1
                                                        EXHIBIT INDEX ON PAGE 22

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[XX]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the quarterly period ended:          SEPTEMBER 30, 1997
                                ----------------------------------

                                       or

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from ___________________ to _______________________

Commission File Number:   1-11954

                              VORNADO REALTY TRUST
             (Exact name of registrant as specified in its charter)

                   MARYLAND                                  22-1657560
(State or other jurisdiction of incorporation             (I.R.S. Employer
               or organization)                         Identification Number)

PARK 80 WEST, PLAZA II, SADDLE BROOK, NEW JERSEY                07663
    (Address of principal executive offices)                  (Zip Code)

                                  (201)587-1000
              (Registrant's telephone number, including area code)

                                       N/A
         (Former name, former address and former fiscal year, if changed
                               since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                                                 [X] Yes    [ ] No

As of November 4, 1997 there were 67,124,704 common shares outstanding.

                                  Page 1 of 24
   2
                              VORNADO REALTY TRUST

                                      INDEX

                                                                                                    Page Number
                                                                                                    -----------
                                                                                                 
PART I.            FINANCIAL INFORMATION:

        Item 1.    Financial Statements:

                   Consolidated Balance Sheets as of September 30, 1997 and
                   December 31, 1996...............................................................      3

                   Consolidated Statements of Income for the Three and Nine Months
                   Ended September 30, 1997 and September 30, 1996.................................      4

                   Consolidated Statements of Cash Flows for the Nine Months
                   Ended September 30, 1997 and September 30, 1996.................................      5

                   Notes to Consolidated Financial Statements......................................      6

        Item 2.    Management's Discussion and Analysis of Financial Condition
                   and Results of Operations.......................................................     13

PART II.           OTHER INFORMATION:

        Item 1.    Legal proceedings...............................................................     20

        Item 6.    Exhibits and Reports on Form 8-K................................................     20

Signatures         ................................................................................     21

Exhibit Index      ................................................................................     22

Exhibit 11         ................................................................................     23

Exhibit 27         ................................................................................     24

      ALL SHARE AND PER SHARE INFORMATION HAS BEEN ADJUSTED TO REFLECT THE
         100% COMMON SHARE DIVIDEND PAID BY VORNADO ON OCTOBER 20, 1997.

                                  Page 2 of 24
   3
PART I.  FINANCIAL INFORMATION

                              VORNADO REALTY TRUST

                           CONSOLIDATED BALANCE SHEETS
                   (AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)

                                                      SEPTEMBER 30,      DECEMBER 31, 
                                                          1997              1996    
                                                          ----              ----    

 ASSETS:
 Real estate, at cost:
     Land                                              $  251,528        $   61,278
     Buildings and improvements                           970,628           327,485
     Leasehold improvements and equipment                   9,230             8,535
                                                       ----------        ----------
          Total                                         1,231,386           397,298
     Less accumulated depreciation and amortization      (166,072)         (151,049)
                                                       ----------        ----------
     Real estate, net                                   1,065,314           246,249

 Cash and cash equivalents, including U.S.
     government obligations under repurchase
     agreements of $32,265 and $17,036                     58,367            89,696
 Restricted cash                                           27,571               --
 Marketable securities                                     31,277            27,549
 Investment in and advances to Alexander's, Inc.          107,446           107,628
 Investments in partnerships and joint ventures            58,177               --
 Investment in and advances to management companies        13,250             5,193
 Due from officers                                          8,664             8,634
 Accounts receivable, net of allowance for
     doubtful accounts of $917 and $575                    15,331             9,786
 Officer's deferred compensation expense                    4,170            22,917
 Mortgage loans receivable                                 84,663            17,000
 Receivable arising from the
     straight-lining of rents                              21,999            17,052
 Other assets                                              55,277            13,500
                                                       ----------        ----------

 TOTAL ASSETS                                          $1,551,506         $ 565,204
                                                       ==========         =========

                                                      SEPTEMBER 30,      DECEMBER 31,     
                                                           1997              1996        
                                                           ----              ----
                                                                   
LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes and mortgages payable                            $  772,156         $ 232,387
Due for U.S. treasury obligations                            --               9,636
Accounts payable and accrued expenses                      27,050             9,905
Deferred leasing fee income                                10,461             8,373
Officer's deferred compensation payable                    25,000            25,000
Other liabilities                                           3,526             3,646
                                                       ----------         ---------
         Total liabilities                                838,193           288,947
                                                       ----------         ---------
                                                       
Minority interest of unitholders in the                
  Operating Partnership                                   178,411              --
                                                       ----------         ---------
Commitments and contingencies                          
Shareholders' equity:                                  
 Preferred shares of beneficial interest:              
  no par value per share; authorized,                  
  20,000,000 shares; liquidation preference $50.00
  per share; issued, 5,750,000 shares                     277,168              --
 Common shares of beneficial interest:                 
   $.04 par value per share; authorized,               
   100,000,000 shares; issued, 53,120,954              
   and 53,095,360 shares in each period                     2,116             2,088
 Additional capital                                       358,249           357,830
 Accumulated deficit                                      (98,657)          (77,574)
                                                       ----------         ---------
                                                          538,876           282,344
 Unrealized gain (loss) on securities                  
   available for sale                                       1,021              (998)
 Due from officers for purchase of common              
   shares of beneficial interest                           (4,995)           (5,089)
                                                       ----------         ---------
         Total shareholders' equity                       534,902           276,257
                                                       ----------         ---------                           
                                                       
TOTAL LIABILITIES AND                                  
 SHAREHOLDERS' EQUITY                                  $1,551,506         $ 565,204
                                                       ==========         =========

                 See notes to consolidated financial statements.

                                  Page 3 of 24

   4
                              VORNADO REALTY TRUST

                        CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands except share amounts)

                                                          FOR THE THREE MONTHS ENDED               FOR THE NINE MONTHS ENDED
                                                        SEPTEMBER 30,       SEPTEMBER 30,       SEPTEMBER 30,       SEPTEMBER 30,
                                                            1997               1996                 1997                 1996
                                                                                                        
Revenues:
 Property rentals                                         $ 49,882            $ 21,927             $113,353            $ 65,084
 Expense reimbursements                                     10,763               6,410               25,924              20,111
 Other income (including fee income from
   related parties of $592 and $671
   and $1,236 and $1,476)                                    1,223                 726                2,550               1,723
                                                          --------            --------             --------            --------
Total revenues                                              61,868              29,063              141,827              86,918
                                                          --------            --------             --------            --------

Expenses:
 Operating                                                  21,899               8,885               48,557              26,944
 Depreciation and amortization                               6,611               2,929               15,040               8,661
 General and administrative                                  3,460               1,381                8,208               3,889
 Amortization of officer's deferred
   compensation expense                                      6,249                  -                18,747                  -
                                                          --------            --------             --------            --------
Total expenses                                              38,219              13,195               90,552              39,494
                                                          --------            --------             --------            --------

Operating income                                            23,649              15,868               51,275              47,424

Income (loss) applicable to Alexander's:
 Equity in income (loss)                                       (40)               (185)                 (47)               (304)
 Depreciation                                                 (150)               (157)                (450)               (472)
 Interest income on loan                                     1,534               1,708                4,683               5,167
Income from investment in management
 companies                                                     398                 344                  918               1,723
Equity in net income of investees                              271                   -                  553                  -
Interest income on mortgage
 loans receivable                                            3,403                 661                7,708               1,911
Other interest and dividend income                           2,351                 728                9,125               2,501
Interest and debt expense                                  (13,622)             (4,208)             (30,972)            (12,623)
Gain on marketable securities                                  332                 180                  911                 654
Minority interest of unitholders in the
 Operating Partnership                                      (2,500)                 -                (4,600)                 -
                                                          --------        ------------           ----------        -----------
Net Income                                                  15,626              14,939               39,104              45,981
Preferred stock dividends                                   (5,241)                 -               (10,096)                 -
                                                          --------        ------------            ---------        -----------
Net Income applicable to common shares                    $ 10,385            $ 14,939            $  29,008            $ 45,981
                                                          ========            ========            =========            ========

Net Income per common share                                  $ .19               $ .31                $ .54               $ .94
                                                             =====               =====                =====               =====

Weighted average number of common
  shares and common share equivalents
  outstanding during period                             53,963,054          49,107,516           53,627,027          48,996,190

Dividends per common share                                   $ .32               $ .31                $ .96               $ .92

                 See notes to consolidated financial statements.

