UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
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Washington, DC 20549
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FORM 8-K
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CURRENT REPORT
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PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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Date of Report (Date of earliest event reported):
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April 7, 2017
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VORNADO REALTY TRUST
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(Exact Name of Registrant as Specified in Charter)
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Maryland
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No. 001-11954
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No. 22-1657560
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(State or Other
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(Commission
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(IRS Employer
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Jurisdiction of
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File Number)
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Identification No.)
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Incorporation)
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Delaware
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No. 001-34482
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No. 13-3925979
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(State or Other
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(Commission
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(IRS Employer
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Jurisdiction of
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File Number)
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Identification No.)
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Incorporation)
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888 Seventh Avenue
New York, New York |
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10019
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(Address of Principal Executive offices)
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(Zip Code)
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☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 7.01. |
Regulation FD Disclosure.
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Item 9.01. |
Financial Statements and Exhibits.
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VORNADO REALTY TRUST
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(Registrant)
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By:
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/s/ Matthew Iocco
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Name:
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Matthew Iocco
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Title:
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Chief Accounting Officer (duly authorized officer and principal accounting officer)
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VORNADO REALTY L.P.
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(Registrant)
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By:
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VORNADO REALTY TRUST,
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Sole General Partner
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By:
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/s/ Matthew Iocco
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Name:
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Matthew Iocco
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Title:
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Chief Accounting Officer of Vornado Realty Trust, sole general partner of Vornado Realty L.P. (duly authorized officer and principal accounting officer)
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99.1
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Chairman’s Letter from Vornado Realty Trust’s Annual Report for the year ended December 31, 2016.
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EBITDA
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|||||||
($ IN MILLIONS)
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2016
Same Store % Increase/ (Decrease) |
% of 2016
EBITDA |
Increase/ (Decrease) 2016/2015
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2016
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2015
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2014
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EBITDA:
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Cash
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GAAP
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|||||
New York:
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|||||||
Office
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10.5%
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6.7%
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53.7%
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20.6
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668.4
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647.8
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609.3
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Street Retail
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9.5%
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10.3%
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30.7%
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24.4
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381.5
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357.1
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277.3
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Alexander's
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14.2%
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4.4%
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3.7%
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3.3
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46.2
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42.9
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41.7
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Hotel Pennsylvania
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(56.1%)
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(56.5%)
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0.8%
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(13.0)
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10.0
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23.0
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30.7
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Total New York
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8.6%
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6.3%
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88.9%
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35.3
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1,106.1
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1,070.8
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959.0
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theMART
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13.3%
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14.0%
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7.4%
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12.7
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91.9
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79.2
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79.0
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555 California Street
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(13.1%)
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(9.3%)
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3.7%
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(4.2)
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45.8
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50.0
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48.9
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EBITDA
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100%
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43.8
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1,243.8
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1,200.0
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1,086.9
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Other (see page 3 for details)
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647.8
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51.8
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337.2
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EBITDA before Washington, DC and
the Real Estate Fund |
1,891.6
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1,251.8
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1,424.1
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||||
Washington, DC
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3.8%
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2.8%
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--
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290.5
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290.5
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290.4
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Real Estate Fund
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(54.9)
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(21.0)
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33.9
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70.3
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|||
EBITDA before noncontrolling interest and gains on sale of real estate
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2,161.1
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1,576.2
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1,784,8
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This letter and this Annual Report contain forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. The Company's future results, financial condition and business may differ materially from those expressed in these forward-looking statements. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Many of the factors that will determine these items are beyond our ability to control or predict. For further discussion of these factors, see "Forward-Looking Statements" and "Item 1A. Risk Factors" in the Company's Annual Report on Form 10‑K for the year ended December 31, 2016, a copy of which accompanies this letter or can be viewed at www.vno.com.
