UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
 
FORM 10-K
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended:
December 31, 2018
 
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
 
to
 
 
Commission File Number:
001‑11954 (Vornado Realty Trust)
Commission File Number:
001‑34482 (Vornado Realty L.P.)

 
Vornado Realty Trust
 
 
Vornado Realty L.P.
 
 
(Exact name of registrants as specified in its charter)
 
Vornado Realty Trust
Maryland
 
22-1657560
 
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
Vornado Realty L.P.
Delaware
 
13-3925979
 
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
888 Seventh Avenue, New York, New York, 10019
(Address of principal executive offices) (Zip Code)
 
(212) 894-7000
(Registrants’ telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act:
Registrant
 
Title of Each Class
 
Name of Exchange on Which Registered
Vornado Realty Trust
 
Common Shares of beneficial interest,
$.04 par value per share
 
New York Stock Exchange
 
 
Cumulative Redeemable Preferred Shares
of beneficial interest, no par value:
 
 
Vornado Realty Trust
 
5.70% Series K
 
New York Stock Exchange
Vornado Realty Trust
 
5.40% Series L
 
New York Stock Exchange
Vornado Realty Trust
 
5.25% Series M
 
New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:
Registrant
 
Title of Each Class
Vornado Realty L.P.
 
Class A Units of Limited Partnership Interest



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
Vornado Realty Trust: YES  ý      NO  ¨   Vornado Realty L.P.: YES  ¨      NO  ý
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
 
Vornado Realty Trust: YES  ¨      NO   ý   Vornado Realty L.P.: YES  ¨      NO  ý
 
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.
 
Vornado Realty Trust: YES  ý      NO   ¨   Vornado Realty L.P.: YES  ý      NO  ¨  
  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Vornado Realty Trust: YES  ý      NO   ¨   Vornado Realty L.P.: YES  ý      NO  ¨  
  
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ý
  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” "non-accelerated filer," “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Vornado Realty Trust:
ý  Large Accelerated Filer
¨  Accelerated Filer
¨  Non-Accelerated Filer
¨  Smaller Reporting Company
 
¨  Emerging Growth Company
 
Vornado Realty L.P.:
¨  Large Accelerated Filer
¨  Accelerated Filer
ý  Non-Accelerated Filer
¨  Smaller Reporting Company
 
¨  Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Vornado Realty Trust: YES  ¨      NO   ý   Vornado Realty L.P.: YES  ¨      NO  ý
 
The aggregate market value of the voting and non-voting common shares held by non-affiliates of Vornado Realty Trust, i.e. by persons other than officers and trustees of Vornado Realty Trust, was $12,877,203,000 at June 30, 2018 .

As of December 31, 2018 , there were 190,535,499 common shares of beneficial interest outstanding of Vornado Realty Trust.

There is no public market for the Class A units of limited partnership interest of Vornado Realty L.P. Based on the June 30, 2018 closing share price of Vornado Realty Trust’s common shares, which are issuable upon redemption of the Class A units, the aggregate market value of the Class A units held by non-affiliates of Vornado Realty L.P., i.e. by persons other than Vornado Realty Trust and its officers and trustees, was $707,001,000 at June 30, 2018 .

Documents Incorporated by Reference

Part III : Portions of Proxy Statement for Annual Meeting of Vornado Realty Trust’s Shareholders to be held on May 16, 2019 .


EXPLANATORY NOTE
 
This report combines the Annual Reports on Form 10-K for the fiscal year ended December 31, 2018 of Vornado Realty Trust and Vornado Realty L.P. Unless stated otherwise or the context otherwise requires, references to “Vornado” refer to Vornado Realty Trust, a Maryland real estate investment trust (“REIT”), and references to the “Operating Partnership” refer to Vornado Realty L.P., a Delaware limited partnership. References to the “Company,” “we,” “us” and “our” mean, collectively, Vornado, the Operating Partnership and those entities/subsidiaries consolidated by Vornado.
 
The Operating Partnership is the entity through which we conduct substantially all of our business and own, either directly or through subsidiaries, substantially all of our assets. Vornado is the sole general partner and also a 93.4% limited partner of the Operating Partnership. As the sole general partner of the Operating Partnership, Vornado has exclusive control of the Operating Partnership’s day-to-day management.
  
Under the limited partnership agreement of the Operating Partnership, unitholders may present their Class A units for redemption at any time (subject to restrictions agreed upon at the time of issuance of the units that may restrict such right for a period of time). Class A units may be tendered for redemption to the Operating Partnership for cash; Vornado, at its option, may assume that obligation and pay the holder either cash or Vornado common shares on a one-for-one basis. Because the number of Vornado common shares outstanding at all times equals the number of Class A units owned by Vornado, the redemption value of each Class A unit is equivalent to the market value of one Vornado common share, and the quarterly distribution to a Class A unitholder is equal to the quarterly dividend paid to a Vornado common shareholder. This one-for-one exchange ratio is subject to specified adjustments to prevent dilution. Vornado generally expects that it will elect to issue its common shares in connection with each such presentation for redemption rather than having the Operating Partnership pay cash. With each such exchange or redemption, Vornado’s percentage ownership in the Operating Partnership will increase. In addition, whenever Vornado issues common shares other than to acquire Class A units of the Operating Partnership, Vornado must contribute any net proceeds it receives to the Operating Partnership and the Operating Partnership must issue to Vornado an equivalent number of Class A units of the Operating Partnership. This structure is commonly referred to as an umbrella partnership REIT, or UPREIT.
 
The Company believes that combining the Annual Reports on Form 10-K of Vornado and the Operating Partnership into this single report provides the following benefits:
 
•
enhances investors’ understanding of Vornado and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
•
eliminates duplicative disclosure and provides a more streamlined and readable presentation because a substantial portion of the disclosure applies to both Vornado and the Operating Partnership; and
•
creates time and cost efficiencies in the preparation of one combined report instead of two separate reports.

The Company believes it is important to understand the few differences between Vornado and the Operating Partnership in the context of how Vornado and the Operating Partnership operate as a consolidated company. The financial results of the Operating Partnership are consolidated into the financial statements of Vornado. Vornado does not have any other significant assets, liabilities or operations, other than its investment in the Operating Partnership. The Operating Partnership, not Vornado, generally executes all significant business relationships other than transactions involving the securities of Vornado. The Operating Partnership holds substantially all of the assets of Vornado. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from equity offerings by Vornado, which are contributed to the capital of the Operating Partnership in exchange for Class A units of partnership in the Operating Partnership, and the net proceeds of debt offerings by Vornado, the net proceeds of which are contributed to the Operating Partnership in exchange for debt securities of the Operating Partnership, as applicable, the Operating Partnership generates all remaining capital required by the Company’s business. These capital sources may include working capital, net cash provided by operating activities, borrowings under the revolving credit facility, the issuance of secured and unsecured debt and equity securities and proceeds received from the disposition of certain properties.


To help investors better understand the key differences between Vornado and the Operating Partnership, certain information for Vornado and the Operating Partnership in this report has been separated, as set forth below:
 
•
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities;

•
Item 6. Selected Financial Data;

•
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations includes information specific to each entity, where applicable; and

•
Item 8. Financial Statements and Supplementary Data which includes the following specific disclosures for Vornado Realty Trust and Vornado Realty L.P.:
•
Note 12 . Redeemable Noncontrolling Interests/Redeemable Partnership Units
•
Note 13 . Shareholders' Equity/Partners' Capital
•
Note 16 . Stock-based Compensation
•
Note 19 . Income Per Share/Income Per Class A Unit
•
Note 24 . Summary of Quarterly Results (Unaudited)
 
This report also includes separate Part II, Item 9A. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of Vornado and the Operating Partnership in order to establish that the requisite certifications have been made and that Vornado and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.



INDEX

 
Item 
 
Financial Information:
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13.
 
Certain Relationships and Related Transactions, and Director Independence (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16.
 
Form 10-K Summary
 
 
 
 
 
 
 
 
 
 
 
____________________
(1)
These items are omitted in whole or in part because Vornado, the Operating Partnership’s sole general partner, will file a definitive Proxy Statement pursuant to Regulation 14A under the Securities Exchange Act of 1934 with the Securities and Exchange Commission no later than 120 days after December 31, 2018 , portions of which are incorporated by reference herein.


5

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



6


PART I


 
ITEM 1.
BUSINESS

Vornado is a fully‑integrated REIT and conducts its business through, and substantially all of its interests in properties are held by, the Operating Partnership, a Delaware limited partnership. Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors. Vornado is the sole general partner of, and owned approximately 93.4% of the common limited partnership interest in the Operating Partnership as of December 31, 2018 .
 
We currently own all or portions of:
 
New York:
 
•
19.9 million square feet of Manhattan office in 36 properties;
•
2.6 million square feet of Manhattan street retail in 71 properties;
•
1,999 units in eleven residential properties;
•
The 1,700 room Hotel Pennsylvania located on Seventh Avenue at 33rd Street in the heart of the Penn District; and
•
A 32.4% interest in Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX), which owns seven properties in the greater New York metropolitan area, including 731 Lexington Avenue, the 1.3 million square foot Bloomberg, L.P. headquarters building.
 
Other Real Estate and Related Investments:
 
•
The 3.7 million square foot theMART in Chicago;
•
A 70% controlling interest in 555 California Street, a three-building office complex in San Francisco’s financial district aggregating 1.8 million square feet, known as the Bank of America Center;
•
A 25.0% interest in Vornado Capital Partners, our real estate fund (the "Fund"). We are the general partner and investment manager of the Fund; and
•
Other real estate and other investments.

OBJECTIVES AND STRATEGY
 
Our business objective is to maximize Vornado shareholder value. We intend to achieve this objective by continuing to pursue our investment philosophy and to execute our operating strategies through:
 
•
maintaining a superior team of operating and investment professionals and an entrepreneurial spirit;
•
investing in properties in select markets, such as New York City, where we believe there is a high likelihood of capital appreciation;
•
acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents;
•
investing in retail properties in select under-stored locations such as the New York City metropolitan area;
•
developing and redeveloping our existing properties to increase returns and maximize value; and
•
investing in operating companies that have a significant real estate component.
 
We expect to finance our growth, acquisitions and investments using internally generated funds, proceeds from asset sales and by accessing the public and private capital markets. We may also offer Vornado common or preferred shares or Operating Partnership units in exchange for property and may repurchase or otherwise reacquire these securities in the future.

7


ACQUISITIONS
 
We completed the following acquisitions during 2018 :

•
$442 million acquisition of the retail condominium at 1535 Broadway;
•
$44 million acquisition of 537 West 26th Street and 55,000 square feet of additional zoning air rights; and
•
$42 million purchase price to increase our ownership interest in the joint venture that is developing the Farley Office and Retail Building to 95.0% from 50.1%.

DISPOSITIONS

We completed the following sale transactions during 2018 :

•
$120 million sale of our 49.5% interests in the 666 Fifth Office Condominium. Concurrently with the sale of our interests, the existing mortgage loan on the property was repaid and we received net proceeds of $55.2 million for the participation we held in the mortgage loan;
•
$82 million sale of the retail condominium at 11 East 68th Street by the Fund (25% interest); and
•
$45 million sale of 27 Washington Square North.

220 CENTRAL PARK SOUTH

We completed the following sale transactions during 2018 :

•
$215 million net proceeds from the sale of 11 condominium units.

FINANCINGS
 
We completed the following financing transactions during 2018 :
 
•
$750 million unsecured term loan extended to February 2024, lowering the interest rate from LIBOR plus 1.15% to LIBOR plus
1.00%;
•
$675 million refinancing of Independence Plaza ($338 million at our 50.1% interest);
•
$470 million redemption of all of the outstanding 6.625% Series G and Series I cumulative redeemable preferred shares/units;
•
$255 million refinancing of the Crowne Plaza Times Square Hotel ($84 million at our 32.9% interest);
•
$205 million refinancing of 150 West 34th Street and $105 million investment in a participation in the refinanced loan;
•
$120 million refinancing of 4 Union Square South; and
•
$100 million refinancing of 33-00 Northern Boulevard (Center Building).






8


DEVELOPMENT AND REDEVELOPMENT EXPENDITURES

We are constructing a residential condominium tower containing 397,000 salable square feet at 220 Central Park South ("220 CPS"). The development cost of this project (exclusive of land cost of $515.4 million) is estimated to be approximately $1.4 billion, of which $1.2 billion has been expended as of December 31, 2018.

We are developing a 173,000 square foot Class A office building, located along the western edge of the High Line at 512 West 22nd Street in the West Chelsea submarket of Manhattan (55.0% interest). The development cost of this project is estimated to be approximately $130,000,000, of which our share is $72,000,000. As of December 31, 2018, $95,464,000 has been expended, of which our share is $52,505,000.

We are developing a 34,000 square foot office and retail building at 606 Broadway, located on the northeast corner of Broadway and Houston Street in Manhattan (50.0% interest). The development cost of this project is estimated to be approximately $60,000,000, of which our share is $30,000,000. As of December 31, 2018, $51,202,000 has been expended, of which our share is $25,601,000.

We are redeveloping a 78,000 square foot Class A office building at 345 Montgomery Street, a part of our 555 California Street complex in San Francisco (70.0% interest) located at the corner of California and Pine Street. The development cost of this project is estimated to be approximately $46,000,000, of which our share is $32,000,000. As of December 31, 2018, $21,834,000 has been expended, of which our share is $15,284,000.

We are redeveloping a 165,000 square foot office building at 825 Seventh Avenue, located at the corner of 53rd Street and Seventh Avenue (50.0% interest). The redevelopment cost of this project is estimated to be approximately $30,000,000, of which our share is $15,000,000. As of December 31, 2018, $8,967,000 has been expended, of which our share is $4,484,000.

We are redeveloping PENN1, a 2,545,000 square foot office building located on 34th Street between Seventh and Eighth Avenue. The development cost of this project is estimated to be over $200,000,000, of which $9,725,000 has been expended as of December 31, 2018.

We are in the planning phase to redevelop PENN2, a 1,634,000 square foot office building located on the west side of 7th Avenue between 31st and 33rd Street.

We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including, in particular, the Penn District.



9


DEVELOPMENT AND REDEVELOPMENT EXPENDITURES - continued

Farley Office and Retail Building and Moynihan Train Hall

Our 95.0% joint venture (the remaining 5.0% is owned by the Related Companies "Related") is developing the Farley Office and Retail Building (the "Project"), which will include approximately 850,000 rentable square feet of commercial space, comprised of approximately 730,000 square feet of office space and approximately 120,000 square feet of retail space. The total development cost of the Project is estimated to be approximately $800,000,000 (exclusive of a $230,000,000 upfront contribution and net of anticipated historic tax credits). As of December 31, 2018, $144,491,000 has been expended.

The joint venture has entered into a development agreement with Empire State Development (“ESD”), an entity of New York State, to build the adjacent Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture's obligations. The joint venture has entered into a design-build contract with Skanska Moynihan Train Hall Builders pursuant to which they will build the Moynihan Train Hall, thereby fulfilling all of the joint venture's obligations to ESD. The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bear a full guaranty from Skanska AB. The development expenditures for the Moynihan Train Hall are estimated to be approximately $1.6 billion, which will be funded by governmental agencies. Pursuant to Accounting Standards Codification 840-40-55, the joint venture, which we consolidate on our consolidated balance sheets, is required to recognize all development expenditures for the Moynihan Train Hall. Accordingly, the development expenditures paid for by governmental agencies through December 31, 2018 of $445,693,000 are shown as “Moynihan Train Hall development expenditures” with a corresponding obligation recorded in “Moynihan Train Hall obligation” on our consolidated balance sheets. Upon completion of the development, the "Moynihan Train Hall development expenditures" and the offsetting “Moynihan Train Hall obligation” will be removed from our consolidated balance sheets.


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

10


SEGMENT DATA
 
We operate in the following reportable segments: New York and Other.  Financial information related to these reportable segments for the years ended December 31, 2018 , 2017 and 2016 is set forth in Note 25 – Segment Information to our consolidated financial statements in this Annual Report on Form 10-K.

SEASONALITY
 
Our revenues and expenses are subject to seasonality during the year which impacts quarterly net earnings, cash flows and funds from operations, and therefore impacts comparisons of the current quarter to the previous quarter. The New York segment has historically experienced higher utility costs in the first and third quarters of the year.
 
TENANTS ACCOUNTING FOR OVER 10% OF REVENUES
 
None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2018 , 2017 and 2016 .
 
CERTAIN ACTIVITIES
 
We do not base our acquisitions and investments on specific allocations by type of property. We have historically held our properties for long‑term investment; however, it is possible that properties in our portfolio may be sold when circumstances warrant. Further, we have not adopted a policy that limits the amount or percentage of assets which could be invested in a specific property or property type. Generally our activities are reviewed and may be modified from time to time by Vornado’s Board of Trustees without the vote of our shareholders or Operating Partnership unitholders.
 
EMPLOYEES
 
As of December 31, 2018 , we have approximately 3,928 employees, of which 275 are corporate staff. The New York segment has 3,476 employees, including 2,838 employees of Building Maintenance Services LLC, a wholly owned subsidiary, which provides cleaning, security and engineering services primarily to our New York properties and 460 employees at the Hotel Pennsylvania. theMART has 177 employees. The foregoing does not include employees of partially owned entities.
 
PRINCIPAL EXECUTIVE OFFICES
 
Our principal executive offices are located at 888 Seventh Avenue, New York, New York 10019; telephone (212) 894‑7000. 
 
MATERIALS AVAILABLE ON OUR WEBSITE
 
Copies of our Annual Report on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, and amendments to those reports, as well as Reports on Forms 3, 4 and 5 regarding officers, trustees or 10% beneficial owners, filed or furnished pursuant to Section 13(a), 15(d) or 16(a) of the Securities Exchange Act of 1934 are available free of charge through our website (www.vno.com) as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. Also available on our website are copies of our Audit Committee Charter, Compensation Committee Charter, Corporate Governance and Nominating Committee Charter, Code of Business Conduct and Ethics and Corporate Governance Guidelines. In the event of any changes to these charters or the code or guidelines, changed copies will also be made available on our website. Copies of these documents are also available directly from us free of charge. Our website also includes other financial information, including certain non-GAAP financial measures, none of which is a part of this Annual Report on Form 10-K. Copies of our filings under the Securities Exchange Act of 1934 are also available free of charge from us, upon request.

11


ITEM 1A.
RISK FACTORS
 
Material factors that may adversely affect our business, operations and financial condition are summarized below. We refer to the equity and debt securities of both Vornado and the Operating Partnership as our “securities” and the investors who own shares of Vornado or units of the Operating Partnership, or both, as our “equity holders.” The risks and uncertainties described herein may not be the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business, operations and financial condition. See “Forward-Looking Statements” contained herein on page 6.

OUR INVESTMENTS ARE CONCENTRATED IN THE NEW YORK CITY METROPOLITAN AREA AND CIRCUMSTANCES AFFECTING THIS AREA GENERALLY COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS. 
 
A significant portion of our properties are located in the New York City Metropolitan area and are affected by the economic cycles and risks inherent to this area.
 
In 2018 , approximately 89% of our net operating income ("NOI", a non-GAAP measure) came from properties located in the New York City metropolitan area. We may continue to concentrate a significant portion of our future acquisitions and development in this area. Real estate markets are subject to economic downturns and we cannot predict how economic conditions will impact this market in either the short or long term. Declines in the economy or declines in real estate markets in the New York City metropolitan area could hurt our financial performance and the value of our properties. In addition to the factors affecting the national economic condition generally, the factors affecting economic conditions in this region include:
•
financial performance and productivity of the media, advertising, professional services, financial, technology, retail, insurance and real estate industries;
•
business layoffs or downsizing;
•
industry slowdowns;
•
relocations of businesses;
•
changing demographics;
•
increased telecommuting and use of alternative work places;
•
changes in the number of domestic and international tourists to our markets (including, as a result of changes in the relative strengths of world currencies);
•
infrastructure quality;
•
changes in rates or the treatment of the deductibility of state and local taxes; and
•
any oversupply of, or reduced demand for, real estate.
 
It is impossible for us to assess the future effects of trends in the economic and investment climates of the geographic areas in which we concentrate, and more generally of the United States, or the real estate markets in these areas. Local, national or global economic downturns could negatively affect our businesses and profitability.
 
We are subject to risks that affect the general and New York City retail environments.
 
Certain of our properties are Manhattan street retail properties. As such, these properties are affected by the general and New York City retail environments, including the level of consumer spending and consumer confidence, change in relative strengths of world currencies, the threat of terrorism, increasing competition from retailers, outlet malls, retail websites and catalog companies and the impact of technological change upon the retail environment generally. These factors could adversely affect the financial condition of our retail tenants, or result in the bankruptcy of such tenants, and the willingness of retailers to lease space in our retail locations.

Terrorist attacks may adversely affect the value of our properties and our ability to generate cash flow.
 
We have significant investments in large metropolitan areas, including principally New York City, Chicago and San Francisco metropolitan areas. In response to a terrorist attack or the perceived threat of terrorism, tenants in these areas may choose to relocate their businesses to less populated, lower-profile areas of the United States that may be perceived to be less likely targets of future terrorist activity and fewer customers may choose to patronize businesses in these areas. This, in turn, would trigger a decrease in the demand for space in these areas, which could increase vacancies in our properties and force us to lease space on less favorable terms. Furthermore, we may experience increased costs in security, equipment and personnel. As a result, the value of our properties and the level of our revenues and cash flows could decline materially.

12


Natural disasters and the effects of climate change could have a concentrated impact on the areas where we operate and could adversely impact our results.
 
Our investments are concentrated in the New York, Chicago and San Francisco metropolitan areas. Natural disasters, including earthquakes, storms, tornados, floods and hurricanes, could impact our properties in these and other areas in which we operate. Potentially adverse consequences of “global warming,” including rising sea levels, could similarly have an impact on our properties. Over time, these conditions could result in declining demand for office space in our buildings or the inability of us to operate the buildings at all. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable, increasing the cost of energy at our properties and requiring us to expend funds as we seek to repair and protect our properties against such risks. The incurrence of these losses, costs or business interruptions may adversely affect our operating and financial results.

REAL ESTATE INVESTMENTS’ VALUE AND INCOME FLUCTUATE DUE TO VARIOUS FACTORS.
 
The value of real estate fluctuates depending on conditions in the general economy and the real estate business. These conditions may also adversely impact our revenues and cash flows.
 
The factors that affect the value of our real estate investments include, among other things:
•
global, national, regional and local economic conditions;
•
competition from other available space;
•
local conditions such as an oversupply of space or a reduction in demand for real estate in the area;
•
how well we manage our properties;
•
the development and/or redevelopment of our properties;
•
changes in market rental rates;
•
the timing and costs associated with property improvements and rentals;
•
whether we are able to pass all or portions of any increases in operating costs through to tenants;
•
changes in real estate taxes and other expenses;
•
whether tenants and users such as customers and shoppers consider a property attractive;
•
changes in consumer preferences adversely affecting retailers and retail store values;
•
changes in space utilization by our tenants due to technology, economic conditions and business environment;
•
the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;
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trends in office real estate;
•
the impact on our retail tenants and demand for retail space at our properties due to increased competition from online shopping;
•
availability of financing on acceptable terms or at all;
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inflation or deflation;
•
fluctuations in interest rates;
•
our ability to obtain adequate insurance;
•
changes in zoning laws and taxation;
•
government regulation;
•
consequences of any armed conflict involving, or terrorist attacks against, the United States or individual acts of violence in public spaces including retail centers;
•
potential liability under environmental or other laws or regulations;
•
natural disasters;
•
general competitive factors; and
•
climate changes.
 
The rents or sales proceeds we receive and the occupancy levels at our properties may decline as a result of adverse changes in any of these factors. If rental revenues, sales proceeds and/or occupancy levels decline, we generally would expect to have less cash available to pay indebtedness and for distribution to equity holders. In addition, some of our major expenses, including mortgage payments, real estate taxes and maintenance costs generally do not decline when the related rents decline.
 

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Capital markets and economic conditions can materially affect our liquidity, financial condition and results of operations as well as the value of an investment in our debt and equity securities.
 
There are many factors that can affect the value of our debt and equity securities, including the state of the capital markets and the economy. Demand for office and retail space may decline nationwide due to an economic downturn, bankruptcies, downsizing, layoffs and cost cutting. Government action or inaction may adversely affect the state of the capital markets. The cost and availability of credit may be adversely affected by illiquid credit markets and wider credit spreads, which may adversely affect our liquidity and financial condition, including our results of operations, and the liquidity and financial condition of our tenants. Our inability or the inability of our tenants to timely refinance maturing liabilities and access the capital markets to meet liquidity needs may materially affect our financial condition and results of operations and the value of our securities.

U.S. federal tax reform legislation now and in the future could affect REITs generally, the geographic markets in which we operate, the trading of our shares and our results of operations, both positively and negatively, in ways that are difficult to anticipate.

The Tax Cuts and Jobs Act of 2017 (the “2017 Act”) represented sweeping tax reform legislation that made significant changes to corporate and individual tax rates and the calculation of taxes, as well as international tax rules. As a REIT, we are generally not required to pay federal taxes otherwise applicable to regular corporations if we comply with the various tax regulations governing REITs. Shareholders, however, are generally required to pay taxes on REIT dividends. The 2017 Act and future tax reform legislation could impact our share price or how shareholders and potential investors view an investment in REITs. For example, the decrease in corporate tax rates in the 2017 Act could decrease the attractiveness of the REIT structure relative to companies that are not organized as REITs. In addition, while certain elements of the 2017 Act do not impact us directly as a REIT, they could impact the geographic markets in which we operate as well as our tenants in ways, both positive and negative, that are difficult to anticipate. For example, the limitation in the 2017 Act on the deductibility of certain state and local taxes may make operating in jurisdictions that impose such taxes at higher rates less desirable than operating in jurisdictions imposing such taxes at lower rates. The overall impact of the 2017 Act also depends on the future interpretations and regulations that may be issued by U.S. tax authorities, and it is possible that future guidance could adversely impact us.

Real estate is a competitive business.
 
We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition are rents charged, sales prices, attractiveness of location, the quality of the property and the breadth and the quality of services provided. Our success depends upon, among other factors, trends of the global, national, regional and local economies, the financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population and employment trends.
 
Competition for acquisitions may reduce the number of acquisition opportunities available to us and increase the costs of those acquisitions.

