

(Amounts in thousands)

 

For the Nine Months Ended September 30, 2015

 

 

 

 

Total

 

New York

 

Washington, DC

 

Other

 

Total revenues

 

$

1,850,686

 

$

1,243,208

 

$

401,528

 

$

205,950

 

Total expenses

 

 

1,298,141

 

 

766,863

 

 

293,772

 

 

237,506

 

Operating income (loss)

 

 

552,545

 

 

476,345

 

 

107,756

 

 

(31,556)

 

(Loss) income from partially owned entities

 

 

(8,709)

 

 

1,523

 

 

(3,583)

 

 

(6,649)

 

Income from real estate fund investments

 

 

52,122

 

 

-

 

 

-

 

 

52,122

 

Interest and other investment income, net

 

 

19,618

 

 

5,642

 

 

60

 

 

13,916

 

Interest and debt expense

 

 

(279,110)

 

 

(143,004)

 

 

(52,223)

 

 

(83,883)

 

Net gain on disposition of wholly owned and partially

 

 

 

 

 

 

 

 

 

 

 

 

 

 

owned assets

 

 

104,897

 

 

-

 

 

102,404

 

 

2,493

 

Income (loss) before income taxes

 

 

441,363

 

 

340,506

 

 

154,414

 

 

(53,557)

 

Income tax benefit (expense)

 

 

84,245

 

 

(3,185)

 

 

(79)

 

 

87,509

 

Income from continuing operations

 

 

525,608

 

 

337,321

 

 

154,335

 

 

33,952

 

Income from discontinued operations

50,278

 

 

-

 

 

-

 

 

50,278

 

Net income

 

 

575,886

 

 

337,321

 

 

154,335

 

 

84,230

 

Less net income attributable to noncontrolling interests

 

 

(66,559)

 

 

(6,640)

 

 

-

 

 

(59,919)

 

Net income attributable to Vornado

 

 

509,327

 

 

330,681

 

 

154,335

 

 

24,311

 

Net income attributable to noncontrolling interests in the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Partnership

 

 

28,189

 

 

-

 

 

-

 

 

28,189

 

Interest and debt expense(2)

 

 

348,725

 

 

184,377

 

 

62,413

 

 

101,935

 

Depreciation and amortization(2)

 

 

493,904

 

 

288,897

 

 

136,687

 

 

68,320

 

Income tax (benefit) expense(2)

 

 

(85,349)

 

 

3,368

 

 

(1,856)

 

 

(86,861)

 

EBITDA(1)

 

$

1,294,796

 

$

807,323

(3)

$

351,579

(4)

$

135,894

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on the following pages.

 

 

 

 

 

 

 

 

 

 

 

 

 

58


  

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2016 and 2015 - continued

 

Notes to preceding tabular information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

We calculate EBITDA on an Operating Partnership basis which is before allocation to the noncontrolling interest of the Operating Partnership.  We consider EBITDA a non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies.

 

 

 

 

 

 

 

 

 

 

 

 

(2)

Interest and debt expense, depreciation and amortization and income tax expense (benefit) in the reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.

 

 

 

 

 

 

 

 

 

 

 

 

(3)

The elements of "New York" EBITDA are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Nine Months Ended September 30,

 

 

 

 

 

 

 

2016

 

2015

 

Office(a)

$

475,726

 

$

480,508

 

Retail(b)

 

284,212

 

 

265,060

 

Residential

 

18,901

 

 

16,254

 

Alexander's

 

34,880

 

 

31,150

 

Hotel Pennsylvania

 

4,287

 

 

14,351

 

 

 

 

 

 

 

 

818,006

 

 

807,323

 

Net gain on sale of 47% ownership interest in 7 West 34th Street

 

159,511

 

 

-

 

 

 

Total New York

$

977,517

 

$

807,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

2016 and 2015 include $2,935 and $16,954, respectively, of EBITDA from sold properties and other. Excluding these items, EBITDA was $472,791 and $463,554, respectively.

 

(b)

2016 and 2015 include $185 and $1,597, respectively, of EBITDA from a sold property. Excluding this item, EBITDA was $284,027 and $263,463, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

(4)

The elements of "Washington, DC" EBITDA are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Nine Months Ended September 30,

 

 

 

 

 

 

 

2016

 

2015

 

Office, excluding the Skyline properties (a)

$

191,646

 

$

199,757

 

Skyline properties

 

14,177

 

 

19,037

 

Skyline properties impairment loss

 

(160,700)

 

 

-

 

Net gain on sale of 1750 Pennsylvania Avenue

 

-

 

 

102,404

 

 

 

Total Office

 

45,123

 

 

321,198

 

Residential

 

 

32,711

 

 

30,381

 

 

 

Total Washington, DC

$

77,834

 

$

351,579

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

2015 includes $5,591 of EBITDA from a sold property. Excluding this item, EBITDA was $194,166.

59


  

Net Income and EBITDA by Segment for the Nine Months Ended September 30, 2016 and 2015 - continued

Notes to preceding tabular information - continued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5)

The elements of "Other" EBITDA are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

For the Nine Months Ended September 30,

 

 

 

 

 

 

 

2016

 

2015

 

Our share of real estate fund investments:

 

 

 

 

 

 

 

Income before net realized/unrealized gains

$

6,309

 

$

6,879

 

 

Net realized/unrealized gains on investments

 

3,333

 

 

9,542

 

 

Carried interest 

 

 

4,020

 

 

6,248

 

Total

 

 

 

 

 

13,662

 

 

22,669

 

theMART (including trade shows)

 

70,689

 

 

62,229

 

555 California Street

 

35,137

 

 

38,237

 

India real estate ventures

 

2,585

 

 

2,229

 

Other investments

 

46,180

 

 

31,705

 

 

 

 

 

 

 

 

168,253

 

 

157,069

 

Corporate general and administrative expenses(a) (b)

 

(76,364)

 

 

(82,043)

 

Investment income and other, net(a)

 

19,317

 

 

21,275

 

Acquisition and transaction related costs

 

(11,319)

 

 

(7,560)

 

UE and residual retail properties discontinued operations(c)

 

6,173

 

 

26,313

 

Net gain on sale of residential condominiums

 

714

 

 

2,493

 

Net gain on sale of Monmouth Mall

 

-

 

 

33,153

 

Our share of impairment loss on India real estate ventures

 

-

 

 

(14,806)

 

 

 

Total Other

$

106,774

 

$

135,894

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

The amounts in these captions (for this table only) excludes income from the mark-to-market of our deferred compensation plan of $2,625 of income and $327 of loss for the nine months ended September 30, 2016 and 2015, respectively.

 

(b)

The nine months ended September 30, 2015 includes a cumulative catch up of $4,542 from the acceleration of recognition of compensation expense related to the modification of the 2012-2014 Out-Performance Plans.

 

(c)

The nine months ended September 30, 2015 includes $22,972 of transaction costs related to the spin-off of our strip shopping centers and malls.

 

EBITDA by Region

 

Below is a summary of the percentages of EBITDA by geographic region, excluding gains on sale of real estate, non-cash impairment losses and operations of sold properties.