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($ in millions)
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2016
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2015
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2014
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Net gain on extinguishment of Skyline properties debt
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487.9
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--
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--
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Income from repayment of loans to and preferred
equity in 85 Tenth Avenue
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160.8
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--
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--
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Corporate general and administrative expenses
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(100.6)
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(106.4)
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(94.9)
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Acquisition related costs
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(26.0)
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(35.2)
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(31.3)
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Other investments
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84.3
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43.2
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9.4
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Investment income
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22.5
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26.4
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31.7
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EBITDA of properties and investments sold
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30.2
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110.0
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299.7
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Net gain on sale of other assets
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1.0
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6.7
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13.6
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Toys "R" Us
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2.0
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2.5
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103.6
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Other, net
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(14.3)
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4.6
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5.4
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Total
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647.8
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51.8
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337.2
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($ IN MILLIONS, EXCEPT PER SHARE)
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2016
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2015
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2014
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Funds from Operations, as Reported
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1,457.6
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1,039.0
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911.1
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Less adjustments for certain items that impact FFO:
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Net gain on extinguishment of Skyline properties debt
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487.9
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--
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--
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FFO of Washington, DC, Urban Edge pre spin-off and real estate sold
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241.3
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290.8
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424.6
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Income from repayment of loans to and preferred equity in 85 Tenth Avenue
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160.8
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--
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--
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Real Estate Fund
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(21.0)
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33.9
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70.3
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Acquisition related costs
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(26.0)
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(12.5)
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(16.4)
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Impairment loss – India
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(14.0)
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--
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--
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Reversal of deferred tax allowance
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--
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90.0
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--
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Toys "R" Us FFO
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--
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--
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(66.4)
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Write-off of deferred financing and defeasance costs
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--
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--
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(22.7)
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Other, primarily noncontrolling interests' share of above adjustments
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(62.1)
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(19.3)
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(21.8)
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Total adjustments
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766.9
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382.9
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367.6
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Funds from Operations as Adjusted and excluding Washington, DC and the
Real Estate Fund |
690.7
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656.1
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543.5
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Funds from Operations as Adjusted and excluding Washington, DC and the
Real Estate Fund per share |
3.63
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3.46
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2.88
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($ IN MILLIONS, EXCEPT PER SHARE)
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Amount
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Per Share
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Same Store Operations:
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New York Office
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44.1
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0.22
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New York Street Retail
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34.5
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0.17
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New York Hotel Penn
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(13.0)
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(0.05)
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theMART
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12.1
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0.06
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555 California Street
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(4.7)
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(0.02)
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Properties placed back into service
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6.2
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0.03
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Acquisitions, net of interest expense
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12.8
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0.06
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Interest expense
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(34.0)
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(0.17)
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Other
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(23.4)
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(0.13)
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Increase in FFO as Adjusted and excluding Washington, DC
and the Real Estate Fund |
34.6
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0.17
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Vornado
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Office
REIT Index |
MSCI
Index |
2017 YTD
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(1.9)%
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2.4%
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1.2%
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One-year
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7.3%
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13.2%
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8.6%
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Three-year
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40.6%
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42.8%
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45.2%
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Five-year
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76.0%
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72.1%
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75.2%
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Ten-year
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36.9%
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31.0%
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62.3%
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Fifteen-year
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425.0%
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233.0%
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361.1%
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Twenty-year
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986.7%
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434.7%
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520.5%
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As Adjusted
Excluding Washington, DC and
the Real Estate Fund
(RemainCo)(4)
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||||
FFO
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||||
($ AND SHARES IN MILLIONS, EXCEPT PER SHARE DATA)
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EBITDA
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Amount
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Per
Share |
Shares
Outstanding |
2016
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1,251.8
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690.7
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3.63
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200.5
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2015
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1,174.3
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656.1
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3.46
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199.9
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2014
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1,057.5
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543.5
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2.88
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198.5
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2013
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1,011.5
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503.0
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2.68
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197.8
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2012
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882.4
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385.4
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2.07
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197.3
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2011
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868.1
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370.3
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1.93
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196.5
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2010
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823.8
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352.4
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1.86
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195.7
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2009
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787.4
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230.5
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1.33
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194.1
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2008
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852.2
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341.9
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2.09
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168.9
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2007
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862.4
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378.9
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2.31
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167.7
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3 |
More recent shareholder returns have been 12.6% for 5 years and 3.5% for 10 years.
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4 |
EBITDA and FFO including Washington, DC and the Real Estate Fund are as follows:
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FFO | ||||
($ AND SHARES IN MILLIONS,
EXCEPT PER SHARE DATA) |
EBITDA
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Amount
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Per
Share |
Shares
Outstanding |
2016
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1,521.3
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886.8
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4.66
|
200.5
|
2015
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1,498.8
|
900.9
|
4.75
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199.9
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2014
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1,418.2
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816.5
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4.33
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198.5
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2013
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1,357.3
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754.8
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4.02
|
197.8
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2012
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1,211.3
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610.5
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3.27
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197.3
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2011
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1,215.5
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613.9
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3.20
|
196.5
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2010
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1,161.0
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590.7
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3.11
|
195.7
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2009
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1,095.3
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453.9
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2.62
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194.1
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2008
|
1,139.4
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541.6
|
3.31
|
168.9
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2007
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1,130.4
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561.6
|
3.42
|
167.7
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· | the Green Acres B+ mall for the retail block at 666 Fifth Avenue (Uniqlo); |
· | 866 UN Plaza for 655 Fifth Avenue (Ferragamo); |
· | 1740 Broadway, a B office building, for the St. Regis retail on Fifth Avenue (Harry Winston); and |
· | 1750 Pennsylvania Avenue for Old Navy on 34th Street. |
Acquisitions(5)
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Dispositions(5)
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|||||
($ IN MILLIONS)
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Number of
Transactions |
Asset
Cost |
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Number of
Transactions |
Proceeds
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Net
Gain |
2016
|
5
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128.3
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5
|
1,022.5(6)
|
664.4(6)
|
|
2015
|
13
|
955.8
|
11
|
972.9
|
316.7
|
|
2014
|
6
|
648.1
|
11
|
1,060.4
|
523.4
|
|
2013
|
6
|
813.3
|
20
|
1,429.8
|
434.1
|
|
2012
|
10
|
1,365.2
|
23
|
1,222.3
|
454.0
|
|
2011
|
12
|
1,499.1
|
7
|
389.2
|
137.8
|
|
2010
|
15
|
542.4
|
5
|
137.8
|
56.8
|
|
2009
|
--
|
--
|
16
|
262.8
|
43.0
|
|
2008
|
3
|
31.5
|
6
|
493.2
|
171.1
|
|
2007
|
38
|
4,063.6
|
|
5
|
186.3
|
60.1
|
|
108
|
10,047.3
|
|
109
|
7,177.2
|
2,861.4
|
5 |
Excludes spin-offs and marketable securities.