We may acquire properties when we are presented with attractive opportunities. We may face competition for acquisition opportunities from other well-capitalized investors, including publicly traded and privately held REITs, private real estate funds, domestic and foreign financial institutions, life insurance companies, sovereign wealth funds, pension trusts, partnerships and individual investors which may adversely affect us by causing us the inability to acquire a desired property or cause an increase in the purchase price for such acquisition property.

If we are unable to successfully acquire additional properties, our ability to grow our business could be adversely affected. In addition, increases in the cost of acquisition opportunities could adversely affect our results of operations.

We depend on leasing space to tenants on economically favorable terms and collecting rent from tenants who may not be able to pay.
 
Our financial results depend significantly on leasing space in our properties to tenants on economically favorable terms. In addition, because a majority of our income comes from renting of real property, our income, funds available to pay indebtedness and funds available for distribution to equity holders will decrease if a significant number of our tenants cannot pay their rent or if we are not able to maintain occupancy levels on favorable terms. If a tenant does not pay its rent, we may not be able to enforce our rights as landlord without delays and may incur substantial legal and other costs. During periods of economic adversity, there may be an increase in the number of tenants that cannot pay their rent, become insolvent or file for bankruptcy, all of which can result in an increase in vacancy rates and lower income and funds available to pay indebtedness and for distribution to our equity investors.

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We may be adversely affected by trends in office real estate.

Telecommuting, flexible work schedules, open workplaces and teleconferencing are becoming more common. These practices enable businesses to reduce their office space requirements. There is also an increasing trend among some businesses to utilize shared office spaces and co-working spaces. A continuation of the movement towards these practices could, over time, erode the overall demand for office space and, in turn, place downward pressure on occupancy, rental rates and property valuations.

We may be unable to renew leases or relet space as leases expire.
 
When our tenants decide not to renew their leases upon their expiration, we may not be able to relet the space. Even if tenants do renew or we can relet the space, the terms of renewal or reletting, taking into account among other things, the cost of improvements to the property and leasing commissions, may be less favorable than the terms in the expired leases. In addition, changes in space utilization by our tenants may impact our ability to renew or relet space without the need to incur substantial costs in renovating or redesigning the internal configuration of the relevant property. If we are unable to promptly renew the leases or relet the space at similar rates or if we incur substantial costs in renewing or reletting the space, our cash flow and ability to service debt obligations and pay dividends and distributions to equity holders could be adversely affected.
 
Bankruptcy or insolvency of tenants may decrease our revenue, net income and available cash.
 
From time to time, some of our tenants have declared bankruptcy, and other tenants may declare bankruptcy or become insolvent in the future. The bankruptcy or insolvency of a major tenant could cause us to suffer lower revenues and operational difficulties, including leasing the remainder of the property. As a result, the bankruptcy or insolvency of a major tenant could result in decreased revenue, net income and funds available to pay our indebtedness or make distributions to equity holders.

  We may incur significant costs to comply with environmental laws and environmental contamination may impair our ability to lease and/or sell real estate.
 
Our operations and properties are subject to various federal, state and local laws and regulations concerning the protection of the environment, including air and water quality, hazardous or toxic substances and health and safety. Under some environmental laws, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property. The owner or operator may also be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by those parties because of the contamination. These laws often impose liability without regard to whether the owner or operator knew of the release of the substances or caused the release. The presence of contamination or the failure to remediate contamination may also impair our ability to sell or lease real estate or to borrow using the real estate as collateral. Other laws and regulations govern indoor and outdoor air quality including those that can require the abatement or removal of asbestos-containing materials in the event of damage, demolition, renovation or remodeling and also govern emissions of and exposure to asbestos fibers in the air. The maintenance and removal of lead paint and certain electrical equipment containing polychlorinated biphenyls (PCBs) are also regulated by federal and state laws. We are also subject to risks associated with human exposure to chemical or biological contaminants such as molds, pollens, viruses and bacteria which, above certain levels, can be alleged to be connected to allergic or other health effects and symptoms in susceptible individuals. Our predecessor companies may be subject to similar liabilities for activities of those companies in the past. We could incur fines for environmental compliance and be held liable for the costs of remedial action with respect to the foregoing regulated substances or related claims arising out of environmental contamination or human exposure to contamination at or from our properties.

 Each of our properties has been subject to varying degrees of environmental assessment. To date, these environmental assessments have not revealed any environmental condition material to our business. However, identification of new compliance concerns or undiscovered areas of contamination, changes in the extent or known scope of contamination, human exposure to contamination or changes in clean-up or compliance requirements could result in significant costs to us.

In addition, we may become subject to costs or taxes, or increases therein, associated with natural resource or energy usage (such as a “carbon tax”). These costs or taxes could increase our operating costs and decrease the cash available to pay our obligations or distribute to equity holders.
 

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We face risks associated with our tenants being designated “Prohibited Persons” by the Office of Foreign Assets Control and similar requirements. 
 
Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) maintains a list of persons designated as terrorists or who are otherwise blocked or banned (“Prohibited Persons”) from conducting business or engaging in transactions in the United States and thereby restricts our doing business with such persons. In addition, our leases, loans and other agreements may require us to comply with OFAC and related requirements, and any failure to do so may result in a breach of such agreements. If a tenant or other party with whom we conduct business is placed on the OFAC list or is otherwise a party with whom we are prohibited from doing business, we may be required to terminate the lease or other agreement or face other penalties. Any such termination could result in a loss of revenue or otherwise negatively affect our financial results and cash flows.
 
Our business and operations would suffer in the event of system failures. 
 
Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for our internal information technology systems, our systems are vulnerable to damages from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business. We may also incur additional costs to remedy damages caused by such disruptions.

The occurrence of cyber incidents, or a deficiency in our cyber security, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships or reputation, all of which could negatively impact our financial results.
 
We face risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to e-mails, persons who access our systems from inside or outside our organization, and other significant disruptions of our IT networks and related systems. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Although we have not experienced cyber incidents that are individually, or in the aggregate, material, we have experienced cyber attacks in the past, which have thus far been mitigated by preventative, detective, and responsive measures that we have put in place. Our IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations (including managing our building systems) and, in some cases, may be critical to the operations of certain of our tenants. Although we make efforts to maintain the security and integrity of these types of IT networks and related systems, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Unauthorized parties, whether within or outside our company, may disrupt or gain access to our systems, or those of third parties with whom we do business, through human error, misfeasance, fraud, trickery, or other forms of deceit, including break-ins, use of stolen credentials, social engineering, phishing, computer viruses or other malicious codes, and similar means of unauthorized and destructive tampering. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed to not be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk.
 
A security breach or other significant disruption involving our IT networks and related systems could disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our tenants; result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or which could expose us to damage claims by third-parties for disruptive, destructive or otherwise harmful purposes and outcomes; result in our inability to maintain the building systems relied upon by our tenants for the efficient use of their leased space; require significant management attention and resources to remedy any damages that result; subject us to litigation claims for breach of contract, damages, credits, fines, penalties, governmental investigations and enforcement actions or termination of leases or other agreements; or damage our reputation among our tenants and investors generally. Any or all of the foregoing could have a material adverse effect on our results of operations, financial condition and cash flows.

A cyber attack could interfere with our ability to comply with financial reporting requirements, which could adversely affect us. A cyber attack could also compromise the confidential information of our employees, tenants, customers and vendors. A successful attack could disrupt and materially affect our business operations, including damaging relationships with tenants, customers and vendors. Any compromise of our information security systems could also result in a violation of applicable privacy and other laws, significant legal

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and financial exposure, damage to our reputation, loss or misuse of the information (which may be confidential, proprietary and/or commercially sensitive in nature) and a loss of confidence in our security measures, which could harm our business.

Some of our potential losses may not be covered by insurance.
 
We maintain general liability insurance with limits of $300,000,000 per occurrence and per property, and all risk property and rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as flood and earthquake. Our California properties have earthquake insurance with coverage of $260,000,000 per occurrence and in the aggregate, subject to a deductible in the amount of 5% of the value of the affected property. We maintain coverage for terrorism acts with limits of $4.0 billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization Act of 2015, which expires in December 2020.
 
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for acts of terrorism including NBCR acts. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC. For NBCR acts, PPIC is responsible for a deductible of $1,453,000 and 19% of the balance of a covered loss and the Federal government is responsible for the remaining portion of a covered loss. We are ultimately responsible for any loss incurred by PPIC.
 
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism and other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for uninsured losses and for deductibles and losses in excess of our insurance coverage, which could be material.
 
Our debt instruments, consisting of mortgage loans secured by our properties, senior unsecured notes and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our ability to finance or refinance our properties and expand our portfolio.

Compliance or failure to comply with the Americans with Disabilities Act ("ADA") or other safety regulations and requirements could result in substantial costs. 
 
ADA generally requires that public buildings, including our properties, meet certain federal requirements related to access and use by disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants and/or legal fees to their counsel. From time to time persons have asserted claims against us with respect to some of our properties under the ADA, but to date such claims have not resulted in any material expense or liability. If, under the ADA, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our financial condition and results of operations, as well as the amount of cash available for distribution to equity holders.
 
Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these requirements, we could incur fines or private damage awards. We do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that will affect our cash flow and results of operations.

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Changes in the method pursuant to which the LIBOR rates are determined and potential phasing out of LIBOR after 2021 may affect our financial results.

The chief executive of the United Kingdom Financial Conduct Authority ("FCA"), which regulates LIBOR, has recently announced that the FCA intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the United Kingdom or elsewhere. Furthermore, in the United States, efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York. On August 24, 2017, the Federal Reserve Board requested public comment on a proposal by the Federal Reserve Bank of New York, in cooperation with the Office of Financial Research, to produce three new reference rates intended to serve as alternatives to LIBOR. These alternative rates are based on overnight repurchase agreement transactions secured by U.S. Treasury Securities.

Any changes announced by the FCA, other regulators or any other successor governance or oversight body, or future changes adopted by such body, in the method pursuant to which the LIBOR rates are determined may result in a sudden or prolonged increase or decrease in the reported LIBOR rates. If that were to occur, the level of interest payments we incur may change. In addition, although certain of our LIBOR based obligations provide for alternative methods of calculating the interest rate payable on certain of our obligations if LIBOR is not reported, which include requesting certain rates from major reference banks in London or New York, or alternatively using LIBOR for the immediately preceding interest period or using the initial interest rate, as applicable, uncertainty as to the extent and manner of future changes may result in interest rates and/or payments that are higher than, lower than or that do not otherwise correlate over time with the interest rates and/or payments that would have been made on our obligations if LIBOR rate was available in its current form.

WE MAY ACQUIRE OR SELL ASSETS OR ENTITIES OR DEVELOP PROPERTIES. OUR FAILURE OR INABILITY TO CONSUMMATE THESE TRANSACTIONS OR MANAGE THE RESULTS OF THESE TRANSACTIONS COULD ADVERSELY AFFECT OUR OPERATIONS AND FINANCIAL RESULTS.
 
We may acquire, develop or redevelop real estate and acquire related companies and this may create risks.
 
We may acquire, develop or redevelop properties or acquire real estate related companies when we believe doing so is consistent with our business strategy. We may not succeed in (i) developing, redeveloping or acquiring real estate and real estate related companies; (ii) completing these activities on time or within budget; or (iii) leasing or selling developed, redeveloped or acquired properties at amounts sufficient to cover our costs. Competition in these activities could also significantly increase our costs. Difficulties in integrating acquisitions may prove costly or time-consuming and could divert management’s attention. Acquisitions or developments in new markets or industries where we do not have the same level of market knowledge may result in weaker than anticipated performance. We may also abandon acquisition or development opportunities that we have begun pursuing and consequently fail to recover expenses already incurred. Furthermore, we may be exposed to the liabilities of properties or companies acquired, some of which we may not be aware of at the time of acquisition.  
 
From time to time we have made, and in the future we may seek to make, one or more material acquisitions. The announcement of such a material acquisition may result in a rapid and significant decline in the price of our securities.
 
We are continuously looking at material transactions that we believe will maximize shareholder value. However, an announcement by us of one or more significant acquisitions could result in a quick and significant decline in the price of our securities.
 
It may be difficult to buy and sell real estate quickly, which may limit our flexibility.
 
Real estate investments are relatively difficult to buy and sell quickly. Consequently, we may have limited ability to vary our portfolio promptly in response to changes in economic or other conditions.
 

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We may not be permitted to dispose of certain properties or pay down the debt associated with those properties when we might otherwise desire to do so without incurring additional costs. In addition, when we dispose of or sell assets, we may not be able to reinvest the sales proceeds and earn similar returns.
 
As part of an acquisition of a property, or a portfolio of properties, we may agree, and in the past have agreed, not to dispose of the acquired properties or reduce the mortgage indebtedness for a long-term period, unless we pay certain of the resulting tax costs of the seller. These agreements could result in us holding on to properties that we would otherwise sell and not pay down or refinance. In addition, when we dispose of or sell assets, we may not be able to reinvest the sales proceeds and earn returns similar to those generated by the assets that were sold.

From time to time we have made, and in the future we may seek to make, investments in companies over which we do not have sole control. Some of these companies operate in industries with different risks than investing and operating real estate.
 
From time to time we have made, and in the future we may seek to make, investments in companies that we may not control, including, but not limited to, Alexander’s, Urban Edge Properties (“UE”), Pennsylvania Real Estate Investment Trust (“PREIT”), and other equity and loan investments. Although these businesses generally have a significant real estate component, some of them operate in businesses that are different from investing and operating real estate. Consequently, we are subject to operating and financial risks of those industries and to the risks associated with lack of control, such as having differing objectives than our partners or the entities in which we invest, or becoming involved in disputes, or competing directly or indirectly with these partners or entities. In addition, we rely on the internal controls and financial reporting controls of these entities and their failure to maintain effectiveness or comply with applicable standards may adversely affect us.

We are subject to risks involved in real estate activity through joint ventures and private equity real estate funds.

We have in the past and may in the future acquire or own properties in joint ventures and private equity real estate funds with other persons or entities when we believe circumstances warrant the use of such structures. Joint venture and fund investments involve risk, including: the possibility that our partners might refuse to make capital contributions when due and therefore we may be forced to make contributions to maintain the value of the property; that we may be responsible to our partners for indemnifiable losses; that our partners might at any time have business or economic goals that are inconsistent with ours; and that our partners may be in a position to take action or withhold consent contrary to our recommendations, instructions or requests. We and our respective joint venture partners may each have the right to trigger a buy-sell, put right or forced sale arrangement, which could cause us to sell our interest, or acquire our partner’s interest, or to sell the underlying asset, at a time when we otherwise would not have initiated such a transaction, without our consent or on unfavorable terms. In some instances, joint venture and fund partners may have competing interests in unfavorable terms. In some instances, joint venture and fund partners may have competing interests in our markets that could create conflicts of interest. These conflicts may include compliance with the REIT requirements, and our REIT status could be jeopardized if any of our joint ventures or funds does not operate in compliance with REIT requirements. To the extent our partners do not meet their obligations to us or our joint ventures or funds, or they take action inconsistent with the interests of the joint venture or fund, we may be adversely affected.

Our decision to dispose of real estate assets would change the holding period assumption in our valuation analyses, which could result in material impairment losses and adversely affect our financial results.
 
We evaluate real estate assets for impairment based on the projected cash flow of the asset over our anticipated holding period. If we change our intended holding period, due to our intention to sell or otherwise dispose of an asset, then under accounting principles generally accepted in the United States of America, we must reevaluate whether that asset is impaired. Depending on the carrying value of the property at the time we change our intention and the amount that we estimate we would receive on disposal, we may record an impairment loss that would adversely affect our financial results. This loss could be material to our results of operations in the period that it is recognized.
 

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We invest in marketable equity securities. The value of these investments may decline as a result of operating performance or economic or market conditions. 
 
We invest in marketable equity securities of publicly-traded companies, such as Lexington Realty Trust. As of December 31, 2018 , our marketable securities have an aggregate carrying amount of $152,198,000, at market. Significant declines in the value of these investments due to, among other reasons, operating performance or economic or market conditions, would result in recognized GAAP losses which could be material. 

OUR ORGANIZATIONAL AND FINANCIAL STRUCTURE GIVES RISE TO OPERATIONAL AND FINANCIAL RISKS.
 
We may not be able to obtain capital to make investments.
 
We depend primarily on external financing to fund the growth of our business. This is because one of the requirements of the Internal Revenue Code of 1986, as amended, for a REIT is that it distributes 90% of its taxable income, excluding net capital gains, to its shareholders. This, in turn, requires the Operating Partnership to make distributions to its unitholders. There is a separate requirement to distribute net capital gains or pay a corporate level tax in lieu thereof. Our access to debt or equity financing depends on the willingness of third parties to lend or make equity investments and on conditions in the capital markets generally. Although we believe that we will be able to finance any investments we may wish to make in the foreseeable future, there can be no assurance that new financing will be available or available on acceptable terms. For information about our available sources of funds, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and the notes to the consolidated financial statements in this Annual Report on Form 10-K.
 
We depend on dividends and distributions from our direct and indirect subsidiaries. The creditors and preferred equity holders of these subsidiaries are entitled to amounts payable to them by the subsidiaries before the subsidiaries may pay any dividends or distributions to us.
 
Substantially all of Vornado’s assets are held through its Operating Partnership that holds substantially all of its properties and assets through subsidiaries. The Operating Partnership’s cash flow is dependent on cash distributions to it by its subsidiaries, and in turn, substantially all of Vornado’s cash flow is dependent on cash distributions to it by the Operating Partnership. The creditors of each of Vornado’s direct and indirect subsidiaries are entitled to payment of that subsidiary’s obligations to them, when due and payable, before distributions may be made by that subsidiary to its equity holders. Thus, the Operating Partnership’s ability to make distributions to its equity holders depends on its subsidiaries’ ability first to satisfy their obligations to their creditors and then to make distributions to the Operating Partnership. Likewise, Vornado’s ability to pay dividends to its holders of common and preferred shares depends on the Operating Partnership’s ability first to satisfy its obligations to its creditors and make distributions to holders of its preferred units and then to make distributions to Vornado.
 
Furthermore, the holders of preferred units of the Operating Partnership are entitled to receive preferred distributions before payment of distributions to the Operating Partnership’s equity holders, including Vornado. Thus, Vornado’s ability to pay cash dividends to its equity holders and satisfy its debt obligations depends on the Operating Partnership’s ability first to satisfy its obligations to its creditors and make distributions to holders of its preferred units and then to its equity holders, including Vornado. As of December 31, 2018 , there were four series of preferred units of the Operating Partnership not held by Vornado with a total liquidation value of $55,921,000.
 
In addition, Vornado’s participation in any distribution of the assets of any of its direct or indirect subsidiaries upon the liquidation, reorganization or insolvency, is only after the claims of the creditors, including trade creditors and preferred equity holders, are satisfied.
 
We have a substantial amount of indebtedness that could affect our future operations.
 
As of December 31, 2018 , our consolidated mortgages and unsecured indebtedness, excluding related premium, discount and deferred financing costs, net, totaled $9.9 billion. We are subject to the risks normally associated with debt financing, including the risk that our cash flow from operations will be insufficient to meet our required debt service. Our debt service costs generally will not be reduced if developments in the market or at our properties, such as the entry of new competitors or the loss of major tenants, cause a reduction in the income from our properties. Should such events occur, our operations may be adversely affected. If a property is mortgaged to secure payment of indebtedness and income from such property is insufficient to pay that indebtedness, the property could be foreclosed upon by the mortgagee resulting in a loss of income and a decline in our total asset value.


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We have outstanding debt, and the amount of debt and its cost may increase and refinancing may not be available on acceptable terms.
 
We rely on both secured and unsecured, variable rate and non-variable rate debt to finance acquisitions and development activities and for working capital. If we are unable to obtain debt financing or refinance existing indebtedness upon maturity, our financial condition and results of operations would likely be adversely affected. In addition, the cost of our existing debt may increase, especially in the case of a rising interest rate environment, and we may not be able to refinance our existing debt in sufficient amounts or on acceptable terms. If the cost or amount of our indebtedness increases or we cannot refinance our debt in sufficient amounts or on acceptable terms, we are at risk of credit ratings downgrades and default on our obligations that could adversely affect our financial condition and results of operations.

Covenants in our debt instruments could adversely affect our financial condition and our acquisitions and development activities.
 
The mortgages on our properties contain customary covenants such as those that limit our ability, without the prior consent of the applicable lender, to further mortgage the applicable property or to discontinue insurance coverage. Our unsecured indebtedness and debt that we may obtain in the future may contain customary restrictions, requirements and other limitations on our ability to incur indebtedness, including covenants that limit our ability to incur debt based upon the level of our ratio of total debt to total assets, our ratio of secured debt to total assets, our ratio of EBITDA to interest expense, and fixed charges, and that require us to maintain a certain ratio of unencumbered assets to unsecured debt. Our ability to borrow is subject to compliance with these and other covenants. In addition, failure to comply with our covenants could cause a default under the applicable debt instrument, and we may then be required to repay such debt with capital from such other sources or give possession of a secured property to the lender. Under those circumstances, other sources of capital may not be available to us, or may be available only on unattractive terms.
 
A downgrade in our credit ratings could materially adversely affect our business and financial condition.
 
Our credit rating and the credit ratings assigned to our debt securities and our preferred shares could change based upon, among other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies, and any rating could be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant such action. Moreover, these credit ratings are not recommendations to buy, sell or hold our common shares or any other securities. If any of the credit rating agencies that have rated our securities downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a “watch list” for a possible downgrading or lowering, or otherwise indicates that its outlook for that rating is negative, such action could have a material adverse effect on our costs and availability of funding, which could in turn have a material adverse effect on our financial condition, results of operations, cash flows, the trading/redemption price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our equity holders.
 
Vornado may fail to qualify or remain qualified as a REIT and may be required to pay income taxes at corporate rates.
 
Although we believe that Vornado will remain organized and will continue to operate so as to qualify as a REIT for federal income tax purposes, Vornado may fail to remain so qualified. Qualifications are governed by highly technical and complex provisions of the Internal Revenue Code for which there are only limited judicial or administrative interpretations and depend on various facts and circumstances that are not entirely within our control. In addition, legislation, new regulations, administrative interpretations or court decisions may significantly change the relevant tax laws and/or the federal income tax consequences of qualifying as a REIT. If, with respect to any taxable year, Vornado fails to maintain its qualification as a REIT and does not qualify under statutory relief provisions, Vornado could not deduct distributions to shareholders in computing our taxable income and would have to pay federal income tax on its taxable income at regular corporate rates. The federal income tax payable would include any applicable alternative minimum tax. If Vornado had to pay federal income tax, the amount of money available to distribute to equity holders and pay its indebtedness would be reduced for the year or years involved, and Vornado would not be required to make distributions to shareholders in that taxable year and in future years until it was able to qualify as a REIT and did so. In addition, Vornado would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost, unless Vornado were entitled to relief under the relevant statutory provisions.

We face possible adverse changes in tax laws, which may result in an increase in our tax liability.
 
From time to time changes in tax laws or regulations are enacted, which may result in an increase in our tax liability. The shortfall in tax revenues for states and municipalities in recent years may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional taxes on our assets or income. These increased tax costs could adversely affect our financial condition and results of operations and the amount of cash available for payment of dividends and distributions.

21


Loss of our key personnel could harm our operations and adversely affect the value of our common shares and Operating Partnership Class A units.
 
We are dependent on the efforts of Steven Roth, the Chairman of the Board of Trustees and Chief Executive Officer of Vornado. While we believe that we could find a replacement for him and other key personnel, the loss of their services could harm our operations and adversely affect the value of our securities.


VORNADO’S CHARTER DOCUMENTS AND APPLICABLE LAW MAY HINDER ANY ATTEMPT TO ACQUIRE US.
 
Vornado’s Amended and Restated Declaration of Trust (the “declaration of trust”) sets limits on the ownership of its shares.
 
Generally, for Vornado to maintain its qualification as a REIT under the Internal Revenue Code, not more than 50% in value of the outstanding shares of beneficial interest of Vornado may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of Vornado’s taxable year. The Internal Revenue Code defines “individuals” for purposes of the requirement described in the preceding sentence to include some types of entities. Under Vornado’s declaration of trust, as amended, no person may own more than 6.7% of the outstanding common shares of any class, or 9.9% of the outstanding preferred shares of any class, with some exceptions for persons who held common shares in excess of the 6.7% limit before Vornado adopted the limit and other persons approved by Vornado’s Board of Trustees. These restrictions on transferability and ownership may delay, deter or prevent a change in control of Vornado or other transaction that might involve a premium price or otherwise be in the best interest of equity holders.
 
The Maryland General Corporation Law (the “MGCL”) contains provisions that may reduce the likelihood of certain takeover transactions.
 
The MGCL imposes conditions and restrictions on certain “business combinations” (including, among other transactions, a merger, consolidation, share exchange, or, in certain circumstances, an asset transfer or issuance of equity securities) between a Maryland REIT and certain persons who beneficially own at least 10% of the corporation’s stock (an “interested shareholder”). Unless approved in advance by the board of trustees of the trust, or otherwise exempted by the statute, such a business combination is prohibited for a period of five years after the most recent date on which the interested shareholder became an interested shareholder. After such five-year period, a business combination with an interested shareholder must be: (a) recommended by the board of trustees of the trust, and (b) approved by the affirmative vote of at least (i) 80% of the trust’s outstanding shares entitled to vote and (ii) two-thirds of the trust’s outstanding shares entitled to vote which are not held by the interested shareholder with whom the business combination is to be effected, unless, among other things, the trust’s common shareholders receive a “fair price” (as defined by the statute) for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for his or her shares.
 
In approving a transaction, Vornado’s Board of Trustees may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the Board of Trustees. Vornado’s Board of Trustees has adopted a resolution exempting any business combination between Vornado and any trustee or officer of Vornado or its affiliates. As a result, any trustee or officer of Vornado or its affiliates may be able to enter into business combinations with Vornado that may not be in the best interest of our equity holders. With respect to business combinations with other persons, the business combination provisions of the MGCL may have the effect of delaying, deferring or preventing a change in control of Vornado or other transaction that might involve a premium price or otherwise be in the best interest of our equity holders. The business combination statute may discourage others from trying to acquire control of Vornado and increase the difficulty of consummating any offer.


22


Vornado may issue additional shares in a manner that could adversely affect the likelihood of certain takeover transactions.
 
Vornado’s declaration of trust authorizes the Board of Trustees to:
•
cause Vornado to issue additional authorized but unissued common shares or preferred shares;
•
classify or reclassify, in one or more series, any unissued preferred shares;
•
set the preferences, rights and other terms of any classified or reclassified shares that Vornado issues; and
•
increase, without shareholder approval, the number of shares of beneficial interest that Vornado may issue.
 