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

 

 

 

2016

 

2015

 

 

Region:

 

 

 

 

 

 

 

New York City metropolitan area

 

70%

 

70%

 

 

 

Washington, DC / Northern Virginia area

21%

 

22%

 

 

 

Chicago, IL

 

6%

 

5%

 

 

 

San Francisco, CA

 

3%

 

3%

 

 

 

 

100%

 

100%

 

 

60


  

Results of Operations – Nine Months Ended September 30, 2016 Compared to September 30, 2015

 

 

Revenues

Our revenues, which consist primarily of property rentals, tenant expense reimbursements, and fee and other income, were $1,867,942,000 for the nine months ended September 30, 2016, compared to $1,850,686,000 for the prior year’s nine months, an increase of $17,256,000.  Below are the details of the increase (decrease) by segment:

  

 

(Amounts in thousands)

 

Total

 

 

New York

 

 

Washington, DC

 

 

Other

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property rentals:

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

Acquisitions, dispositions and other

 

$

(19,687)

 

 

$

(12,124)

 

 

$

(7,563)

 

 

$

-

 

Development and redevelopment

 

 

1,098

 

 

 

(150)

 

 

 

(757)

 

 

 

2,005

 

Hotel Pennsylvania

 

 

(10,626)

 

 

 

(10,626)

 

 

 

-

 

 

 

-

 

Trade shows

 

 

(661)

 

 

 

-

 

 

 

-

 

 

 

(661)

 

Same store operations

 

 

59,090

 

 

 

55,793

 

 

 

36

 

 

 

3,261

 

 

 

29,214

 

 

 

32,893

 

 

 

(8,284)

 

 

 

4,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant expense reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions, dispositions and other

 

 

(2,761)

 

 

 

(2,506)

 

 

 

(255)

 

 

 

-

 

Development and redevelopment

 

 

723

 

 

 

2

 

 

 

(542)

 

 

 

1,263

 

Same store operations

 

 

(2,355)

 

 

 

2,967

 

 

 

(1,946)

 

 

 

(3,376)

 

 

 

 

(4,393)

 

 

 

463

 

 

 

(2,743)

 

 

 

(2,113)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BMS cleaning fees

 

 

(5,177)

 

 

 

(5,619)

(1)

 

 

-

 

 

 

442

 

Management and leasing fees

 

 

3,536

 

 

 

369

 

 

 

2,384

 

 

 

783

 

Lease termination fees

 

 

(435)

 

 

 

589

 

 

 

(1,069)

 

 

 

45

 

Other income

 

 

(5,489)

 

 

 

(2,439)

 

 

 

(1,890)

 

 

 

(1,160)

 

 

 

(7,565)

 

 

 

(7,100)

 

 

 

(575)

 

 

 

110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in revenues

 

$

17,256

 

 

$

26,256

 

 

$

(11,602)

 

 

$

2,602

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Primarily from the termination of a third party cleaning contract in 2015.

 

61


  

Results of Operations – Nine Months Ended September 30, 2016 Compared to September 30, 2015 - continued

 

Expenses

Our expenses, which consist primarily of operating, depreciation and amortization, general and administrative expenses, and impairment loss and acquisition and transaction related costs were $1,492,255,000 for the nine months ended September 30, 2016, compared to $1,298,141,000 for the prior year’s nine months, an increase of $194,114,000.  Below are the details of the increase (decrease) by segment:

  

(Amounts in thousands)

 

Total

 

 

New York

 

 

Washington, DC

 

 

Other

 

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions, dispositions and other

 

$

599

 

 

$

4,009

 

 

$

(3,410)

 

 

$

-

 

 

Development and redevelopment

 

 

(284)

 

 

 

(113)

 

 

 

(1,169)

 

 

 

998

 

 

Non-reimbursable expenses, including bad debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reserves

 

 

147

 

 

 

(261)

 

 

 

600

 

 

 

(192)

 

 

Hotel Pennsylvania

 

 

(186)

 

 

 

(186)

 

 

 

-

 

 

 

-

 

 

Trade shows

 

 

673

 

 

 

-

 

 

 

-

 

 

 

673

 

 

BMS expenses

 

 

(4,901)

 

 

 

(5,436)

(1)

 

 

-

 

 

 

535

 

 

Same store operations

 

 

12,521

 

 

 

17,261

 

 

 

(354)

 

 

 

(4,386)

 

 

 

 

 

8,569

 

 

 

15,274

 

 

 

(4,333)

 

 

 

(2,372)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions, dispositions and other

 

 

5,102

 

 

 

6,663

 

 

 

(1,561)

 

 

 

-

 

 

Development and redevelopment

 

 

(17,560)

 

 

 

(296)

 

 

 

(17,007)

 

 

 

(257)

 

 

Same store operations

 

 

32,697

 

 

 

30,596

 

 

 

1,237

 

 

 

864

 

 

 

 

 

 

20,239

 

 

 

36,963

 

 

 

(17,331)

 

 

 

607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark-to-market of deferred compensation plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

liability

 

 

2,952

 

 

 

-

 

 

 

-

 

 

 

2,952

(2)

 

Same store operations

 

 

(2,080)

 

 

 

(681)

(3)

 

 

3,619

(4)

 

 

(5,018)

(5)

 

 

 

 

872

 

 

 

(681)

 

 

 

3,619

 

 

 

(2,066)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment loss and acquisition and transaction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

related costs

 

 

164,434

 

 

 

-

 

 

 

160,700

(6)

 

 

3,734

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease) in expenses

 

$

194,114

 

 

$

51,556

 

 

$

142,655

 

 

$

(97)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Primarily from the termination of a third party cleaning contract in 2015.

(2)

This increase in expense is entirely offset by a corresponding increase in income from the mark-to-market of the deferred compensation plan assets, a component of “interest and other investment income, net” on our consolidated statements of income.

(3)

Results primarily from (i) the nine months ended September 30, 2015 including a cumulative catch up of $986 from the acceleration of recognition of compensation expense related to the modification of the 2012-2014 Out-Performance Plans and (ii) higher capitalized leasing payroll in 2016.

(4)

Results primarily from lower capitalized payroll in 2016.

(5)

The nine months ended September 30, 2015 includes a cumulative catch up of $4,542 from the acceleration of recognition of compensation expense related to the modification of the 2012-2014 Out-Performance Plans.

(6)

On March 15, 2016, we notified the servicer of the $678,000 mortgage loan on the Skyline properties in Virginia that cash flow will be insufficient to service the debt and pay other property related costs and expenses and that we were not willing to fund additional cash shortfalls.  Accordingly, at our request, the loan has been transferred to the special servicer.  Consequently, based on our shortened estimated holding period for the underlying assets, we concluded that the excess of carrying amount over our estimate of fair value was not recoverable and recognized a $160,700 non-cash impairment loss in the first quarter of 2016.  The Company’s estimate of fair value was derived from a discounted cash flow model based upon market conditions and expectations of growth and utilized unobservable quantitative inputs including a capitalization rate of 8.0% and a discount rate of 8.2%.  In the second quarter of 2016, cash flow became insufficient to service the debt and we ceased making debt service payments.  Pursuant to the loan agreement, the loan is in default, causing the loan to be immediately due and payable, and is subject to incremental default interest which increased the weighted average interest rate from 2.97% to 4.51% while the outstanding balance remains unpaid. For the three and nine months ended September 30, 2016, we accrued $2,632 and $5,343 of default interest expense, respectively.  We continue to negotiate with the special servicer.  There can be no assurance as to the timing or ultimate resolution of this matter.

62


  

Results of Operations – Nine Months Ended September 30, 2016 Compared to September 30, 2015 - continued

 

 

Income (Loss) from Partially Owned Entities

Summarized below are the components of income (loss) from partially owned entities for the nine months ended September 30, 2016 and 2015.