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6 |
Includes the disposition of the Skyline properties, Fairfax, Virginia, which were placed in receivership in August 2016. In December of 2016, the final disposition of the Skyline properties was completed by the receiver. In connection therewith, the Skyline properties' assets (approximately $236 million) and liabilities (approximately $724 million) were removed from our balance sheet which resulted in a net gain of $488 million. One could look at this transaction as a $724 million sale which resulted in a $488 million gain.
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· | In December, the joint venture, in which we have a 45.1% ownership interest, obtained a $90 million construction loan on 61 Ninth Avenue. The loan matures in December 2020 with two six-month extension options. The interest rate is LIBOR plus 3.05%. As of March 31, 2017, there was nothing drawn on the loan. |
· | In December, we completed a $400 million refinancing of 350 Park Avenue, a 571,000 square foot Manhattan office building. The ten-year loan is interest only and has a fixed rate of 3.92%. We realized net proceeds of approximately $111 million. The property was previously encumbered by a 3.75%, $284 million mortgage which was scheduled to mature in January 2017. |
· | In November, we extended one of our two $1.25 billion unsecured revolving credit facilities from June 2017 to February 2021 with two six-month extension options. The interest rate on the extended facility was lowered from LIBOR plus 115 basis points to LIBOR plus 100 basis points. The facility fee remains unchanged at 20 basis points. |
· | In September, we completed a $675 million refinancing of theMART, a 3,652,000 square foot commercial building in Chicago. The five-year loan is interest only and has a fixed rate of 2.70%. We realized net proceeds of approximately $124 million. The property was previously encumbered by a 5.57%, $550 million mortgage which was scheduled to mature in December 2016. |
· | In September, 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 million in the aggregate, plus accrued and unpaid dividends through the date of redemption. |
· | In August, the joint venture, in which we have a 49.9% ownership interest, completed an $80 million 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% (2.68% at March 31, 2017). The property was previously encumbered by a $45 million first mortgage at LIBOR plus 1.90% and an $18.5 million second mortgage at LIBOR plus 1.65%, which were scheduled to mature in September 2016. |
· | In May, we completed a $300 million recourse financing of 7 West 34th Street, a 479,000 square foot Manhattan office building. The ten-year loan is interest only at a fixed rate of 3.65% and matures in June 2026. In June, we sold a 47% interest in the building. We retained all of the net proceeds from the financing, as well as $127 million from the sale. |
· | In May, the joint venture, in which we have a 50% ownership interest, completed a $900 million refinancing of 280 Park Avenue, a 1,249,000 square foot Manhattan office building. The three-year loan with four one-year extensions is interest only at LIBOR plus 2.00% (2.80% at March 31, 2017). The property was previously encumbered by a 6.35%, $721 million mortgage which was scheduled to mature in June 2016. |
· | In May, the joint venture, in which we have a 55% ownership interest completed a $273 million refinancing of The Warner Building, a 622,000 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 million mortgage which matured in May 2016. |
· | In March, the joint venture, in which we have a 55% ownership interest, completed a $300 million refinancing of One Park Avenue, a 949,000 square foot Manhattan office building. The loan matures in March 2021 and is interest only at LIBOR plus 1.75% (2.58% at March 31, 2017). The property was previously encumbered by a 4.995%, $250 million mortgage which matured in March 2016. |
· | In February, we completed a $700 million 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% (2.53% at March 31, 2017), which was swapped for four and a half years to a fixed rate of 2.56%. We realized net proceeds of approximately $330 million. The property was previously encumbered by a 5.65%, $353 million mortgage which was scheduled to mature in March 2016. |
($ in millions)
|
|
Secured debt
|
9,374
|
Unsecured debt
|
1,341
|
Pro rata share of non-consolidated debt (excluding Toys "R" Us)
|
3,229
|
Noncontrolling interests' share of consolidated debt
|
(598)
|
Total debt
|
13,346
|
To be transferred to JBG SMITH
|
(1,470)
|
220 Central Park South(8)
|
(1,325)
|
666 Fifth Avenue office debt, at share
|
(691)
|
Cash, restricted cash and marketable securities
|
(1,768)
|
Net debt
|
8,092
|
EBITDA as adjusted(9)
|
1,203
|
Net debt/EBITDA as adjusted
|
6.7x
|
7 |
In my 2014 annual letter to shareholders (on page 10), I laid out our debt philosophy. Relevant paragraphs are reprinted below; the numbers have been updated and exclude Washington, DC.