Vornado’s Board of Trustees could establish a series of preferred shares whose terms could delay, deter or prevent a change in control of Vornado, and therefore of the Operating Partnership, or other transaction that might involve a premium price or otherwise be in the best interest of our equity holders, although Vornado’s Board of Trustees does not now intend to establish a series of preferred shares of this kind. Vornado’s declaration of trust and bylaws contain other provisions that may delay, deter or prevent a change in control of Vornado or other transaction that might involve a premium price or otherwise be in the best interest of our equity holders.
 
We may change our policies without obtaining the approval of our equity holders.
 
Our operating and financial policies, including our policies with respect to acquisitions of real estate or other companies, growth, operations, indebtedness, capitalization, dividends and distributions, are exclusively determined by Vornado’s Board of Trustees. Accordingly, our equity holders do not control these policies.


OUR OWNERSHIP STRUCTURE AND RELATED-PARTY TRANSACTIONS MAY GIVE RISE TO CONFLICTS OF INTEREST.
 
Steven Roth and Interstate Properties may exercise substantial influence over us. They and some of Vornado’s other trustees and officers have interests or positions in other entities that may compete with us.
 
As of December 31, 2018, Interstate Properties, a New Jersey general partnership, and its partners beneficially owned an aggregate of approximately 7.1% of the common shares of beneficial interest of Vornado and 26.2% of the common stock of Alexander’s, which is described below. Steven Roth, David Mandelbaum and Russell B. Wight, Jr. are the three partners of Interstate Properties. Mr. Roth is the Chairman of the Board of Trustees and Chief Executive Officer of Vornado, the managing general partner of Interstate Properties, and the Chairman of the Board of Directors and Chief Executive Officer of Alexander’s. Messrs. Wight and Mandelbaum are Trustees of Vornado and also Directors of Alexander’s.
 
Because of these overlapping interests, Mr. Roth and Interstate Properties and its partners may have substantial influence over Vornado, and therefore over the Operating Partnership. In addition, certain decisions concerning our operations or financial structure may present conflicts of interest among Messrs. Roth, Mandelbaum and Wight and Interstate Properties and our other equity holders. In addition, Mr. Roth, Interstate Properties and its partners, and Alexander’s currently and may in the future engage in a wide variety of activities in the real estate business which may result in conflicts of interest with respect to matters affecting us, such as which of these entities or persons, if any, may take advantage of potential business opportunities, the business focus of these entities, the types of properties and geographic locations in which these entities make investments, potential competition between business activities conducted, or sought to be conducted, competition for properties and tenants, possible corporate transactions such as acquisitions and other strategic decisions affecting the future of these entities.
 
We manage and lease the real estate assets of Interstate Properties under a management agreement for which we receive an annual fee equal to 4% of annual base rent and percentage rent. See Note 23 – Related Party Transactions to our consolidated financial statements in this Annual Report on Form 10-K for additional information.


23


There may be conflicts of interest between Alexander’s and us.
 
As of December 31, 2018 , we owned 32.4% of the outstanding common stock of Alexander’s. Alexander’s is a REIT that has seven properties, which are located in the greater New York metropolitan area. In addition to the 2.3% that they indirectly own through Vornado, Interstate Properties, which is described above, and its partners owned 26.2% of the outstanding common stock of Alexander’s as of December 31, 2018 . Mr. Roth is the Chairman of the Board of Trustees and Chief Executive Officer of Vornado, the managing general partner of Interstate Properties, and the Chairman of the Board of Directors and Chief Executive Officer of Alexander’s. Messrs. Wight and Mandelbaum are Trustees of Vornado and also Directors of Alexander’s and general partners of Interstate Properties. Dr. Richard West is a Trustee of Vornado and a Director of Alexander’s. In addition, Joseph Macnow, our Executive Vice President – Chief Financial Officer and Chief Administrative Officer, is the Treasurer of Alexander’s and Matthew Iocco, our Executive Vice President – Chief Accounting Officer, is the Chief Financial Officer of Alexander’s.
 
We manage, develop and lease Alexander’s properties under management and development agreements and leasing agreements under which we receive annual fees from Alexander’s. See Note 23 – Related Party Transactions to our consolidated financial statements in this Annual Report on Form 10-K for additional information.


THE NUMBER OF SHARES OF VORNADO REALTY TRUST AND THE MARKET FOR THOSE SHARES GIVE RISE TO VARIOUS RISKS.
 
The trading price of Vornado’s common shares has been volatile and may continue to fluctuate. 
 
The trading price of Vornado’s common shares has been volatile and may continue to fluctuate widely as a result of a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations have in the past and may in the future adversely affect the market price of Vornado’s common shares and the redemption price of the Operating Partnership’s Class A units. Among those factors are:
•
our financial condition and performance;
•
the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;
•
actual or anticipated quarterly fluctuations in our operating results and financial condition;
•
our dividend policy;
•
the reputation of REITs and real estate investments generally and the attractiveness of REIT equity securities in comparison to other equity securities, including securities issued by other real estate companies, and fixed income securities;
•
uncertainty and volatility in the equity and credit markets;
•
fluctuations in interest rates;
•
changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs;
•
failure to meet analysts’ revenue or earnings estimates;
•
speculation in the press or investment community;
•
strategic actions by us or our competitors, such as acquisitions or restructurings;
•
the extent of institutional investor interest in us;
•
the extent of short-selling of Vornado common shares and the shares of our competitors;
•
fluctuations in the stock price and operating results of our competitors;
•
general financial and economic market conditions and, in particular, developments related to market conditions for REITs and other real estate related companies;
•
domestic and international economic factors unrelated to our performance;
•
changes in tax laws and rules; and
•
all other risk factors addressed elsewhere in this Annual Report on Form 10-K. 
 
A significant decline in Vornado’s stock price could result in substantial losses for our equity holders.


24


Vornado has many shares available for future sale, which could hurt the market price of its shares and the redemption price of the Operating Partnership’s units.
 
The interests of equity holders could be diluted if we issue additional equity securities. As of December 31, 2018 , Vornado had authorized but unissued, 59,464,501 common shares of beneficial interest, $.04 par value and 72,116,023 preferred shares of beneficial interest, no par value; of which 18,882,197 common shares are reserved for issuance upon redemption of Class A Operating Partnership units, convertible securities and employee stock options and 11,200,000 preferred shares are reserved for issuance upon redemption of preferred Operating Partnership units. Any shares not reserved may be issued from time to time in public or private offerings or in connection with acquisitions. In addition, common and preferred shares reserved may be sold upon issuance in the public market after registration under the Securities Act or under Rule 144 under the Securities Act or other available exemptions from registration. We cannot predict the effect that future sales of Vornado’s common and preferred shares or Operating Partnership Class A and preferred units will have on the market prices of our securities.

 In addition, under Maryland law, Vornado’s Board of Trustees has the authority to increase the number of authorized shares without shareholder approval.


ITEM 1B. 
UNRESOLVED STAFF COMMENTS
There are no unresolved comments from the staff of the Securities and Exchange Commission as of the date of this Annual Report on Form 10-K.


25


ITEM 2.     PROPERTIES

We operate in two reportable segments: New York and Other. The following pages provide details of our real estate properties as of December 31, 2018 .
 
 
 
 
 
 
 

   
Square Feet
NEW YORK SEGMENT
Property
 
%
Ownership
 
Type
 
%
Occupancy
   
In Service
 
Under
Development
or Not
Available
for Lease
 
Total
Property
PENN1 (ground leased through 2098)
 
100.0
%
 
Office / Retail
 
93.1
%
   
2,376,000

 
169,000

 
2,545,000

1290 Avenue of the Americas
 
70.0
%
 
Office / Retail
 
100.0
%
   
2,113,000

 
—

 
2,113,000

PENN2
 
100.0
%
 
Office / Retail
 
100.0
%
   
1,398,000

 
236,000

 
1,634,000

909 Third Avenue (ground leased through 2063)
 
100.0
%
 
Office
 
98.6
%
   
1,352,000

 
—

 
1,352,000

Independence Plaza, Tribeca (1,327 units) (1)
 
50.1
%
 
Retail / Residential
 
100.0
%
(2)  
1,245,000

 
12,000

 
1,257,000

280 Park Avenue (1)
 
50.0
%
 
Office / Retail
 
93.5
%
   
1,260,000

 
—

 
1,260,000

770 Broadway
 
100.0
%
 
Office / Retail
 
100.0
%
   
1,183,000

 
—

 
1,183,000

PENN11
 
100.0
%
 
Office / Retail
 
99.7
%
   
1,151,000

 
—

 
1,151,000

90 Park Avenue
 
100.0
%
 
Office / Retail
 
94.9
%
   
962,000

 
—

 
962,000

One Park Avenue (1)
 
55.0
%
 
Office / Retail
 
100.0
%
   
943,000

 
—

 
943,000

888 Seventh Avenue (ground leased through 2067)
 
100.0
%
 
Office / Retail
 
96.7
%
   
886,000

 
—

 
886,000

100 West 33rd Street
 
100.0
%
 
Office
 
100.0
%
   
859,000

 
—

 
859,000

Farley Office and Retail Building
      (ground leased through 2116)
 
95.0
%
 
Office / Retail
 
n/a

 
—

 
850,000

 
850,000

330 Madison Avenue (1)
 
25.0
%
 
Office / Retail
 
97.0
%
   
846,000

 
—

 
846,000

330 West 34th Street
(ground leased through 2149 - 34.8% ownership interest in the land)
 
100.0
%
 
Office / Retail
 
98.5
%
   
722,000

 
—

 
722,000

85 Tenth Avenue (1)
 
49.9
%
 
Office / Retail
 
99.5
%
   
629,000

 
—

 
629,000

650 Madison Avenue (1)
 
20.1
%
 
Office / Retail
 
96.0
%
   
604,000

 
—

 
604,000

350 Park Avenue
 
100.0
%
 
Office / Retail
 
97.8
%
   
571,000

 
—

 
571,000

150 East 58th Street (ground leased through 2118)
 
100.0
%
 
Office / Retail
 
96.5
%
   
543,000

 
—

 
543,000

7 West 34th Street   (1)
 
53.0
%
 
Office / Retail
 
99.6
%
   
477,000

 
—

 
477,000

33-00 Northern Boulevard (Center Building)
 
100.0
%
 
Office
 
95.5
%
   
471,000

 
—

 
471,000

595 Madison Avenue
 
100.0
%
 
Office / Retail
 
91.1
%
   
330,000

 
—

 
330,000

640 Fifth Avenue
 
100.0
%
 
Office / Retail
 
100.0
%
   
315,000

 
—

 
315,000

50-70 W 93rd Street (325 units) (1)
 
49.9
%
 
Residential
 
96.0
%
   
283,000

 
—

 
283,000

Manhattan Mall
 
100.0
%
 
Retail
 
94.9
%
   
256,000

 
—

 
256,000

40 Fulton Street
 
100.0
%
 
Office / Retail
 
77.5
%
   
251,000

 
—

 
251,000

4 Union Square South
 
100.0
%
 
Retail
 
100.0
%
   
206,000

 
—

 
206,000

260 Eleventh Avenue (ground leased through 2114)
 
100.0
%
 
Office
 
100.0
%
   
184,000

 
—

 
184,000

512 W 22nd Street (1)
 
55.0
%
 
Office
 
n/a

   
—

 
173,000

 
173,000

61 Ninth Avenue (ground leased through 2115) (1)
 
45.1
%
 
Office / Retail
 
100.0
%
   
23,000

 
147,000

 
170,000

825 Seventh Avenue
 
51.2
%
 
Office (1)   / Retail
 
n/a

   
—

 
169,000

 
169,000

1540 Broadway
 
100.0
%
 
Retail
 
100.0
%
   
161,000

 
—

 
161,000

608 Fifth Avenue (ground leased through 2033)
 
100.0
%
 
Office / Retail
 
99.9
%
   
137,000

 
—

 
137,000

Paramus
 
100.0
%
 
Office
 
87.2
%
   
129,000

 
—

 
129,000

666 Fifth Avenue Retail Condominium
 
100.0
%
 
Retail
 
100.0
%
   
114,000

 
—

 
114,000

1535 Broadway
 
100.0
%
 
Retail / Theatre
 
98.0
%
   
107,000

 
—

 
107,000

57th Street (2 buildings) (1)
 
50.0
%
 
Office / Retail
 
87.9
%
   
103,000

 
—

 
103,000

689 Fifth Avenue
 
100.0
%
 
Office / Retail
 
100.0
%
   
98,000

 
—

 
98,000

478-486 Broadway (2 buildings) (10 units)
 
100.0
%
 
Retail / Residential
 
100.0
%
(2)  
85,000

 
—

 
85,000

150 West 34th Street
 
100.0
%
 
Retail
 
100.0
%
   
78,000

 
—

 
78,000

510 Fifth Avenue
 
100.0
%
 
Retail
 
100.0
%
   
66,000

 
—

 
66,000

655 Fifth Avenue
 
92.5
%
 
Retail
 
100.0
%
   
57,000

 
—

 
57,000

155 Spring Street
 
100.0
%
 
Retail
 
93.6
%
   
50,000

 
—

 
50,000

3040 M Street
 
100.0
%
 
Retail
 
100.0
%
   
44,000

 
—

 
44,000

435 Seventh Avenue
 
100.0
%
 
Retail
 
100.0
%
   
43,000

 
—

 
43,000

________________________________________
See notes on page 28.

26


ITEM 2.     PROPERTIES – CONTINUED

 
 
 
 
 
 
 
 
Square Feet
NEW YORK SEGMENT – CONTINUED
Property
 
%
Ownership
 
Type
 
%
Occupancy
 
In Service
 
Under
Development
or Not
Available
for Lease
 
Total
Property
692 Broadway
 
100.0
%
 
Retail
 
100.0
%
   
36,000

 
—

 
36,000

606 Broadway
 
50.0
%
 
Office / Retail
 
100.0
%
   
3,000

 
31,000

 
34,000

697-703 Fifth Avenue
 
74.3
%
 
Retail
 
100.0
%
   
26,000

 
—

 
26,000

715 Lexington Avenue
 
100.0
%
 
Retail
 
92.5
%
   
23,000

 
—

 
23,000

1131 Third Avenue
 
100.0
%
 
Retail
 
100.0
%
 
23,000

 
—

 
23,000

40 East 66th Street (5 units)
 
100.0
%
 
Retail / Residential
 
66.7
%
(2)  
23,000

 
—

 
23,000

131-135 West 33rd Street
 
100.0
%
 
Retail
 
100.0
%
   
23,000

 
—

 
23,000

828-850 Madison Avenue
 
100.0
%
 
Retail
 
94.8
%
   
14,000

 
4,000

 
18,000

443 Broadway
 
100.0
%
 
Retail
 
100.0
%
   
16,000

 
—

 
16,000

334 Canal Street (4 units)
 
100.0
%
 
Retail / Residential
 
100.0
%
(2)  
15,000

 
—

 
15,000

537 West 26th Street
 
100.0
%
 
Retail
 
n/a

 
14,000

 
—

 
14,000

304 Canal Street (4 units)
 
100.0
%
 
Retail / Residential
 
n/a

   
13,000

 
—

 
13,000

677-679 Madison Avenue (8 units)
 
100.0
%
 
Retail / Residential
 
100.0
%
(2)  
13,000

 
—

 
13,000

431 Seventh Avenue
 
100.0
%
 
Retail
 
100.0
%
   
10,000

 
—

 
10,000

138-142 West 32nd Street
 
100.0
%
 
Retail
 
67.3
%
   
8,000

 
—

 
8,000

148 Spring Street
 
100.0
%
 
Retail
 
100.0
%
   
8,000

 
—

 
8,000

339 Greenwich Street
 
100.0
%
 
Retail
 
100.0
%
 
8,000

 
—

 
8,000

150 Spring Street (1 unit)
 
100.0
%
 
Retail / Residential
 
63.2
%
(2)  
7,000

 
—

 
7,000

966 Third Avenue
 
100.0
%
 
Retail
 
100.0
%
   
7,000

 
—

 
7,000

968 Third Avenue (1)
 
50.0
%
 
Retail
 
100.0
%
   
7,000

 
—

 
7,000

488 Eighth Avenue
 
100.0
%
 
Retail
 
100.0
%
   
6,000

 
—

 
6,000

137 West 33rd Street
 
100.0
%
 
Retail
 
100.0
%
   
3,000

 
—

 
3,000

Other (8 units)
 
100.0
%
 
Retail / Residential
 
100.0
%
(2)  
22,000

 
—

 
22,000

 
 
 
 
 
 
 
 
 
 
 
 
 
Hotel Pennsylvania
 
100.0
%
 
Hotel
 
n/a

   
1,400,000

 
—

 
1,400,000

 
 
 
 
 
 
 
 
 
 
 
 
 
Alexander's, Inc.:
 
 

 
 
 
 

   
 

 
 

 
 

731 Lexington Avenue (1)
 
32.4
%
 
Office / Retail
 
99.9
%
   
1,063,000

 
—

 
1,063,000

Rego Park II, Queens (1)
 
32.4
%
 
Retail
 
99.9
%
   
609,000

 
—

 
609,000

Rego Park I, Queens (1)
 
32.4
%
 
Retail
 
43.1
%
   
343,000

 
—

 
343,000

The Alexander Apartment Tower, Queens (312 units) (1)
 
32.4
%
 
Residential
 
95.5
%
   
255,000

 
—

 
255,000

Flushing, Queens (1)  (1.0 acre ground leased through 2037)
 
32.4
%
 
Retail
 
100.0
%
   
167,000

 
—

 
167,000

Paramus, New Jersey (30.3 acres
ground leased through 2041) (1)
 
32.4
%
 
Retail
 
100.0
%
   
—

 
—

 
—

Total New York Segment
 
 
 
 
 
96.7
%
   
27,876,000

 
1,791,000

 
29,667,000

 
 
 
 
 
 
 
 
 
 
 
 
 
Our Ownership Interest
 
 
 
 
 
97.0
%
   
22,041,000

 
1,486,000

 
23,527,000

________________________________________
See notes on page 28.


27


ITEM 2.     PROPERTIES – CONTINUED

 
 
 
 
 
 
 
 
Square Feet
OTHER SEGMENT
Property
 
%
Ownership
 
Type
 
%
Occupancy
 
In Service
 
Under
Development
or Not
Available
for Lease
 
Total
Property
theMART:
 
 
 
 
 
 
 
 
 
 
 
 
theMART, Chicago
 
100.0
%
 
Office / Retail/Showroom
 
94.8
%
 
3,675,000

 
—

 
3,675,000

Other (2 properties) (1)
 
50.0
%
 
Retail
 
89.5
%
 
19,000

 
—

 
19,000

Total theMART
 
 

 
 
 
94.7
%
 
3,694,000

 
—

 
3,694,000

 
 
 
 
 
 
 
 
 
 
 
 
 
Our Ownership Interest 
 
 

 
 
 
94.7
%
 
3,685,000

 
—

 
3,685,000

 
 
 
 
 
 
 
 
 
 
 
 
 
555 California Street:
 
 

 
 
 
 

 
 

 
 
 
 
555 California Street
 
70.0
%
 
Office
 
99.3
%
 
1,508,000

 
—

 
1,508,000

315 Montgomery Street
 
70.0
%
 
Office / Retail
 
100.0
%
 
235,000

 
—

 
235,000

345 Montgomery Street
 
70.0
%
 
Office / Retail
 
n/a

 
—

 
78,000

 
78,000

Total 555 California Street
 
 
 
 
 
99.4
%
 
1,743,000

 
78,000

 
1,821,000

 
 
 
 
 
 
 
 
 
 
 
 
 
Our Ownership Interest 
 
 
 
 
 
99.4
%
 
1,220,000

 
55,000

 
1,275,000

Vornado Capital Partners Real Estate Fund
("Fund") (3)  :
 
 
 
 
 
 
 
 
 
 

 
 

Crowne Plaza Times Square, NY (0.64 acres owned in
      fee; 0.18 acres ground leased through 2187 and
      0.05 acres ground leased through 2035) (4)
 
75.3
%
 
Office / Retail/Hotel
 
97.6
%
   
243,000

 
—

 
243,000

Lucida, 86th Street and Lexington Avenue, NY
(ground leased through 2082) (39 units)
 
100
%
 
Retail / Residential
 
100.0
%
(2)  
155,000

 
—

 
155,000

501 Broadway, NY
 
100
%
 
Retail
 
100.0
%
   
9,000

 
—

 
9,000

1100 Lincoln Road, Miami, FL
 
100
%
 
Retail / Theatre
 
86.9
%
 
130,000

 
—

 
130,000

Total Real Estate Fund
 
 
 
 
 
94.1
%
   
537,000

 
—

 
537,000

 
 
 
 
 
 
 
 
 
 
 
 
 
Our Ownership Interest 
 
 
 
 
 
94.5
%
   
154,000

 
—

 
154,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other:
 
 
 
 
 
 

 
 

 
 

 
 

Rosslyn Plaza (197 units) (1)
 
46.2
%
 
Office / Residential
 
61.6
%
(2)  
685,000

 
304,000

 
989,000

Wayne Towne Center, Wayne
(ground leased through 2064)
 
100
%
 
Retail
 
100.0
%
 
671,000

 
6,000

 
677,000

Annapolis
(ground leased through 2042)
 
100
%
 
Retail
 
100.0
%
 
128,000

 
—

 
128,000

Fashion Centre Mall (1)
 
7.5
%
 
Retail
 
99.6
%
 
868,000

 
—

 
868,000

Washington Tower (1)
 
7.5
%
 
Office
 
100.0
%
 
170,000

 
—

 
170,000

Total Other
 
 
 
 
 
92.5
%
 
2,522,000

 
310,000

 
2,832,000

 
 
 
 
 
 
 
 
 
 
 
 
 
Our Ownership Interest 
 
 
 
 
 
92.8
%
 
1,187,000

 
146,000

 
1,333,000

________________________________________
(1)
Denotes property not consolidated in the accompanying consolidated financial statements and related financial data included in the Annual Report on Form 10-K.
(2)
Excludes residential occupancy statistics.
(3)
We own a 25% interest in the Fund. The ownership percentage in this section represents the Fund's ownership in the underlying assets.
(4)
We own a 32.9% economic interest through the Fund and the Crowne Plaza Joint Venture.


28


NEW YORK

As of December 31, 2018 , our New York segment consisted of 27.9 million square feet in 87 properties. The 27.9 million square feet is comprised of 19.9 million square feet of office in 36 properties, 2.6 million square feet of retail in 71 properties, 1,999 units in eleven residential properties, the 1.4 million square foot Hotel Pennsylvania, and our 32.4% interest in Alexander’s, which owns seven properties in the greater New York metropolitan area. The New York segment also includes 10 garages totaling 1.7 million square feet (4,875 spaces) which are managed by, or leased to, third parties.
 
New York lease terms generally range from five to seven years for smaller tenants to as long as 20 years for major tenants, and may provide for extension options at market rates. Leases typically provide for periodic step‑ups in rent over the term of the lease and pass through to tenants their share of increases in real estate taxes and operating expenses over a base year. Electricity is provided to tenants on a sub-metered basis or included in rent based on surveys and adjusted for subsequent utility rate increases. Leases also typically provide for free rent and tenant improvement allowances for all or a portion of the tenant’s initial construction costs of its premises.
 
As of December 31, 2018 , the occupancy rate for our New York segment was 97.0%.

Occupancy and weighted average annual rent per square foot (in service):
Office:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Vornado's Ownership Interest
 
As of December 31,
 
Total
Property
Square Feet
 
Square Feet
 
Occupancy
Rate
 
Weighted
Average Annual
Rent Per
Square Foot
 
2018
 
19,858,000

 
16,632,000

 
97.2
%
 
$
74.04

 
2017
 
20,256,000

 
16,982,000

 
97.1
%
 
71.09

 
2016
 
20,227,000

 
16,962,000

 
96.3
%
 
68.90

 
2015
 
19,918,000

 
16,734,000

 
97.1
%
 
66.42

 
2014
 
18,785,000

 
15,730,925

 
97.7
%
 
65.31

 
 
 
 
 
 
 
 
 
 
Retail:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Vornado's Ownership Interest
 
As of December 31,
 
Total
Property
Square Feet
 
Square Feet
 
Occupancy
Rate
 
Weighted
Average Annual
Rent Per
Square Foot
 
2018
 
2,648,000

 
2,419,000

 
97.3
%
 
$
228.43

 
2017
 
2,720,000

 
2,471,000

 
96.9
%
 
217.17

 
2016
 
2,672,000

 
2,464,000

 
97.1
%
 
213.85

 
2015
 
2,596,000

 
2,396,000

 
96.1
%
 
202.72

 
2014
 
2,436,000

 
2,176,000

 
96.4
%
 
173.55


Occupancy and average monthly rent per unit (in service):
Residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Vornado's Ownership Interest
 
As of December 31,
 
Number of Units
 
Number of Units
 
Occupancy
Rate
 
Average Monthly
Rent Per Unit
 
2018
 
 
1,999

 
963

 
96.6
%
 
$
3,803

 
2017
 
 
2,009

 
981

 
96.7
%
 
3,722

 
2016
(1)  
 
2,004

 
977

 
95.7
%
 
3,576

 
2015
 
 
1,711

 
886

 
95.0
%
 
3,495

 
2014
 
 
1,678

 
855

 
95.2
%
 
3,146

________________________________________
(1)
Includes The Alexander Apartment Tower (32.4% ownership) from the date of stabilization in the third quarter of 2016.