                                  Page 4 of 24
   5
                              VORNADO REALTY TRUST

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)

                                                                                   FOR THE NINE MONTHS ENDED
                                                                               SEPTEMBER 30,        SEPTEMBER 30,
                                                                                   1997                 1996
                                                                                   ----                 ----
                                                                                              
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income                                                                     $  39,104              $ 45,981
 Adjustments to reconcile net income to net                                                           
   cash provided by operations:                                                                       
      Depreciation and amortization (including debt issuance costs)                16,012                 9,431
      Amortization of officer's deferred compensation expense                      18,747                  --
      Straight-lining of rental income                                             (4,947)               (1,912)
      Minority interest of unitholders in the Operating Partnership                 4,600                  --
      Equity in loss of Alexander's,                                                                  
        including depreciation of $450 and $471                                       497                   776
      Equity in net income of investees                                              (553)                 --
      Gain on marketable securities                                                  (911)                 (654)
 Changes in operating assets and liabilities                                       (8,532)               (3,725)
                                                                                ---------              --------
Net cash provided by operating activities                                          64,017                49,897
                                                                                ---------              --------
                                                                                                      
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                 
 Mendik acquisition                                                              (263,790)                 --
 Investment in mortgage loans receivable                                          (67,663)              (17,000)
 Investments in partnerships and joint ventures                                   (19,912)                 --
 Cash restricted for tenant improvements                                          (27,571)                 --
 Additions to real estate                                                        (288,383)              (11,459)
 Purchases of securities available for sale                                        (3,436)                 --
 Proceeds from sale or maturity of securities available for sale                     --                  41,490
                                                                                ---------              --------
Net cash (used in) provided by investing activities                              (670,755)               13,031
                                                                                ---------              --------
                                                                                                      
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                 
 Proceeds from the issuance of preferred stock                                    276,000                  --
 Proceeds from borrowings                                                         523,000                10,000
 Repayments on borrowings                                                        (151,177)                 (781)
 Debt issuance costs                                                               (3,038)                 --
 Repayment of borrowings on U.S. treasury obligations                              (9,636)              (40,312)
 Proceeds from borrowings on U.S. treasury obligations                               --                  10,000
 Dividends paid                                                                   (60,187)              (44,559)
 Exercise of stock options                                                            447                 5,366
                                                                                ---------              --------
Net cash provided by (used in) financing activities                               575,409               (60,286)
                                                                                ---------              --------
                                                                                                      
Net (decrease) increase in cash and cash equivalents                              (31,329)                2,642
Cash and cash equivalents at beginning of period                                   89,696                19,127
                                                                                ---------              --------
                                                                                                      
Cash and cash equivalents at end of period                                      $  58,367              $ 21,769
                                                                                =========              ========
                                                                                                      
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                     
 Cash payments for interest                                                     $  29,983              $ 11,853
                                                                                =========              ========
                                                                                                      
NON-CASH TRANSACTIONS:                                                                                
 Unrealized gain (loss) on securities available for sale                        $   2,019              $   (173)
                                                                                =========              ========

 The non-cash portion of the consideration for the Mendik acquisition of
 $392,272 is not reflected in cash flows from investing activities above.

                 See notes to consolidated financial statements.

                                  Page 5 of 24
   6
                              VORNADO REALTY TRUST

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    ORGANIZATION

      On April 15, 1997, Vornado Realty Trust ("Vornado") converted to an
Umbrella Partnership REIT (UPREIT) by transferring all or substantially all of
the interests in its properties and other assets to Vornado Realty L.P. (the
"Operating Partnership"), of which Vornado owns 90.4% and is the sole general
partner. As a result of such conversion, Vornado's activities are conducted
through the Operating Partnership.

2.    BASIS OF PRESENTATION

      The consolidated balance sheet as of September 30, 1997, the consolidated
statements of income for the three and nine months ended September 30, 1997 and
September 30, 1996 and the consolidated statements of changes in cash flows for
the nine months ended September 30, 1997 and September 30, 1996 are unaudited.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and changes in cash flows have been made. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included
in Vornado's 1996 Annual Report to Shareholders. The results of operations for
the period ended September 30, 1997 are not necessarily indicative of the
operating results for the full year.

      The accompanying unaudited consolidated condensed financial statements
include all the accounts of Vornado Realty Trust and its majority-owned
subsidiary, Vornado Realty L.P. Properties which are wholly owned or controlled
by Vornado Realty L.P. have been consolidated. All significant intercompany
amounts have been eliminated. Equity interests in certain partnerships and joint
ventures, which represent non-controlling ownership interests, are accounted for
under the equity method of accounting as the Company exercises significant
influence. These investments are recorded initially at cost and subsequently
adjusted for net equity in income (loss) and cash contributions and
distributions.

      All references to "Vornado" in this document refer to Vornado Realty
Trust; all references to the "Operating Partnership" refer to Vornado Realty
L.P. and all references to the "Company" refer to Vornado and its consolidated
subsidiaries, including the Operating Partnership.

3.    ACQUISITIONS

         MENDIK TRANSACTION

      Simultaneously with the formation of the Operating Partnership, Vornado
consummated the acquisition of interests in all or a portion of seven Manhattan
office buildings and a management company held by the Mendik Group (Bernard H.
Mendik, David R. Greenbaum and certain entities controlled by them) and certain
of its affiliates (the "Mendik Transaction"), which is operated as the Mendik
Division. The Mendik properties include (i) wholly owned properties: Two Penn
Plaza, Eleven Penn Plaza, 1740 Broadway and 866 U.N. Plaza and (ii) partially
owned properties: Two Park Avenue (40% interest), 330 Madison Avenue (24.8%
interest) and 570 Lexington Avenue (5.6% interest). The consideration for the
transaction was approximately $656,000,000, including $264,000,000 in cash,
$177,000,000 in the limited partnership units of the Operating Partnership
issued to persons other than Vornado ("Minority Interests") and $215,000,000 in
indebtedness. The acquisition was recorded under the purchase method of
accounting.

                                  Page 6 of 24
   7
                              VORNADO REALTY TRUST

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Vornado financed the cash portion of this transaction with the proceeds of
a public offering completed on April 9, 1997, of 5,750,000 Series A Convertible
Preferred Shares of Beneficial Interest, liquidation preference $50.00 per
share. The preferred shares bear a coupon of 6-1/2% and are convertible into
common shares at $36-3/8 per share. The offering, net of expenses, generated
approximately $276,000,000.

      PUERTO RICO TRANSACTIONS

      On April 18, 1997, the Company acquired The Montehiedra Town Center
("Montehiedra") located in San Juan, Puerto Rico, from Kmart for approximately
$74,000,000, of which $63,000,000 was newly issued ten-year indebtedness. The
Montehiedra shopping center, which opened in 1994, contains 525,000 square feet,
including a 135,000 square foot Kmart store.

      In addition, the Company agreed to acquire Kmart's 50% interest in the
Caguas Centrum Shopping Center, which is currently under construction, located
in Caguas, Puerto Rico. The purchase price for Caguas Centrum Shopping Center is
expected to be approximately $68,000,000 (of which $11,000,000 would be cash and
$57,000,000 would be newly issued debt), including approximately $9,000,000 for
the Kmart store, which the Company has the option to acquire. The acquisition is
expected to close in 1998.