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One of the hallmarks of a blue chip REIT is access to the four corners of the capital markets. Vornado is an investment-grade blue chip that enjoys such access. But, let's think about it. For purposes of this discussion, let's call the four corners of the capital markets common stock, preferred stock, unsecured debt and secured or project-level debt. Unsecured debt is an attractive vehicle and trades in a very efficient marketplace. An investment grade company, using its pre-filed shelf registration, need merely call its friendly investment banker to get $500 million, or even $1 billion, in a matter of days - no fuss, no muss, no roadshow…easy. But, like cigarettes, there should be two warnings on the label of unsecured debt. First, that it bears the full faith and credit of the issuer, in effect a personal guarantee and, second, that markets are volatile and unpredictable and even a market as big, deep and strong as the unsecured debt market shuts down cold in every cycle, at the very worst time. To safely partake in this market, one should have modest maturities and have back-up liquidity. We partake, but we partake in this market in a very measured way. Secured or project-level debt is different. It is a much more cumbersome and time-consuming process to execute…but it has no covenants and is recourse solely to the asset that is pledged.
|
We calculate that Vornado has about $19 billion of assets at fair value pledged to its secured creditors ¾ very low leverage. The remainder of our assets are unencumbered. Interestingly, if, say, 60% is an appropriate loan-to-value ratio for secured debt as opposed to our current 42%, the math says we should then be able to unencumber up to an additional $5 billion of assets, a worthy goal.
|
8 |
We exclude 220 Central Park South since it is for sale property and the debt will self liquidate from the proceeds of executed sales contracts.
|
9 |
Excluding Washington, DC, the Real Estate Fund and 666 Fifth Avenue office.
|
URBAN EDGE PROPERTIES, a focused, pure play Northeastern shopping center business with a strong growth profile and an irreplaceable portfolio of properties concentrated in dense, high barrier to entry markets with leading demographics. UE has embedded growth opportunities from redevelopment and repositioning projects and a proven management team headed by CEO Jeff Olson, supported by an experienced and engaged Board.
|
JBG SMITH PROPERTIES will be the largest, pure-play, mixed-use operator focused solely on Washington, DC, with a premier portfolio of mixed-use assets in the best Metro-served, urban infill submarkets. JBG SMITH has a best-in-class sharpshooter management team with a proven record of success, significant near-term embedded growth prospects as well as an enormous pipeline of future development opportunities.
|
VORNADO REALTY TRUST (RemainCo) is a peerless NYC focused real estate company with premier office assets and the only publicly investable high street retail portfolio of unique quality and scale. RemainCo has trophy assets in the best submarkets, attractive built-in growth from recently signed leases, a best-in-class management team with a proven record of value creation and a fortress balance sheet.
|
10 |
In acquiring Smith, we used units valued at the time at $600 million. These units today are worth $1.8 billion, so that $1.2 billion of appreciation went to the sellers rather than our shareholders.
|
(square feet in thousands)
|
New York
|
theMART
|
555
California St. |
Washington
|
|
Office
|
Street
Retail |
||||
2016
|
|||||
Square feet leased
|
2,241
|
111
|
270
|
152
|
1,427(11)
|
Initial Rent
|
78.97(12)
|
285.17
|
48.16
|
77.25
|
40.41(13)
|
GAAP Mark-to-Market
|
19.7%
|
23.4%
|
25.5%
|
25.4%
|
(2.5)%
|
Number of transactions
|
148
|
27
|
64
|
9
|
145
|
2015
|
|||||
Square feet leased
|
2,276
|
91
|
766
|
98
|
1,987(11)
|
Initial Rent
|
78.55
|
917.59
|
38.64
|
83.59
|
40.20(13)
|
GAAP Mark-to-Market
|
22.8%
|
99.6%
|
25.3%
|
32.4%
|
(8.2)%
|
Number of transactions
|
165
|
20
|
86
|
4
|
180
|
2014
|
|||||
Square feet leased
|
4,151
|
119
|
372
|
351
|
1,817(11)
|
Initial Rent
|
66.78
|
327.38
|
40.30
|
67.38
|
38.57(13)
|
GAAP Mark-to-Market
|
18.8%
|
62.3%
|
11.6%
|
23.8%
|
(3.3)%
|
Number of transactions
|
158
|
30
|
57
|
11
|
192
|
Occupancy rate:
|
|||||
2016
|
96.3%
|
97.1%
|
98.9%
|
92.4%
|
90.5%
|
2015
|
96.3%
|
96.2%
|
98.6%
|
93.3%
|
91.6%
|
2014
|
96.9%
|
96.5%
|
94.7%
|
97.6%
|
89.5%
|
2013
|
96.6%
|
97.4%
|
96.4%
|
94.5%
|
87.6%
|
2012
|
95.8%
|
96.8%
|
95.2%
|
93.1%
|
88.8%
|
2011
|
96.2%
|
95.6%
|
90.3%
|
93.1%
|
93.5%
|
2010
|
96.1%
|
96.4%
|
93.7%
|
93.0%
|
95.2%
|
2009
|
95.5%
|
(14)
|
94.0%
|
94.8%
|
93.1%
|
2008
|
96.7%
|
(14)
|
96.5%
|
94.0%
|
93.7%
|
2007
|
97.6%
|
(14)
|
96.1%
|
95.0%
|
92.3%
|
11 |
Excludes 79 square feet in 2016, 161 square feet in 2015 and 247 square feet in 2014 of retail leases.