 

(Amounts in thousands)

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

Ownership at

 

For the Nine Months Ended September 30,

 

 

 

 

 

 

September 30, 2016

 

2016

 

2015

 

Our Share of Net (Loss) Income:

 

 

 

 

 

 

 

 

 

Partially owned office buildings (1)

 

Various

 

$

(35,868)

 

$

(14,573)

 

Alexander's

32.4%

 

 

25,947

 

 

22,558

 

PREIT

 

8.0%

 

 

(4,763)

 

 

(3,845)

 

UE

 

5.4%

 

 

4,523

 

 

2,888

 

India real estate ventures

 

4.1%-36.5%

 

 

(3,537)

 

 

(18,380)

 (2) 

Other investments (3)

 

Various

 

 

14,227

 

 

2,643

 

 

 

 

 

 

 

 

 

$

529

 

$

(8,709)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 666 Fifth Avenue (Office), 7 West 34th Street, 330 Madison Avenue, 512 West 22nd Street and others.  In 2015, we recognized our $12,751 share of a write-off of a below market lease liability related to a tenant vacating at 650 Madison.

(2)

Includes $14,806 for our share of non-cash impairment losses.

(3)

Includes interests in Independence Plaza, 85 Tenth Avenue, Fashion Center Mall, 50-70 West 93rd Street, Toys "R" Us, Inc. and others.

 

Income from Real Estate Fund Investments

 

Below are the components of the income from our real estate fund investments for the nine months ended September 30, 2016 and 2015.

 (Amounts in thousands)

 

 

For the Nine Months Ended September 30,

 

 

 

2016

  

2015

Net investment income

 

$

12,237

 

$

13,716

Net unrealized gains on held investments

 

 

16,091

 

 

37,001

Net realized gains on exited investments

 

 

14,676

 

 

24,684

Previously recorded unrealized gain on exited investment

 

 

(14,254)

 

 

(23,279)

Income from real estate fund investments

 

 

28,750

 

 

52,122

Less income attributable to noncontrolling interests

 

 

(15,088)

 

 

(29,453)

Income from real estate fund investments attributable to Vornado (1)

 

$

13,662

 

$

22,669

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excludes management, leasing and development fees of $2,499 and $2,015 for the nine months ended September 30, 2016 and 2015, respectively, which are included as a component of "fee and other income" in our consolidated statements of income.

 

63


  

Results of Operations – Nine Months Ended September 30, 2016 Compared to September 30, 2015 - continued

 

 

Interest and Other Investment Income, net

 

Interest and other investment income, net was $20,262,000 for the nine months ended September 30, 2016, compared to $19,618,000 for the prior year’s nine months, an increase of $644,000. 

 

Interest and Debt Expense

 

Interest and debt expense was $304,430,000 for the nine months ended September 30, 2016, compared to $279,110,000 for the prior year’s nine months, an increase of $25,320,000.  This increase was primarily due to (i) $19,051,000 of higher interest expense from the financings of the St. Regis - retail, 150 West 34th Street, 100 West 33rd Street, and our $750,000,000 delayed draw term loan, (ii) $8,995,000 of lower capitalized interest, and (iii) $5,343,000 of accrued default interest on our Skyline properties mortgage loan, partially offset by (iv) $8,665,000 of interest savings from the financings of 888 Seventh Avenue and 770 Broadway, and (v) $2,373,000 of interest savings from the repayment of the Bowen Building loan.

 

Net Gain on Disposition of Wholly Owned and Partially Owned Assets

 

For the nine months ended September 30, 2016, we recognized a $160,225,000 net gain on disposition of wholly owned and partially owned assets, primarily from the sale of a 47% ownership interest in 7 West 34th Street, compared to $104,897,000 for the prior year’s nine months, primarily from the sale of 1750 Pennsylvania Avenue.

 

Income Tax (Expense) Benefit

 

        For the nine months ended September 30, 2016, income tax expense was $9,805,000, compared to an income tax benefit of $84,245,000 for the prior year’s nine months, an increase in expense of  $94,050,000.  This increase in expense resulted primarily from the prior year reversal of $90,030,000 of valuation allowances against certain of our deferred tax assets, as we have concluded that it is more-likely-than-not that we will generate sufficient taxable income from the sale of 220 Central Park South residential condominium units to realize the deferred tax assets.

 

64


  

Results of Operations – Nine Months Ended September 30, 2016 Compared to September 30, 2015 - continued

 

 

Income from Discontinued Operations

We have reclassified the revenues and expenses of the UE portfolio and other retail properties that were sold or are currently held for sale to “income from discontinued operations” and the related assets and liabilities to “assets related to discontinued operations” and “liabilities related to discontinued operations” for all the periods presented in the accompanying financial statements.  The table below sets forth the combined results of assets related to discontinued operations for the nine months ended September 30, 2016 and 2015.

 

 

 

 

 

 

 

(Amounts in thousands)

For the Nine Months Ended September 30,

 

 

2016

 

2015

Total revenues

$

2,805

 

$

24,868

Total expenses

 

1,254

 

 

16,672

 

 

1,551

 

 

8,196

Net gains on sale of real estate and a lease position

 

5,074

 

 

65,396

Impairment losses

 

(465)

 

 

(256)

UE spin-off transaction related costs

 

-

 

 

(22,972)

Pretax income from discontinued operations

 

6,160

 

 

50,364

Income tax expense

 

-

 

 

(86)

Income from discontinued operations

$

6,160

 

$

50,278

 

Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries

 

Net income attributable to noncontrolling interests in consolidated subsidiaries was $26,361,000 for the nine months ended September 30, 2016, compared to $38,370,000 for the prior year’s nine months, a decrease of $12,009,000.  This decrease resulted primarily from lower net income allocated to the noncontrolling interests, including noncontrolling interests of our real estate fund investments.

 

Net Income Attributable to Noncontrolling Interests in the Operating Partnership

 

Net income attributable to noncontrolling interests in the Operating Partnership was $11,410,000 for the nine months ended September 30, 2016, compared to $28,189,000 for the prior year’s nine months, a decrease of $16,779,000.  This decrease resulted primarily from lower net income subject to allocation to unitholders.  This decrease resulted primarily from higher net income subject to allocation to unitholders in the prior year’s quarter primarily due to the net gain of $102,404,000 on the sale of 1750 Pennsylvania Avenue.

 

Preferred Share Dividends

 

Preferred share dividends were $59,774,000 for the nine months ended September 30, 2016, compared to $60,213,000 for the prior year’s nine months, a decrease of $439,000. 

 

Preferred Share Issuance Costs

 

In the nine months ended September 30, 2016, we recognized a $7,408,000 expense in connection with the write-off of issuance costs upon redemption all of the outstanding 6.875% Series J cumulative redeemable preferred shares on September 1, 2016.

  

 

65


  

Results of Operations – Nine Months Ended September 30, 2016 Compared to September 30, 2015 - continued

 

 

Same Store EBITDA

Same store EBITDA represents EBITDA from property level operations which are owned by us in both the current and prior year reporting periods.  Same store EBITDA excludes segment-level overhead expenses, which are expenses that we do not consider to be property-level expenses, as well as other non-operating items.  We also present same store EBITDA on a cash basis which excludes income from the straight-lining of rents, amortization of below-market leases, net of above-market leases and other non-cash adjustments.  We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers.  Same store EBITDA should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies. 

 

Below are reconciliations of EBITDA to same store EBITDA for each of our segments for the nine months ended September 30, 2016, compared to nine months ended September 30, 2015.