29


NEW YORK – CONTINUED

Tenants accounting for 2% or more of revenues:
Tenant
 
Square Feet
Leased
 
2018
Revenues
 
Percentage of
New York
Total
Revenues
 
Percentage
of Total
Revenues
Swatch Group USA
 
32,000

 
$
62,636,000

 
3.4
%
 
2.9
%
IPG and affiliates
 
924,000

 
59,712,000

 
3.3
%
 
2.8
%
Macy's
 
646,000

 
42,402,000

 
2.3
%
 
2.0
%
AXA Equitable Life Insurance
 
481,000

 
41,752,000

 
2.3
%
 
1.9
%

2018 rental revenue by tenants’ industry:

Industry
 
Percentage
Office:
 
 
Financial Services
 
14
%
Advertising/Marketing
 
8
%
Communications
 
7
%
Family Apparel
 
5
%
Technology
 
5
%
Legal Services
 
4
%
Insurance
 
4
%
Real Estate
 
3
%
Publishing
 
3
%
Home Entertainment & Electronics
 
3
%
Government
 
2
%
Banking
 
2
%
Engineering, Architect & Surveying
 
2
%
Health Services
 
1
%
Pharmaceutical
 
1
%
Other
 
7
%
 
 
71
%
Retail:
 
 
Women's Apparel
 
7
%
Family Apparel
 
7
%
Luxury Retail
 
6
%
Restaurants
 
2
%
Banking
 
1
%
Department Stores
 
1
%
Discount Stores
 
1
%
Other
 
4
%
 
 
29
%
 
 
 

Total
 
100
%


30


NEW YORK – CONTINUED

Lease expirations as of December 31, 2018 , assuming none of the tenants exercise renewal options:
 
 
Number of Expiring Leases
 
Square Feet of Expiring Leases (1)
   
Percentage of
New York Square Feet
 
Weighted Average Annual
Rent of Expiring Leases
   
Year
 
 
   
 
Total
 
Per Square Foot
   
Office:
 
 
 
 
   
 
 
 
 
 
   
Month to month
 
12
 
47,000

 
0.3%
 
$
5,010,000

 
$
106.60

   
2019
 
69
 
627,000

 
3.9%
 
41,116,000

 
65.58

(2)  
2020
 
110
 
1,240,000

 
7.8%
 
86,369,000

 
69.65

   
2021
 
133
 
1,188,000

 
7.5%
 
92,419,000

 
77.79

   
2022
 
82
 
709,000

 
4.5%
 
47,069,000

 
66.39

   
2023
 
87
 
1,971,000

(3)  
12.4%
 
159,774,000

 
81.06

   
2024
 
98
 
1,391,000

 
8.8%
 
109,744,000

 
78.90

   
2025
 
54
 
804,000

 
5.1%
 
60,228,000

 
74.91

   
2026
 
76
 
1,236,000

 
7.8%
 
93,992,000

 
76.05

   
2027
 
69
 
1,118,000

 
7.0%
 
81,535,000

 
72.93

   
2028
 
54
 
1,022,000

 
6.4%
 
72,762,000

 
71.20

   
Retail:
 
 
 
 

   
 
 
 
 
 
   
Month to month
 
20
 
71,000

 
3.7%
 
$
9,355,000

 
$
131.76

   
2019
 
27
 
103,000

 
5.4%
 
26,474,000

 
257.03

(4)  
2020
 
23
 
82,000

 
4.3%
 
16,051,000

 
195.74

   
2021
 
15
 
58,000

 
3.0%
 
9,589,000

 
165.33

   
2022
 
9
 
29,000

 
1.5%
 
7,207,000

 
248.52

   
2023
 
18
 
110,000

 
5.8%
 
44,107,000

 
400.97

   
2024
 
22
 
298,000

 
15.6%
 
84,487,000

 
283.51

   
2025
 
11
 
42,000

 
2.2%
 
19,220,000

 
457.62

   
2026
 
17
 
134,000

 
7.0%
 
44,523,000

 
332.26

   
2027
 
11
 
32,000

 
1.7%
 
22,719,000

 
709.97

   
2028
 
16
 
45,000

 
2.4%
 
18,457,000

 
410.16

   
________________________________________
(1)
Excludes storage, vacancy and other.
(2)
Based on current market conditions, we expect to re-lease this space at rents between $68 to $78 per square foot.
(3)
Excludes 492,000 square feet leased at 909 Third Avenue to the U.S. Post Office through 2038 (including three 5-year renewal options) for which the annual escalated rent is $12.99 per square foot.
(4)
Based on current market conditions, we expect to re-lease this space at rents between $250 to $275 per square foot.

Alexander’s
 
As of December 31, 2018 , we own 32.4% of the outstanding common stock of Alexander’s, which owns seven properties in the greater New York metropolitan area aggregating 2.4 million square feet, including 731 Lexington Avenue, the 1.3 million square foot Bloomberg L.P. headquarters building. Alexander’s had $1.16 billion of outstanding debt, net, at December 31, 2018 , of which our pro rata share was $376.2 million, none of which is recourse to us.
 
Hotel Pennsylvania
 
We own the Hotel Pennsylvania which is located in New York City on Seventh Avenue at 33rd Street in the heart of the Penn District and consists of a hotel portion containing 1,000,000 square feet of hotel space with 1,700 rooms and a commercial portion containing 400,000 square feet of retail and office space.
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
2015
 
2014
Hotel Pennsylvania:
 
 
 
 
 
 
 
 
 
Average occupancy rate
86.4
%
 
87.3
%
 
84.7
%
 
90.7
%
 
92.0
%
Average daily rate
$
138.35

 
$
139.09

 
$
134.38

 
$
147.46

 
$
162.01

Revenue per available room
119.47

 
121.46

 
113.84

 
133.69

 
149.04

 


31


OTHER INVESTMENTS

theMART

As of December 31, 2018 , we own the 3.7 million square foot theMART in Chicago, whose largest tenant is Motorola Mobility at 609,000 square feet, the lease of which is guaranteed by Google. theMART is encumbered by a $675,000,000 mortgage loan that bears interest at a fixed rate of 2.70% and matures in September 2021. As of December 31, 2018 , theMART had an occupancy rate of 94.7% and a weighted average annual rent per square foot of $48.16.

555 California Street

As of December 31, 2018 , we own a 70% controlling interest in a three-building office complex containing 1.8 million square feet, known as the Bank of America Center, located at California and Montgomery Streets in San Francisco’s financial district (“555 California Street”). 555 California Street is encumbered by a $558,914,000 mortgage loan that bears interest at a fixed rate of 5.10% and matures in September 2021. As of December 31, 2018 , 555 California Street had an occupancy rate of 99.4% and a weighted average annual rent per square foot of $75.60.

Vornado Capital Partners Real Estate Fund (the “Fund”) and Crowne Plaza Times Square Hotel Joint Venture (the “Crowne Plaza Joint Venture”)

As of December 31, 2018 , we own a 25.0% interest in the Fund, which currently has four investments, one of which is the Crowne Plaza Times Square Hotel in which we also own an additional interest through the Crowne Plaza Joint Venture. We are the general partner and investment manager of the Fund. As of December 31, 2018 , these four investments are carried on our consolidated balance sheet at an aggregate fair value of $318,758,000 , including the Crowne Plaza Joint Venture. As of December 31, 2018 , our share of unfunded commitments was $ 16,119,000 .

ITEM 3. 
LEGAL PROCEEDINGS
We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

ITEM 4. 
MINE SAFETY DISCLOSURES
 
Not applicable.


32


PART II



ITEM 5. 
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Vornado Realty Trust

Vornado’s common shares are traded on the New York Stock Exchange under the symbol “VNO.”
 
As of February 1, 2019 , there were 935 holders of record of Vornado common shares.
 
Vornado Realty L.P.

There is no established trading market for the Operating Partnership's Class A units. Class A units that are not held by Vornado may be tendered for redemption to the Operating Partnership for cash; Vornado, at its option, may assume that obligation and pay the holder either cash or Vornado common shares on a one-for-one basis. Because the number of Vornado common shares outstanding at all times equals the number of Class A units owned by Vornado, the redemption value of each Class A unit is equivalent to the market value of one Vornado common share, and the quarterly distribution to a Class A unitholder is equal to the quarterly dividend paid to a Vornado common shareholder.

As of February 1, 2019 , there were 984 Class A unitholders of record.
 
Recent Sales of Unregistered Securities
 
During 2018, the Operating Partnership issued 915,834 Class A units in connection with equity awards issued pursuant to Vornado’s omnibus share plan, including with respect to grants of restricted Vornado common shares and restricted units of the Operating Partnership and upon conversion, surrender or exchange of the Operating Partnership’s units or Vornado stock options, and consideration received included $19,078,596 in cash proceeds. Such units were issued in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.

From time to time, in connection with equity awards granted under our Omnibus Share Plan, we may withhold common shares for tax purposes or acquire common shares as part of the payment of the exercise price. Although we treat these as repurchases for certain financial statement purposes, these withheld or acquired shares are not considered by us as repurchases for this purpose.
 
Information relating to compensation plans under which Vornado’s equity securities are authorized for issuance is set forth under Part III, Item 12 of this Annual Report on Form 10-K and such information is incorporated by reference herein.
 
Recent Purchases of Equity Securities
 
None.

33


Performance Graph
 
The following graph is a comparison of the five-year cumulative return of Vornado’s common shares, the Standard & Poor’s 500 Index (the “S&P 500 Index”) and the National Association of Real Estate Investment Trusts’ (“NAREIT”) All Equity Index, a peer group index. The graph assumes that $100 was invested on December 31, 2013 in our common shares, the S&P 500 Index and the NAREIT All Equity Index and that all dividends were reinvested without the payment of any commissions. There can be no assurance that the performance of our shares will continue in line with the same or similar trends depicted in the graph below.

CHART-20858487D3E8511F9BE.JPG
 
2013
 
2014
 
2015
 
2016
 
2017
 
2018
Vornado Realty Trust
$
100

 
$
136

 
$
131

 
$
141

 
$
135

 
$
111

S&P 500 Index
100

 
114

 
115

 
129

 
157

 
150

The NAREIT All Equity Index
100

 
128

 
132

 
143

 
155

 
149



34


ITEM 6.     SELECTED FINANCIAL DATA

Vornado Realty Trust
(Amounts in thousands, except per share amounts)
Year Ended December 31,
 
2018
 
2017
 
2016
 
2015
 
2014
Operating Data:
 
 
 
 
 
 
 
 
 
REVENUES:
 
 
 
 
 
 
 
 
 
Property rentals
$
1,760,205

 
$
1,714,952

 
$
1,662,093

 
$
1,626,866

 
$
1,460,391

Tenant expense reimbursements
247,128

 
233,424

 
221,563

 
218,739

 
203,120

Fee and other income
156,387

 
135,750

 
120,086

 
139,890

 
128,657

Total revenues
2,163,720

 
2,084,126

 
2,003,742

 
1,985,495

 
1,792,168

EXPENSES:
 
 
 
 
 
 
 
 
 
Operating
963,478

 
886,596

 
844,566

 
824,511

 
768,341

Depreciation and amortization
446,570

 
429,389

 
421,023

 
379,803

 
351,583

General and administrative
141,871

 
150,782

 
143,643

 
148,982

 
130,256

(Benefit) expense from deferred compensation plan liability
(2,480
)
 
6,932

 
5,213

 
111

 
11,557

Transaction related costs, impairment loss and other
31,320

 
1,776

 
9,451

 
12,511

 
18,435

Total expenses
1,580,759

 
1,475,475

 
1,423,896

 
1,365,918

 
1,280,172

Operating income
582,961

 
608,651

 
579,846

 
619,577

 
511,996

Income (loss) from partially owned entities
9,149

 
15,200

 
168,948

 
(9,947
)
 
(58,484
)
(Loss) income from real estate fund investments
(89,231
)
 
3,240

 
(23,602
)
 
74,081

 
163,034

Interest and other investment income, net
17,057

 
30,861

 
24,335

 
27,129

 
27,012

(Loss) income from deferred compensation plan assets
(2,480
)
 
6,932

 
5,213

 
111

 
11,557

Interest and debt expense
(347,949
)
 
(345,654
)
 
(330,240
)
 
(309,298
)
 
(337,360
)
Purchase price fair value adjustment
44,060

 
—

 
—

 
—

 
—

Net gains on disposition of wholly owned and partially owned assets
246,031

 
501

 
160,433

 
149,417

 
13,568

Income before income taxes
459,598

 
319,731

 
584,933

 
551,070

 
331,323

Income tax (expense) benefit
(37,633
)
 
(42,375
)
 
(7,923
)
 
84,849

 
(9,157
)
Income from continuing operations
421,965

 
277,356

 
577,010

 
635,919

 
322,166

Income (loss) from discontinued operations
638

 
(13,228
)
 
404,912

 
223,511

 
686,860

Net income
422,603

 
264,128

 
981,922

 
859,430

 
1,009,026

Less net loss (income) attributable to noncontrolling interests in:
 
 
 
 
 
 
 
 
 
Consolidated subsidiaries
53,023

 
(25,802
)
 
(21,351
)
 
(55,765
)
 
(96,561
)
Operating Partnership
(25,672
)
 
(10,910
)
 
(53,654
)
 
(43,231
)
 
(47,613
)
Net income attributable to Vornado
449,954

 
227,416

 
906,917

 
760,434

 
864,852

Preferred share dividends
(50,636
)
 
(65,399
)
 
(75,903
)
 
(80,578
)
 
(81,464
)
Preferred share issuance costs
(14,486
)
 
—

 
(7,408
)
 
—

 
—

NET INCOME attributable to common shareholders
$
384,832

 
$
162,017

 
$
823,606

 
$
679,856

 
$
783,388

 
 
 
 
 
 
 
 
 
 
Per Share Data:
 
 
 
 
 
 
 
 
 
Income from continuing operations, net - basic
$
2.02

 
$
0.92

 
$
2.35

 
$
2.49

 
$
0.73

Income from continuing operations, net - diluted
2.01

 
0.91

 
2.34

 
2.48

 
0.72

Net income per common share - basic
2.02

 
0.85

 
4.36

 
3.61

 
4.18

Net income per common share - diluted
2.01

 
0.85

 
4.34

 
3.59

 
4.15

Dividends per common share
2.52

 
2.62

(1)  
2.52

 
2.52

(2)  
2.92

 
 
 
 
 
 
 
 
 
 
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Total assets
$
17,180,794

 
$
17,397,934

 
$
20,814,847

 
$
21,143,293

 
$
21,157,980

Real estate, at cost
16,237,883

 
14,756,295

 
14,187,820

 
13,545,295

 
12,438,940

Accumulated depreciation and amortization
(3,180,175
)
 
(2,885,283
)
 
(2,581,514
)
 
(2,356,728
)
 
(2,209,778
)
Debt, net
9,836,621

 
9,729,487

 
9,446,670

 
9,095,670

 
7,557,877

Total equity
5,107,883

 
5,007,701

 
7,618,496

 
7,476,078

 
7,489,382

____________________
(1)
Post spin-off of JBG SMITH Properties (NYSE: JBGS) on July 17, 2017.
(2)
Post spin-off of Urban Edge Properties (NYSE: UE) on January 15, 2015.

35


ITEM 6.
SELECTED FINANCIAL DATA – CONTINUED

Vornado Realty Trust
(Amounts in thousands)
Year Ended December 31,
 
2018
 
2017
 
2016
 
2015
 
2014
Other Data:
 
 
 
 
 
 
 
 
 
Funds From Operations ("FFO") (1) :
 
 
 
 
 
 
 
 
 
Net income attributable to common shareholders
$
384,832

 
$
162,017

 
$
823,606

 
$
679,856

 
$
783,388

 
 
 
 
 
 
 
 
 
 
FFO adjustments:
 
 
 
 
 
 
 
 
 
Depreciation and amortization of real property
413,091

 
467,966

 
531,620

 
514,085

 
517,493

Net gains on sale of real estate
(158,138
)
 
(3,797
)
 
(177,023
)
 
(289,117
)
 
(507,192
)
Real estate impairment losses
12,000

 
—

 
160,700

 
256

 
26,518

Decrease in fair value of marketable securities
26,453

 
—

 
—

 
—

 
—

After-tax purchase price fair value adjustment on depreciable real estate
(27,289
)
 
—

 
—

 
—

 
—

Proportionate share of adjustments to equity in net income (loss) of partially owned entities to arrive at FFO:
 
 
 
 
 
 
 
 
 
Depreciation and amortization of real property
101,591

 
137,000

 
154,795

 
143,960

 
117,766

Net gains on sale of real estate
(3,998
)
 
(17,777
)
 
(2,853
)
 
(4,513
)
 
(11,580
)
Real estate impairment losses
—

 
7,692

 
6,328

 
16,758

 
—

Decrease in fair value of marketable securities
3,882

 
—

 
—

 
—

 
—

Income tax effect of above adjustments
—

 
—

 
—

 
—

 
(7,287
)
 
367,592

 
591,084

 
673,567

 
381,429

 
135,718

Noncontrolling interests' share of above adjustments
(22,746
)
 
(36,420
)
 
(41,267
)
 
(22,342
)
 
(8,073
)
FFO adjustments, net
344,846

 
554,664

 
632,300

 
359,087

 
127,645

 
 
 
 
 
 
 
 
 
 
FFO attributable to common shareholders
729,678

 
716,681

 
1,455,906

 
1,038,943

 
911,033

Convertible preferred share dividends
62

 
77

 
86

 
92

 
97

Earnings allocated to Out-Performance Plan units
—

 
1,047

 
1,591

 
—

 
—

FFO attributable to common shareholders plus assumed conversions (1)
$
729,740

 
$
717,805

 
$
1,457,583

 
$
1,039,035

 
$
911,130

________________________________________
(1)
FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciable real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are non-GAAP financial measures used by our management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies.


36


ITEM 6.
SELECTED FINANCIAL DATA – CONTINUED

Vornado Realty L.P.
(Amounts in thousands, except per unit amounts)
Year Ended December 31,
 
2018
 
2017
 
2016
 
2015
 
2014
Operating Data:
 
 
 
 
 
 
 
 
 
REVENUES:
 
 
 
 
 
 
 
 
 
Property rentals
$
1,760,205

 
$
1,714,952

 
$
1,662,093

 
$
1,626,866

 
$
1,460,391

Tenant expense reimbursements
247,128

 
233,424

 
221,563

 
218,739

 
203,120

Fee and other income
156,387

 
135,750

 
120,086

 
139,890

 
128,657

Total revenues
2,163,720

 
2,084,126

 
2,003,742

 
1,985,495

 
1,792,168

EXPENSES:
 
 
 
 
 
 
 
 
 
Operating
963,478

 
886,596

 
844,566

 
824,511

 
768,341

Depreciation and amortization
446,570

 
429,389

 
421,023

 
379,803

 
351,583

General and administrative
141,871

 
150,782

 
143,643

 
148,982

 
130,256

(Benefit) expense from deferred compensation plan liability
(2,480
)
 
6,932

 
5,213

 
111

 
11,557

Transaction related costs, impairment loss and other
31,320

 
1,776

 
9,451

 
12,511

 
18,435

Total expenses
1,580,759

 
1,475,475

 
1,423,896

 
1,365,918

 
1,280,172

Operating income
582,961

 
608,651

 
579,846

 
619,577

 
511,996

Income (loss) from partially owned entities
9,149

 
15,200

 
168,948

 
(9,947
)
 
(58,484
)
(Loss) income from real estate fund investments
(89,231
)
 
3,240

 
(23,602
)
 
74,081

 
163,034

Interest and other investment income, net
17,057

 
30,861

 
24,335

 
27,129

 
27,012

(Loss) income from deferred compensation plan assets
(2,480
)
 
6,932

 
5,213

 
111

 
11,557

Interest and debt expense
(347,949
)
 
(345,654
)
 
(330,240
)
 
(309,298
)
 
(337,360
)
Purchase price fair value adjustment
44,060

 
—

 
—

 
—

 
—

Net gains on disposition of wholly owned and partially owned assets
246,031

 
501

 
160,433

 
149,417

 
13,568

Income before income taxes
459,598

 
319,731

 
584,933

 
551,070

 
331,323

Income tax (expense) benefit
(37,633
)
 
(42,375
)
 
(7,923
)
 
84,849

 
(9,157
)
Income from continuing operations
421,965

 
277,356

 
577,010

 
635,919

 
322,166

Income (loss) from discontinued operations
638

 
(13,228
)
 
404,912

 
223,511

 
686,860

Net income
422,603

 
264,128

 
981,922

 
859,430

 
1,009,026

Less net loss (income) attributable to noncontrolling interests in consolidated subsidiaries
53,023

 
(25,802
)
 
(21,351
)
 
(55,765
)
 
(96,561
)
Net income attributable to Vornado Realty L.P.
475,626

 
238,326

 
960,571

 
803,665

 
912,465

Preferred unit distributions
(50,830
)
 
(65,593
)
 
(76,097
)
 
(80,736
)
 
(81,514
)
Preferred share issuance costs
(14,486
)
 
—

 
(7,408
)
 
—

 
—

NET INCOME attributable to Class A unitholders
$
410,310

 
$
172,733

 
$
877,066

 
$
722,929

 
$
830,951

 
 
 
 
 
 
 
 
 
 
Per Unit Data:
 
 
 
 
 
 
 
 
 
Income from continuing operations, net - basic
$
2.01

 
$
0.91

 
$
2.34

 
$
2.49

 
$
0.71

Income from continuing operations, net - diluted
2.00

 
0.90

 
2.32

 
2.46

 
0.70

Net income per Class A unit - basic
2.02

 
0.84

 
4.36

 
3.61

 
4.17

Net income per Class A unit - diluted
2.00

 
0.83

 
4.32

 
3.57

 
4.14

Distributions per Class A unit
2.52

 
2.62

(1)  
2.52

 
2.52

(2)  
2.92

 
 
 
 
 
 
 
 
 
 
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Total assets
$
17,180,794

 
$
17,397,934

 
$
20,814,847

 
$
21,143,293

 
$
21,157,980

Real estate, at cost
16,237,883

 
14,756,295

 
14,187,820

 
13,545,295

 
12,438,940

Accumulated depreciation and amortization
(3,180,175
)
 
(2,885,283
)
 
(2,581,514
)
 
(2,356,728
)
 
(2,209,778
)
Debt, net
9,836,621

 
9,729,487

 
9,446,670

 
9,095,670

 
7,557,877

Total equity
5,107,883

 
5,007,701

 
7,618,496

 
7,476,078

 
7,489,382

________________________________________
(1)
Post spin-off of JBG SMITH (NYSE: JBGS) on July 17, 2017.
(2)
Post spin-off of Urban Edge Properties (NYSE: UE) on January 15, 2015.


37

ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 
Page Number
Overview
Overview - Leasing activity
Critical Accounting Policies
Net Operating Income At Share by Segment for the Years Ended December 31, 2018, 2017 and 2016
Results of Operations:
 
Year Ended December 31, 2018 Compared to December 31, 2017
Year Ended December 31, 2017 Compared to December 31, 2016
Supplemental Information:
 
Net Operating Income At Share by Segment for the Three Months Ended December 31, 2018 and 2017
Three Months Ended December 31, 2018 Compared to December 31, 2017
Net Operating Income At Share by Segment for the Three Months Ended December 31, 2018 and September 30, 2018
Three Months Ended December 31, 2018 Compared to September 30, 2018
Related Party Transactions
Liquidity and Capital Resources
Financing Activities and Contractual Obligations
Certain Future Cash Requirements
Cash Flows for the Year Ended December 31, 2018 Compared to December 31, 2017
Capital Expenditures for the Year Ended December 31, 2018
Capital Expenditures for the Year Ended December 31, 2017
Capital Expenditures for the Year Ended December 31, 2016
Funds From Operations for the Three Months and Years Ended December 31, 2018 and 2017



38


Overview

Vornado Realty Trust (“Vornado”) is a fully‑integrated real estate investment trust (“REIT”) and conducts its business through, and substantially all of its interests in properties are held by, Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”). Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors. Vornado is the sole general partner of, and owned approximately 93.4% of the common limited partnership interest in the Operating Partnership as of December 31, 2018 . All references to the “Company,” “we,” “us” and “our” mean collectively Vornado, the Operating Partnership and those entities/subsidiaries consolidated by Vornado.
 
We own and operate office and retail properties with a concentration in the New York City metropolitan area. In addition, we have a 32.4% interest in Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX), which owns seven properties in the greater New York metropolitan area, as well as interests in other real estate and related investments.
 
Our business objective is to maximize Vornado shareholder value, which we measure by the total return provided to our shareholders. Below is a table comparing Vornado’s performance to the FTSE NAREIT Office Index (“Office REIT”) and the MSCI US REIT Index (“MSCI”) for the following periods ended December 31, 2018 :
 
 
Total Return (1)
 
 
 
Vornado
 
Office REIT
 
MSCI
 
 
Three-month
(14.2
)%
 
(11.9
)%
 
(6.7
)%
 
 
One-year
(17.8
)%
 
(14.5
)%
 
(4.6
)%
 
 
Three-year
(15.6
)%
 
1.8
 %
 
8.9
 %
 
 
Five-year
10.6
 %
 
28.5
 %
 
45.6
 %
 
 
Ten-year
101.8
 %
 
146.7
 %
 
215.5
 %
 
____________________
(1)
Past performance is not necessarily indicative of future performance.

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

•
maintaining a superior team of operating and investment professionals and an entrepreneurial spirit;
•
investing in properties in select markets, such as New York City, where we believe there is a high likelihood of capital appreciation;
•
acquiring quality properties at a discount to replacement cost and where there is a significant potential for higher rents;
•
investing in retail properties in select under-stored locations such as the New York City metropolitan area;
•
developing and redeveloping our existing properties to increase returns and maximize value; and
•
investing in operating companies that have a significant real estate component.

We expect to finance our growth, acquisitions and investments using internally generated funds, proceeds from asset sales and by accessing the public and private capital markets. We may also offer Vornado common or preferred shares or Operating Partnership units in exchange for property and may repurchase or otherwise reacquire these securities in the future.
 
We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition are rents charged, sales prices, attractiveness of location, the quality of the property and the breadth and the quality of services provided. Our success depends upon, among other factors, trends of the global, national, regional and local economies, the financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population and employment trends. See “Risk Factors” in Item 1A for additional information regarding these factors.

39


Overview - continued

Vornado Realty Trust
 
Quarter Ended December 31, 2018 Financial Results Summary
 
Net income attributable to common shareholders for the quarter ended December 31, 2018 was $100,494,000 , or $0.53 per diluted share, compared to $27,319,000 , or $0.14 per diluted share, for the prior year’s quarter. The quarters ended December 31, 2018 and 2017 include certain items that impact net income attributable to common shareholders, which are listed in the table on page 41. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders for the quarter ended December 31, 2018 by $49,504,000 , or $0.26 per diluted share, and decreased net income attributable to common shareholders for the quarter ended December 31, 2017 by $38,471,000 , or $0.20 per diluted share.
 
Funds From Operations (“FFO”) attributable to common shareholders plus assumed conversions for the quarter ended December 31, 2018 was $210,100,000 , or $1.10 per diluted share, compared to $153,151,000 , or $0.80 per diluted share, for the prior year’s quarter. The quarters ended December 31, 2018 and 2017 include certain items that impact FFO, which are listed in the table on page 42. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO for the quarter ended December 31, 2018 by $38,673,000 , or $0.20 per diluted share and decreased FFO for the quarter ended December 31, 2017 by $33,974,000 , or $0.18 per diluted share.