|
12 |
Excludes Long Island City; including Long Island City would be $72.56.
|
13 |
Initial rent in Crystal City is $39.92 in 2016, $37.35 in 2015 and $39.01 in 2014.
|
14 |
Included in New York Office.
|
New York:
|
· | PWC at 90 Park Avenue – 240,000 square feet; |
· | Bloomberg at 731 Lexington Avenue – 192,000 square feet; |
· | GSA at 85 Tenth Avenue – 171,000 square feet; |
· | Metropolitan Transit Authority at 33-00 Northern Boulevard – 169,000 square feet; |
· | City of New York at 33-00 Northern Boulevard – 149,000 square feet; |
· | Alston & Bird at 90 Park Avenue – 110,000 square feet; |
· | Facebook at 770 Broadway – 80,000 square feet; |
· | Robert A.M. Stern Architects at One Park – 62,000 square feet; |
· | Level 3 Communications at 85 Tenth Avenue – 60,000 square feet; |
· | Antares Capital at 280 Park Avenue – 57,000 square feet; |
· | Four Seasons at 280 Park Avenue – 18,000 square feet; |
· | Starbucks at 61 Ninth Avenue – 20,000 square feet; |
· | AOL at 692 Broadway – 11,000 square feet; |
· | Dyson at 640 Fifth Avenue – 3,000 square feet; |
theMART:
|
· | Allstate – 41,000 square feet; |
· | PayPal – 28,000 square feet; |
· | Bosch – 18,000 square feet; |
· | Kellogg's – 15,000 square feet; |
555 California Street:
|
· | McKinsey & Company – 54,000 square feet; |
· | Ripple Labs – 29,000 square feet; |
· | Bay Club Financial District – 20,000 square feet; |
· | Norton Rose Fulbright – 18,000 square feet; |
Washington:
|
· | Lockheed Martin at 2121 Crystal Drive – 142,000 square feet; |
· | US Citizenship and Immigration Services at 2200 Crystal Drive – 102,000 square feet; |
· | Chemonics International at 251 18th Street – 53,000 square feet; |
· | Deloitte at 2200 Crystal Drive – 24,000 square feet; and |
· | SAIC at 2231 Crystal Drive – 25,000 square feet. |
We invest in the best buildings in the best locations.
|
We are a fully-integrated real estate operating company. We have the best leasing, operating and development teams in the business.
|
We seek to acquire value-add assets where our unique skills will create shareholder value.
|
We invest in our buildings to maintain, modernize and transform. The front of the house and the back of the house of our assets are as good as new (and are in locations where new could not be created). Our transformations have produced increased rent of over $20 per square foot, yielding attractive double digit returns. By the way, David also measures our success here by the quality of tenants we have been able to attract.(15) We have transformed almost all of our fleet; Penn Plaza is on deck.
|
We are patient and prepared to let flat 4% cap rate deals pass by, while we wait for the fat pitch.
|
We believe vacancy at the right price is an opportunity and that buildings, in whatever condition (that we can reimagine) in great locations are also an opportunity.
|
While we have many million plus square foot buildings, we shy away from 500,000 square foot tenants who seem to always get the better of the deal, in strong markets or in weak. Our sweet spot is the 50,000 to 200,000 square foot tenant.
|
We coined the phrase that "New York is tilting to the West and tilting to the South" and, of late, we have been investing aggressively in Chelsea and the neighborhoods surrounding the Penn Plaza District.
|
We have a hospitality approach, treating our tenants as the valued customers that they are. This attitude begins at the leasing table (although that process can at times be contentious), through tenant fit up, to greeting at the front door. We are gratified how many of our existing tenants refer new tenant prospects to us.
|
We treat the real estate brokerage community as if they are our customers, because they are. Brokers prefer dealing with us, we know what it takes to make a deal, we treat their clients well and we deliver every time.
|
We are in the amenity business. Our amenity poster child is the giant MART in Chicago, where we have large, state of the art, dining, workout, congregating and meeting spaces, etc.
|
Tenant mix is really important; companies and their employees care who they co-tenant with. The design and location of each of our buildings has a target market in mind. For example our new-builds in Chelsea are targeting the creative class and boutique financials (an interesting combination).
|
15 |
Such as: Amazon 470,000 square feet; Neuberger Berman 405,000 square feet; Facebook 355,000 square feet; AOL/Verizon 308,000 square feet; Ziff Brothers 295,000 square feet; PricewaterhouseCoopers 240,000 square feet; Guggenheim Partners 230,000 square feet; Cushman & Wakefield 170,000 square feet; PJT Partners 150,000 square feet; FootLocker 135,000 square feet; Alston & Bird 125,000 square feet; TPG 100,000 square feet; JLL 80,000 square feet and Robert A.M. Stern 60,000 square feet.