 

(Amounts in thousands)

 

 

New York

 

Washington, DC

 

EBITDA for the nine months ended September 30, 2016

 

$

977,517

 

$

77,834

 

 

Add-back:

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

27,557

 

 

22,117

 

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

(22,650)

 

 

-

 

 

 

Dispositions, including net gains on sale

 

 

(159,392)

 

 

(32)

 

 

 

Properties taken out of service for redevelopment

 

 

(19,945)

 

 

(1,589)

 

 

 

Other non-operating loss, net

 

 

6,778

 

 

159,837

 

Same store EBITDA for the nine months ended September 30, 2016

 

$

809,865

 

$

258,167

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the nine months ended September 30, 2015

 

$

807,323

 

$

351,579

 

 

Add-back:

 

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

28,238

 

 

18,498

 

 

Less EBITDA from:

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

(2,600)

 

 

-

 

 

 

Dispositions, including net gains on sale

 

 

(12,531)

 

 

(108,055)

 

 

 

Properties taken out of service for redevelopment

 

 

(16,244)

 

 

(2,434)

 

 

 

Other non-operating income, net

 

 

(38,218)

 

 

(3,296)

 

Same store EBITDA for the nine months ended September 30, 2015

 

$

765,968

 

$

256,292

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase in same store EBITDA -

 

 

 

 

 

 

 

 

Nine months ended September 30, 2016 vs. September 30, 2015

 

$

43,897

(1)

$

1,875

(3)

 

 

 

  

 

  

 

 

  

 

 

  

% increase in same store EBITDA

 

 

5.7%

(2)

 

0.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes on the following page.

66


  

Results of Operations – Nine Months Ended September 30, 2016 Compared to September 30, 2015 - continued

 

 

Notes to preceding tabular information:

 

 

New York:

 

(1)     The $43,897,000 increase in New York same store EBITDA resulted primarily from increases in Office and Retail EBITDA of $31,454,000 and $19,867,000, respectively, partially offset by a decrease in Hotel Pennsylvania EBITDA of $10,064,000.  The Office and Retail EBITDA increases resulted primarily from higher rents, partially offset by higher operating expenses, net of reimbursements.

 

(2)     Excluding Hotel Pennsylvania, same store EBITDA increased by 7.2%.

 

Washington, DC:

 

(3)     The $1,875,000 increase in Washington, DC same store EBITDA resulted primarily from higher management and leasing fee income of $2,384,000 and higher rental income of $1,594,000 partially offset by higher net operating expenses of $2,192,000.

 

 

Reconciliation of Same Store EBITDA to Cash Basis Same Store EBITDA

(Amounts in thousands)

 

 

New York

 

 

Washington, DC

Same store EBITDA for the nine months ended September 30, 2016

 

$

809,865

 

 

$

258,167

Less: Adjustments for straight-line rents, amortization of acquired

 

 

 

 

 

 

 

 

below-market leases, net, and other non-cash adjustments

 

 

(133,094)

 

 

 

(20,555)

Cash basis same store EBITDA for the nine months ended

 

 

 

 

 

 

 

 

September 30, 2016

 

$

676,771

 

 

$

237,612

 

 

 

 

 

 

 

 

 

 

 

 

Same store EBITDA for the nine months ended September 30, 2015

 

$

765,968

 

 

$

256,292

Less: Adjustments for straight-line rents, amortization of acquired

 

 

 

 

 

 

 

 

below-market leases, net, and other non-cash adjustments

 

 

(124,959)

 

 

 

(20,477)

Cash basis same store EBITDA for the nine months ended

 

 

 

 

 

 

 

 

September 30, 2015

 

$

641,009

 

 

$

235,815

 

 

 

 

 

 

 

 

 

 

 

 

Increase in cash basis same store EBITDA -

 

 

 

 

 

 

 

 

Nine months ended September 30, 2016 vs. September 30, 2015

 

$

35,762

 

 

$

1,797

 

 

 

  

 

 

 

 

  

  

 

 

% increase in cash basis same store EBITDA

 

 

5.6%

(1)

 

 

0.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excluding Hotel Pennsylvania, same store EBITDA increased by 7.3% on a cash basis.

67


  

SUPPLEMENTAL INFORMATION

 

Reconciliation of Net Income to EBITDA for the Three Months Ended June 30, 2016

 

(Amounts in thousands)

 

New York

 

Washington, DC

Net income attributable to Vornado for the three months ended June 30, 2016

 

$

256,751

 

$

15,303

Interest and debt expense

 

 

71,171

 

 

22,641

Depreciation and amortization

 

 

111,314

 

 

39,305

Income tax expense

 

 

889

 

 

2,205

EBITDA for the three months ended June 30, 2016

 

$

440,125

 

$

79,454

 

 

 

 

 

 

 

 

 

 

                   

 

 

Reconciliation of EBITDA to Same Store EBITDA – Three Months Ended September 30, 2016 Compared to June 30, 2016

 

 

(Amounts in thousands)

 

 

New York

 

Washington, DC

EBITDA for the three months ended September 30, 2016

 

$

276,893

 

$

82,765

 

Add-back:

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

9,783

 

 

6,858

 

Less EBITDA from:

 

 

 

 

 

 

 

 

Acquisitions

 

 

(613)

 

 

-

 

 

Dispositions

 

 

(51)

 

 

(5)

 

 

Properties taken out of service for redevelopment

 

 

(7,889)

 

 

(1,581)

 

 

Other non-operating loss (income), net

 

 

1,053

 

 

(563)

Same store EBITDA for the three months ended September 30, 2016

 

$

279,176

 

$

87,474

 

 

 

 

 

 

 

 

 

 

 

EBITDA for the three months ended June 30, 2016

 

$

440,125

 

$

79,454

 

Add-back:

 

 

 

 

 

 

 

 

Non-property level overhead expenses included above

 

 

7,807

 

 

7,295

 

Less EBITDA from:

 

 

 

 

 

 

 

 

Acquisitions

 

 

(152)

 

 

-

 

 

Dispositions, including net gains on sale

 

 

(161,496)

 

 

7

 

 

Properties taken out of service for redevelopment

 

 

(7,686)

 

 

(214)

 

 

Other non-operating loss (income), net

 

 

4,547

 

 

(136)

Same store EBITDA for the three months ended June 30, 2016

 

$

283,145

 

$

86,406

 

 

 

 

 

 

 

 

 

 

 

(Decrease) increase in same store EBITDA -

 

 

 

 

 

 

 

Three months ended September 30, 2016 vs. June 30, 2016

 

$

(3,969)

 

$

1,068

 

 

 

  

 

  

 

 

  

 

  

% (decrease) increase in same store EBITDA

 

 

(1.4%)

(1)

 

1.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excluding Hotel Pennsylvania, same store EBITDA decreased by 1.5%.