Year Ended December 31, 2018 Financial Results Summary
 
Net income attributable to common shareholders for the year ended December 31, 2018 was $384,832,000 , or $2.01 per diluted share, compared to $162,017,000 , or $0.85 per diluted share, for the year ended December 31, 2017 . The years ended December 31, 2018 and 2017 include certain items that impact net income attributable to common shareholders, which are listed in the table on page 41. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased net income attributable to common shareholders for the year ended December 31, 2018 by $140,938,000 , or $0.74 per diluted share, and decreased net income attributable to common shareholders for the year ended December 31, 2017 by $90,847,000 , or $0.47 per diluted share.
  
FFO attributable to common shareholders plus assumed conversions for the year ended December 31, 2018 was $729,740,000 , or $3.82 per diluted share, compared to $717,805,000 , or $3.75 per diluted share, for the year ended December 31, 2017 . The years ended December 31, 2018 and 2017 include certain items that impact FFO, which are listed in the table on page 42. The aggregate of these items, net of amounts attributable to noncontrolling interests, increased FFO by $10,980,000 and $4,782,000 , or $0.06 and $0.02 per diluted share, for the years ended December 31, 2018 and 2017 , respectively.

40


Overview - continued

Vornado Realty Trust - continued
The following table reconciles the difference between our net income attributable to common shareholders and our net income attributable to common shareholders, as adjusted:
(Amounts in thousands)
For the Three Months Ended
December 31,
 
For the Year Ended
December 31,
 
2018
 
2017
 
2018
 
2017
Certain (income) expense items that impact net income attributable to common shareholders:
 
 
 
 
 
 
 
After-tax net gain on sale of 220 Central Park South condominium units
$
(67,336
)
 
$
—

 
$
(67,336
)
 
$
—

After-tax purchase price fair value adjustment related to the increase in ownership of the Farley joint venture
(27,289
)
 
—

 
(27,289
)
 
—

Our share of loss (income) from real estate fund investments (excluding our $4,252 share of One Park Avenue potential additional transfer taxes)
24,366

 
(529
)
 
23,749

 
10,804

Real estate impairment losses (including our share of partially owned entities)
12,000

 
145

 
12,000

 
7,692

Decrease in fair value of marketable securities resulting from a new GAAP accounting standard effective January 1, 2018 (including our share of partially owned entities)
3,733

 
—

 
30,335

 
—

(Income) loss from discontinued operations and sold properties (primarily related to JBG SMITH Properties operating results and transaction costs through July 17, 2017 spin-off and 666 Fifth Avenue Office Condominium operations through August 3, 2018 sale)
(242
)
 
1,664

 
5,727

 
43,615

Tax expense related to the reduction of our taxable REIT subsidiaries deferred tax assets
—

 
34,800

 
—

 
34,800

Net gains on sale of real estate (including our share of partially owned entities)
—

 
(585
)
 
(28,104
)
 
(21,574
)
Net gain on sale of our ownership interests in 666 Fifth Avenue Office Condominium
—

 
—

 
(134,032
)
 
—

Net gain on the repayment of our loan investment in 666 Fifth Avenue Office Condominium
—

 
—

 
(7,308
)
 
—

Our share of potential additional New York City transfer taxes based on a Tax Tribunal interpretation which Vornado is appealing
—

 
—

 
23,503

 
—

Preferred share issuance costs
—

 
—

 
14,486

 
—

Impairment loss on investment in Pennsylvania Real Estate Investment Trust ("PREIT")
—

 
—

 
—

 
44,465

Net gain resulting from Urban Edge Properties ("UE") operating partnership unit issuances
—

 
—

 
—

 
(21,100
)
Net gain on repayment of our Suffolk Downs JV debt investments
—

 
—

 
—

 
(11,373
)
Other
1,996

 
5,515

 
4,046

 
9,900

 
(52,772
)
 
41,010

 
(150,223
)
 
97,229

Noncontrolling interests' share of above adjustments
3,268

 
(2,539
)
 
9,285

 
(6,382
)
Total of certain (income) expense items that impact net income attributable to common shareholders
$
(49,504
)
 
$
38,471

 
$
(140,938
)
 
$
90,847


41


Overview - continued

Vornado Realty Trust - continued
The following table reconciles the difference between our FFO attributable to common shareholders plus assumed conversions and our FFO attributable to common shareholders plus assumed conversions, as adjusted:
(Amounts in thousands)
For the Three Months Ended
December 31,
 
For the Year Ended
December 31,
 
2018
 
2017
 
2018
 
2017
Certain (income) expense items that impact FFO attributable to common shareholders plus assumed conversions:
 
 
 
 
 
 
 
After-tax net gain on sale of 220 Central Park South condominium units
$
(67,336
)
 
$
—

 
$
(67,336
)
 
$
—

Our share of FFO from real estate fund investments (excluding our $4,252 share of One Park Avenue potential additional transfer taxes)
24,366

 
(529
)
 
23,749

 
10,804

FFO from discontinued operations and sold properties (primarily related to JBG SMITH Properties operating results and transaction costs through July 17, 2017 spin-off and 666 Fifth Avenue Office Condominium operations through August 3, 2018 sale)
(242
)
 
(4,006
)
 
(2,834
)
 
(73,240
)
Tax expense related to the reduction of our taxable REIT subsidiaries deferred tax assets
—

 
34,800

 
—

 
34,800

Our share of potential additional New York City transfer taxes based on a Tax Tribunal interpretation which Vornado is appealing
—

 
—

 
23,503

 
—

Preferred share issuance costs
—

 
—

 
14,486

 
—

Net gain on the repayment of our loan investment in 666 Fifth Avenue Office Condominium
—

 
—

 
(7,308
)
 
—

Impairment loss on investment in PREIT
—

 
—

 
—

 
44,465

Net gain resulting from UE operating partnership unit issuances
—

 
—

 
—

 
(21,100
)
Net gain on repayment of our Suffolk Downs JV debt investments
—

 
—

 
—

 
(11,373
)
Other
1,987

 
5,951

 
4,033

 
10,328

 
(41,225
)
 
36,216

 
(11,707
)
 
(5,316
)
Noncontrolling interests' share of above adjustments
2,552

 
(2,242
)
 
727

 
534

Total of certain (income) expense items that impact FFO attributable to common shareholders plus assumed conversions, net
$
(38,673
)
 
$
33,974

 
$
(10,980
)
 
$
(4,782
)

42


Overview - continued

Same Store Net Operating Income ("NOI") At Share
 
The percentage increase (decrease) in same store NOI at share and same store NOI at share - cash basis of our New York segment, theMART and 555 California Street are summarized below.
 
Total
 
New York (1)
 
theMART
 
555 California Street
Same store NOI at share % increase (decrease):
 
 
 
 
 
 
 
Year ended December 31, 2018 compared to December 31, 2017
0.8
 %
 
1.4
 %
 
(12.2
)%
(2)  
14.9
%
Year ended December 31, 2017 compared to December 31, 2016
2.7
 %
 
2.7
 %
 
4.2
 %
(3)  
1.9
%
Three months ended December 31, 2018 compared to December 31, 2017
(6.3
)%
 
(3.1
)%
 
(56.6
)%
(2)  
16.8
%
Three months ended December 31, 2018 compared to September 30, 2018
(5.3
)%
 
(1.1
)%
 
(58.0
)%
(2)  
3.8
%
 
 
 
 
 
 
 
 
Same store NOI at share - cash basis % increase (decrease):
 
 
 

 
 

 
 

Year ended December 31, 2018 compared to December 31, 2017
3.9
 %
 
4.3
 %
 
(6.5
)%
(2)  
18.1
%
Year ended December 31, 2017 compared to December 31, 2016
11.8
 %
 
11.3
 %
 
7.6
 %
(3)  
36.0
%
Three months ended December 31, 2018 compared to December 31, 2017
(1.7
)%
 
1.9
 %
 
(49.8
)%
(2)  
15.8
%
Three months ended December 31, 2018 compared to September 30, 2018
(4.2
)%
 
—
 %
 
(52.9
)%
(2)  
5.7
%
________________________________________
 
 
Increase
(Decrease)
(1)
Excluding Hotel Pennsylvania, same store NOI at share % increase (decrease):
 
 
Year ended December 31, 2018 compared to December 31, 2017
1.5
 %
 
Year ended December 31, 2017 compared to December 31, 2016
2.3
 %
 
Three months ended December 31, 2018 compared to December 31, 2017
(3.0
)%
 
Three months ended December 31, 2018 compared to September 30, 2018
(1.7
)%
 
 
 
 
Excluding Hotel Pennsylvania, same store NOI at share - cash basis % increase (decrease):
 
 
Year ended December 31, 2018 compared to December 31, 2017
4.5
 %
 
Year ended December 31, 2017 compared to December 31, 2016
11.0
 %
 
Three months ended December 31, 2018 compared to December 31, 2017
2.1
 %
 
Three months ended December 31, 2018 compared to September 30, 2018
(0.6
)%
(2)
Includes additional real estate tax expense accruals of $15,148,000 and $12,124,000 for the year and three months ended December 31, 2018, respectively, due to an increase in the tax-assessed value of theMART.
(3)
The year ended December 31, 2016 includes a $2,000,000 reversal of an expense accrued in 2015. Excluding this amount, same store NOI at share increased by 6.4% and same store NOI at share - cash basis increased by 10.0%.

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

43


Overview - continued

Acquisitions

537 West 26th Street

On February 9, 2018, we acquired 537 West 26th Street, a 14,000 square foot commercial property adjacent to our 260 Eleventh Avenue office property, and 55,000 square feet of additional zoning air rights for $44,000,000.

1535 Broadway

On July 30, 2012, we entered into a lease with Host Hotels & Resorts, Inc. (NYSE: HST) (“Host”), under which we redeveloped the retail and signage components of the Marriott Times Square Hotel. We accounted for this lease as a “capital lease” and recorded a $240,000,000 capital lease asset and liability. On September 21, 2018, we acquired the retail condominium from Host for $442,000,000 (inclusive of the $240,000,000 capital lease liability). The original lease transaction provided that we would become the 100% owner through a put/call arrangement, based on a pre-negotiated formula. This transaction satisfies the put/call arrangement. Our 100% fee interest includes 45,000 square feet of retail, the 1,611 seat Marquis Theater and the largest digital sign in New York with a 330 linear foot, 25,000 square foot display.

Farley Office and Retail Building

On October 30, 2018, we increased our ownership interest in the joint venture that is developing the Farley Office and Retail Building to 95.0% from 50.1% by acquiring a 44.9 % additional ownership interest from the Related Companies ("Related"). The purchase price was $41,500,000 plus the reimbursement of $33,026,000 of costs funded by Related through October 30, 2018. We consolidate the accounts of the joint venture as of October 30, 2018. In connection therewith, we recorded a net gain of $44,060,000 , which is included in "purchase price fair value adjustment" on our consolidated statements of income. As a result of this gain, because we hold our investment in the joint venture through a taxable REIT subsidiary, $16,771,000 of income tax expense was recognized on our consolidated statements of income.

Dispositions

On January 17, 2018, Vornado Capital Partners Real Estate Fund (the "Fund") completed the sale of the retail condominium at 11 East 68th Street, a property located on Madison Avenue and 68th Street, for $82,000,000 . From the inception of this investment through its disposition, the Fund realized a $46,259,000 net gain.

On June 21, 2018 we completed the $45,000,000 sale of 27 Washington Square North, which resulted in a net gain of $23,559,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income.

On August 3, 2018, we completed the sale of our 49.5% interests in the 666 Fifth Avenue Office Condominium. We received net proceeds of $120,000,000 and recognized a financial statement gain of $134,032,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. The gain for tax purposes was approximately $254,000,000 . We continue to own all of the 666 Fifth Avenue Retail Condominium encompassing the Uniqlo, Tissot and Hollister stores with 125 linear feet of frontage on Fifth Avenue between 52nd and 53rd Street. Concurrently with the sale of our interests, the existing mortgage loan on the property was repaid and we received net proceeds of $55,244,000 for the participation we held in the mortgage loan. We recognized a financial statement gain of $7,308,000 , which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income.

Financings

Preferred Securities
 
On January 4 and 11, 2018, we redeemed all of the outstanding 6.625% Series G and Series I cumulative redeemable preferred shares/units at their redemption price of $25.00 per share/unit, or $470,000,000 in the aggregate, plus accrued and unpaid dividends/distributions through the date of redemption, and expensed $14,486,000 of previously capitalized issuance costs.


44


Overview - continued

Financings - continued

Unsecured Term Loan

On October 26, 2018, we extended our $750,000,000 unsecured term loan from October 2020 to February 2024. The interest rate on the extended unsecured term loan was lowered from LIBOR plus 1.15% to LIBOR plus 1.00% ( 3.52% as of December 31, 2018). In connection with the extension of our unsecured term loan, we entered into an interest rate swap from LIBOR plus 1.00% to a fixed rate of 3.87% through October 2023.

Other Financings

On January 5, 2018, we completed a $100,000,000 refinancing of 33-00 Northern Boulevard (Center Building), a 471,000 square foot office building in Long Island City, New York. The seven -year loan is at LIBOR plus 1.80% , which was swapped to a fixed rate of 4.14% . We realized net proceeds of approximately $37,200,000 after repayment of the existing 4.43% $59,800,000 mortgage and closing costs.

On April 19, 2018, the joint venture between the Fund and the Crowne Plaza Joint Venture completed a $255,000,000 refinancing of the Crowne Plaza Times Square Hotel. The interest-only loan is at LIBOR plus 3.53% ( 6.00% at December 31, 2018) and matures in May 2020 with three one -year extension options. In connection therewith, the joint venture purchased an interest rate cap that caps LIBOR at a rate of 4.00% . The Crowne Plaza Times Square Hotel was previously encumbered by a $310,000,000 interest-only mortgage at LIBOR plus 2.80% , which was scheduled to mature in December 2018.

On June 11, 2018, the joint venture that owns Independence Plaza, a three-building 1,327 unit residential complex in the Tribeca submarket of Manhattan completed a $675,000,000 refinancing of Independence Plaza. The seven-year interest-only loan matures in July 2025 and has a fixed rate of 4.25% . Our share of net proceeds, after repayment of the existing 3.48% $550,000,000 mortgage and closing costs, was $55,618,000 .

On August 9, 2018, we completed a $120,000,000 refinancing of 4 Union Square South, a 206,000 square foot Manhattan retail property. The interest-only loan carries a rate of LIBOR plus 1.40% ( 3.75% as of December 31, 2018) and matures in 2025, as extended. The property was previously encumbered by a $113,000,000 mortgage at LIBOR plus 2.15% , which was scheduled to mature in 2019.

On November 16, 2018, we completed a $205,000,000 refinancing of 150 West 34th Street, a 78,000 square foot Manhattan retail property. The interest-only loan carries a rate of LIBOR plus 1.88% ( 4.26% as of December 31, 2018) and matures in 2024, as extended. Concurrently, we invested $105,000,000 in a participation in the refinanced mortgage loan, which earns interest at a rate of LIBOR plus 2.00% ( 4.38% as of December 31, 2018) and also matures in 2024, as extended, and is included in "other assets" on our consolidated balance sheets. The property was previously encumbered by a mortgage of the same amount at LIBOR plus 2.25% , which was scheduled to mature in 2020.

Other Activities

220 Central Park South ("220 CPS")

During the fourth quarter of 2018, we completed the sale of 11 condominium units at 220 CPS for net proceeds aggregating $214,776,000 and resulting in a financial statement net gain of $81,224,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. In connection with these sales, $13,888,000 of income tax expense was recognized in our consolidated statements of income and $213,000,000 of the $950,000,000 220 CPS loan was repaid.


45


Overview - continued

Leasing Activity
 
The leasing activity and related statistics in the tables below are based on leases signed during the period and are not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Second generation relet space represents square footage that has not been vacant for more than nine months and tenant improvements and leasing commissions are based on our share of square feet leased during the period.
 
(Square feet in thousands)
New York
 
 
 
 
 
Office
 
Retail
 
theMART
 
555 California Street
Quarter Ended December 31, 2018:
 
 
 
 
 
 
 
Total square feet leased
479

 
26

 
46

 
—

Our share of square feet leased
415

 
17

 
46

 
—

Initial rent (1)
$
72.97

 
$
211.34

 
$
60.73

 
$
—

Weighted average lease term (years)
7.7

 
8.2

 
5.6

 
—

Second generation relet space:
 
 
 
 
 
 
 
Square feet
357

 
7

 
46

 
—

GAAP basis:
 
 
 
 
 
 
 
Straight-line rent (2)
$
67.56

 
$
228.99

 
$
61.28

 
$
—

Prior straight-line rent
$
63.17

 
$
222.39

 
$
56.40

 
$
—

Percentage increase
6.9
%
 
3.0
%
 
8.7
%
 
—
%
Cash basis:
 
 
 
 
 
 
 
Initial rent (1)
$
67.22

 
$
219.50

 
$
60.73

 
$
—

Prior escalated rent
$
66.41

 
$
217.08

 
$
58.87

 
$
—

Percentage increase
1.2
%
 
1.1
%
 
3.2
%
 
—
%
Tenant improvements and leasing commissions:
 
 
 
 
 
 
 
Per square foot
$
78.71

 
$
144.50

 
$
9.03

 
$
—

Per square foot per annum:
$
10.22

 
$
17.62

 
$
1.61

 
$
—

Percentage of initial rent
14.0
%
 
8.3
%
 
2.7
%
 
—
%
Year Ended December 31, 2018:
 
 
 
 
 
 
 
Total square feet leased
1,827

 
255

 
243

 
249

Our share of square feet leased
1,627

 
236

 
243

 
174

Initial rent (1)
$
79.03

 
$
171.25

 
$
53.47

 
$
89.28

Weighted average lease term (years)
9.6

 
5.5

 
5.8

 
10.3

Second generation relet space:
 
 
 
 
 
 
 
Square feet
1,347

 
216

 
232

 
62

GAAP basis:
 
 
 
 
 
 
 
Straight-line rent (2)
$
81.57

 
$
180.01

 
$
54.11

 
$
104.06

Prior straight-line rent
$
60.99

 
$
232.98

 
$
44.77

 
$
77.46

Percentage increase (decrease)
33.7
%
 
(22.7
)%
 
20.9
%
 
34.3
%
Cash basis:
 
 
 
 
 
 
 
Initial rent (1)
$
79.22

 
$
164.74

 
$
53.49

 
$
97.28

Prior escalated rent
$
64.59

 
$
166.35

 
$
47.48

 
$
85.77

Percentage increase (decrease)
22.7
%
 
(1.0
)%
 
12.7
%
 
13.4
%
Tenant improvements and leasing commissions:
 
 
 
 
 
 
 
Per square foot
$
92.69

 
$
59.17

 
$
17.63

 
$
94.98

Per square foot per annum:
$
9.66

 
$
10.76

 
$
3.04

 
$
9.22

Percentage of initial rent
12.2
%
 
6.3
 %
 
5.7
%
 
10.3
%
____________________
See notes on the following page.

46


Overview - continued

Leasing Activity – continued
(Square feet in thousands)
New York
 
 
 
 
 
Office
 
Retail
 
theMART
 
555 California Street
Year Ended December 31, 2017:
 
 
 
 
 
 
 
Total square feet leased
1,867

 
126

 
345

 
285

Our share of square feet leased:
1,469

 
97

 
345

 
200

Initial rent (1)
$
78.72

 
$
318.67

 
$
47.60

 
$
88.42

Weighted average lease term (years)
8.1

 
7.6

 
6.6

 
7.2

Second generation relet space:
 
 
 
 
 
 
 
Square feet
1,018

 
61

 
319

 
152

GAAP basis:
 
 
 
 
 
 
 
Straight-line rent (2)
$
74.28

 
$
171.74

 
$
47.93

 
$
99.53

Prior straight-line rent
$
65.85

 
$
135.81

 
$
38.04

 
$
80.15

Percentage increase
12.8
%
 
26.5
%
 
26.0
%
 
24.2
%
Cash basis:
 
 
 
 
 
 
 
Initial rent (1)
$
76.03

 
$
159.53

 
$
47.55

 
$
94.14

Prior escalated rent
$
69.19

 
$
127.18

 
$
40.77

 
$
84.76

Percentage increase
9.9
%
 
25.4
%
 
16.6
%
 
11.1
%
Tenant improvements and leasing commissions:
 
 
 
 
 
 
 
Per square foot
$
73.97

 
$
209.76

 
$
33.86

 
$
74.38

Per square foot per annum:
$
9.13

 
$
27.60

 
$
5.13

 
$
10.33

Percentage of initial rent
11.6
%
 
8.7
%
 
10.8
%
 
11.7
%
______________________________________
(1)
Represents the cash basis weighted average starting rent per square foot, which is generally indicative of market rents. Most leases include free rent and periodic step-ups in rent which are not included in the initial cash basis rent per square foot but are included in the GAAP basis straight-line rent per square foot.
(2)
Represents the GAAP basis weighted average rent per square foot that is recognized over the term of the respective leases, and includes the effect of free rent and periodic step-ups in rent.

47


Overview - continued

Square footage (in service) and Occupancy as of December 31, 2018 :
(Square feet in thousands)
 
 
Square Feet (in service)
 
 
 
Number of
properties
 
Total
Portfolio
 
Our
Share
 
Occupancy %
New York:
 
 
 
 
 
 
 
Office
36

 
19,858

 
16,632

 
97.2
%
Retail (includes retail properties that are in the base of our office properties)
71

 
2,648

 
2,419

 
97.3
%
Residential - 1,687 units
10

 
1,533

 
800

 
96.6
%
Alexander's, including 312 residential units
7

 
2,437

 
790

 
91.4
%
Hotel Pennsylvania
1

 
1,400

 
1,400

 
 
 
 
 
27,876

 
22,041

 
97.0
%
 
 
 
 
 
 
 
 
Other:
 

 
 
 
 
 
 

theMART
3

 
3,694

 
3,685

 
94.7
%
555 California Street
3

 
1,743

 
1,220

 
99.4
%
Other
10

 
2,522

 
1,187

 
92.8
%
 
 

 
7,959

 
6,092

 
 

 
 
 
 
 
 
 
 
Total square feet at December 31, 2018
 

 
35,835

 
28,133

 
 



Square footage (in service) and Occupancy as of December 31, 2017 :
(Square feet in thousands)
 
 
Square Feet (in service)
 
 
 
Number of
properties
 
Total
Portfolio
 
Our
Share
 
Occupancy %
New York:
 
 
 
 
 
 
 
Office
36

 
20,256

 
16,982

 
97.1
%
Retail (includes retail properties that are in the base of our office properties)
71

 
2,720

 
2,471

 
96.9
%
Residential - 1,697 units
11

 
1,568

 
835

 
96.7
%
Alexander's, including 312 residential units
7

 
2,437

 
790

 
99.3
%
Hotel Pennsylvania
1

 
1,400

 
1,400

 
 
 
 
 
28,381

 
22,478

 
97.2
%
 
 
 
 
 
 
 
 
Other:
 

 
 
 
 
 
 

theMART
3

 
3,689

 
3,680

 
98.6
%
555 California Street
3

 
1,741

 
1,219

 
94.2
%
Other
11

 
2,525

 
1,188

 
93.6
%
 
 

 
7,955

 
6,087

 
 

 
 
 
 
 
 
 
 
Total square feet at December 31, 2017
 

 
36,336

 
28,565

 
 



48


Critical Accounting Policies

In preparing the consolidated financial statements we have made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Set forth below is a summary of the accounting policies that we believe are critical to the preparation of our consolidated financial statements. The summary should be read in conjunction with the more complete discussion of our accounting policies included in Note 2 – Basis of Presentation and Significant Accounting Policies to our consolidated financial statements in this Annual Report on Form 10-K.
 
Real Estate
 
Real estate is carried at cost, net of accumulated depreciation and amortization. Betterments, major renewals and certain costs directly related to the improvement and leasing of real estate are capitalized. Maintenance and repairs are expensed as incurred. For redevelopment of existing operating properties, the net book value of the existing property under redevelopment plus the cost for the construction and improvements incurred in connection with the redevelopment are capitalized to the extent the capitalized costs of the property do not exceed the estimated fair value of the redeveloped property when complete. If the cost of the redeveloped property, including the net book value of the existing property, exceeds the estimated fair value of the redeveloped property, the excess is charged to expense. Depreciation is recognized on a straight-line basis over the estimated useful lives which range from 7 to 40 years. Tenant allowances are amortized on a straight-line basis over the lives of the related leases, which approximate the useful lives of the assets.

Upon the acquisition of real estate we assess the fair value of acquired assets (including land, buildings and improvements, identified intangibles, such as acquired above and below-market leases, acquired in-place leases and tenant relationships) and acquired liabilities and we allocate the purchase price based on these assessments which are on a relative fair value basis. We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known trends, and market/economic conditions. We amortize identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired.
 
As of December 31, 2018 and 2017 , the carrying amounts of real estate, net of accumulated depreciation and amortization, were $13.1 billion and $11.9 billion , respectively. As of December 31, 2018 and 2017 , the carrying amounts of identified intangible assets (including acquired above-market leases, tenant relationships and acquired in-place leases) were $136,781,000 and $159,260,000 , respectively, and the carrying amounts of identified intangible liabilities, a component of “deferred revenue” on our consolidated balance sheets, were $161,594,000 and $205,600,000 , respectively.
 
Our properties, including any related intangible assets, are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis. An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair value. Impairment analyses are based on our current plans, intended holding periods and available market information at the time the analyses are prepared. If our estimates of the projected future cash flows, anticipated holding periods, or market conditions change, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements. The evaluation of anticipated discounted cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results. Plans to hold properties over longer periods decrease the likelihood of recording impairment losses.

49


Critical Accounting Policies - continued

Partially Owned Entities
 
We consolidate entities in which we have a controlling financial interest. In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider whether the entity is a variable interest entity (“VIE”) and whether we are the primary beneficiary, or hold a majority of the voting interests of the entity. We are deemed to be the primary beneficiary of a VIE when we have (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. We generally do not control a partially owned entity if the approval of all of the partners/members is contractually required with respect to decisions that most significantly impact the performance of the partially owned entity. This includes decisions regarding operating/capital budgets, and the placement of new or additional financing secured by the assets of the venture, among others. We account for investments under the equity method when the requirements for consolidation are not met, and we have significant influence over the operations of the investee. Equity method investments are initially recorded at cost and subsequently adjusted for our share of net income or loss and cash contributions and distributions each period. Investments that do not qualify for consolidation or equity method accounting are accounted for under the cost method.
  