      90 PARK AVENUE

      On May 7, 1997, the Company acquired a mortgage loan from a consortium of
banks secured by a mortgage on the office building located at 90 Park Avenue,
Manhattan, New York. On August 21, 1997, the Company entered into an agreement
with the owners of 90 Park Avenue pursuant to which the Company restructured the
mortgage, took title to the land and obtained a 43-year lease on the building
under which the Company manages the building and receives the building's cash
flow. As part of the restructuring, the amount of the debt was adjusted from the
face value of $193,000,000 to the May 1997 acquisition cost of $185,000,000, the
maturity date of the debt was extended to August 31, 2022 and the interest rate
was set at 7.5%. The Company purchased the land from the borrower for
$8,000,000, which was further applied to reduce the debt to $177,000,000. The
remaining investment has been classified as real estate.

      RIESE TRANSACTIONS

      On June 27, 1997, the Company acquired for approximately $26,000,000 four
properties previously owned by affiliates of the Riese Organization. These
properties are located in midtown Manhattan. The Company also made a $41,000,000
mortgage loan to Riese affiliates cross-collateralized by ten other Manhattan
properties. This five-year increasing rate loan bears an initial interest rate
of 9.75%.

      ARBOR PROPERTY TRUST

      On August 22, 1997, the Company entered into an Agreement and Plan of
Merger among the Company, Arbor Property Trust ("Arbor") and Trees Acquisition
Subsidiary, Inc. ("Merger Sub"), a wholly-owned subsidiary of the Operating
Partnership, pursuant to which Arbor is to be merged with and into Merger Sub.
Upon the merger becoming effective, each common share of beneficial interest of
Arbor will be converted into the right to receive, and become exchangeable for,
at the election of the holder, 0.243810 Common Shares or 0.153846 Series A
Convertible Preferred Shares, each such Series A Preferred Share being
convertible into 1.37456 Common Shares. The closing of this transaction is
subject to the approval of Arbor's shareholders and certain other conditions;
accordingly, there can be no assurance that the proposed transaction will
ultimately be completed. A meeting of Arbor shareholders to vote on the merger
is scheduled for December 4, 1997.

                                  Page 7 of 24
   8
                              VORNADO REALTY TRUST

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Arbor is a single-property real estate investment trust organized as a
business trust under the laws of the state of Delaware. Arbor, through its
wholly-owned subsidiary Green Acres Mall, L.L.C., owns and operates the Green
Acres Mall, a 1.7 million square foot super-regional enclosed shopping mall
complex situated in southwestern Nassau County, Long Island, New York. The Green
Acres Mall is anchored by four major department stores: Sears, Roebuck and Co.,
J.C. Penney Company, Inc., and Federated Department Stores, Inc., doing business
as Stern's and as Macy's. The complex also includes The Plaza at Green Acres, a
179,000 square foot shopping center which is anchored by Kmart and Waldbaums.

      HOTEL PENNSYLVANIA INVESTMENT

      On September 24, 1997, the Company acquired a 40% interest in the Hotel
Pennsylvania, which is located on Seventh Avenue opposite Madison Square Garden
in Manhattan, New York. The property was acquired in a joint venture with Hotel
Properties Limited and Planet Hollywood International, Inc. The venture intends
to create a sports-themed hotel and entertainment complex. Under the joint
venture agreement, Hotel Properties Limited and Planet Hollywood International,
Inc. have 40% and 20% interests, respectively. The joint venture acquired the
hotel for approximately $159,000,000, of which $120,000,000 was newly issued
five-year financing. The Hotel Pennsylvania contains approximately 800,000
square feet of hotel space with 1,700 rooms and 400,000 square feet of retail
and office space. The Company manages the site's retail and office space, and
Hotel Properties manages the hotel.

      YMCA DEVELOPMENT

      On September 24, 1997, the Company entered into an agreement to acquire a
portion of a property now occupied by the YMCA which overlooks Central Park and
is located between West 63rd and 64th Streets in Manhattan, New York. Pursuant
to the agreement, a preferred stock affiliate of Vornado will develop
approximately 44,000 square feet for use by the YMCA and develop approximately
150,000 square feet for sale as residential condominiums. The agreement
contemplates the negotiation and execution of additional related agreements. The
purchase price for the property is approximately $8,400,000, and the Company
estimates that development costs (including development of the YMCA facilities)
will be approximately $55,000,000. The transaction is expected to close by the
end of 1997; however, there can be no assurance that the proposed transaction
will ultimately be completed.

      20 BROAD STREET MORTGAGE

      On September 24, 1997, the Company purchased at a discount a mortgage on a
460,000 square foot office building at 20 Broad Street in Manhattan, New York
from a bank for $27,000,000. The mortgage, which is in default, will yield
approximately 12% on the purchase price. The property is leased to a number of
tenants. The largest such tenant, the New York Stock Exchange, leases
approximately 53% of the property. As part of the Mendik Transaction described
above, the Company obtained an option to acquire from the Mendik Group its
portion of the fee interest in this property.

                                  Page 8 of 24
   9
                              VORNADO REALTY TRUST

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      PRO FORMA INFORMATION

      The unaudited pro forma information set forth below presents the condensed
statements of income for Vornado for the nine months ended September 30, 1997
and 1996 as if the following had occurred on January 1, 1996: (a) the Mendik
Transaction, (b) the acquisitions, of or investments, in 90 Park Avenue, Arbor,
Montehiedra, Riese and the Hotel Pennsylvania (each as described above) and (c)
the acquisitions of, or investments, in Charles E. Smith Commercial Realty L.P. 
and the Cold Storage Companies and the sale of Common Shares and the use of 
proceeds therefrom (as described in Note 11 - "Subsequent Events").

                                                                                   Pro Forma
                                                                 Nine Months Ended             Nine Months Ended
                                                                 September 30, 1997            September 30, 1996
                                                                 ------------------            ------------------
                                                                                         
      Revenues                                                      $226,864,000                  $223,079,000
                                                                    ============                  ============

      Net income                                                    $ 82,534,000                  $ 78,742,000
      Preferred stock dividends                                      (15,233,000)                  (15,233,000)
                                                                    ------------                  ------------
      Net income applicable to common shares                        $ 67,301,000                  $ 63,509,000
                                                                    ============                  ============

      Net income per common share                                      $.95                          $.92
                                                                       ====                          ====

      The pro forma results for the nine months ended September 30, 1997,
      include Mendik non-recurring lease cancellation income of $14,357,000,
      partially offset by related expenses of $2,776,000. This income and
      related expenses are not included in funds from operations as defined in
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations (see page 16).

4.    INVESTMENTS IN AND ADVANCES TO ALEXANDER'S (A RELATED PARTY):

      Below are summarized Statements of Operations of Alexander's:

                                                                        Nine Months                   Nine Months
                                                                           Ended                         Ended
                                                                    September 30, 1997            September 30, 1996
                                                                    ------------------            ------------------
                                                                                            
        Revenues                                                       $ 18,775,000                  $ 15,749,000
        Expenses                                                        (10,158,000)                   (8,689,000)
                                                                       ------------                  -------------
        Operating income                                                  8,617,000                     7,060,000
        Interest and debt expense                                        (9,855,000)                  (10,393,000)
        Interest and other income, net                                    1,078,000                     2,294,000
                                                                       ------------                 -------------
        Net loss from continuing operations                            $   (160,000)                $  (1,039,000)
                                                                       ============                 =============

      Vornado's 29.3% equity in loss                                   $    (47,000)                $    (304,000)
                                                                       ============                 =============

      The Company recognized leasing fee income under a leasing agreement (the
"Leasing Agreement") with Alexander's of $173,000 and $157,000 for the three
months ended September 30, 1997 and 1996 and $539,000 and $514,000 for the nine
months ended September 30, 1997 and 1996. Subject to the payment of rents by
Alexander's tenants, the Company is due $6,408,000 at September 30, 1997 under
such agreement. The lease which the Company had previously negotiated with
Caldor on behalf of Alexander's for its Fordham Road property was rejected in
June 1997 in Caldor's bankruptcy proceedings, resulting in $1,254,000 of
previously recorded leasing fees receivable and deferred leasing fee income
being reversed in the quarter ended September 30, 1997. In addition to the
leasing fees received by the Company, Vornado Management Corp. receives
management fees from Alexander's (see Note 7).