 

68


  

SUPPLEMENTAL INFORMATION – CONTINUED

 

Reconciliation of Same Store EBITDA to Cash Basis Same Store EBITDA – Three Months Ended September 30, 2016 Compared to June 30, 2016



(Amounts in thousands)

 

 

New York

 

 

Washington, DC

Same store EBITDA for the three months ended September 30, 2016

 

$

279,176

 

 

$

87,474

Less: Adjustments for straight-line rents, amortization of acquired

 

 

 

 

 

 

 

 

below-market leases, net, and other non-cash adjustments

 

 

(42,989)

 

 

 

(7,024)

Cash basis same store EBITDA for the three months ended

 

 

 

 

 

 

 

 

September 30, 2016

 

$

236,187

 

 

$

80,450

 

 

 

 

 

 

 

 

 

 

 

 

Same store EBITDA for the three months ended June 30, 2016

 

$

283,145

 

 

$

86,406

Less: Adjustments for straight-line rents, amortization of acquired

 

 

 

 

 

 

 

 

below-market leases, net, and other non-cash adjustments

 

 

(49,984)

 

 

 

(7,459)

Cash basis same store EBITDA for the three months ended

 

 

 

 

 

 

 

 

June 30, 2016

 

$

233,161

 

 

$

78,947

 

 

 

 

 

 

 

 

 

 

 

 

Increase in cash basis same store EBITDA -

 

 

 

 

 

 

 

 

Three months ended September 30, 2016 vs. June 30, 2016

 

$

3,026

 

 

$

1,503

 

 

 

  

 

 

 

 

  

  

 

 

% increase in cash basis same store EBITDA

 

 

1.3%

(1)

 

 

1.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excluding Hotel Pennsylvania, same store EBITDA increased by 1.2% on a cash basis.

69


  

Liquidity and Capital Resources

 

Property rental income is our primary source of cash flow and is dependent upon the occupancy and rental rates of our properties.   Our cash requirements include property operating expenses, capital improvements, tenant improvements, leasing commissions, dividends to shareholders, distributions to unitholders of the Operating Partnership, as well as acquisition and development costs.  Other sources of liquidity to fund cash requirements include proceeds from debt financings, including mortgage loans, senior unsecured borrowings, and our revolving credit facilities, proceeds from the issuance of common and preferred equity, and asset sales.    

 

We anticipate that cash flow from continuing operations over the next twelve months will be adequate to fund our business operations, cash distributions to unitholders of the Operating Partnership, cash dividends to shareholders, debt amortization and recurring capital expenditures.  Capital requirements for development expenditures and acquisitions may require funding from borrowings and/or equity offerings.

 

We may from time to time purchase or retire outstanding debt securities or redeem our equity securities.  Such purchases, if any, will depend on prevailing market conditions, liquidity requirements and other factors.  The amounts involved in connection with these transactions could be material to our consolidated financial statements.

 

Skyline Properties

 

In the first quarter of 2016, we notified the servicer of the $678,000,000 non-recourse mortgage loan on the Skyline properties in Virginia that cash flow will be insufficient to service the debt and pay other property related costs and expenses and that we were not willing to fund additional cash shortfalls.  Accordingly, at our request, the loan has been transferred to the special servicer.  In the second quarter of 2016, cash flow became insufficient to service the debt and we ceased making debt service payments.  Pursuant to the loan agreement, the loan is in default, causing the loan to be immediately due and payable, and is subject to incremental default interest  which increased the weighted average interest rate from 2.97% to 4.51% while the outstanding balance remains unpaid.  This loan is recourse only to the Skyline properties.  Accordingly, this default has not had, nor is expected to have, any material impact on our current or future business operations, our ability to raise capital or our credit ratings.  For the three and nine months ended September 30, 2016, we accrued $2,632,000 and $5,343,000 of default interest expense, respectively.  We continue to negotiate with the special servicer. There can be no assurance as to the timing or ultimate resolution of this matter.

 

Cash Flows for the Nine Months Ended September 30, 2016

 

Our cash and cash equivalents were $1,352,697,000 at September 30, 2016, a $483,010,000 decrease from the balance at December 31, 2015.  Our consolidated outstanding debt was $11,200,238,000 at September 30, 2016, a $109,228,000 increase from the balance at December 31, 2015.  As of September 30, 2016 and December 31, 2015, $115,630,000 and $550,000,000, respectively, was outstanding under our revolving credit facilities.  During the remainder of 2016 and 2017, $737,641,000 and $359,647,000, respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it.

 

Cash flows provided by operating activities of $574,247,000 was comprised of (i) net income of $277,378,000, (ii) $298,361,000 of non-cash adjustments, which include depreciation and amortization expense, real estate impairment losses, net gain on the disposition of wholly owned and partially owned assets, the effect of straight-lining of rental income, net realized and unrealized gains on real estate fund investments, net gains on sale of real estate and other and equity in net income from partially owned entities, (iii) return of capital from real estate fund investments of $71,888,000, (iv) distributions of income from partially owned entities of $58,692,000, partially offset by (v) the net change in operating assets and liabilities of $132,072,000.

 

Net cash used in investing activities of $692,021,000 was primarily comprised of (i) $426,641,000 of development costs and construction in progress, (ii) $261,971,000 of additions to real estate, (iii) $112,797,000 of investments in partially owned entities, (iv) $46,801,000 of acquisitions of real estate and other, (v) $42,000,000 due to the net deconsolidation of 7 West 34th Street, (vi) $24,796,000 of changes in restricted cash, (vii) $11,700,000 of investments in loans receivable and other and (viii) $4,379,000 in purchases of marketable securities, partially offset by (ix) $138,034,000 of proceeds from sales of real estate and related investments and (x) $100,997,000 of capital distributions from partially owned entities.

 

Net cash used in financing activities of $365,236,000 was comprised of (i) $1,591,554,000 for the repayments of borrowings, (ii) $356,863,000 of dividends paid on common shares, (iii) $246,250,000 for the redemption of preferred shares, (iv) $95,055,000 of distributions to noncontrolling interests, (v) $64,006,000 of dividends paid on preferred shares, (vi) $30,846,000 of debt issuance and other costs, and (vii) $186,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings and other, partially offset by (viii) $2,000,604,000 of proceeds from borrowings, (ix) $11,900,000 of contributions from noncontrolling interests and (x) $7,020,000 of proceeds received from the exercise of employee share options.

70


  

Liquidity and Capital Resources – continued

 

Capital Expenditures for the Nine Months Ended September 30, 2016

 

Capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions.  Recurring capital expenditures include expenditures to maintain a property’s competitive position within the market and tenant improvements and leasing commissions necessary to re-lease expiring leases or renew or extend existing leases.  Non-recurring capital improvements include expenditures to lease space that has been vacant for more than nine months and expenditures completed in the year of acquisition and the following two years that were planned at the time of acquisition, as well as tenant improvements and leasing commissions for space that was vacant at the time of acquisition of a property.

 

Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to the cash expended in the nine months ended September 30, 2016.

(Amounts in thousands)

Total

 

New York

 

Washington, DC

 

Other

Expenditures to maintain assets

$

68,381

 

$

39,001

 

$

14,080

 

$

15,300

Tenant improvements

 

62,556

 

 

48,175

 

 

8,638

 

 

5,743

Leasing commissions

 

30,462

 

 

26,214

 

 

2,943

 

 

1,305

Non-recurring capital expenditures

 

27,503

 

 

20,224

 

 

6,052

 

 

1,227

Total capital expenditures and leasing commissions (accrual basis)

 

188,902

 

 

133,614

 

 

31,713

 

 

23,575

Adjustments to reconcile to cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures in the current year applicable to prior periods

 

199,260

 

 

100,542

 

 

64,174

 

 

34,544

 

 

Expenditures to be made in future periods for the current period

 

(80,348)

 

 

(63,919)

 

 

(13,550)

 

 

(2,879)

Total capital expenditures and leasing commissions (cash basis)

$

307,814

 

$

170,237

 

$

82,337

 

$

55,240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

Per square foot per annum

$

6.42

 

$

7.02

 

$

4.52

 

$

n/a

 

Percentage of initial rent

 

10.2%

 

 

8.9%

 

 

11.3%

 

 

n/a

                             



Development and Redevelopment Expenditures for the Nine Months Ended September 30, 2016

 

Development and redevelopment expenditures consist of all hard and soft costs associated with the development or redevelopment of a property, including capitalized interest, debt and operating costs until the property is substantially completed and ready for its intended use.  Our development project budgets below include initial leasing costs, which are reflected as non-recurring capital expenditures in the table above.  