Investments in partially owned entities are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recorded when there is a decline in the fair value below the carrying value and we conclude such decline is other-than-temporary. An impairment loss is measured based on the excess of the carrying amount of an investment over its estimated fair value. Impairment analyses are based on current plans, intended holding periods and available information at the time the analyses are prepared. The ultimate realization of our investments in partially owned entities is dependent on a number of factors, including the performance of each investment and market conditions. If our estimates of the projected future cash flows, the nature of development activities for properties for which such activities are planned and the estimated fair value of the investment change based on market conditions or otherwise, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results. 
 
As of December 31, 2018 and 2017 , the carrying amounts of investments in partially owned entities were $0.9 billion and $1.1 billion , respectively.

Revenue Recognition
 
We have the following revenue sources and revenue recognition policies:
 
•
Base rent is revenue arising from tenant leases. These rents are recognized over the non-cancelable term of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements. We commence rental revenue recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. In addition, in circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease.

•
Hotel revenue arising from the operation of Hotel Pennsylvania consists of room revenue, food and beverage revenue, and banquet revenue. Room revenue is recognized when rooms are occupied. Food and beverage and banquet revenue are recognized when the services have been transferred.

•
Trade shows revenue arising from the operation of trade shows is primarily booth rentals. This revenue is recognized upon the occurrence of the trade shows.

•
Operating expense reimbursements is revenue arising from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes of the common areas of our properties. Revenue is generally recognized in the same period as the related expenses are incurred.

•
Tenant services is revenue arising from sub-metered electric, elevator, trash removal and other services provided to tenants at their request. This revenue is recognized as the services are transferred.

50


Critical Accounting Policies - continued

Revenue Recognition - continued

•
Fee and other income includes management, leasing and other revenue arising from contractual agreements with third parties or with partially owned entities, and includes Building Maintenance Service (“BMS”) cleaning, engineering and security services. This revenue is recognized as the services are transferred. Fee and other income also includes lease termination fee income which is recognized immediately if a tenant vacates or is recognized on a straight-line basis over the shortened remaining lease term.
 
Before we recognize revenue, we assess, among other things, its collectability. If our assessment of the collectability of revenue changes, the impact on our consolidated financial statements could be material.
 
Income Taxes
 
Vornado operates in a manner intended to enable it to continue to qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. Vornado distributes to its shareholders 100% of its taxable income and therefore, no provision for Federal income taxes is required. If Vornado fails to distribute the required amount of income to its shareholders, or fails to meet other REIT requirements, it may fail to qualify as a REIT which may result in substantial adverse tax consequences.
  
Recent Accounting Pronouncements
 
See Note 2 – Basis of Presentation and Significant Accounting Policies to our consolidated financial statements in this Annual Report on Form 10-K for a discussion concerning recent accounting pronouncements.


51


Net Operating Income At Share by Segment for the Years Ended December 31, 2018 , 2017 and 2016
NOI represents total revenues less operating expenses. We consider NOI to be the primary non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on NOI, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. NOI should not be considered a substitute for net income. NOI may not be comparable to similarly titled measures employed by other companies.

Below is a summary of NOI at share and NOI at share - cash basis by segment for the years ended December 31, 2018 , 2017 and 2016 .
(Amounts in thousands)
For the Year Ended December 31, 2018
 
Total
 
New York
 
Other
Total revenues
$
2,163,720

 
$
1,836,036

 
$
327,684

Operating expenses
963,478

 
806,464

 
157,014

NOI - consolidated
1,200,242

 
1,029,572

 
170,670

Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries
(71,186
)
 
(48,490
)
 
(22,696
)
Add: Our share of NOI from partially owned entities
253,564

 
195,908

 
57,656

NOI at share
1,382,620

 
1,176,990

 
205,630

Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other
(44,704
)
 
(45,427
)
 
723

NOI at share - cash basis
$
1,337,916

 
$
1,131,563

 
$
206,353


(Amounts in thousands)
For the Year Ended December 31, 2017
 
Total
 
New York
 
Other
Total revenues
$
2,084,126

 
$
1,779,307

 
$
304,819

Operating expenses
886,596

 
756,670

 
129,926

NOI - consolidated
1,197,530

 
1,022,637

 
174,893

Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries
(65,311
)
 
(45,899
)
 
(19,412
)
Add: Our share of NOI from partially owned entities
269,164

 
189,327

 
79,837

NOI at share
1,401,383

 
1,166,065

 
235,318

Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other
(86,842
)
 
(79,202
)
 
(7,640
)
NOI at share - cash basis
$
1,314,541

 
$
1,086,863

 
$
227,678


(Amounts in thousands)
For the Year Ended December 31, 2016
 
Total
 
New York
 
Other
Total revenues
$
2,003,742

 
$
1,713,374

 
$
290,368

Operating expenses
844,566

 
716,754

 
127,812

NOI - consolidated
1,159,176

 
996,620

 
162,556

Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries
(66,182
)
 
(47,480
)
 
(18,702
)
Add: Our share of NOI from partially owned entities
271,114

 
159,386

 
111,728

NOI at share
1,364,108

 
1,108,526

 
255,582

Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other
(170,477
)
 
(143,239
)
 
(27,238
)
NOI at share - cash basis
$
1,193,631

 
$
965,287

 
$
228,344



52


Net Operating Income At Share by Segment for the Years Ended December 31, 2018 , 2017 and 2016 - continued

The elements of our New York and Other NOI at share for the years ended December 31, 2018 , 2017 and 2016 are summarized below.

(Amounts in thousands)
For the Year Ended December 31,
 
2018
 
2017
 
2016
New York:
 
 
 
 
 
Office
$
743,001

 
$
721,183

 
$
662,221

Retail
353,425

 
359,944

 
364,953

Residential
23,515

 
24,370

 
25,060

Alexander's
45,133

 
47,302

 
47,295

Hotel Pennsylvania
11,916

 
13,266

 
8,997

Total New York
1,176,990

 
1,166,065

 
1,108,526

 
 
 
 
 
 
Other:
 
 
 
 
 
theMART (1)
90,929

 
102,339

 
98,498

555 California Street
54,691

 
47,588

 
45,848

Other investments (2)
60,010

 
85,391

 
111,236

Total Other
205,630

 
235,318

 
255,582

 
 
 
 
 
 
NOI at share
$
1,382,620

 
$
1,401,383

 
$
1,364,108

________________________________________
(1)
The year ended December 31, 2018 includes an additional $15,148 real estate tax expense accrual due to an increase in the tax-assessed value of theMART.
(2)
The years ended December 31, 2018, 2017 and 2016 include $12,145, $20,636 and $25,004, respectively from 666 Fifth Avenue Office Condominium (sold on August 3, 2018). The years ended December 31, 2017 and 2016 include $6,960 and $5,621, respectively from India real estate ventures which were sold in 2017.


The elements of our New York and Other NOI at share - cash basis for the years ended December 31, 2018 , 2017 and 2016 are summarized below.

(Amounts in thousands)
For the Year Ended December 31,
 
2018
 
2017
 
2016
New York:
 
 
 
 
 
Office
$
726,108

 
$
678,839

 
$
593,785

Retail
324,219

 
324,318

 
292,019

Residential
22,076

 
21,626

 
22,285

Alexander's
47,040

 
48,683

 
48,070

Hotel Pennsylvania
12,120

 
13,397

 
9,128

Total New York
1,131,563

 
1,086,863

 
965,287

 
 
 
 
 
 
Other:
 
 
 
 
 
theMART (1)
94,070

 
99,242

 
92,571

555 California Street
53,488

 
45,281

 
32,601

Other investments (2)
58,795

 
83,155

 
103,172

Total Other
206,353

 
227,678

 
228,344

 
 
 
 
 
 
NOI at share - cash basis
$
1,337,916

 
$
1,314,541

 
$
1,193,631

________________________________________
(1)
The year ended December 31, 2018 includes an additional $15,148 real estate tax expense accrual due to an increase in the tax-assessed value of theMART.
(2)
The years ended December 31, 2018, 2017 and 2016 include $12,025, $20,853 and $22,388, respectively from 666 Fifth Avenue Office Condominium (sold on August 3, 2018). The years ended December 31, 2017 and 2016 include $6,960 and $5,621, respectively from India real estate ventures which were sold in 2017.

53


Reconciliation of Net Income to Net Operating Income At Share and Net Operating Income At Share - Cash Basis for the Years Ended December 31, 2018 , 2017 and 2016

Below is a reconciliation of net income to NOI at share and NOI at share - cash basis for the years ended December 31, 2018 , 2017 and 2016 .

(Amounts in thousands)
For the Year Ended December 31,
 
2018
 
2017
 
2016
Net income
$
422,603

 
$
264,128

 
$
981,922

 
 
 
 
 
 
Deduct:
 
 
 
 
 
Income from partially owned entities
(9,149
)
 
(15,200
)
 
(168,948
)
Loss (income) from real estate fund investments
89,231

 
(3,240
)
 
23,602

Interest and other investment income, net
(17,057
)
 
(30,861
)
 
(24,335
)
Net gains on disposition of wholly owned and partially owned assets
(246,031
)
 
(501
)
 
(160,433
)
Purchase price fair value adjustment
(44,060
)
 
—

 
—

(Income) loss from discontinued operations
(638
)
 
13,228

 
(404,912
)
NOI attributable to noncontrolling interests in consolidated subsidiaries
(71,186
)
 
(65,311
)
 
(66,182
)
 
 
 
 
 
 
Add:
 
 
 
 
 
Depreciation and amortization expense
446,570

 
429,389

 
421,023

General and administrative expense
141,871

 
150,782

 
143,643

Transaction related costs, impairment loss and other
31,320

 
1,776

 
9,451

Our share of NOI from partially owned entities
253,564

 
269,164

 
271,114

Interest and debt expense
347,949

 
345,654

 
330,240

Income tax expense
37,633

 
42,375

 
7,923

NOI at share
1,382,620

 
1,401,383

 
1,364,108

Non cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other
(44,704
)
 
(86,842
)
 
(170,477
)
NOI at share - cash basis
$
1,337,916

 
$
1,314,541

 
$
1,193,631


Net Operating Income At Share by Region

Below is a summary of the percentages of NOI at share by geographic region for the year ended December 31, 2018 , 2017 and 2016 .

 
For the Year Ended December 31,
 
2018
 
2017
 
2016
Region:
 
 
 
 
 
New York City metropolitan area
89
%
 
89
%
 
89
%
Chicago, IL
7
%
 
8
%
 
8
%
San Francisco, CA
4
%
 
3
%
 
3
%
 
100
%
 
100
%
 
100
%


54


Results of Operations – Year Ended December 31, 2018 Compared to December 31, 2017
 
Revenues
 
Our revenues, which consist of property rentals, tenant expense reimbursements, and fee and other income, were $2,163,720,000 in the year ended December 31, 2018 compared to $2,084,126,000 in the prior year, an increase of $79,594,000 . Below are the details of the increase by segment:
(Amounts in thousands)
 
 
 
 
 
Increase (decrease) due to:
Total
 
New York
 
Other
Property rentals:
 
 
 
 
 
Acquisitions, dispositions and other
$
362

 
$
362

 
$
—

Development and redevelopment
(4,930
)
 
(5,298
)
 
368

Hotel Pennsylvania
4,542

 
4,542

 
—

Trade shows
522

 
—

 
522

Same store operations
44,757

 
29,403

 
15,354

 
45,253

 
29,009

 
16,244

Tenant expense reimbursements:
 
 
 
   
 
 Acquisitions, dispositions and other
97

 
97

 
—

 Development and redevelopment
379

 
(24
)
 
403

 Same store operations
13,228

 
10,702

 
2,526

 
13,704

 
10,775

 
2,929

Fee and other income:
 
 
 
   
 
BMS cleaning fees
16,214

 
18,102

(1)  
(1,888
)
Management and leasing fees
3,237

 
3,604

 
(367
)
Lease termination fees
(6,027
)
 
(7,097
)
 
1,070

Other income
7,213

 
2,336

 
4,877

 
20,637

 
16,945

 
3,692

 
 
 
 
 
 
Total increase in revenues
$
79,594

 
$
56,729

 
$
22,865

________________________________________
(1)
Primarily due to an increase in third party cleaning fees for services provided to JBGS, Skyline Properties and tenants at theMART.



55


Results of Operations – Year Ended December 31, 2018 Compared to December 31, 2017 - continued

Expenses
 
Our expenses, which consist primarily of operating, depreciation and amortization, general and administrative, (benefit) expense from deferred compensation plan liability, and transaction related costs, impairment loss and other, were $1,580,759,000 in the year ended December 31, 2018 compared to $1,475,475,000 in the prior year, an increase of $105,284,000 . Below are the details of the increase by segment:
(Amounts in thousands)
 

 
 

 
 

 
Increase (decrease) due to:
Total
 
New York
 
Other
 
Operating:
 

 
 

 
 

 
Acquisitions, dispositions and other
$
671

 
$
671

 
$
—

 
Development and redevelopment
(98
)
 
(1,312
)
 
1,214

 
Non-reimbursable expenses, including bad debt reserves
1,269

 
790

 
479

 
Hotel Pennsylvania
5,816

 
5,816

 
—

 
Trade shows
(73
)
 
—

 
(73
)
 
BMS expenses
13,439

 
15,327

(1)  
(1,888
)
 
Same store operations
55,858

 
28,502

 
27,356

(2)  
 
76,882

 
49,794

 
27,088

 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
Acquisitions, dispositions and other
(1,876
)
 
(1,876
)
 
—

 
Development and redevelopment
4,381

 
4,376

 
5

 
Same store operations
14,676

 
11,944

 
2,732

 
 
17,181

 
14,444

 
2,737

 
 
 
 
 
 
 
 
General and administrative
(8,911
)
(3)  
95

 
(9,006
)
 
 
 
 
 
 
 
 
Benefit from deferred compensation plan liability
(9,412
)
 
—

 
(9,412
)
 
 
 
 
 
 
 
 
Transaction related costs, impairment loss and other
29,544

 
25,103

(4)  
4,441

 
 
 
 
 
 
 
 
Total increase in expenses
$
105,284

 
$
89,436

 
$
15,848

 
____________________
(1)
Primarily due to an increase in third party cleaning fees for services provided to JBGS, Skyline Properties and tenants at theMART.
(2)
Primarily due to additional real estate tax expense accrual of $15,148 due to an increase in the tax-assessed value of theMART in December 2018.
(3)
Primarily due to higher capitalized development payroll in 2018.
(4)
Due to a $13,103 potential additional New York City real property transfer tax payment (“Transfer Tax”), which we are contesting, related to the December 2012 acquisition of Independence Plaza and a $12,000 non-cash impairment loss.



56


Results of Operations – Year Ended December 31, 2018 Compared to December 31, 2017 - continued

Income from Partially Owned Entities
 
Below are the components of income from partially owned entities for the years ended December 31, 2018 and 2017 .
(Amounts in thousands)
Percentage
Ownership at
December 31, 2018
 
For the Year Ended December 31,
 
 
2018
 
2017
Our share of net income (loss):
 
 
 
 
 
Alexander's (1)
32.4%
 
$
15,045

 
$
31,853

UE (2)
4.5%
 
4,460

 
27,328

Partially owned office buildings (3)
Various
 
(3,085
)
 
2,109

PREIT (4)
7.9%
 
(3,015
)
 
(53,325
)
Other investments (5)
Various
 
(4,256
)
 
7,235

 
 
 
$
9,149

 
$
15,200

____________________
(1)
2018 includes (i) our $7,708 share of Alexander's potential additional Transfer Tax, (ii) our $3,882 share of expense related to the decrease in fair value of marketable securities held by Alexander’s and (iii) our $1,085 share of a non-cash straight-line rent write-off adjustment related to Sears Roebuck and Co. which filed for Chapter 11 bankruptcy relief and (iv) our $518 share of Alexander’s litigation expense due to a settlement. 
(2)
2017 includes $21,100 of net gains resulting from UE operating partnership unit issuances.
(3)
Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 7 West 34th Street, 330 Madison Avenue, 512 West 22nd Street, 85 Tenth Avenue and others. 2018 includes our $4,978 share of potential additional Transfer Tax related to the March 2011 acquisition of One Park Avenue.
(4)
2017 includes a $44,465 non-cash impairment loss.
(5)
Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, 666 Fifth Avenue Office Condominium (sold on August 3, 2018) and others. In 2017, we recognized $26,687 of net gains, comprised of $15,314 for our share of a net gain on the sale of Suffolk Downs and $11,373 for the net gain on repayment of our debt investments in Suffolk Downs JV. In 2018 and 2017, we recognized net losses of $4,873 and $25,414, respectively, from our 666 Fifth Avenue Office Condominium joint venture as a result of our share of depreciation expense.

(Loss) Income from Real Estate Fund Investments
 
Below are the components of the loss from our real estate fund investments for the years ended December 31, 2018 and 2017 .
(Amounts in thousands)
For the Year Ended December 31,
 
2018
 
2017
Net investment income
$
6,105

 
$
18,507

Net unrealized loss on held investments
(83,794
)
 
(25,807
)
Net realized (loss) gain on exited investments
(912
)
 
36,078

Previously recorded unrealized gain on exited investment
—

 
(25,538
)
Transfer Tax
(10,630
)
 
—

(Loss) income from real estate fund investments
(89,231
)
 
3,240

Less loss (income) attributable to noncontrolling interests in consolidated subsidiaries
61,230

 
(14,044
)
Loss from real estate fund investments attributable to the Operating Partnership (includes $4,252 of loss related to One Park Avenue potential additional transfer taxes and reduction in carried interest for the year ended December 31, 2018)
(28,001
)
 
(10,804
)
Less loss attributable to noncontrolling interests in the Operating Partnership
1,732

 
673

Loss from real estate fund investments attributable to Vornado
$
(26,269
)
 
$
(10,131
)


57


Results of Operations – Year Ended December 31, 2018 Compared to December 31, 2017 - continued

Interest and Other Investment Income, net

Below are the components of interest and other investment, net for the years ended December 31, 2018 and 2017 .

(Amounts in thousands)
For the Year Ended December 31,
 
2018
 
2017
Decrease in fair value of marketable securities (1)
$
(26,453
)
 
$
—

Interest on cash and cash equivalents and restricted cash
15,827

 
8,171

Dividends on marketable securities
13,339

 
13,276

Interest on loans receivable (2)
10,298

 
4,352

Other, net
4,046

 
5,062

 
$
17,057

 
$
30,861

____________________
(1)
On January 1, 2018, we adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities , which requires changes in the fair value of our marketable securities to be recorded in current period earnings. Previously, changes in the fair value of marketable securities were recognized in "accumulated other comprehensive income" on our consolidated balance sheets.
(2)
Includes $6,707 of profit participation in connection with an investment in a mezzanine loan which was previously repaid to us for the year ended December 31, 2018.
 
Interest and Debt Expense
 
Interest and debt expense was $347,949,000 in the year ended December 31, 2018 , compared to $345,654,000 in the prior year, an increase of $2,295,000 . This increase was primarily due to (i) $25,036,000 of higher interest expense resulting from higher average interest rates on our variable rate loans, and (ii) $9,753,000 of higher interest expense on our $750,000,000 delayed draw term loan which was fully drawn in October 2017, partially offset by (iii) $24,935,000 higher capitalized interest and debt expense and (iv) $6,475,000 lower capital lease interest, resulting from our acquisition of the retail at 1535 Broadway and termination of the existing capital lease structure.
 
Purchase Price Fair Value Adjustment

The purchase price fair value adjustment of $44,060,000 in the year ended December 31, 2018 represents the difference between the estimated fair market value and the book basis of our 50.1% interest in the joint venture that is developing the Farley Office and Retail Building as a result of our increased ownership in the joint venture to 95.0% from 50.1%.

Net Gains on Disposition of Wholly Owned and Partially Owned Assets
 
The net gains of $246,031,000 in the year ended December 31, 2018 , resulted primarily from the (i) $134,032,000 net gain on sale of our 49.5% interests in 666 Fifth Avenue Office Condominium, (ii) $81,224,000 net gain on sales of 220 CPS condominium units, (iii) $23,559,000 net gain on sale of 27 Washington Square North, and (iv) $7,308,000 net gain from repayment of our interest on the mortgage loan on 666 Fifth Avenue Office Condominium.

Income Tax Expense
 
In the year ended December 31, 2018 , we had an income tax expense of $37,633,000 , compared to $42,375,000 in the prior year, a decrease of $4,742,000 . This decrease resulted primarily from (i) $34,800,000 of expense in the year ended December 31, 2017 due to the reduction of our taxable REIT subsidiaries' deferred tax assets based on the decrease in corporate tax rates under the December 22, 2017 Tax Cuts and Jobs Act, partially offset by (ii) $16,771,000 of income tax expense in the year ended December 31, 2018 due to the $44,060,000 purchase price fair value adjustment recognized as a result of our increased ownership in the joint venture that is developing the Farley Office and Retail Building, and (iii) $13,888,000 of income tax expense in the year ended December 31, 2018 on the sale of 220 CPS condominium units.

58


Results of Operations – Year Ended December 31, 2018 Compared to December 31, 2017 - continued
 
Income (Loss) from Discontinued Operations
 
We have reclassified the revenues and expenses of our former Washington, DC segment, which was spun off on July 17, 2017, and other related retail assets that were sold to “income (loss) from discontinued operations” and the related assets and liabilities to “other assets” and “other liabilities” for all the periods presented in the accompanying financial statements. The table below sets forth the combined results of assets related to discontinued operations for the years ended December 31, 2018 and 2017 .
(Amounts in thousands)
For the Year Ended December 31,
 
2018
 
2017
Total revenues
$
1,114

 
$
261,290

Total expenses
1,094

 
212,169

 
20

 
49,121

Net gains on sale of real estate, a lease position and other
618

 
6,605

JBGS spin-off transaction costs
—

 
(68,662
)
Income from partially-owned entities
—

 
435

Pretax income (loss) from discontinued operations
638

 
(12,501
)
Income tax expense
—

 
(727
)
Income (loss) from discontinued operations
$
638

 
$
(13,228
)

Net Loss (Income) Attributable to Noncontrolling Interests in Consolidated Subsidiaries
 
Net loss attributable to noncontrolling interests in consolidated subsidiaries was $53,023,000 in the year ended December 31, 2018 , compared to net income of $25,802,000 in the prior year, a decrease in net income of $78,825,000 . This decrease resulted primarily from lower net income allocated to the noncontrolling interests of our real estate fund investments.
 
Net Income Attributable to Noncontrolling Interests in the Operating Partnership (Vornado Realty Trust)
 
Net income attributable to noncontrolling interests in the Operating Partnership was $25,672,000 in the year ended December 31, 2018 , compared to $10,910,000 in the prior year, an increase of $14,762,000 . This increase resulted primarily from higher net income subject to allocation to unitholders.
 
Preferred Share Dividends of Vornado Realty Trust
 
Preferred share dividends were $50,636,000 in the year ended December 31, 2018 , compared to $65,399,000 in the prior year, a decrease of $14,763,000 . The decrease is comprised of $30,651,000 of savings from the redemption of all of the outstanding 6.625% Series G and Series I cumulative redeemable preferred shares in January 2018, partially offset by a $15,888,000 increase due to the issuance of 5.25% Series M cumulative redeemable preferred shares in December 2017.
 
Preferred Unit Distributions of Vornado Realty L.P.
 
Preferred unit distributions were $50,830,000 in the year ended December 31, 2018 , compared to $65,593,000 in the prior year, a decrease of $14,763,000 . The decrease is comprised of $30,651,000 of savings from the redemption of all the outstanding 6.625% Series G and Series I cumulative redeemable preferred units in January 2018, partially offset by a $15,888,000 increase due to the issuance of 5.25% Series M cumulative redeemable preferred units in December 2017.
 
Preferred Share/Unit Issuance Costs
 
In the year ended December 31, 2018 , we recognized preferred share/unit issuance costs of $14,486,000 representing the write-off of issuance costs upon the redemption of all the outstanding 6.625% Series G and Series I cumulative redeemable preferred shares/units in January 2018.

59


Results of Operations – Year Ended December 31, 2018 Compared to December 31, 2017 - continued

Same Store Net Operating Income At Share
Same store NOI at share represents NOI at share from operations which are owned by us and in service in both the current and prior year reporting periods. Same store NOI at share - cash basis is NOI at share from operations before straight-line rental income and expense, amortization of acquired below and above market leases, net and other non-cash adjustments which are owned by us and in service in both the current and prior year reporting periods. We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers. Same store NOI at share and same store NOI at share - cash basis should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies.

Below are reconciliations of NOI at share to same store NOI at share for our New York segment, theMART, 555 California Street and other investments for the year ended December 31, 2018 compared to December 31, 2017 .
(Amounts in thousands)
Total
 
New York
 
theMART
 
555 California Street
 
Other
NOI at share for the year ended December 31, 2018
$
1,382,620

 
$
1,176,990

 
$
90,929

 
$
54,691

 
$
60,010

 
Less NOI at share from:
 
 
 
 
 
 
 
 
 
 
Acquisitions
(1,534
)
 
(1,385
)
 
(149
)
 
—

 
—

 
Dispositions
(351
)
 
(351
)
 
—

 
—

 
—

 
Development properties
(38,477
)
 
(38,477
)
 
—

 
—

 
—

 
Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net
2,301

 
3,025

 
(724
)
 
—

 
—

 
Other non-operating income, net
(62,732
)
 
(2,722
)
 
—

 
—

 
(60,010
)
Same store NOI at share for the year ended December 31, 2018
$
1,281,827

 
$
1,137,080

 
$
90,056

 
$
54,691

 
$
—

 
 
 
 
 
 
 
 
 
 
NOI at share for the year ended December 31, 2017
$
1,401,383

 
$
1,166,065

 
$
102,339

 
$
47,588

 
$
85,391

 
Less NOI at share from:
 
 
 
 
 
 
 
 
 
 
Acquisitions
36

 
(164
)
 
200

 
—

 
—

 
Dispositions
(1,532
)
 
(1,532
)
 
—

 
—

 
—

 
Development properties
(37,307
)
 
(37,307
)
 
—

 
—

 
—

 
Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net
(2,976
)
 
(2,957
)
 
(19
)
 
—

 
—

 
Other non-operating income, net
(88,017
)
 
(2,626
)
 
—

 
—

 
(85,391
)
Same store NOI at share for the year ended December 31, 2017
$
1,271,587

 
$
1,121,479

 
$
102,520

 
$
47,588

 
$
—

 
 
 
 
 
 
 
 
 
 
Increase (decrease) in same store NOI at share for the year ended December 31, 2018 compared to December 31, 2017
$
10,240

 
$
15,601

 
$
(12,464
)
 
$
7,103

 
$
—

 
 
 
 
 
 
 
 
 
 
 
% increase (decrease) in same store NOI at share
0.8
%
 
1.4
%
(1)  
(12.2
)%
(2)  
14.9
%
 
—
%
____________________
(1)
Excluding Hotel Pennsylvania, same store NOI at share increased by 1.5% .
(2)
The year ended December 31, 2018 includes an additional $15,148 real estate tax expense accrual due to an increase in the tax-assessed value of theMART.