                                  Page 9 of 24
   10
                              VORNADO REALTY TRUST

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.    DEBT

      On July 17, 1997, the Company obtained a $600,000,000 unsecured three-year
revolving credit facility from a bank group led by Union Bank of Switzerland.
The facility contains customary loan covenants including, among others, limits
on total outstanding indebtedness; maximum loan to value ratios; minimum debt
service coverage and minimum market capitalization requirements. Interest is at
LIBOR plus .70% to 1.00% depending on the Company's senior debt rating. The
credit facility has a competitive bid option program, which allows the Company
to hold auctions among banks participating in the facility for short term
borrowings of up to $300,000,000. The Company paid a fee of $1,800,000 at
closing and will pay a commitment fee quarterly over the remaining term of the
facility ranging from .15% to .20% on the full facility amount.

      Simultaneously with the closing, the Company borrowed $250,000,000 and
used the proceeds, together with working capital, to repay a $400,000,000 term
loan it had obtained in April 1997. At September 30, 1997, the Company had
$310,000,000 outstanding under the facility at a blended rate of 6.50% (LIBOR
plus .82%). On October 27, 1997, these borrowings were repaid with a portion of
the proceeds from the sale of common shares.

6.    MORTGAGE LOANS RECEIVABLE

      At September 30, 1997, the Company has $129,663,000 of Mortgage loans
receivable, of which $45,000,000 is reflected as part of "Investment in and
Advances to Alexander's, Inc." in the Consolidated Balance Sheets. At least
annually, and more frequently if circumstances warrant, the Company evaluates
the collectibility of both interest and principal of each of its loans to
determine whether it is impaired.

7.    MANAGEMENT COMPANIES

      As part of the Mendik Transaction, the Company acquired 100% of the
non-voting preferred stock of the Mendik Management Company for $7,425,000. The
Company previously assigned its management and development agreement (the
"Management Agreement") with Alexander's to Vornado Management Corp. ("VMC"), an
affiliate in which it also owns 100% of the non-voting preferred stock. The
Company's preferred stock ownership entitles it to 95% of the economic benefits
of the management companies through distributions. The Common Stock of the
management companies is owned by officers and directors of Vornado. Below are
summarized Statements of Operations of the management companies:

                                               For The Three Months Ended              For The Nine Months Ended
                                              September 30,     September 30,        September 30,      September 30,
                                                  1997              1996                1997               1996
                                                  ----              ----                ----               ----
                                                                                           
     Revenues:
        Management fees from:
           Alexander's                         $  938,000       $ 1,037,000           $ 2,813,000       $4,405,000
           Mendik properties                    1,102,000                -              1,858,000               -
                                               ----------       -----------           -----------       ----------
                                                2,040,000         1,037,000             4,671,000        4,405,000

     Expenses:
        General and administrative             (1,623,000)         (585,000)           (3,749,000)      (1,819,000)
        Interest, net                            (241,000)          (74,000)             (532,000)        (216,000)
                                              -----------       -----------           -----------       ----------

     Income before income taxes                   176,000           378,000               390,000        2,370,000
     Income taxes                                 (70,000)         (154,000)             (158,000)        (968,000)
                                              -----------       -----------           -----------       ----------
        Net income                                106,000           224,000               232,000        1,402,000
     Preferred dividends                         (101,000)         (213,000)             (220,000)      (1,332,000)
                                               ----------         ---------           -----------       ----------
     Net income available to
        common shareholders                   $     5,000       $    11,000           $    12,000       $   70,000
                                              ===========       ===========           ===========       ==========

     The management fee income from Alexander's in the nine months ended
September 30, 1996, includes $1,343,000 of fees recorded in the first quarter of
1996 related to the completion of the redevelopment of Alexander's Rego Park I
property. In addition to the preferred dividends the Company received, it also
earned interest income on its loans to the management companies of $297,000 and
$131,000 for the three months ended September 30, 1997 and 1996 and $698,000 and
$391,000 for the nine months September 30, 1997 and 1996.

                                  Page 10 of 24
   11
                              VORNADO REALTY TRUST

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.   OTHER RELATED PARTY TRANSACTIONS

     The Company currently manages and leases the real estate assets of
Interstate Properties pursuant to a management agreement. Management fees earned
by the Company pursuant to the management agreement were $470,000 and $565,000
for the three months ended September 30, 1997 and 1996 and $847,000 and
$1,112,000 for the nine months ended September 30, 1997 and 1996.

     The Mendik Group owns an entity which provides cleaning and related
services and security services to office properties. The Company has entered
into contracts with the Mendik Group to provide such services in the seven
Manhattan office buildings acquired in the Mendik Transaction. Although the
terms and conditions of the contracts pursuant to which these services are
provided were not negotiated at arms length, the Company believes based upon
comparable fees charged to other real estate companies, that the terms and
conditions of such contracts are fair to the Company. The Company was charged
fees in connection with these contracts of $3,292,000 for the three months ended
September 30, 1997 and $5,899,000 for the period from April 15, 1997 to
September 30, 1997.

9.   MINORITY INTEREST

     The minority interest represents the 9.6% limited partnership interests in
the Operating Partnership not owned by Vornado Realty Trust. These limited
partnership interests are comprised of Class C, D and E Units distributed in
connection with the Mendik Transaction. Holders of Class D and E Units are
entitled to a preferential annual distribution rate of $2.015. Holders of Class
C Units are entitled to a preferential annual distribution rate of $1.69. Class
C Units will automatically convert to Class A Units when the distributions paid
to holders of Class A Units equal $.4225 per quarter ($1.69 annually) for four
consecutive quarters. Class D and E Units will automatically convert to Class A
Units when the distributions paid to holders of Class A Units equal $.50375 per
quarter ($2.015 annually) for four consecutive quarters. Generally, the value
of each Class A Unit, equates to one common share of beneficial interest of
Vornado. These per unit distribution rates have been adjusted to reflect a 2
for 1 split of the units effected in connection with Vornado's stock split on
October 20, 1997. Preferential distributions aggregated $2,500,000 for the
three months ended September 30, 1997 and $4,600,000 for the period from April
15, 1997 to September 30, 1997. Preferential distributions will aggregate
$10,370,000 on an annual basis.
        
10.  CONTINGENCIES

     In January 1997, two individual investors in Mendik Real Estate Limited
Partnership ("RELP"), the publicly held limited partnership that indirectly owns
a 60% interest in the Two Park Avenue Property, filed a purported class action
against NY Real Estate Services 1, Inc. ("NY Real Estate"), Mendik RELP Corp.,
B&B Park Avenue, L.P. (an indirect subsidiary of the Operating Partnership which
acquired the remaining 40% interest in Two Park Avenue) and Bernard H. Mendik in
the Supreme Court of the State of New York, County of New York, on behalf of all
persons holding limited partnership interests in RELP. The complaint alleges
that, for reasons which include purported conflicts of interest, the defendants
breached their fiduciary duty to the limited partners, that the then proposed
transfer of the 40% interest in Two Park Avenue would result in a burden on the
operation and management of Two Park Avenue and that the transfer of the 40%
interest violates RELP's right of first refusal to purchase the interest being
transferred and fails to provide limited partners in RELP with a comparable
transfer opportunity. Shortly after the filing of the complaint, another limited
partner represented by the same attorneys filed an essentially identical
complaint in the same court. Both complaints seek unspecified damages, an
accounting and a judgment requiring either the liquidation of RELP and the
appointment of a receiver or an auction of Two Park Avenue. Discussions to
settle the actions have been ongoing, but no settlement has been reached. In
August 1997, a fourth limited partner, represented by separate counsel,
commenced another purported class action in the same court by serving a
complaint essentially identical to the complaints in the two previously
commenced actions. Management believes that the ultimate outcome of these
matters will not have a material adverse effect on the Company.