             

We are constructing a residential condominium tower containing 397,000 salable square feet on our 220 Central Park South development site.  The incremental development cost of this project is estimated to be approximately $1.3 billion, of which $534,920,000 has been expended as of September 30, 2016.

   

We are developing The Bartlett, a 699-unit residential project in Pentagon City, which is expected to be completed in 2016.  The project will include a 40,000 square foot Whole Foods Market at the base of the building.  The incremental development cost of this project is estimated to be approximately $250,000,000, of which $219,153,000 has been expended as of September 30, 2016.

 

We are developing a 173,000 square foot Class-A office building, located along the western edge of the High Line at 512 West 22nd Street in the West Chelsea submarket of Manhattan (55.0% owned).  The incremental development cost of this project is estimated to be approximately $130,000,000, of which our share is $72,000,000.  As of September 30, 2016, $24,284,000 has been expended, of which our share is $13,356,000.

 

We are developing 61 Ninth Avenue, located on the Southwest corner of Ninth Avenue and 15th Street in the West Chelsea submarket of Manhattan.  In February 2016, the venture purchased an adjacent five story loft building and air rights in exchange for a 10% common and preferred equity interest in the venture valued at $19,400,000, which reduced our ownership interest to 45.1% from 50.1%.  The venture’s current plans are to construct an office building, with retail at the base, of approximately 167,000 square feet.  The incremental development cost of this project is estimated to be approximately $150,000,000, of which our share is $68,000,000.  As of September 30, 2016, $26,169,000 has been expended, of which our share is $11,802,000.

71


  

Liquidity and Capital Resources – continued

 

Development and Redevelopment Expenditures for the Nine Months Ended September 30, 2016 - continued

 

We are developing 606 Broadway, a 33,000 square foot office and retail building, located on Houston Street in Manhattan (50.0% owned).   The venture’s incremental development cost of this project is estimated to be approximately $60,000,000, of which our share is $30,000,000.  As of September 30, 2016, $16,382,000 has been expended, of which our share is $8,191,000.

 

We plan to demolish two adjacent Washington, DC office properties, 1726 M Street and 1150 17th Street in 2016 and replace them in the future with a new 335,000 square foot Class A office building, to be addressed 1700 M Street.  The incremental development cost of the project is estimated to be approximately $170,000,000.

 

We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including the Penn Plaza District, and in Washington, including Crystal City, Rosslyn and Pentagon City.

 

There can be no assurance that any of our development or redevelopment projects will commence, or if commenced, be completed, or completed on schedule or within budget.

 

Below is a summary of development and redevelopment expenditures incurred in the nine months ended September 30, 2016.  These expenditures include interest of $24,822,000, payroll of $9,475,000 and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $45,316,000, that were capitalized in connection with the development and redevelopment of these projects.

  

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

Total

 

New York

 

Washington, DC

 

Other

220 Central Park South

$

213,170

 

$

-

 

$

-

 

$

213,170

The Bartlett

 

62,093

 

 

-

 

 

62,093

 

 

-

90 Park Avenue

 

28,288

 

 

28,288

 

 

-

 

 

-

640 Fifth Avenue

 

23,415

 

 

23,415

 

 

-

 

 

-

theMART

 

21,613

 

 

-

 

 

-

 

 

21,613

2221 South Clark Street (residential conversion)

 

14,408

 

 

-

 

 

14,408

 

 

-

Penn Plaza

 

10,195

 

 

10,195

 

 

-

 

 

-

Wayne Towne Center

 

7,910

 

 

-

 

 

-

 

 

7,910

330 West 34th Street

 

3,968

 

 

3,968

 

 

-

 

 

-

Other

 

41,581

 

 

8,165

 

 

31,754

 

 

1,662

 

 

 

 

$

426,641

 

$

74,031

 

$

108,255

 

$

244,355

72


  

Liquidity and Capital Resources – continued

 

Cash Flows for the Nine Months Ended September 30, 2015

 

Our cash and cash equivalents were $788,137,000 at September 30, 2015, a $410,340,000 decrease over the balance at December 31, 2014.  The decrease is primarily due to cash flows from investing and financing activities, partially offset by cash flows from operating activities, as discussed below.

 

Cash flows provided by operating activities of $443,525,000 was comprised of (i) net income of $575,886,000, (ii) return of capital from real estate fund investments of $91,036,000, (iii) distributions of income from partially owned entities of $51,650,000, and (iv) $10,350,000 of non-cash adjustments, which include depreciation and amortization expense, the reversal of allowance for deferred tax assets, the effect of straight-lining of rental income, equity in net loss from partially owned entities, real estate impairment losses, and net gain on disposition of wholly owned and partially owned assets, partially offset by (v) the net change in operating assets and liabilities of $285,397,000 (including the acquisition of real estate fund investments of $95,010,000).

 

Net cash used in investing activities of $480,383,000 was comprised of (i) $388,565,000 of acquisitions of real estate and other, (ii) $339,586,000 of development costs and construction in progress, (iii) $207,845,000 of additions to real estate, (iv) $144,890,000 of investments in partially owned entities, and (v) $25,845,000 of investments in loans receivable and other, partially offset by (vi) $375,850,000 of proceeds from sales of real estate and related investments, (vii) $201,895,000 of changes in restricted cash, (viii) $31,822,000 of capital distributions from partially owned entities, and (ix) $16,781,000 of proceeds from sales and repayments of mortgage and mezzanine loans receivable and other.

 

Net cash used in financing activities of $373,482,000 was comprised of (i) $2,539,677,000 for the repayments of borrowings, (ii) $355,945,000 of dividends paid on common shares, (iii) $225,000,000 of distributions in connection with the spin-off of UE, (iv) $93,738,000 of distributions to noncontrolling interests, (v) $60,213,000 of dividends paid on preferred shares, (vi) $37,467,000 of debt issuance costs, and (vii) $4,900,000 for the repurchase of shares related to stock compensation agreements and related tax withholdings, partially offset by (viii) $2,876,460,000 of proceeds from borrowings, (ix) $51,725,000 of contributions from noncontrolling interests, and (x) $15,273,000 of proceeds received from the exercise of employee share options.

73


  

Liquidity and Capital Resources – continued

 

 

Capital Expenditures for the Nine Months Ended September 30, 2015

 

Below is a summary of capital expenditures, leasing commissions and a reconciliation of total expenditures on an accrual basis to the cash expended in the nine months ended September 30, 2015.