60


Results of Operations – Year Ended December 31, 2018 Compared to December 31, 2017 - continued

Same Store Net Operating Income At Share - continued
Below are reconciliations of NOI at share - cash basis to same store NOI at share - cash basis for our New York segment, theMART, 555 California Street and other investments for the year ended December 31, 2018 compared to December 31, 2017 .
(Amounts in thousands)
Total
 
New York
 
theMART
 
555 California Street
 
Other
NOI at share - cash basis for the year ended December 31, 2018
$
1,337,916

 
$
1,131,563

 
$
94,070

 
$
53,488

 
$
58,795

 
Less NOI at share - cash basis from:
 
 
 
 
 
 
 
 
 
 
Acquisitions
(1,235
)
 
(1,086
)
 
(149
)
 
—

 
—

 
Dispositions
(287
)
 
(287
)
 
—

 
—

 
—

 
Development properties
(42,264
)
 
(42,264
)
 
—

 
—

 
—

 
Lease termination income
(2,105
)
 
(1,163
)
 
(942
)
 
—

 
—

 
Other non-operating income, net
(61,515
)
 
(2,720
)
 
—

 
—

 
(58,795
)
Same store NOI at share - cash basis for the year ended December 31, 2018
$
1,230,510

 
$
1,084,043

 
$
92,979

 
$
53,488

 
$
—

 
 
 
 
 
 
 
 
 
 
 
NOI at share - cash basis for the year ended December 31, 2017
$
1,314,541

 
$
1,086,863

 
$
99,242

 
$
45,281

 
$
83,155

 
Less NOI at share - cash basis from:
 
 
 
 
 
 
 
 
 
 
Acquisitions
137

 
(63
)
 
200

 
—

 
—

 
Dispositions
(1,078
)
 
(1,078
)
 
—

 
—

 
—

 
Development properties
(38,211
)
 
(38,211
)
 
—

 
—

 
—

 
Lease termination income
(4,958
)
 
(4,927
)
 
(31
)
 
—

 
—

 
Other non-operating income, net
(86,501
)
 
(3,346
)
 
—

 
—

 
(83,155
)
Same store NOI at share - cash basis for the year ended December 31, 2017
$
1,183,930

 
$
1,039,238

 
$
99,411

 
$
45,281

 
$
—

 
 
 
 
 
 
 
 
 
 
Increase (decrease) in same store NOI at share - cash basis for the year ended December 31, 2018 compared to December 31, 2017
$
46,580

 
$
44,805

 
$
(6,432
)
 
$
8,207

 
$
—

 
 
 
 
 
 
 
 
 
 
% increase (decrease) in same store NOI at share - cash basis
3.9
%
 
4.3
%
(1)  
(6.5
)%
(2)  
18.1
%
 
—
%
____________________
(1)
Excluding Hotel Pennsylvania, same store NOI at share - cash basis increased by 4.5% .
(2)
The year ended December 31, 2018 includes an additional $15,148 real estate tax expense accrual due to an increase in the tax-assessed value of theMART.


61


Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016
 
Revenues
 
Our revenues, which consist of property rentals, tenant expense reimbursements, and fee and other income, were $2,084,126,000 in the year ended December 31, 2017 compared to $2,003,742,000 in the prior year, an increase of $80,384,000 . Below are the details of the increase by segment:
(Amounts in thousands)
 
 
 
 
 
Increase (decrease) due to:
Total
 
New York
 
Other
Property rentals:
 

 
 

 
 

Acquisitions, dispositions and other
$
9,455

 
$
9,229

(1)  
$
226

Development and redevelopment
824

 
(93
)
 
917

Hotel Pennsylvania
7,974

 
7,974

(2)  
—

Trade shows
(634
)
 
—

 
(634
)
Same store operations
35,240

 
25,066

 
10,174

 
52,859

 
42,176

 
10,683

 
 
 
 
 
 
Tenant expense reimbursements:
 
 
 
   
 
Acquisitions, dispositions and other
(2,663
)
 
(2,663
)
 
—

Development and redevelopment
705

 
(75
)
 
780

Same store operations
13,819

 
11,320

 
2,499

 
11,861

 
8,582

 
3,279

 
 
 
 
 
 
Fee and other income:
 
 
 
 
 
BMS cleaning fees
10,718

 
13,374

(3)  
(2,656
)
Management and leasing fees
1,843

 
1,068

 
775

Lease termination fees
(599
)
 
250

 
(849
)
Other income
3,702

 
483

 
3,219

 
15,664

 
15,175

 
489

 
 
 
 
 
 
Total increase in revenues
$
80,384

 
$
65,933

 
$
14,451

________________________________________
(1)
Primarily due to (i) $20,515 from the write-off of straight-line rents recorded in 2016, partially offset by (ii) $5,050 from the partial sale of 7 West 34th Street in May 2016 and (iii) $7,834 from the write-off of straight-line receivables and acquired below-market leases, net, recorded in 2017.
(2)
Average occupancy and revenue per available room were 87.3% and $121.46, respectively, for 2017 as compared to 84.7% and $113.84, respectively, for 2016.
(3)
Primarily due to an increase in third party cleaning agreements for services provided to JBGS, Skyline Properties and tenants at theMART.


62


Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued

Expenses
 
Our expenses, which consist primarily of operating, depreciation and amortization, general and administrative, expense from deferred compensation plan liability, and transaction related costs and other, were $1,475,475,000 in the year ended December 31, 2017 compared to $1,423,896,000 in the prior year, an increase of $51,579,000 . Below are the details of the increase by segment:
(Amounts in thousands)
 
 
 
   
 
Increase (decrease) due to:
Total
 
New York
   
Other
Operating:
 
 
 
   
 
Acquisitions, dispositions and other
$
(2,978
)
 
$
(2,978
)
 
$
—

Development and redevelopment
69

 
119

 
(50
)
Non-reimbursable expenses, including bad debt reserves
(3,940
)
 
(4,109
)
 
169

Hotel Pennsylvania
3,721

 
3,721

 
—

Trade shows
(1,222
)
 
—

 
(1,222
)
BMS expenses
15,368

 
12,835

(1)  
2,533

Same store operations
31,012

 
30,328

 
684

 
42,030

 
39,916

 
2,114

 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
Acquisitions, dispositions and other
2,227

 
2,227

 
—

Development and redevelopment
2,752

 
3,182

 
(430
)
Same store operations
3,387

 
(1,503
)
 
4,890

 
8,366

 
3,906

 
4,460

 
 
 
 
 
 
General and administrative
7,139

(2)  
4,333

 
2,806

 
 
 
 
 
 
Expense on deferred compensation plan liability
1,719

 
—

 
1,719

 
 
 
 
 
 
Transaction related costs and other
(7,675
)
 
—

 
(7,675
)
 
 
 
 
 
 
Total increase in expenses
$
51,579

 
$
48,155

 
$
3,424

________________________________________
(1)
Primarily due to an increase in third party cleaning agreements for services provided to JBGS, Skyline Properties and tenants at theMART.
(2)
Primarily due to lower capitalized leasing and development payroll for consolidated projects in 2017 and higher franchise tax in 2017.




63


Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued

Income from Partially Owned Entities
 
Below are the components of income from partially owned entities for the years ended December 31, 2017 and 2016 . 
(Amounts in thousands)
Percentage
Ownership at
December 31, 2017
 
Year Ended December 31,
 
 
2017
 
2016
Our share of net (loss) income:
 
 
 
 
 
PREIT (1)
8.0%
 
$
(53,325
)
 
$
(5,213
)
Alexander's
32.4%
 
31,853

 
34,240

UE (2)
4.5%
 
27,328

 
5,839

Partially owned office buildings (3)
Various
 
2,109

 
5,773

Other investments (4)
Various
 
7,235

 
128,309

 
 
 
$
15,200

 
$
168,948

____________________
(1)
2017 includes a $44,465 non-cash impairment loss.
(2)
2017 includes $21,100 of net gains resulting from UE operating partnership unit issuances.
(3)
Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 7 West 34th Street, 330 Madison Avenue, 512 West 22nd Street, 85 Tenth Avenue (in 2017 only) and others.
(4)
Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, 85 Tenth Avenue (in 2016 only), 666 Fifth Avenue Office Condominium and others. In 2017, we recognized $26,687 of net gains, comprised of $15,314 for our share of a net gain on the sale of Suffolk Downs and $11,373 for the net gain on repayment of our debt investments in Suffolk Downs JV. In 2017 and 2016, we recognized net losses of $25,414 and $41,532, respectively, from our 666 Fifth Avenue Office Condominium joint venture as a result of our share of depreciation expense. In 2016, the owner of 85 Tenth Avenue completed a 10-year, 4.55% $625,000 refinancing of the property and we received net proceeds of $191,779 in repayment of our existing loans and preferred equity investments. We recognized $160,843 of income as a result of this transaction.

Loss from Real Estate Fund Investments
 
Below are the components of the loss from our real estate fund investments for the years ended December 31, 2017 and 2016 .
(Amounts in thousands)
For the Year Ended December 31,
 
2017
 
2016
Net investment income
$
18,507

 
$
17,053

Net realized gain on exited investments
36,078

 
14,761

Net unrealized loss on held investments
(25,807
)
 
(41,162
)
Previously recorded unrealized gain on exited investment
(25,538
)
 
(14,254
)
Income (loss) from real estate fund investments
3,240

 
(23,602
)
Less (income) loss attributable to noncontrolling interests in consolidated subsidiaries
(14,044
)
 
2,560

Loss from real estate fund investments attributable to the Operating Partnership
(10,804
)
 
(21,042
)
Less loss attributable to noncontrolling interests in the Operating Partnership
673

 
1,270

Loss from real estate fund investments attributable to Vornado
$
(10,131
)
 
$
(19,772
)
 


64


Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued

Interest and Other Investment Income, net

Below are the components of interest and other investment, net for the years ended December 31, 2017 and 2016 .

(Amounts in thousands)
For the Year Ended December 31,
 
2017
 
2016
Dividends on marketable securities
$
13,276

 
$
13,135

Interest on cash and cash equivalents and restricted cash
8,171

 
3,622

Interest on loans receivable
4,352

 
3,890

Other, net
5,062

 
3,688

 
$
30,861

 
$
24,335


Interest and Debt Expense
 
Interest and debt expense was $345,654,000 in the year ended December 31, 2017 , compared to $330,240,000 in the prior year, an increase of $15,414,000 . This increase was primarily due to (i) $19,887,000 of higher interest expense relating to our variable rate loans, (ii) $9,409,000 of higher interest expense from the refinancing of 350 Park Avenue and the $750,000,000 drawn on our $750,000,000 delayed draw term loan, (iii) $7,052,000 of higher interest expense from the 1535 Broadway capital lease obligation, (iv) $4,836,000 of interest expense relating to the December 27, 2017 prepayment of our $450,000,000 aggregate principal amount of 2.50% senior unsecured notes due 2019, partially offset by (v) $17,888,000 of higher capitalized interest and debt expense, and (vi) $8,626,000 of interest savings from the refinancing of theMART.
 
Net Gains on Disposition of Wholly Owned and Partially Owned Assets
 
The net gain of $501,000 in the year ended December 31, 2017 , resulted from the sale of residential condominiums. The net gain of $160,433,000 in the prior year primarily consists of a $159,511,000 net gain on sale of our 47% ownership interest in 7 West 34th Street and $714,000 from the sale of residential condominiums.
 
Income Tax Expense
 
In the year ended December 31, 2017 , we had an income tax expense of $42,375,000 , compared to $7,923,000 in the prior year, an increase of $34,452,000 . This increase resulted primarily from the $34,800,000 of expense due to the reduction of our taxable REIT subsidiaries' deferred tax assets based on the decrease in corporate tax rates under the December 22, 2017 Tax Cuts and Jobs Act.

65


Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued

(Loss) Income from Discontinued Operations
 
We have reclassified the revenues and expenses of our former Washington, DC segment which was spun off on July 17, 2017, and other related retail assets that were sold to “income (loss) from discontinued operations” and the related assets and liabilities to “other assets” and “other liabilities” for all the periods presented in the accompanying financial statements. The table below sets forth the combined results of assets related to discontinued operations for the years ended December 31, 2017 and 2016 .
(Amounts in thousands)
For the Year Ended December 31,
 
2017
 
2016
Total revenues
$
261,290

 
$
521,084

Total expenses
212,169

 
442,032

 
49,121

 
79,052

JBGS spin-off transaction costs
(68,662
)
 
(16,586
)
Net gains on sale of real estate, a lease position and other
6,605

 
20,376

Income (loss) from partially-owned entities
435

 
(3,559
)
Net gain on early extinguishment of debt
—

 
487,877

Impairment losses
—

 
(161,165
)
Pretax (loss) income from discontinued operations
(12,501
)
 
405,995

Income tax expense
(727
)
 
(1,083
)
(Loss) income from discontinued operations
$
(13,228
)
 
$
404,912

 
Net Income Attributable to Noncontrolling Interests in Consolidated Subsidiaries
 
Net income attributable to noncontrolling interests in consolidated subsidiaries was $25,802,000 in the year ended December 31, 2017 , compared to $21,351,000 in the prior year, an increase of $4,451,000 . This increase resulted primarily from higher net income allocated to the noncontrolling interests of our real estate fund investments.
 
Net Income Attributable to Noncontrolling Interests in the Operating Partnership (Vornado Realty Trust)
 
Net income attributable to noncontrolling interests in the Operating Partnership was $10,910,000 in the year ended December 31, 2017 , compared to $53,654,000 in the prior year, a decrease of $42,744,000 . This decrease resulted primarily from lower net income subject to allocation to unitholders.
 
Preferred Share Dividends of Vornado Realty Trust
 
Preferred share dividends were $65,399,000 in the year ended December 31, 2017 , compared to $75,903,000 in the prior year, a decrease of $10,504,000 . This decrease resulted primarily from the redemption of the 6.875% Series J cumulative redeemable preferred shares on September 1, 2016.
 
Preferred Unit Distributions of Vornado Realty L.P.
 
Preferred unit distributions were $65,593,000 in the year ended December 31, 2017 , compared to $76,097,000 in the prior year, a decrease of $10,504,000 . This decrease resulted primarily from the redemption of the 6.875% Series J cumulative redeemable preferred units on September 1, 2016.

Preferred Share/Unit Issuance Costs
 
In the year ended December 31, 2016 , we recognized a $7,408,000 expense in connection with the write-off of issuance costs upon redeeming all of the outstanding 6.875% Series J cumulative redeemable preferred shares/units on September 1, 2016.

66


Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued

Same Store Net Operating Income At Share
Same store NOI at share represents NOI at share from operations which are owned by us and in service in both the current and prior year reporting periods. Same store NOI at share - cash basis is NOI at share from operations before straight-line rental income and expense, amortization of acquired below and above market leases, net and other non-cash adjustments which are owned by us and in service in both the current and prior year reporting periods. We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers. Same store NOI at share and same store NOI at share - cash basis should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies.

Below are reconciliations of NOI at share to same store NOI at share for our New York segment, theMART, 555 California Street and other investments for the year ended December 31, 2017 compared to December 31, 2016 .
(Amounts in thousands)
Total
 
New York
 
theMART
 
555 California Street
 
Other
NOI at share for the year ended December 31, 2017
$
1,401,383

 
$
1,166,065

 
$
102,339

 
$
47,588

 
$
85,391

 
Less NOI at share from:
 
 
 
 
 
 
 
 
 
 
Acquisitions
(19,863
)
 
(20,027
)
 
164

 
—

 
—

 
Dispositions
(698
)
 
(698
)
 
—

 
—

 
—

 
Development properties
816

 
816

 
—

 
—

 
—

 
Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net
(1,993
)
 
(1,973
)
 
(20
)
 
—

 
—

 
Other non-operating income, net
(87,694
)
 
(2,303
)
 
—

 
—

 
(85,391
)
Same store NOI at share for the year ended December 31, 2017
$
1,291,951

 
$
1,141,880

 
$
102,483

 
$
47,588

 
$
—

 
 
 
 
 
 
 
 
 
 
NOI at share for the year ended December 31, 2016
$
1,364,108

 
$
1,108,526

 
$
98,498

 
$
45,848

 
$
111,236

 
Less NOI at share from:
 
 
 
 
 
 
 
 
 
 
Acquisitions
(60
)
 
(60
)
 
—

 
—

 
—

 
Dispositions
(3,107
)
 
(3,107
)
 
—

 
—

 
—

 
Development properties
1,161

 
82

 
—

 
1,079

 
—

 
Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net
10,164

 
10,559

 
(157
)
 
(238
)
 
—

 
Other non-operating income, net
(114,846
)
 
(3,610
)
 
—

 
—

 
(111,236
)
Same store NOI at share for the year ended December 31, 2016
$
1,257,420

 
$
1,112,390

 
$
98,341

 
$
46,689

 
$
—

 
 
 
 
 
 
 
 
 
 
Increase in same store NOI at share for the year ended December 31, 2017 compared to December 31, 2016
$
34,531

 
$
29,490

 
$
4,142

 
$
899

 
$
—

 
 
 
 
 
 
 
 
 
 
 
% increase in same store NOI at share
2.7
%
 
2.7
%
(1)  
4.2
%
(2)  
1.9
%
 
—
%
____________________
(1)
Excluding Hotel Pennsylvania, same store NOI at share increased by 2.3% .
(2)
The year ended December 31, 2016 includes a $2,000 reversal of an expense accrued in 2015. Excluding this amount, same store NOI at share increased by 6.4%.


67


Results of Operations – Year Ended December 31, 2017 Compared to December 31, 2016 - continued

Same Store Net Operating Income At Share - continued
Below are reconciliations of NOI at share - cash basis to same store NOI at share - cash basis for our New York segment, theMART,555 California Street and other investments for the year ended December 31, 2017 compared to December 31, 2016 .
(Amounts in thousands)
Total
 
New York
 
theMART
 
555 California Street
 
Other
NOI at share - cash basis for the year ended December 31, 2017
$
1,314,541

 
$
1,086,863

 
$
99,242

 
$
45,281

 
$
83,155

 
Less NOI at share - cash basis from:
 
 
 
 
 
 
 
 
 
 
Acquisitions
(17,053
)
 
(17,217
)
 
164

 
—

 
—

 
Dispositions
(698
)
 
(698
)
 
—

 
—

 
—

 
Development properties
814

 
814

 
—

 
—

 
—

 
Lease termination income
(4,958
)
 
(4,927
)
 
(31
)
 
—

 
—

 
Other non-operating income, net
(86,176
)
 
(3,021
)
 
—

 
—

 
(83,155
)
Same store NOI at share - cash basis for the year ended December 31, 2017
$
1,206,470

 
$
1,061,814

 
$
99,375

 
$
45,281

 
$
—

 
 
 
 
 
 
 
 
 
 
 
NOI at share - cash basis for the year ended December 31, 2016
$
1,193,631

 
$
965,287

 
$
92,571

 
$
32,601

 
$
103,172

 
Less NOI at share - cash basis from:
 
 
 
 
 
 
 
 
 
 
Acquisitions
(13
)
 
(13
)
 
—

 
—

 
—

 
Dispositions
(2,219
)
 
(2,219
)
 
—

 
—

 
—

 
Development properties
1,368

 
289

 
—

 
1,079

 
—

 
Lease termination income
(7,917
)
 
(7,272
)
 
(248
)
 
(397
)
 
—

 
Other non-operating income, net
(105,534
)
 
(2,362
)
 
—

 
—

 
(103,172
)
Same store NOI at share - cash basis for the year ended December 31, 2016
$
1,079,316

 
$
953,710

 
$
92,323

 
$
33,283

 
$
—

 
 
 
 
 
 
 
 
 
 
Increase in same store NOI - cash basis for the year ended December 31, 2017 compared to December 31, 2016
$
127,154

 
$
108,104

 
$
7,052

 
$
11,998

 
$
—

 
 
 
 
 
 
 
 
 
 
% increase in same store NOI at share - cash basis
11.8
%
 
11.3
%
(1)  
7.6
%
(2)  
36.0
%
 
—
%
____________________
(1)
Excluding Hotel Pennsylvania, same store NOI at share - cash basis increased by 11.0% .
(2)
The year ended December 31, 2016 includes a $2,000 reversal of an expense accrued in 2015. Excluding this amount, same store NOI at share - cash basis increased by 10.0%.

68

Supplemental Information

Net Operating Income At Share by Segment for the Three Months Ended December 31, 2018 and 2017
NOI represents total revenues less operating expenses. We consider NOI to be the primary non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on NOI, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. NOI should not be considered a substitute for net income. NOI may not be comparable to similarly titled measures employed by other companies.

Below is a summary of NOI at share by segment for the three months ended December 31, 2018 and 2017 .

(Amounts in thousands)
For the Three Months Ended December 31, 2018
 
Total
 
New York
 
Other
Total revenues
$
543,417

 
$
466,554

 
$
76,863

Operating expenses
254,320

 
206,696

 
47,624

NOI - consolidated
289,097

 
259,858

 
29,239

Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries
(19,771
)
 
(13,837
)
 
(5,934
)
Add: Our share of NOI from partially owned entities
60,205

 
49,178

 
11,027

NOI at share
329,531

 
295,199

 
34,332

Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other
(5,532
)
 
(6,266
)
 
734

NOI at share - cash basis
$
323,999

 
$
288,933

 
$
35,066


(Amounts in thousands)
For the Three Months Ended December 31, 2017
 
Total
 
New York
 
Other
Total revenues
$
536,226

 
$
462,597

 
$
73,629

Operating expenses
225,011

 
195,421

 
29,590

NOI - consolidated
311,215

 
267,176

 
44,039

Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries
(16,533
)
 
(11,648
)
 
(4,885
)
Add: Our share of NOI from partially owned entities
69,175

 
48,700

 
20,475

NOI at share
363,857

 
304,228

 
59,629

Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other
(21,579
)
 
(21,441
)
 
(138
)
NOI at share - cash basis
$
342,278

 
$
282,787

 
$
59,491



69


Supplemental Information - continued

Net Operating Income At Share by Segment for the Three Months Ended December 31, 2018 and 2017 - continued
The elements of our New York and Other NOI at share for the three months ended December 31, 2018 and 2017 are summarized below.

(Amounts in thousands)
For the Three Months Ended December 31,
 
2018
 
2017
New York:
 
 
 
Office
$
186,832

 
$
189,481

Retail
85,549

 
90,853

Residential
5,834

 
5,920

Alexander's
11,023

 
11,656

Hotel Pennsylvania
5,961

 
6,318

Total New York
295,199

 
304,228

 
 
 
 
Other:
 
 
 
theMART (1)
10,981

 
24,249

555 California Street
14,005

 
12,003

Other investments (2)
9,346

 
23,377

Total Other
34,332

 
59,629

 
 
 
 
NOI at share
$
329,531

 
$
363,857

________________________________________
(1)
The three months ended December 31, 2018 includes an additional $12,814 real estate tax expense accrual due to an increase in the tax-assessed value of theMART.
(2)
The three months ended December 31, 2017 includes $5,433 from 666 Fifth Avenue Office Condominium (sold on August 3, 2018) and $2,958 from our India real estate ventures which were sold in 2017.

The elements of our New York and Other NOI at share - cash basis for the three months ended December 31, 2018 and 2017 are summarized below.

(Amounts in thousands)
For the Three Months Ended December 31,
 
2018
 
2017
New York:
 
 
 
Office
$
185,624

 
$
175,787

Retail
80,515

 
83,320

Residential
5,656

 
5,325

Alexander's
11,129

 
12,004

Hotel Pennsylvania
6,009

 
6,351

Total New York
288,933

 
282,787

 
 
 
 
Other:
 
 
 
theMART (1)
12,758

 
24,396

555 California Street
13,784

 
11,916

Other investments (2)
8,524

 
23,179

Total Other
35,066

 
59,491

 
 
 
 
NOI at share - cash basis
$
323,999

 
$
342,278

________________________________________
(1)
The three months ended December 31, 2018 includes an additional $12,814 real estate tax expense accrual due to an increase in the tax-assessed value of theMART.
(2)
The three months ended December 31, 2017 include $5,359 from 666 Fifth Avenue Office Condominium (sold on August 3, 2018) and $2,958 from our India real estate ventures which were sold in 2017.

70


Supplemental Information - continued

Reconciliation of Net Income to Net Operating Income At Share and Net Operating Income At Share - Cash Basis for the Three Months Ended December 31, 2018 and 2017
(Amounts in thousands)
For the Three Months Ended December 31,
 
2018
 
2017
Net income
$
97,821

 
$
53,551

 
 
 
 
Deduct:
 
 
 
Income from partially owned entities
(3,090
)
 
(9,622
)
Loss (income) from real estate fund investments
51,258

 
(4,889
)
Interest and other investment income, net
(7,656
)
 
(8,294
)
Net gains on disposition of wholly owned and partially owned assets
(81,203
)
 
—

Purchase price fair value adjustment
(44,060
)
 
—

Income from discontinued operations
(257
)
 
(1,273
)
NOI attributable to noncontrolling interests in consolidated subsidiaries
(19,771
)
 
(16,533
)
 
 
 
 
Add:
 
 
 
Depreciation and amortization expense
112,869

 
114,166

General and administrative expense
32,934

 
34,916

Transaction related costs, impairment loss and other
14,637

 
703

Our share of NOI from partially owned entities
60,205

 
69,175

Interest and debt expense
83,175

 
93,073

Income tax expense
32,669

 
38,884

NOI at share
329,531

 
363,857

Non cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other
(5,532
)
 
(21,579
)
NOI at share - cash basis
$
323,999

 
$
342,278


Net Operating Income At Share by Region

Below is a summary of the percentages of NOI at share by geographic region for the three months ended December 31, 2018 and 2017 .