|
16 |
Vornado's wholly owned subsidiary, BMS, provides cleaning and security services. Thank you as well to the team of 1,942 personnel under the very able leadership of Mike Doherty, President-BMS. BMS provides both great services to our tenants and profit to our shareholders.
|
· |
The U.S. is grossly over-stored. ICSC publishes 24 square feet of shopping center space per capita.(19)
|
· |
The struggles and failure (or near failure) of many household names in the anchor and chain store business.
|
· |
Traffic in shopping centers, while difficult to measure, is clearly declining and has been for years and so that makes a trend.
|
· |
Shopping preferences and how we shop have changed, especially among millennials.
|
· |
Most brands have become ubiquitous and, therefore, less differentiated and important.
|
· |
Price and on sale is the only strategy which seems to work.
|
· |
And then, of course, there is Amazon and the Internet.
|
17 |
We sold the malls (into a very strong market) and spun off the strips in half measure anticipating secular decline (note the current softness in retail) and recognizing that with only a handful of malls, we were in no man's land, and in half measure to de-conglomerate i.e., there is no real benefit in having $50 million shopping centers in New Jersey, no matter how great they may be, together with million square foot office towers in Manhattan. I believe the decision to exit the mall business will look better and better as each year goes by.
|
18 |
Retailing stinks, right? Well, maybe not… note that the richest people in Europe are all retailers, the founders of: Zara, H&M, Ikea, LVMH and that the richest in the US is a retailer, if you aggregate the wealth of Sam Walton's heirs.
|
19 |
The next highest country is Canada with 17 square feet per capita, Norway is next with 10 square feet, all the mature European countries are in single digits.
|
Further, the 24 per square foot number is not credible. There are 17.7 billion square feet of total retail establishments (both in and out of shopping centers) versus a population of 323 million or a startling 54.9 square feet per capita. Granted this larger number now includes car dealerships and the like, but it also includes all the freestanding Walmarts, Costcos, etc.
|
($ IN MILLIONS)
|
Number of
Properties |
EBITDA
|
2016
|
70
|
381.5
|
2015
|
65
|
357.1
|
2014
|
57
|
277.3
|
2013
|
54
|
244.1
|
2012
|
47
|
189.0
|
($ IN MILLIONS, EXCEPT %)
|
%
|
2016 Actual
Cash NOI |
Signed
Leases |
Vacancy
|
2016 Fully
Leased Cash NOI |
Fifth Avenue
|
29.3
|
90.4
|
43.3
|
0.5
|
134.2
|
Times Square
|
17.1
|
52.8
|
--
|
19.5
|
72.3
|
Madison Avenue
|
12.2
|
37.6
|
--
|
3.4
|
41.0
|
Penn Plaza
|
21.9
|
67.7
|
--
|
8.6
|
76.3
|
Union Square
|
4.2
|
13.0
|
--
|
--
|
13.0
|
SoHo
|
4.3
|
13.3
|
--
|
--
|
13.3
|
Other
|
11.0
|
34.0
|
--
|
0.8
|
34.8
|
Total
|
100.0
|
308.8
|
43.3
|
32.8
|
384.9
|
Upper Fifth Avenue
|
Times Square
|
|||
Tenant
|
Year of
Expiration |
|
Tenant
|
Year of
Expiration |
Harry Winston
|
2031
|
MAC Cosmetics
|
2025
|
|
Swatch
|
2031(23)
|
Disney
|
2026
|
|
MAC Cosmetics
|
2024
|
Forever 21
|
2031
|
|
Zara
|
2019
|
US Polo
|
2023
|
|
Uniqlo
|
2026
|
Sunglass Hut
|
2023
|
|
Hollister
|
2024
|
Planet Hollywood
|
2023
|
|
Tissot
|
2026
|
T-Mobile
|
2025
|
|
Ferragamo
|
2028
|
Laline
|
2026
|
|
Dyson
|
2027
|
Invicta
|
2025
|
|
Victoria's Secret
|
2032
|
Swatch
|
2030
|
|
Nederlander Theater
|
2050
|
20 |
In my 2014 annual letter to shareholders (on pages 14-15), I discussed the extraordinary rent growth and value creation that this asset class has had over the last 10 years.
|
21 |
In Upper Fifth Avenue, we completed $80 million of leasing in the last five quarters, including our deals with Victoria's Secret, Harry Winston, Swatch and Dyson. In the same timeframe, our brethren on Upper Fifth Avenue completed deals with Under Armour, Nike, Coach and Longchamp. All this activity is indicative of a super-strong, must-have submarket.
|
22 |
David also says that the Victoria's Secret and Swatch leases are equivalent in value to a million square foot office tower.
|
23 |
Tenant has the right to cancel in 2023.