  

(Amounts in thousands)

Total

 

New York

 

Washington, DC

 

Other

Expenditures to maintain assets

$

76,461

 

$

41,796

 

$

14,722

 

$

19,943

Tenant improvements

 

128,271

 

 

50,702

 

 

45,837

 

 

31,732

Leasing commissions

 

40,661

 

 

26,909

 

 

5,792

 

 

7,960

Non-recurring capital expenditures

 

101,517

 

 

67,623

 

 

32,762

 

 

1,132

Total capital expenditures and leasing commissions (accrual basis)

 

346,910

 

 

187,030

 

 

99,113

 

 

60,767

Adjustments to reconcile to cash basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures in the current year applicable to prior periods

 

100,704

 

 

50,013

 

 

27,029

 

 

23,662

 

 

Expenditures to be made in future periods for the current period

 

(196,872)

 

 

(99,269)

 

 

(70,128)

 

 

(27,475)

Total capital expenditures and leasing commissions (cash basis)

$

250,742

 

$

137,774

 

$

56,014

 

$

56,954

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant improvements and leasing commissions:

 

 

 

 

 

 

 

 

 

 

 

Per square foot per annum

$

9.13

 

$

11.81

 

$

6.68

 

$

n/a

 

Percentage of initial rent

 

11.2%

  

 

9.2%

  

 

17.0%

  

 

n/a

                             



Development and Redevelopment Expenditures for the Nine Months Ended September 30, 2015

 

Below is a summary of development and redevelopment expenditures incurred in the nine months ended September 30, 2015.  These expenditures include interest of $48,817,000, payroll of $3,557,000, and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $68,003,000, that were capitalized in connection with the development and redevelopment of these projects.

(Amounts in thousands)

Total

 

New York

 

Washington, DC

 

Other

220 Central Park South

$

98,680

 

$

-

 

$

-

 

$

98,680

The Bartlett

 

72,309

 

 

-

 

 

72,309

 

 

-

330 West 34th Street

 

25,707

 

 

25,707

 

 

-

 

 

-

90 Park Avenue

 

20,430

 

 

20,430

 

 

-

 

 

-

Marriott Marquis Times Square - retail and signage

 

19,069

 

 

19,069

 

 

-

 

 

-

Wayne Towne Center

 

17,827

 

 

-

 

 

-

 

 

17,827

2221 South Clark Street (residential conversion)

 

14,478

 

 

-

 

 

14,478

 

 

-

640 Fifth Avenue

 

11,603

 

 

11,603

 

 

-

 

 

-

Penn Plaza

 

11,003

 

 

11,003

 

 

-

 

 

-

251 18th Street

 

4,863

 

 

-

 

 

4,863

 

 

-

S. Clark Street/12th Street

 

3,120

 

 

-

 

 

3,120

 

 

-

608 Fifth Avenue

 

2,527

 

 

2,527

 

 

-

 

 

-

Other

 

37,970

 

 

4,932

 

 

17,969

 

 

15,069

 

 

 

 

$

339,586

 

$

95,271

 

$

112,739

 

$

131,576

                             

74


  

Liquidity and Capital Resources – continued

 

 

Other Commitments and Contingencies

 

We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

 

Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.

 

Generally, our mortgage loans are non-recourse to us.  However, in certain cases we have provided guarantees or master leased tenant space.  These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans.  As of September 30, 2016, the aggregate dollar amount of these guarantees and master leases is approximately $811,000,000.

 

At September 30, 2016, $38,882,000 of letters of credit were outstanding under one of our unsecured revolving credit facilities.  Our unsecured revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our unsecured revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

 

As of September 30, 2016, we expect to fund additional capital to certain of our partially owned entities aggregating approximately $66,000,000.

 

As of September 30, 2016, we have construction commitments aggregating approximately $687,000,000.

 

75


  

Funds From Operations (“FFO”)

 

FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciated real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries.  FFO and FFO per diluted share are non-GAAP financial measures used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions.  FFO does not represent net income and should not be considered an alternative to net income as a performance measure.  FFO may not be comparable to similarly titled measures employed by other companies.  The calculations of both the numerator and denominator used in the computation of income per share are disclosed in Note 20 – Income per Share, in our consolidated financial statements on page 26 of this Quarterly Report on Form 10-Q.

 

FFO for the Three and Nine Months Ended September 30, 2016 and 2015

 

FFO attributable to common shareholders plus assumed conversions was $225,529,000, or $1.19 per diluted share for the three months ended September 30, 2016, compared to $236,039,000, or $1.25 per diluted share, for the prior year’s three months.  FFO attributable to common shareholders plus assumed conversions was $658,880,000, or $3.47 per diluted share for the nine months ended September 30, 2016, compared to $779,506,000, or $4.11 per diluted share, for the prior year’s nine months.  Details of certain adjustments to FFO are discussed in the financial results summary of our “Overview”.

(Amounts in thousands, except per share amounts)

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

Reconciliation of our net income to FFO:

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common shareholders

$

66,125

 

$

198,870

 

$

172,425

 

$

449,114

 

Per diluted share

$

0.35

 

$

1.05

 

$

0.91

 

$

2.37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO adjustments:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization of real property

$

130,892

 

$

134,623

 

$

398,231

 

$

382,175

Net gains on sale of real estate

 

-

 

 

(135,557)

 

 

(161,721)

 

 

(146,424)

Real estate impairment losses

 

-

 

 

-

 

 

160,700

 

 

256

Proportionate share of adjustments to equity in net income (loss) of

 

 

 

 

 

 

 

 

 

 

 

 

partially owned entities to arrive at FFO:

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization of real property

 

40,281

 

 

38,131

 

 

117,635

 

 

106,685

 

 

Net gains on sale of real estate

 

(2,522)

 

 

-

 

 

(2,841)

 

 

(4,513)

 

 

Real estate impairment losses

 

1,134

 

 

2,313

 

 

5,536

 

 

12,617

 

 

 

 

169,785

 

 

39,510

 

 

517,540

 

 

350,796

Noncontrolling interests' share of above adjustments

 

(10,403)

 

 

(2,364)

 

 

(31,872)

 

 

(20,473)

FFO adjustments, net

$

159,382

 

$

37,146

 

$

485,668

 

$

330,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO attributable to common shareholders

$

225,507

 

$

236,016

 

$

658,093

 

$

779,437

Convertible preferred share dividends

 

22

 

 

23

 

 

65

 

 

69

Earnings allocated to Out-Performance Plan units

 

-

 

 

-

 

 

722

 

 

-

FFO attributable to common shareholders plus assumed conversions

$

225,529

 

$

236,039

 

$

658,880

 

$

779,506

 

Per diluted share

$

1.19

 

$

1.25

 

$

3.47

 

$

4.11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Weighted Average Shares

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

188,901

 

 

188,504

 

 

188,778

 

 

188,291

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock options and restricted share awards

 

1,147

 

 

1,032

 

 

1,067

 

 

1,187

 

Convertible preferred shares

 

42

 

 

45

 

 

42

 

 

46

 

Out-Performance Plan units

 

-

 

 

-

 

 

242

 

 

-

Denominator for FFO per diluted share

 

190,090

 

 

189,581

 

 

190,129

 

 

189,524

 

76


  

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

We have exposure to fluctuations in market interest rates. Market interest rates are sensitive to many factors that are beyond our control. Our exposure to a change in interest rates on our consolidated and non-consolidated debt (all of which arises out of non-trading activity) is as follows:

 

(Amounts in thousands, except per share amounts)

2016

 

2015

 

 

 

 

 

 

 

Weighted

 

Effect of 1%

 

 

 

 

Weighted

 

 

 

September 30,

 

 

Average

 

Change In

 

December 31,

 

Average

 

 

 

Balance

 

 

Interest Rate

 

Base Rates

 

Balance

 

Interest Rate

Consolidated debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable rate

$

3,773,523

 

 

2.25%

 

$

37,735

 

$

3,995,704

 

2.00%

 

Fixed rate

 

7,535,606

 

 

3.88%

 

 

-

 

 

7,206,634

 

4.21%

 

 

 

$

11,309,129

 

 

3.34%

 

 

37,735

 

$

11,202,338

 

3.42%

Pro rata share of debt of non-consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

entities (non-recourse):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable rate – excluding Toys "R" Us, Inc.