                                  Page 11 of 24
   12
                              VORNADO REALTY TRUST

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  SUBSEQUENT EVENTS

     STOCK SPLIT

     On October 20, 1997, Vornado paid a 100% common share dividend to
shareholders of record of Common Shares at the close of business on October 15,
1997. All share and per share information has been adjusted to reflect the
split.

     SALE OF COMMON SHARES

     On October 27, 1997, Vornado completed the sale of 14,000,000 common shares
at a price of $45.00 per share which, net of expenses, yielded approximately
$598,740,000. On November 7, 1997, Vornado's underwriters exercised their
over-allotment option in full and purchased an additional 2,100,000 shares at
$45.00 per share. The net proceeds were used to repay $310,000,000 outstanding
under Vornado's line of credit and to fund a portion of the purchase price of
certain acquisitions noted below. 

     CHARLES E. SMITH COMMERCIAL REALTY INVESTMENT

     On October 31, 1997, the Company acquired a 15% limited partnership
interest in Charles E. Smith Commercial Realty L.P. for $60,000,000. Charles E.
Smith Commercial Realty L.P. owns interests in and manages approximately 7.2
million square feet of office properties in Crystal City, Arlington, Virginia, a
suburb of Washington, D.C., and manages an additional 14 million square feet of
office and other commercial properties in the Washington D.C. area.

     COLD STORAGE

     On October 31, 1997, two partnerships in which preferred stock affiliates
of Vornado have 60% interests and affiliates of Crescent Real Estate Equities
Company have 40 % interests acquired Americold Corporation ("Americold") and 
URS Logistics, Inc. ("URS"). Americold and URS are cold  storage and logistics
warehouse companies. The consideration for these  transactions totaled
approximately $950,000,000, including $660,000,000 of  indebtedness.  

     ESTABLISHMENT OF NEW OPERATING COMPANY

     The Company is contemplating the establishment of a new taxable operating 
company to conduct certain activities that would not be permitted to be
conducted by the Company as a REIT and is currently in the process of preparing
a registration statement to be filed with the Securities and Exchange
Commission with respect thereto. If such action takes place, the Operating
Partnership would spin off  pro rata to its partners, including Vornado, the
shares of the new company, and  Vornado would distribute pro rata to holders of
its Common Shares the shares it  receives. No assurance can be given concerning
the timing of any such  transactions, or whether such transaction will occur.

                                  Page 12 of 24
   13
                              VORNADO REALTY TRUST

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, which will, among other
things, affect demand for retail space or retail goods, availability and
creditworthiness of prospective tenants, lease rents and the terms and
availability of financing; adverse changes in the real estate markets including,
among other things, competition with other companies and technology; risks of
real estate development and acquisition; governmental actions and initiatives;
and environmental/safety requirements.

RESULTS OF OPERATIONS

     The Company's revenues, which consist of property rentals, tenant expense
reimbursements and other income were $61,868,000 in the quarter ended September
30, 1997, compared to $29,063,000 in the prior year's quarter, an increase of
$32,805,000. Revenues were $141,827,000 for the nine months ended September 30,
1997 compared to $86,918,000 in the prior year's nine months, an increase of
$54,909,000. These increases reflect revenues of $28,621,000 and $47,538,000 for
the quarter and the nine months ended September 30, 1997 from properties
acquired in 1997.

     Property rentals were $49,882,000 in the quarter ended September 30, 1997,
compared to $21,927,000 in the prior year's quarter, an increase of $27,955,000.
Property rentals were $113,353,000 for the nine months ended September 30, 1997
compared to $65,084,000 in the prior year's nine months, an increase of
$48,269,000. The increases for the quarter and the nine months ended September
30, 1997, resulted from:

                                                                        Quarter                Nine Months
                                                                        -------                -----------
                                                                                         
             1997 Acquisitions:
               Mendik                                                $19,780,000               $36,204,000
               90 Park Avenue                                          3,382,000                 3,382,000
               Montehiedra shopping center                             2,086,000                 3,809,000
               Riese                                                   1,351,000                 1,351,000
                                                                     -----------               -----------
                                                                      26,599,000                44,746,000
             1996 Acquisitions:
               825 Seventh Avenue                                           -                      472,000
             Shopping center leasing activity                            822,000                 1,707,000
             Step-ups in shopping center leases                          534,000                 1,344,000
                                                                     -----------               -----------
                                                                     $27,955,000               $48,269,000
                                                                     ===========               ===========

     Tenant expense reimbursements, which consist of the tenant's pro-rata share
of common area maintenance expenses (such as snow removal costs, landscaping and
parking lot repairs) real estate taxes and insurance, were $10,763,000 in the
quarter ended September 30, 1997, compared to $6,410,000 in the prior year's
quarter, an increase of $4,353,000. Tenant expense reimbursements were
$25,924,000 for the nine months ended September 30, 1997, compared to
$20,111,000 in the prior year's nine months, an increase of $5,813,000. Of these
increases for the quarter and nine months, respectively, (i) $2,686,000 and
$4,758,000 resulted from properties acquired in the Mendik Transaction, (ii)
$763,000 in each period resulted from the acquisition of 90 Park Avenue and
(iii) $904,000 and $292,000 resulted from expenses passed through to tenants at
the Company's other properties.

     Operating expenses were $21,899,000 in the quarter ended September 30,
1997, as compared to $ 8,885,000 in the prior year's quarter, an increase of
$13,014,000. Operating expenses were $48,557,000 in the nine months ended
September 30, 1997, compared to $26,944,000 in the prior year's nine months, an
increase of $21,613,000. Of these increases for the quarter and nine months,
respectively, (i) $11,018,000 and $19,887,000 resulted from properties acquired
in the Mendik Transaction and (ii) $1,664,000 in each period resulted from the
acquisition of 90 Park Avenue.

                                  Page 13 of 24
   14
                              VORNADO REALTY TRUST

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Depreciation and amortization expense increased in 1997 as compared to
1996, primarily as a result of acquisitions.

     General and administrative expenses were $3,460,000 in the quarter ended
September 30, 1997 compared to $1,381,000 in the prior year's quarter, an
increase of $2,079,000. General and administrative expenses were $8,208,000 in
the nine months ended September 30, 1997 compared to $3,889,000 in the prior
year's nine months, an increase of $4,319,000. These increases resulted
primarily from (i) Mendik division payroll and corporate office expenses of
$997,000 and $1,464,000 for the quarter ended September 30, 1997 and the period
from April 15, 1997 to September 30, 1997, (ii) cash compensation attributable
to the employment of the Company's President and (iii) higher professional fees.

     The Company recognized an expense of $6,249,000 in the quarter ended
September 30, 1997 and $18,747,000 in the nine months ended September 30, 1997
representing the amortization of the $25,000,000 deferred payment due to the
Company's President. The balance of the deferred payment will be amortized in
1997.

     Income applicable to Alexander's (loan interest income, equity in income
(loss) and depreciation) was $1,344,000 in the quarter ended September 30, 1997,
compared to $1,366,000 in the prior year's quarter, a decrease of $22,000.
Income applicable to Alexander's was $4,186,000 in the nine months ended
September 30, 1997, compared to $4,391,000 in the prior year's nine months, a
decrease of $205,000. These decreases resulted primarily from the reset of the
interest rate on the loan to Alexander's from 16.43% to 15.60% in March 1997.

     Income from investment in management companies was $398,000 in the quarter
ended September 30, 1997, compared to $344,000 in the prior year's quarter, an
increase of $54,000. Income from investment in management companies was $918,000
in the nine months ended September 30, 1997, compared to $1,723,000 in the prior
year's nine months, a decrease of $805,000. The increase in the current year's
quarter resulted primarily from dividends from the Management Company acquired
as part of the Mendik Transaction. The decrease in the current year's nine month
period resulted primarily from additional fee income of $794,000 earned by VMC
in the first quarter of the prior year relating to the substantial completion of
the redevelopment of Alexander's Rego Park I property.