|
Anchor
Tenant |
Year of Expiration
|
JCPenney
|
2029
|
Kmart
|
2021
|
Old Navy
|
2019
|
H&M
|
2018
|
· |
Selling, pruning and cleaning up, sort of a spring cleaning, which is pretty much done.
|
· |
Determining which businesses we want to be in and can win in and investing with conviction - malls no, flagship retail yes, and great New York office buildings, 555 California and theMART, of course.
|
· |
Focusing on only a few business units, each with truly outstanding management… and here we have gone so far as to actually create three separate companies.
|
· |
Relentlessly pursuing quality.
|
· |
Maintaining a fortress balance sheet with industry leading liquidity.
|
· |
All in the relentless pursuit of shareholder value.
|
24 |
Calculated using Green Street's NAV.
|
25 |
Interestingly, most times stock price leads NAV, both up and down.
|
Thomas Sanelli was promoted to Executive Vice President, Chief Financial Officer, New York Division;
|
Gaurav Khanna was promoted to Senior Vice President, Acquisitions & Capital Markets;
|
Laura Sperber was promoted to Senior Vice President, Financial Systems;
|
Michael Schnitt was promoted to Vice President, Acquisitions and Capital Markets;
|
Jason Morrison was promoted to Vice President, New York Retail;
|
Christina Herrick was promoted to Vice President, Human Resources DC of BMS;
|
Nikola Sopov was promoted to Vice President, Information Security;
|
Ana May Alagao was promoted to Vice President, SEC Reporting;
|
Jay Beckoff was promoted to Vice President, Tax Counsel; and
|
Mark Roszkowski was promoted to Vice President, Finance/Financial Reporting.
|
Steven Roth
|
|
Chairman and CEO
|
|
April 4, 2017
|
($ IN MILLIONS)
|
2016
|
2015
|
2014
|
2013
|
2012
|
2011
|
2010
|
2009
|
2008
|
2007
|
Net Income attributable to the Operating
Partnership |
960.6
|
803.7
|
912.5
|
500.8
|
662.5
|
718.2
|
703.1
|
131.3
|
414.7
|
611.3
|
Interest and debt expense
|
507.3
|
469.8
|
654.4
|
758.8
|
760.5
|
797.9
|
828.1
|
826.8
|
822.0
|
853.5
|
Depreciation, amortization, and income taxes
|
706.1
|
579.3
|
710.2
|
759.1
|
742.3
|
782.2
|
706.4
|
739.0
|
568.1
|
680.9
|
EBITDA
|
2,174.0
|
1,852.8
|
2,277.1
|
2018.7
|
2,165.3
|
2,298.3
|
2,237.6
|
1,697.1
|
1,804.8
|
2,145.7
|
Gains on sale of real estate
|
(179.9)
|
(293.6)
|
(518.8)
|
(412.1)
|
(471.4)
|
(61.4)
|
(63.0)
|
(46.6)
|
(67.0)
|
(80.5)
|
Real estate impairment loss
|
167.0
|
17.0
|
26.5
|
43.7
|
131.8
|
28.8
|
109.0
|
23.2
|
--
|
--
|
EBITDA before gains on sale of real estate
|
2,161.1
|
1,576.2
|
1,784.8
|
1,650.3
|
1,825.7
|
2,265.7
|
2,283.6
|
1,673.7
|
1,737.8
|
2,065.2
|
Adjustments for items that impact EBITDA
|
(639.8)
|
(77.5)
|
(366.6)
|
(293.0)
|
(614.4)
|
(1,050.2)
|
(1,122.6)
|
(578.4)
|
(598.4)
|
(934.8)
|
EBITDA As Adjusted
|
1,521.3
|
1,498.7
|
1,418.2
|
1,357.3
|
1,211.3
|
1,215.5
|
1,161.0
|
1,095.3
|
1,139.4
|
1,130.4
|
Less: Washington, DC
|
290.5
|
290.5
|
290.4
|
296.3
|
304.3
|
338.1
|
336.7
|
307.9
|
287.2
|
268.0
|
Real Estate Fund
|
(21.0)
|
33.9
|
70.3
|
49.5
|
24.6
|
9.3
|
0.5
|
--
|
--
|
--
|
EBITDA as Adjusted Excluding Washington, DC and
the Real Estate Fund |
1,251.8
|
1,174.3
|
1,057.5
|
1,011.5
|
882.4
|
868.1
|
823.8
|
787.4
|
852.2
|
862.4
|
($ IN MILLIONS, EXCEPT SHARE AMOUNTS)
|
2016
|
2015
|
2014
|
2013
|
2012
|
2011
|
2010
|
2009
|
2008
|
2007
|
Net Income
|
906.9
|
760.4
|
864.9
|
476.0
|
617.3
|
662.3
|
647.9
|
106.2
|
359.3