$

1,122,472

 

 

2.34%

 

 

11,225

 

$

485,160

 

1.97%

 

Variable rate – Toys "R" Us, Inc.

 

1,046,564

 

 

6.36%

 

 

10,466

 

 

1,164,893

 

6.61%

 

Fixed rate (including $700,962 and $661,513

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of Toys "R" Us, Inc. debt in 2016 and 2015)

 

2,496,406

 

 

6.13%

 

 

-

 

 

2,782,025

 

6.37%

 

 

 

$

4,665,442

 

 

5.27%

 

 

21,691

 

$

4,432,078

 

5.95%

Noncontrolling interests’ share of above

 

 

 

 

 

 

 

(3,643)

 

 

 

 

 

Total change in annual net income

 

 

 

 

 

 

$

55,783

 

 

 

 

 

Per share-diluted

 

 

 

 

 

 

$

0.29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

We may utilize various financial instruments to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies, depending on our analysis of the interest rate environment and the costs and risks of such strategies. As of September 30, 2016, we have an interest rate swap on a $414,000,000 mortgage loan on Two Penn Plaza that swapped the rate from LIBOR plus 1.65% (2.17% at September 30, 2016) to a fixed rate of 4.78% through March 2018 and an interest swap on a $375,000,000 mortgage loan on 888 Seventh Avenue that swapped the rate from LIBOR plus 1.60% (2.12% at September 30, 2016) to a fixed rate of 3.15% through December 2020.

 

In connection with the $700,000,000 refinancing of 770 Broadway, we entered into an interest rate swap from LIBOR plus 1.75% (2.28% at September 30, 2016) to a fixed rate of 2.56% through September 2020.

 

Fair Value of Debt

 

The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt.  As of September 30, 2016, the estimated fair value of our consolidated debt was $10,758,000,000.



Item 4.   Controls and Procedures

Disclosure Controls and Procedures:  The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a‑15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2016, such disclosure controls and procedures were effective.

 

Internal Control Over Financial Reporting:  There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

77


  

PART II.   OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

 

Item 1A. Risk Factors

 

There were no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2015.

 

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

 

Item 3.   Defaults Upon Senior Securities

        None.

 

 

Item 4.   Mine Safety Disclosures

        Not applicable.

 

 

Item 5.   Other Information

        None. 

 

Item 6.   Exhibits

Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the attached Exhibit Index.

 

78


  

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:  October 31, 2016

By:

/s/ Stephen W. Theriot

 

 

Stephen W. Theriot, Chief Financial Officer
(duly authorized officer and principal financial and
accounting officer)

  

79


  

 

EXHIBIT INDEX

  

  

  

  

  

  

  

Exhibit No.

 

  

  

  

  

 

 

 

 

 

 

 

 

 

 

 

 

 

15.1

 

-

Letter regarding Unaudited Interim Financial Information

 

 

 

 

 

 

 

 

31.1

 

-

Rule 13a-14 (a) Certification of the Chief Executive Officer

  

     

  

  

  

  

 

31.2

 

-

Rule 13a-14 (a) Certification of the Chief Financial Officer

  

     

  

  

  

  

 

32.1

 

-

Section 1350 Certification of the Chief Executive Officer

  

     

  

  

  

  

 

32.2

 

-

Section 1350 Certification of the Chief Financial Officer

  

 

 

 

 

 

 

 

101.INS

 

-

XBRL Instance Document

  

     

  

  

  

  

 

101.SCH

 

-

XBRL Taxonomy Extension Schema

  

     

  

  

  

  

 

101.CAL

 

-

XBRL Taxonomy Extension Calculation Linkbase

  

     

  

  

  

  

 

101.DEF

 

-

XBRL Taxonomy Extension Definition Linkbase

  

     

  

  

  

  

 

101.LAB

 

-

XBRL Taxonomy Extension Label Linkbase

  

     

  

  

  

  

 

101.PRE

 

-

XBRL Taxonomy Extension Presentation Linkbase

  

     

  

  

  

  

 

 

 

 

 

 

 

80


 

 

EXHIBIT 15.1

October 31, 2016

 

Vornado Realty Trust

New York, New York

 

We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited interim financial information of Vornado Realty Trust for the three and nine month periods ended September 30, 2016, and 2015, as indicated in our report dated October 31, 2016; because we did not perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, is incorporated by reference in the following Registration Statements of Vornado Realty Trust:

Amendment No.1 to Registration Statement No. 333-36080 on Form S-3

Registration Statement No. 333-64015 on Form S-3

Amendment No.1 to Registration Statement No. 333-50095 on Form S-3

Registration Statement No. 333-52573 on Form S-8

Registration Statement No. 333-76327 on Form S-3

Amendment No.1 to Registration Statement No. 333-89667 on Form S-3

Amendment No.1 to Registration Statement No. 333-102215 on Form S-3

Amendment No.1 to Registration Statement No. 333-102217 on Form S-3

Registration Statement No. 333-105838 on Form S-3

Registration Statement No. 333-107024 on Form S-3

Registration Statement No. 333-109661 on Form S-3

Registration Statement No. 333-114146 on Form S-3

Registration Statement No. 333-114807 on Form S-3

Registration Statement No. 333-121929 on Form S-3

Amendment No.1 to Registration Statement No. 333-120384 on Form S-3

Registration Statement No. 333-126963 on Form S-3

Registration Statement No. 333-139646 on Form S-3

Registration Statement No. 333-141162 on Form S-3

Registration Statement No. 333-150592 on Form S-3

Registration Statement No. 333-166856 on Form S-3

Registration Statement No. 333-172880 on Form S-8

Registration Statement No. 333-191865 on Form S-4

and in the joint Registration Statement No. 333-203294 on Form S-3 of Vornado Realty Trust and Vornado Realty L.P.

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

 

 

/s/ DELOITTE & TOUCHE LLP

 

Parsippany, New Jersey

 


 

 

EXHIBIT 31.1

CERTIFICATION

I, Steven Roth, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of Vornado Realty Trust;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure control and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

October 31, 2016

 

 


/s/ Steven Roth

 

 

Steven Roth

 

 

Chairman of the Board and Chief Executive Officer

 

 

 

 


 

 

EXHIBIT 31.2

CERTIFICATION

I, Stephen W. Theriot, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of Vornado Realty Trust;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure control and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

October 31, 2016

 

 


/s/ Stephen W. Theriot

 

 

Stephen W. Theriot

 

 

Chief Financial Officer

 

 

 

 


 

 

EXHIBIT 32.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsection (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code)

 

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code), the undersigned officer of Vornado Realty Trust (the “Company”), hereby certifies, to such officer’s knowledge, that

 

The Quarterly Report on Form 10-Q for quarter ended September 30, 2016 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

 


October 31, 2016

 

 


/s/ Steven Roth

 

 

Name:

Steven Roth

 

 

Title:

Chairman of the Board and Chief Executive Officer

         

 

 

 


 

 

EXHIBIT 32.2

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsection (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code)

 

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code), the undersigned officer of Vornado Realty Trust (the “Company”), hereby certifies, to such officer’s knowledge, that

 

The Quarterly Report on Form 10-Q for quarter ended September 30, 2016 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

 


October 31, 2016

 

 


/s/ Stephen W. Theriot

 

 

Name:

Stephen W. Theriot

 

 

Title:

Chief Financial Officer