     Equity in net income of investees of $271,000 in the quarter ended
September 30, 1997 and $553,000 in the nine months ended September 30, 1997,
represents income primarily from investments in partnerships which own the
partially owned properties acquired as part of the Mendik Transaction.

     Investment income (interest income on mortgage loans receivable, other
interest and dividend income and net gains on marketable securities) was
$6,086,000 for the quarter ended September 30, 1997, compared to $1,569,000 in
the prior year's quarter, an increase of $4,517,000. Investment income was
$17,744,000 for the nine months ended September 30, 1997, compared to $5,066,000
in the prior year's nine months, an increase of $12,678,000. Of these increases
for the quarter and nine months, respectively, (i) $1,623,000 and $6,624,000
resulted primarily from income earned on the proceeds from the December 1996
public stock offering and the April 1997 term loan, (ii) $1,542,000 and
$4,586,000 resulted from the Company's mortgage loan on 90 Park Avenue and (iii)
$1,118,000 in each period resulted from the Company's mortgage loan in
connection with the Riese transaction.

     Interest and debt expense was $13,622,000 for the quarter ended September
30, 1997, compared to $4,208,000 in the prior year's quarter, an increase of
$9,414,000. Interest and debt expense was $30,972,000 for the nine months ended
September 30, 1997, compared to $12,623,000 in the prior year's nine months, an
increase of $18,349,000. Of these increases, (i) $4,869,000 and $10,003,000
resulted from borrowings under the Company's revolving credit facility and a
term loan (ii) $3,134,000 and $5,896,000 resulted from debt on the Mendik
properties and (iii) $1,411,000 and $2,450,000 resulted from borrowings related
to the acquisition of the Montehiedra Town Center in April 1997.

     The minority interest unit holders in the Operating Partnership are
entitled to preferential distributions which aggregated $2,500,000 for the
quarter ended September 30, 1997 and $4,600,000 for the period from April 15,
1997 to September 30, 1997.

     The preferred stock dividends of $5,241,000 and $10,096,000 are for the
quarter ended September 30, 1997 and the period from April 9, 1997 to September
30, 1997 and include amortization of expenses in connection therewith of
$569,000 and $1,168,000.

                                  Page 14 of 24
   15
                              VORNADO REALTY TRUST

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

     Nine Months Ended September 30, 1997

     Cash flows provided by operating activities of $64,017,000 was comprised of
(i) net income of $39,104,000 and (ii) adjustments for non-cash items of
$33,445,000, partially offset by (iii) the net change in operating assets and
liabilities of $8,532,000. The adjustments for non-cash items are primarily
comprised of (i) amortization of deferred officer's compensation expense of
$18,747,000, (ii) depreciation and amortization of $16,012,000, (iii) equity in
loss of Alexander's of $497,000, and (iv) minority interest of $4,600,000,
partially offset by (v) the effect of straight-lining of rental income of
$4,947,000 and (vi) equity in net income of investees of $553,000.

     Net cash used in investing activities of $670,755,000 was primarily
comprised of (i) expenditures of $263,790,000 in connection with the Mendik
Transaction, (ii) investments in mortgage loans receivable of $67,663,000, (iii)
capital expenditures and investments in partnerships and joint ventures of
$308,295,000 (see details below) and (iv) restricted cash for tenant
improvements of $27,571,000. Investments in mortgage loans receivable are
comprised of (a) a loan to affiliates of the Riese Organization cross
collateralized by ten Manhattan properties of $41,000,000 and (b) a mortgage
on a 460,000 square foot office building at 20 Broad Street in Manhattan,
New York purchased at a discount from a bank for $27,000,000. Capital
expenditures and investments in partnerships and joint ventures are comprised
of:

                                                                                  
                  Montehiedra shopping center                                   $  74,000,000
                  90 Park Avenue office building                                  185,000,000
                  Riese properties                                                 26,000,000
                  40% interest in Hotel Pennsylvania                               19,215,000
                  Other                                                             4,080,000
                                                                               --------------
                                                                                 $308,295,000
                                                                                 ============

     Net cash provided by financing activities of $575,409,000 was primarily
comprised of proceeds from (i) borrowings of $523,000,000, and (ii) issuance of
preferred shares of $276,000,000, partially offset by (iii) repayment of
borrowings of $151,177,000, (iv) dividends paid of $60,187,000 and (v) the
repayment of borrowings on U.S. Treasury obligations of $9,636,000.

     Nine Months Ended September 30, 1996

     Cash flows provided by operating activities of $49,897,000 was comprised of
(i) net income of $45,981,000 and (ii) adjustments for non-cash items of
$7,641,000, less (iii) the net change in operating assets and liabilities of
$3,725,000. The adjustments for non-cash items are primarily comprised of
depreciation and amortization of $9,431,000, plus equity in income (loss) of
Alexander's of $776,000, offset by the effect of straight-lining of rental
income of $1,912,000. Further, during this period in connection with the
rejection of a lease by an Alexander's tenant "Leasing fees and other
receivables" decreased by $1,717,000 and "Deferred leasing fee income"
correspondingly decreased. "Leasing fees and other receivables" of $1,592,000
were collected during this period. These amounts have been included in the net 
change in operating assets and liabilities shown in item (iii) above.

                                  Page 15 of 24
   16
                              VORNADO REALTY TRUST

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Net cash provided by investing activities of $13,031,000 was comprised of
(i) proceeds from sale or maturity of securities available for sale of
$41,490,000, offset by (ii) the Company's investment in a mortgage note
receivable of $17,000,000 and (iii) capital expenditures of $11,459,000
(including $8,923,000 for the purchase of an office building).

     Net cash used in financing activities of $60,286,000 was primarily
comprised of (i) the net repayment of borrowings on U.S. Treasury obligations of
$30,312,000 and (ii) dividends paid of $44,559,000, offset by (iii) the proceeds
from borrowings of $10,000,000.

     Funds from Operations for the Three and Nine Months Ended September 30,
1997 and 1996

     Funds from operations were $17,056,000 in the quarter ended September 30,
1997, compared to $17,575,000 in the prior year's quarter, a decrease of
$519,000 or 2.9%. Funds from operations were $43,789,000 in the nine months
ended September 30, 1997, compared to $53,550,000 in the prior year's nine
months, a decrease of $9,761,000 or 18.2%. Funds from operations for the three
and nine months ended September 30, 1997 reflect amortization of the deferred
payment due to the Company's President and related compensation of $6,854,000
and $20,516,000. The following table reconciles funds from operations and net
income:

                                                  For The Three Months Ended                 For The Nine Months Ended
                                               September 30,        September 30,        September 30,         September 30,
                                                   1997                  1996                1997                  1996
                                                   ----                  ----                ----                  ----
                                                                                                  
Net income applicable to common
     shares                                    $ 10,385,000         $ 14,939,000         $ 29,008,000         $ 45,981,000
Depreciation and amortization of
     real property                                6,466,000            2,828,000           14,623,000            8,394,000
Straight-lining of property rentals
     for rent escalations                          (830,000)            (635,000)          (2,317,000)          (1,912,000)
Leasing fees received in excess
     of income recognized                           480,000              468,000            1,333,000            1,358,000
Proportionate share of adjustments
     to Alexander's loss to arrive at 
     funds from operations                         (100,000)             (25,000)             (73,000)            (271,000)
Proportionate share of adjustments to
     net income of investees to arrive
     at funds from operations                       655,000                 --              1,215,000                 --
                                               ------------         ------------         ------------         ------------
Funds from operations                          $ 17,056,000         $ 17,575,000         $ 43,789,000         $ 53,550,000
                                               ============         ============         ============         ============

          Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and is
not necessarily indicative of cash available to fund cash needs, which is
disclosed in the Consolidated Statements of Cash Flows for the applicable
periods. There are no material legal or functional restrictions on the use of
funds from operations. Funds from operations should not be considered as an
alternative to net income as an indicator of the Company's operating performance
or as an alternative to cash flows as a measure of liquidity. Management
considers funds from operations a relevant supplemental measure of operating
performance because it provides a basis for comparison among REITs; however,
funds from operations may not be comparable to similarly titled measures
reported by other REITs since the Company's method of calculating funds from
operations is different from that used by NAREIT. Funds from operations, as
defined by NAREIT, represents net income applicable to common shares before
depreciation and amortization, extraordinary items and gains or losses on sales
of real estate. Funds from operations as disclosed

                                  Page 16 of 24
   17
                              VORNADO REALTY TRUST

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

above has been modified to adjust for the effect of straight-lining of property
rentals for rent escalations and leasing fee income. Below are the cash flows
provided by (used in) operating, investing and financing activities:

                                For The Three Months Ended                  For The Nine Months Ended
                             September 30,        September 30,        September 30,        September 30,
                                1997                  1996                 1997                  1996
                                ----                  ----                 ----                  ----
                                                                                 
Operating activities        $  13,028,000         $ 16,121,000         $  64,017,000         $ 49,897,000
                            =============         ============         =============         ============

Investing activities        $ (40,942,000)        $   (129,000)        $(670,755,000)        $ 13,031,000
                            =============         ============         =============         ============

Financing activities        $(113,545,000)        $(10,971,000)        $ 575,409,000         $(60,286,000)
                            =============         ============         =============         ============

      The Company has budgeted approximately $25,000,000 for capital
expenditures over the next year of which $21,000,000 is for tenant improvements
at its office properties and $4,000,000 is for tenant improvements and
renovations at its shopping center properties. In addition, the Company expects
to invest approximately $55,000,000 in connection with its YMCA Development and
approximately $25,000,000 in connection with its portion of the Hotel 
Pennsylvania investment (see below).

      In December 1996, Michael D. Fascitelli became the President of Vornado
and was elected to the Vornado Board. Mr. Fascitelli signed a five year
employment contract under which, in addition to his annual salary, he received a
deferred payment consisting of $5,000,000 in cash and a $20,000,000 convertible
obligation payable at Vornado's option in 919,540 of its Common Shares or the
cash equivalent of their appreciated value. Accordingly, cash of $5,000,000 and
919,540 Common Shares are being held in an irrevocable trust. The deferred
payment obligation to Mr. Fascitelli vests as of December 2, 1997. Further, Mr.
Fascitelli was granted options for 3,500,000 Common Shares of Vornado.

      On April 15, 1997, Vornado consummated the acquisition, through an
operating partnership, of interests in all or a portion of seven Manhattan
office buildings and a management company held by the Mendik Group and certain
of its affiliates. Simultaneously with the closing of this transaction, and in
connection therewith, Vornado converted to an Umbrella Partnership REIT (UPREIT)
by transferring (by contribution, merger or otherwise) all or substantially all
of the interests in its properties and other assets to Vornado Realty L.P. (the
"Operating Partnership"), of which Vornado is the sole general partner. As a
result of such conversion, Vornado's activities are conducted through the
Operating Partnership.

      The consideration for the Mendik transaction was approximately
$656,000,000, including $264,000,000 in cash, $177,000,000 in the limited
partnership units of the Operating Partnership and $215,000,000 in indebtedness.
Vornado financed the cash portion of this transaction with the proceeds of a
public offering completed on April 9, 1997, of 5,750,000 Series A Convertible
Preferred Shares of Beneficial Interest, liquidation preference $50.00 per
share. The preferred shares bear a coupon of 6-1/2% and are convertible into
common shares at $36-3/8 per share. The offering, net of expenses, generated
approximately $276,000,000.

      Below is a summary of other transactions affecting the Company's
liquidity:

      ARBOR PROPERTY TRUST

      On August 22, 1997, the Company entered into an Agreement and Plan of
Merger among the Company, Arbor Property Trust ("Arbor") and Trees Acquisition
Subsidiary, Inc. ("Merger Sub"), a wholly-owned subsidiary

                                  Page 17 of 24
   18
                              VORNADO REALTY TRUST

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

of the Operating Partnership, pursuant to which Arbor is to be merged with and
into Merger Sub. Upon the merger becoming effective, each common share of
beneficial interest of Arbor will be converted into the right to receive, and
become exchangeable for, at the election of the holder, 0.243810 Common Shares
or 0.153846 Series A Convertible Preferred Shares, each such Series A Preferred
Share being convertible into 1.37456 Common Shares. The closing of this
transaction is subject to the approval of Arbor's shareholders and certain other
conditions; accordingly, there can be no assurance that the proposed transaction
will ultimately be completed. A meeting of Arbor shareholders to vote on the
merger is scheduled for December 4, 1997.

      Arbor is a single-property real estate investment trust organized as a
business trust under the laws of the state of Delaware. Arbor, through its
wholly-owned subsidiary Green Acres Mall, L.L.C., owns and operates the Green
Acres Mall, a 1.7 million square foot super-regional enclosed shopping mall
complex situated in southwestern Nassau County, Long Island, New York. The Green
Acres Mall is anchored by four major department stores: Sears, Roebuck and Co.,
J.C. Penney Company, Inc., and Federated Department Stores, Inc., doing business
as Stern's and as Macy's. The complex also includes The Plaza at Green Acres, a
179,000 square foot shopping center which is anchored by Kmart and Waldbaums.

      HOTEL PENNSYLVANIA INVESTMENT

      On September 24, 1997, the Company acquired a 40% interest in the Hotel
Pennsylvania, which is located on Seventh Avenue opposite Madison Square Garden
in Manhattan, New York. The property was acquired in a joint venture with Hotel
Properties Limited and Planet Hollywood International, Inc. The venture intends
to create a sports-themed hotel and entertainment complex. Under the joint
venture agreement, Hotel Properties Limited and Planet Hollywood International,
Inc. have 40% and 20% interests, respectively. The joint venture acquired the
hotel for approximately $159,000,000, of which $120,000,000 was newly issued
five-year financing. The Hotel Pennsylvania contains approximately 800,000
square feet of hotel space with 1,700 rooms and 400,000 square feet of retail
and office space. The Company manages the site's retail and office space, and
Hotel Properties manages the hotel.

      YMCA DEVELOPMENT

      On September 24, 1997, the Company entered into an agreement to acquire a
portion of a property now occupied by the YMCA which overlooks Central Park and
is located between West 63rd and 64th Streets in Manhattan, New York. Pursuant
to the agreement, a preferred stock affiliate of Vornado will develop
approximately 44,000 square feet for use by the YMCA and develop approximately
150,000 square feet for sale as residential condominiums. The agreement
contemplates the negotiation and execution of additional related agreements. The
purchase price for the property is approximately $8,400,000, and the Company
estimates that development costs (including development of the YMCA facilities)
will be approximately $55,000,000. The transaction is expected to close by the
end of 1997; however, there can be no assurance that the proposed transaction
will ultimately be completed.

      20 BROAD STREET MORTGAGE

      On September 24, 1997, the Company purchased at a discount a mortgage on a
460,000 square foot office building at 20 Broad Street in Manhattan, New York
from a bank for $27,000,000. The mortgage, which is in default, will yield
approximately 12% on the purchase price. The property is leased to a number of
tenants. The largest such tenant, the New York Stock Exchange, leases
approximately 53% of the property. As part of the Mendik Transaction described
above, the Company obtained an option to acquire from the Mendik Group its
portion of the fee interest in this property.