|
541.5
|
Preferred share dividends
|
(83.3)
|
(80.6)
|
(81.5)
|
(84.0)
|
(67.9)
|
(60.5)
|
(51.2)
|
(57.1)
|
(57.1)
|
(57.1)
|
Net Income applicable to common shares
|
823.6
|
679.8
|
783.4
|
392.0
|
549.4
|
601.8
|
596.7
|
49.1
|
302.2
|
484.4
|
Depreciation and amortization of real
property
|
531.6
|
514.1
|
517.5
|
501.8
|
504.4
|
530.1
|
505.8
|
508.6
|
509.4
|
451.3
|
Net gains on sale of real estate
|
(177.0)
|
(289.1)
|
(507.2)
|
(411.6)
|
(245.8)
|
(51.6)
|
(57.2)
|
(45.3)
|
(57.5)
|
(60.8)
|
Real estate impairment losses
|
160.7
|
0.3
|
26.5
|
37.1
|
130.0
|
28.8
|
97.5
|
23.2
|
--
|
--
|
Partially-owned entities adjustments:
|
||||||||||
Depreciation of real property
|
154.8
|
144.0
|
117.8
|
157.3
|
154.7
|
170.9
|
148.3
|
140.6
|
115.9
|
134.0
|
Net gains on sale of real estate
|
(2.9)
|
(4.5)
|
(11.6)
|
(0.5)
|
(241.6)
|
(9.8)
|
(5.8)
|
(1.4)
|
(9.5)
|
(15.5)
|
Income tax effect of adjustments
|
6.3
|
16.8
|
--
|
(26.7)
|
(27.5)
|
(24.6)
|
(24.6)
|
(22.9)
|
(23.2)
|
(28.8)
|
Real estate impairment losses
|
--
|
--
|
(7.3)
|
6.6
|
11.6
|
--
|
11.5
|
--
|
--
|
--
|
Noncontrolling interests' share adustments
|
(41.1)
|
(22.4)
|
(8.0)
|
(15.1)
|
(16.6)
|
(41.0)
|
(46.8)
|
(47.0)
|
(49.7)
|
(46.7)
|
Interest on exchangeable senior debentures
|
--
|
--
|
--
|
--
|
--
|
26.1
|
25.9
|
--
|
25.3
|
25.0
|
Preferred share dividends
|
1.6
|
--
|
--
|
0.1
|
--
|
0.3
|
0.2
|
0.2
|
0.2
|
0.3
|
Funds From Operations
|
1,457.6
|
1,039.0
|
911.1
|
641.0
|
818.6
|
1,231.0
|
1,251.5
|
605.1
|
813.1
|
943.2
|
Funds From Operations per share
|
7.66
|
5.48
|
4.83
|
$3.41
|
$4.39
|
$6.42
|
$6.59
|
$3.49
|
$4.97
|
$5.75
|
Below is a reconciliation of Net Income to Net Income as Adjusted:
|
Below is a reconciliation of Total Assets to Total Assets as Adjusted:
|
|||||
($ IN MILLIONS)
|
2016
|
2015
|
($ IN MILLIONS)
|
2016
|
2015
|
|
Net Income applicable to common shares
|
823.6
|
679.8
|
Total Assets
|
20,814.8
|
21,143.3
|
|
Certain items that impact net income
|
(569.7)
|
(369.5)
|
Adjustments:
|
|||
Washington, DC
|
(80.7)
|
(64.7)
|
Assets related to sold properties
|
(5.6)
|
(580.2)
|
|
Real Estate Fund
|
19.8
|
(32.0)
|
Washington, DC
|
(4,572.4)
|
(4,472.2)
|
|
Net income, as Adjusted
|
193.0
|
213.6
|
Real Estate Fund
|
(462.1)
|
(574.8)
|
|
Cash available to repay revolving credit facilities
|
(115.6)
|
(550.0)
|
||||
Below is a reconciliation of EBITDA to EBITDA as Adjusted (as shown on page 8):
|
Accumulated depreciation
|
3,513.6
|
3,418.3
|
|||
($ IN MILLIONS)
|
2016
|
Total Assets, as Adjusted
|
19,172.7
|
18,384.4
|
||
EBITDA as Adjusted Excluding Washington, DC
and the Real Estate Fund |
1,251.8
|
|||||
Real Estate Fund
|
(21.0)
|
Below is a reconciliation of Revenues to Revenues as Adjusted:
|
||||
666 Fifth Avenue
|
(28.0)
|
($ IN MILLIONS)
|
2016
|
2015
|
||
EBITDA as Adjusted (as shown on page 8)
|
1,202.8
|
Revenues
|
2,506.2
|
2,502.3
|
||
Adjustments:
|
||||||
Below is a reconciliation of EBITDA to Cash NOI – New York Street Retail:
|
Assets related to sold properties
|
(48.9)
|
(117.6)
|
|||
($ IN MILLIONS)
|
2016
|
Washington, DC
|
(479.2)
|
(477.2)
|
||
EBITDA as Adjusted Excluding Washington, DC
and the Real Estate Fund
|
1,251.8
|
Other
|
--
|
(2.4)
|
||
Operations other than New York Street Retail
|
(870.3)
|
Revenues, as Adjusted
|
1,978.1
|
1,905.1
|
||
Non cash adjustments
|
(72.7)
|
|||||
Cash NOI – New York Street Retail
|
308.8
|