      CHARLES E. SMITH COMMERCIAL REALTY INVESTMENT

     On October 31, 1997, the Company acquired a 15% limited partnership
interest in Charles E. Smith Commercial Realty L.P. for $60,000,000. Charles E.
Smith Commercial Realty L.P. owns interests in and manages approximately 7.2
million square feet of office properties in Crystal City, Arlington, Virginia, a
suburb of Washington, D.C., and manages an additional 14 million square feet of
office and other commercial properties in the Washington D.C. area.

                                  Page 18 of 24
   19
                              VORNADO REALTY TRUST

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      COLD STORAGE

      On October 31, 1997, two partnerships in which preferred stock affiliates
of Vornado have 60% interests and affiliates of Crescent Real Estate Equities
Company have 40% interests acquired Americold Corporation ("Americold") and 
URS Logistics, Inc. ("URS"). Americold and URS are cold storage and logistics 
warehouse companies. The consideration for these transactions totaled 
approximately $950,000,000, including $660,000,000 of indebtedness.

      SALE OF COMMON SHARES

      On October 27, 1997, Vornado completed the sale of 14,000,000 common
shares at a price of $45.00 per share which, net of expenses, yielded
approximately $598,740,000. On November 7, 1997, Vornado's underwriters 
exercised their over-allotment option in full and purchased an additional 
2,100,000 shares at $45.00 per share. The net proceeds were used to repay 
$310,000,000 outstanding under Vornado's line of credit and will be used to 
fund a portion of the purchase price of certain acquisitions noted above.

      On July 17, 1997, the Company obtained a $600,000,000 unsecured three-year
revolving credit facility from a bank group led by Union Bank of Switzerland.
Simultaneously with the closing, the Company borrowed $250,000,000 and used the
proceeds, together with working capital, to repay a $400,000,000 term loan it
had obtained in April 1997. At September 30, 1997, the Company had $310,000,000
outstanding under the facility at a blended rate of 6.50% (LIBOR plus .82%). On
October 27, 1997, these borrowings were repaid with a portion of the proceeds
from the sale of common shares.

      The Company anticipates that cash from continuing operations will be
adequate to fund business operations and the payment of dividends and
distributions on an ongoing basis for more than the next twelve months; however,
capital outlays for significant acquisitions may require funding from borrowings
or equity offerings.

RECENTLY ISSUED ACCOUNTING STANDARD

     In February 1997, the Financial Accounting Standards Board adopted
Statement No. 128, "Earnings Per Share". The statement is effective for fiscal
years ending after December 15, 1997. The Company believes that this
pronouncement will not have a material effect on its net income per share.

                                  Page 19 of 24
   20
                              VORNADO REALTY TRUST

PART II.    OTHER INFORMATION

         ITEM 1.   LEGAL PROCEEDINGS

                   In January 1997, two individual investors in Mendik Real
                Estate Limited Partnership ("RELP"), the publicly held limited
                partnership that indirectly owns a 60% interest in the Two Park
                Avenue Property, filed a purported class action against NY Real
                Estate Services 1, Inc. ("NY Real Estate"), Mendik RELP Corp.,
                B&B Park Avenue, L.P. (an indirect subsidiary of the Operating
                Partnership which acquired the remaining 40% interest in Two
                Park Avenue) and Bernard H. Mendik in the Supreme Court of the
                State of New York, County of New York, on behalf of all persons
                holding limited partnership interests in RELP. The complaint
                alleges that, for reasons which include purported conflicts of
                interest, the defendants breached their fiduciary duty to the
                limited partners, that the then proposed transfer of the 40%
                interest in Two Park Avenue would result in a burden on the
                operation and management of Two Park Avenue and that the
                transfer of the 40% interest violates RELP's right of first
                refusal to purchase the interest being transferred and fails to
                provide limited partners in RELP with a comparable transfer
                opportunity. Shortly after the filing of the complaint, another
                limited partner represented by the same attorneys filed an
                essentially identical complaint in the same court. Both
                complaints seek unspecified damages, an accounting and a
                judgment requiring either the liquidation of RELP and the
                appointment of a receiver or an auction of Two Park Avenue.
                Discussions to settle the actions have been ongoing, but no
                settlement has been reached. In August 1997, a fourth limited
                partner, represented by separate counsel, commenced another
                purported class action in the same court by serving a complaint
                essentially identical to the complaints in the two previously
                commenced actions. Management believes that the ultimate outcome
                of these matters will not have a material adverse effect on the
                Company.

            ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K.

               (a)      Exhibits:  The following exhibits are filed with this
                                    Quarterly Report on Form 10-Q.

                        11   Statement Re Computation of Per Share Earnings.

                        27   Financial Data Schedule.

               (b)      Reports on Form 8-K

                             During the quarter ended September 30, 1997,
                        Vornado Realty Trust filed the reports on Form 8-K
                        described below:

                           Date of Report
                           (Date of Earliest
                           Event Reported)          Item Reported                                         Date Filed
                           ---------------          -------------                                         ----------
                                                                                               
                           June 27, 1997            Acquisition of properties from                      July 8, 1997
                                                    affiliates of the Riese Organization.

                           August 21, 1997          Acquisition of 90 Park Avenue                       August 29, 1997
                                                    Other events - pending merger with
                                                    Arbor Property Trust

                           August 21, 1997          Financial statements and pro forma                  September 11, 1997
                                                    financial information in connection with
                                                    the acquisition of 90 Park Avenue and the
                                                    pending merger with Arbor Property Trust.

                                  Page 20 of 24
   21
                              VORNADO REALTY TRUST

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                            VORNADO REALTY TRUST
                                       ----------------------------------------
                                              (Registrant)

Date:  November 6, 1997                        /s/ Joseph Macnow
                                       ----------------------------------------
                                                 JOSEPH MACNOW
                                         Vice President - Chief Financial
                                       Officer and Chief Accounting Officer

                                  Page 21 of 24
   22
                              VORNADO REALTY TRUST

                                  EXHIBIT INDEX

                                                                                            PAGE NUMBER IN
                                                                                              SEQUENTIAL
      EXHIBIT NO.                                                                              NUMBERING
      -----------                                                                              ---------
                                                                                         
          11          Statement Re Computation of Per Share Earnings.                               23

          27          Financial Data Schedule.                                                      24

                                  Page 22 of 24
   1
                                   EXHIBIT 11

                              VORNADO REALTY TRUST

                 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS

                                                     THREE MONTHS ENDED                   NINE MONTHS ENDED
                                              SEPTEMBER 30,      SEPTEMBER 30,      SEPTEMBER 30,     SEPTEMBER 30,
                                                 1997               1996                 1997              1996
                                                 ----               ----                 ----              ----
                                                                                          
Weighted average number of
     common shares outstanding                 52,873,509         48,908,786          52,411,062        48,677,798

Common share equivalents for
     options after applying
     treasury stock method                      1,089,545            198,730           1,215,965           318,392
                                               ----------         ----------          ----------        ----------

Weighted average number of
     common shares and common
     share equivalents outstanding             53,963,054         49,107,516          53,627,027        48,996,190
                                               ==========         ==========          ==========        ==========

Net income applicable to
     common shares                            $10,385,000        $14,939,000         $29,008,000       $45,981,000
                                              ===========        ===========         ===========       ===========

Net income per common share                         $ .19              $ .31               $ .54             $ .94
                                                    =====              =====               =====             =====

                                  Page 23 of 24

 5

This schedule contains summary financial information extracted from the
Company's unaudited financial statements for the nine months ended September
30, 1997 and is qualified in its entirety by reference to such financial
statements.

                             
                   9-MOS
                          DEC-31-1997
                               SEP-30-1997
                                          58,367
                                    31,277
                                   15,331
                                       917
                                          0
                                     0
                                       1,231,386
                                 166,072
                               1,551,506
                                0
                                        772,156
                          277,168
                                          0
                                         2,116
                                     255,618
                 1,551,506
                                              0
                               141,827
                                                0
                                   48,557
                                23,248
                                     0
                              30,972
                                 29,008
                                         0
                             29,008
                                       0
                                      0
                                            0
                                    29,008
                                     $.54
                                     $.54