 
For the Three Months Ended
December 31,
 
2018
 
2017
Region:
 
 
 
New York City metropolitan area
92
%
 
89
%
Chicago, IL
3
%
 
7
%
San Francisco, CA
5
%
 
4
%
 
100
%
 
100
%


71


Supplemental Information - continued

Three Months Ended December 31, 2018 Compared to December 31, 2017

Same Store Net Operating Income At Share

Same store NOI at share represents NOI at share from operations which are owned by us and in service in both the current and prior year reporting periods. Same store NOI at share - cash basis is NOI at share from operations before straight-line rental income and expense, amortization of acquired below and above market leases, net and other non-cash adjustments which are owned by us and in service in both the current and prior year reporting periods. We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers. Same store NOI at share and same store NOI at share - cash basis should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies.

Below are reconciliations of NOI at share to same store NOI at share for our New York segment, theMART, 555 California Street and other investments for the three months ended December 31, 2018 compared to December 31, 2017 .
(Amounts in thousands)
Total
 
New York
 
theMART
 
555 California Street
 
Other
NOI at share for the three months ended December 31, 2018
$
329,531

 
$
295,199

 
$
10,981

 
$
14,005

 
$
9,346

 
Less NOI at share from:
 
 
 
 
 
 
 
 
 
 
Acquisitions
(337
)
 
(337
)
 
—

 
—

 
—

 
Dispositions
19

 
19

 
—

 
—

 
—

 
Development properties
(12,623
)
 
(12,637
)
 
—

 
14

 
—

 
Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net
(96
)
 
368

 
(464
)
 
—

 
—

 
Other non-operating income, net
(10,412
)
 
(1,066
)
 
—

 
—

 
(9,346
)
Same store NOI at share for the three months ended December 31, 2018
$
306,082

 
$
281,546

 
$
10,517

 
$
14,019

 
$
—

 
 
 
 
 
 
 
 
 
 
NOI at share for the three months ended December 31, 2017
$
363,857

 
$
304,228

 
$
24,249

 
$
12,003

 
$
23,377

 
Less NOI at share from:
 
 
 
 
 
 
 
 
 
 
Acquisitions
2

 
2

 
—

 
—

 
—

 
Dispositions
(23
)
 
(23
)
 
—

 
—

 
—

 
Development properties
(12,789
)
 
(12,789
)
 
—

 
—

 
—

 
Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net
(984
)
 
(984
)
 
—

 
—

 
—

 
Other non-operating income, net
(23,377
)
 
—

 
—

 
—

 
(23,377
)
Same store NOI at share for the three months ended December 31, 2017
$
326,686

 
$
290,434

 
$
24,249

 
$
12,003

 
$
—

 
 
 
 
 
 
 
 
 
 
(Decrease) increase in same store NOI at share for the three months ended December 31, 2018 compared to December 31, 2017
$
(20,604
)
 
$
(8,888
)
 
$
(13,732
)
 
$
2,016

 
$
—

 
 
 
 
 
 
 
 
 
 
 
% (decrease) increase in same store NOI at share
(6.3
)%
 
(3.1
)%
(1)  
(56.6
)%
(2)  
16.8
%
 
—
%
____________________
(1)
Excluding Hotel Pennsylvania, same store NOI at share decreased by 3.0% .
(2)
The three months ended December 31, 2018 includes an additional $12,814 real estate tax expense accrual due to an increase in the tax-assessed value of theMART.

72


Supplemental Information - continued

Three Months Ended December 31, 2018 Compared to December 31, 2017 - continued

Same Store Net Operating Income At Share - continued

Below are reconciliations of NOI at share - cash basis to same store NOI at share - cash basis for our New York segment, theMART,555 California Street and other investments for the three months ended December 31, 2018 compared to December 31, 2017 .
(Amounts in thousands)
Total
 
New York
 
theMART
 
555 California Street
 
Other
NOI at share - cash basis for the three months ended December 31, 2018
$
323,999

 
$
288,933

 
$
12,758

 
$
13,784

 
$
8,524

 
Less NOI at share - cash basis from:
 
 
 
 
 
 
 
 
 
 
Acquisitions
(336
)
 
(336
)
 
—

 
—

 
—

 
Dispositions
19

 
19

 
—

 
—

 
—

 
Development properties
(14,628
)
 
(14,642
)
 
—

 
14

 
—

 
Lease termination income
(563
)
 
(43
)
 
(520
)
 
—

 
—

 
Other non-operating income, net
(9,590
)
 
(1,066
)
 
—

 
—

 
(8,524
)
Same store NOI at share - cash basis for the three months ended December 31, 2018
$
298,901

 
$
272,865

 
$
12,238

 
$
13,798

 
$
—

 
 
 
 
 
 
 
 
 
 
 
NOI at share - cash basis for the three months ended December 31, 2017
$
342,278

 
$
282,787

 
$
24,396

 
$
11,916

 
$
23,179

 
Less NOI at share - cash basis from:
 
 
 
 
 
 
 
 
 
 
Acquisitions
2

 
2

 
—

 
—

 
—

 
Dispositions
76

 
76

 
—

 
—

 
—

 
Development properties
(13,677
)
 
(13,677
)
 
—

 
—

 
—

 
Lease termination income
(1,393
)
 
(1,393
)
 
—

 
—

 
—

 
Other non-operating income, net
(23,180
)
 
(1
)
 
—

 
—

 
(23,179
)
Same store NOI at share - cash basis for the three months ended December 31, 2017
$
304,106

 
$
267,794

 
$
24,396

 
$
11,916

 
$
—

 
 
 
 
 
 
 
 
 
 
(Decrease) increase in same store NOI at share - cash basis for the three months ended December 31, 2018 compared to December 31, 2017
$
(5,205
)
 
$
5,071

 
$
(12,158
)
 
$
1,882

 
$
—

 
 
 
 
 
 
 
 
 
 
% (decrease) increase in same store NOI at share - cash basis
(1.7
)%
 
1.9
%
(1)  
(49.8
)%
(2)  
15.8
%
 
—
%
____________________
(1)
Excluding Hotel Pennsylvania, same store NOI at share - cash basis increased by 2.1% .
(2)
The three months ended December 31, 2018 includes an additional $12,814 real estate tax expense accrual due to an increase in the tax-assessed value of theMART.

73


Supplemental Information - continued

Net Operating Income At Share by Segment for the Three Months Ended December 31, 2018 and September 30, 2018
NOI represents total revenues less operating expenses. We consider NOI to be the primary non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on NOI, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. NOI should not be considered a substitute for net income. NOI may not be comparable to similarly titled measures employed by other companies.

Below is a summary of NOI at share and NOI at share - cash basis by segment for the three months ended December 31, 2018 and September 30, 2018 .

(Amounts in thousands)
For the Three Months Ended December 31, 2018
 
Total
 
New York
 
Other
Total revenues
$
543,417

 
$
466,554

 
$
76,863

Operating expenses
254,320

 
206,696

 
47,624

NOI - consolidated
289,097

 
259,858

 
29,239

Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries
(19,771
)
 
(13,837
)
 
(5,934
)
Add: Our share of NOI from partially owned entities
60,205

 
49,178

 
11,027

NOI at share
329,531

 
295,199

 
34,332

Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other
(5,532
)
 
(6,266
)
 
734

NOI at share - cash basis
$
323,999

 
$
288,933

 
$
35,066


(Amounts in thousands)
For the Three Months Ended September 30, 2018
 
Total
 
New York
 
Other
Total revenues
$
542,048

 
$
462,446

 
$
79,602

Operating expenses
235,575

 
200,949

 
34,626

NOI - consolidated
306,473

 
261,497

 
44,976

Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries
(16,943
)
 
(11,348
)
 
(5,595
)
Add: Our share of NOI from partially owned entities
60,094

 
47,179

 
12,915

NOI at share
349,624

 
297,328

 
52,296

Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other
(8,743
)
 
(9,125
)
 
382

NOI at share - cash basis
$
340,881

 
$
288,203

 
$
52,678


74


Supplemental Information - continued

Net Operating Income At Share by Segment for the Three Months Ended December 31, 2018 and September 30, 2018 - continued
The elements of our New York and Other NOI at share for the three months ended December 31, 2018 and September 30, 2018 are summarized below.

(Amounts in thousands)
For the Three Months Ended
 
December 31, 2018
 
September 30, 2018
New York:
 
 
 
Office
$
186,832

 
$
184,146

Retail
85,549

 
92,858

Residential
5,834

 
5,202

Alexander's
11,023

 
10,626

Hotel Pennsylvania
5,961

 
4,496

Total New York
295,199

 
297,328

 
 
 
 
Other:
 
 
 
theMART (1)
10,981

 
25,257

555 California Street
14,005

 
13,515

Other investments (2)
9,346

 
13,524

Total Other
34,332

 
52,296

 
 
 
 
NOI at share
$
329,531

 
$
349,624

________________________________________
(1)
The three months ended December 31, 2018 includes an additional $12,124 real estate tax expense accrual due to an increase in the tax-assessed value of theMART.
(2)
The three months ended September 30, 2018 includes $1,737 from 666 Fifth Avenue Office Condominium (sold on August 3, 2018).

The elements of our New York and Other NOI at share - cash basis for the three months ended December 31, 2018 and September 30, 2018 are summarized below.
(Amounts in thousands)
For the Three Months Ended
 
December 31, 2018
 
September 30, 2018
New York:
 
 
 
Office
$
185,624

 
$
181,575

Retail
80,515

 
84,976

Residential
5,656

 
5,358

Alexander's
11,129

 
11,774

Hotel Pennsylvania
6,009

 
4,520

Total New York
288,933

 
288,203

 
 
 
 
Other:
 
 
 
theMART (1)
12,758

 
26,234

555 California Street
13,784

 
13,070

Other investments (2)
8,524

 
13,374

Total Other
35,066

 
52,678

 
 
 
 
NOI at share - cash basis
$
323,999

 
$
340,881

________________________________________
(1)
The three months ended December 31, 2018 includes an additional $12,124 real estate tax expense accrual due to an increase in the tax-assessed value of theMART.
(2)
The three months ended September 30, 2018 includes $1,704 from 666 Fifth Avenue Office Condominium (sold on August 3, 2018).

75


Supplemental Information - continued

Reconciliation of Net Income to Net Operating Income At Share and Net Operating Income At Share - Cash Basis for the Three Months Ended December 31, 2018 and September 30, 2018
(Amounts in thousands)
For the Three Months Ended
 
December 31, 2018
 
September 30, 2018
Net income
$
97,821

 
$
219,162

 
 
 
 
Deduct:
 
 
 
Income from partially owned entities
(3,090
)
 
(7,206
)
Loss from real estate fund investments
51,258

 
190

Interest and other investment income, net
(7,656
)
 
(2,893
)
Net gains on disposition of wholly owned and partially owned assets
(81,203
)
 
(141,269
)
Purchase price fair value adjustment
(44,060
)
 
—

Income from discontinued operations
(257
)
 
(61
)
NOI attributable to noncontrolling interests in consolidated subsidiaries
(19,771
)
 
(16,943
)
 
 
 
 
Add:
 
 
 
Depreciation and amortization expense
112,869

 
113,169

General and administrative expense
32,934

 
31,977

Transaction related costs, impairment loss and other
14,637

 
2,510

Our share of NOI from partially owned entities
60,205

 
60,094

Interest and debt expense
83,175

 
88,951

Income tax expense
32,669

 
1,943

NOI at share
329,531

 
349,624

Non cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other
(5,532
)
 
(8,743
)
NOI at share - cash basis
$
323,999

 
$
340,881


76


Supplemental Information - continued

Three Months Ended December 31, 2018 Compared to September 30, 2018

Same Store Net Operating Income At Share

Same store NOI at share represents NOI at share from operations which are owned by us and in service in both the current and prior year reporting periods. Same store NOI at share - cash basis is NOI at share from operations before straight-line rental income and expense, amortization of acquired below and above market leases, net and other non-cash adjustments which are owned by us and in service in both the current and prior year reporting periods. We present these non-GAAP measures to (i) facilitate meaningful comparisons of the operational performance of our properties and segments, (ii) make decisions on whether to buy, sell or refinance properties, and (iii) compare the performance of our properties and segments to those of our peers. Same store NOI and same store NOI - cash basis should not be considered as an alternative to net income or cash flow from operations and may not be comparable to similarly titled measures employed by other companies.

Below are reconciliations of NOI at share to same store NOI at share for our New York segment, theMART, 555 California Street and other investments for the three months ended December 31, 2018 compared to September 30, 2018 .
(Amounts in thousands)
Total
 
New York
 
theMART
 
555 California Street
 
Other
NOI at share for the three months ended December 31, 2018
$
329,531

 
$
295,199

 
$
10,981

 
$
14,005

 
$
9,346

 
Less NOI at share from:
 
 
 
 
 
 
 
 
 
 
Dispositions
19

 
19

 
—

 
—

 
—

 
Development properties
(12,623
)
 
(12,637
)
 
—

 
14

 
—

 
Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net
(96
)
 
368

 
(464
)
 
—

 
—

 
Other non-operating income, net
(10,412
)
 
(1,066
)
 
—

 
—

 
(9,346
)
Same store NOI at share for the three months ended December 31, 2018
$
306,419

 
$
281,883

 
$
10,517

 
$
14,019

 
$
—

 
 
 
 
 
 
 
 
 
 
NOI at share for the three months ended September 30, 2018
$
349,624

 
$
297,328

 
$
25,257

 
$
13,515

 
$
13,524

 
Less NOI at share from:
 
 
 
 
 
 
 
 
 
 
Development properties
(13,488
)
 
(13,474
)
 
—

 
(14
)
 
—

 
Lease termination income, net of write-offs of straight-line receivables and acquired below-market leases, net
1,581

 
1,800

 
(219
)
 
—

 
—

 
Other non-operating income, net
(14,103
)
 
(579
)
 
—

 
—

 
(13,524
)
Same store NOI at share for the three months ended September 30, 2018
$
323,614

 
$
285,075

 
$
25,038

 
$
13,501

 
$
—

 
 
 
 
 
 
 
 
 
 
(Decrease) increase in same store NOI at share for the three months ended December 31, 2018 compared to September 30, 2018
$
(17,195
)
 
$
(3,192
)
 
$
(14,521
)
 
$
518

 
$
—

 
 
 
 
 
 
 
 
 
 
 
% (decrease) increase in same store NOI at share
(5.3
)%
 
(1.1
)%
(1)  
(58.0
)%
(2)  
3.8
%
 
—
%
____________________
(1)
Excluding Hotel Pennsylvania, same store NOI at share decreased by 1.7% .
(2)
The three months ended December 31, 2018 includes an additional $12,124 real estate tax expense accrual due to an increase in the tax-assessed value of theMART.


77


Supplemental Information - continued

Three Months Ended December 31, 2018 Compared to September 30, 2018 - continued

Same Store Net Operating Income At Share - continued
Below are reconciliations of NOI at share - cash basis to same store NOI at share - cash basis for our New York segment, theMART,555 California Street and other investments for the three months ended December 31, 2018 compared to September 30, 2018 .
(Amounts in thousands)
Total
 
New York
 
theMART
 
555 California Street
 
Other
NOI at share - cash basis for the three months ended December 31, 2018
$
323,999

 
$
288,933

 
$
12,758

 
$
13,784

 
$
8,524

 
Less NOI at share - cash basis from:
 
 
 
 
 
 
 
 
 
 
Dispositions
19

 
19

 
—

 
—

 
—

 
Development properties
(14,628
)
 
(14,642
)
 
—

 
14

 
—

 
Lease termination income
(563
)
 
(43
)
 
(520
)
 
—

 
—

 
Other non-operating income, net
(9,590
)
 
(1,066
)
 
—

 
—

 
(8,524
)
Same store NOI at share - cash basis for the three months ended December 31, 2018
$
299,237

 
$
273,201

 
$
12,238

 
$
13,798

 
$
—

 
 
 
 
 
 
 
 
 
 
 
NOI at share - cash basis for the three months ended September 30, 2018
$
340,881

 
$
288,203

 
$
26,234

 
$
13,070

 
$
13,374

 
Less NOI at share - cash basis from:
 
 
 
 
 
 
 
 
 
 
Development properties
(14,342
)
 
(14,328
)
 
—

 
(14
)
 
—

 
Lease termination income
(318
)
 
(58
)
 
(260
)
 
—

 
—

 
Other non-operating income, net
(13,954
)
 
(580
)
 
—

 
—

 
(13,374
)
Same store NOI at share - cash basis for the three months ended September 30, 2018
$
312,267

 
$
273,237

 
$
25,974

 
$
13,056

 
$
—

 
 
 
 
 
 
 
 
 
 
(Decrease) increase in same store NOI at share - cash basis for the three months ended December 31, 2018 compared to September 30, 2018
$
(13,030
)
 
$
(36
)
 
$
(13,736
)
 
$
742

 
$
—

 
 
 
 
 
 
 
 
 
 
% (decrease) increase in same store NOI at share - cash basis
(4.2
)%
 
—
%
(1)  
(52.9
)%
(2)  
5.7
%
 
—
%
____________________
(1)
Excluding Hotel Pennsylvania, same store NOI at share - cash basis decreased by 0.6% .
(2)
The three months ended December 31, 2018 includes an additional $12,124 real estate tax expense accrual due to an increase in the tax-assessed value of theMART.

78

Related Party Transactions
 
Alexander’s, Inc.
 
We own 32.4% of Alexander’s. Steven Roth, the Chairman of Vornado’s Board of Trustee’s and its Chief Executive Officer, is also the Chairman of the Board of Directors and Chief Executive Officer of Alexander’s. We provide various services to Alexander’s in accordance with management, development and leasing agreements. These agreements are described in Note 7 - Investments in Partially Owned Entities to our consolidated financial statements in this Annual Report on Form 10-K.
 
Interstate Properties (“Interstate”)
 
Interstate is a general partnership in which Mr. Roth is the managing general partner. David Mandelbaum and Russell B. Wight, Jr., Trustees of Vornado and Directors of Alexander’s, respectively, are Interstate’s two other general partners. As of December 31, 2018 , Interstate and its partners beneficially owned an aggregate of approximately 7.1% of the common shares of beneficial interest of Vornado and 26.2% of Alexander’s common stock.
 
We manage and lease the real estate assets of Interstate pursuant to a management agreement for which we receive an annual fee equal to 4% of annual base rent and percentage rent. The management agreement has a term of one year and is automatically renewable unless terminated by either of the parties on 60 days’ notice at the end of the term. We believe, based upon comparable fees charged by other real estate companies, that the management agreement terms are fair to us. We earned $453,000 , $501,000 , and $521,000 of management fees under the agreement for the years ended December 31, 2018 , 2017 and 2016 , respectively.

Urban Edge Properties
 
We own 4.5% of UE. In 2018, 2017 and 2016, we provided UE with information technology support. UE is providing us with leasing and property management services for (i) certain small retail properties that we plan to sell and (ii) our affiliate, Alexander's, Rego retail assets. Fees paid to UE for servicing the retail assets of Alexander’s are similar to the fees that we are receiving from Alexander’s .
 


79

Liquidity and Capital Resources
 
Property rental income is our primary source of cash flow and is dependent upon the occupancy and rental rates of our properties. Our cash requirements include property operating expenses, capital improvements, tenant improvements, debt service, leasing commissions, dividends to shareholders and distributions to unitholders of the Operating Partnership, as well as acquisition and development costs. Other sources of liquidity to fund cash requirements include proceeds from debt financings, including mortgage loans, senior unsecured borrowings, unsecured term loan and unsecured revolving credit facilities; proceeds from the issuance of common and preferred equity securities; and asset sales. 
 
We anticipate that cash flow from continuing operations over the next twelve months will be adequate to fund our business operations, cash distributions to unitholders of the Operating Partnership, cash dividends to shareholders, debt amortization and recurring capital expenditures. Capital requirements for development expenditures and acquisitions may require funding from borrowings and/or equity offerings.

We expect to generate approximately $1 billion of after tax net income from the sales of 100% of the 220 CPS residential condominium units.  As of December 31, 2018, 83% of the condominium units are sold or under sales contracts, with closings scheduled through 2020.
 
We may from time to time purchase or retire outstanding debt securities or redeem our equity securities. Such purchases, if any, will depend on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements.
 
Dividends
 
On January 16, 2019, Vornado declared a quarterly common dividend of $0.66 per share (an indicated annual rate of $2.64 per common share). This dividend, if and when declared by the Board of Trustees for all of 2019, will require Vornado to pay out approximately $503,000,000 of cash for common share dividends. In addition, during 2019 , Vornado expects to pay approximately $50,000,000 of cash dividends on outstanding preferred shares and approximately $33,000,000 of cash distributions to unitholders of the Operating Partnership.











80

Liquidity and Capital Resources – continued

Financing Activities and Contractual Obligations
 
We have an effective shelf registration for the offering of our equity and debt securities that is not limited in amount due to our status as a “well-known seasoned issuer.” We have issued senior unsecured notes from a shelf registration statement that contain financial covenants that restrict our ability to incur debt, and that require us to maintain a level of unencumbered assets based on the level of our secured debt. Our unsecured revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our unsecured revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal. As of December 31, 2018 , we are in compliance with all of the financial covenants required by our senior unsecured notes and our unsecured revolving credit facilities.
 
As of December 31, 2018 , we had $570,916,000 of cash and cash equivalents and $2,406,663,000 of borrowing capacity under our unsecured revolving credit facilities, net of letters of credit of $13,337,000. A summary of our consolidated debt as of December 31, 2018 and 2017 is presented below.
(Amounts in thousands)
2018
 
2017
Consolidated debt:
December 31,
Balance
 
Weighted
Average
Interest Rate
 
December 31,
Balance
 
Weighted
Average
Interest Rate
Variable rate
$
3,292,382

 
4.31%
 
$
3,492,133

 
3.19%
Fixed rate
6,603,465

 
3.65%
 
6,311,706

 
3.72%
Total
9,895,847

 
3.87%
 
9,803,839

 
3.53%
Deferred financing costs, net and other
(59,226
)
 
 
 
(74,352
)
 
 
Total, net
$
9,836,621

 
 
 
$
9,729,487

 
 
 
Our consolidated outstanding debt, net of deferred financing costs and other, was $9,836,621,000 at December 31, 2018 , a $107,134,000 increase from the balance at December 31, 2017 . During 2019 and 2020 , $95,782,000 and $2,142,369,000 , respectively, of our outstanding debt matures; we may refinance this maturing debt as it comes due or choose to repay it using cash and cash equivalents or our unsecured revolving credit facilities. We may also refinance or prepay other outstanding debt depending on prevailing market conditions, liquidity requirements and other factors. The amounts involved in connection with these transactions could be material to our consolidated financial statements.
 
Below is a schedule of our contractual obligations and commitments at December 31, 2018 .
(Amounts in thousands)
 
 
Less than
1 Year
 
 
 
 
 
 
Contractual cash obligations (principal and interest (1) ):
Total
 
 
1 – 3 Years
 
3 – 5 Years
 
Thereafter
Notes and mortgages payable
$
8,937,508

 
$
2,850,760

 
$
4,110,306

 
$
1,426,256

 
$
550,186

Operating leases
1,835,219

 
46,147

 
87,858

 
88,587

 
1,612,627

Purchase obligations, primarily construction commitments
487,406

 
487,406

 
—

 
—

 
—

Senior unsecured notes due 2025
545,156

 
15,750

 
31,500

 
31,500

 
466,406

Senior unsecured notes due 2022
460,833

 
20,000

 
40,000

 
400,833

 
—

Unsecured term loan
897,146

 
29,038

 
58,076

 
57,639

 
752,393

Revolving credit facilities
85,858

 
2,840

 
83,018

 
—

 
—

Total contractual cash obligations
$
13,249,126

 
$
3,451,941

 
$
4,410,758

 
$
2,004,815

 
$
3,381,612

Commitments:
 
 
 
 
 
 
 
 
 
Capital commitments to partially owned entities
$
18,227

 
$
18,227

 
$
—

 
$
—

 
$
—

Standby letters of credit
13,337

 
13,337

 
—

 
—

 
—

Total commitments
$
31,564

 
$
31,564

 
$
—

 
$
—

 
$
—

____________________
(1)
Interest on variable rate debt is computed using rates in effect at December 31, 2018 .


81

Liquidity and Capital Resources – continued

Financing Activities and Contractual Obligations – continued

Details of 2018 financing activities are provided in the “Overview” of Management’s Discussion and Analysis of Financial Conditions and Results of Operations. Details of 2017 financing activities are discussed below.
 
Unsecured Revolving Credit Facility

On October 17, 2017, we extended one of our two $1.25 billion unsecured revolving credit facilities from November 2018 to January 2022 with two six-month extension options. The interest rate on the extended facility was lowered from LIBOR plus 1.05% to LIBOR plus 1.00%. The interest rate and facility fees are the same as our other $1.25 billion unsecured revolving credit facility, which matures in February 2021 with two six-month extension options.

Secured Debt

On December 27, 2017, we completed a public offering of $450,000,000 3.50% senior unsecured notes due January 15, 2025. The interest rate on the senior unsecured notes will be payable semi-annually on January 15 and July 15, commencing July 15, 2018. The notes were sold at 99.596% of their face amount to yield 3.565%.

On December 27, 2017, we redeemed all of the $450,000,000 principal amount of our outstanding 2.50% senior unsecured notes which were scheduled to mature on June 30, 2019, at a redemption price of approximately 100.71% of the principal amount plus accrued interest through the date of redemption. In connection therewith, we expensed $4,836,000 of debt prepayment costs and wrote-off unamortized deferred financing costs which are included in "interest and debt expense" on our consolidated statements of income.

Preferred Securities

In December 2017, we sold 12,780,000 5.25% Series M cumulative redeemable preferred shares at a price of $25.00 per share in an underwritten public offering pursuant to an effective registration statement. We received aggregate net proceeds of $309,609,000, after underwriters’ discounts and issuance costs and contributed the net proceeds to the Operating Partnership in exchange for 12,780,000 5.25% Series M preferred units (with economic terms that mirror those of the Series M preferred shares). Dividends on the Series M preferred shares/units are cumulative and payable quarterly in arrears. The Series M preferred shares/units are not convertible into, or exchangeable for, any of our properties or securities. On or after five years from the date of issuance (or sooner under limited circumstances), we may redeem the Series M preferred shares/units at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the date of redemption. The Series M preferred shares/units have no maturity date and will remain outstanding indefinitely unless redeemed by us.

In December 2017, we called for redemption of all of the outstanding 6.625% Series G and 6.625% Series I cumulative redeemable preferred shares/units. As a result, as of December 31, 2017, we reclassed the 6.625% Series G and 6.625% Series I cumulative redeemable preferred shares/units from shareholder's equity/partner's capital to liabilities on our consolidated balance sheets. In January 2018, we completed the redemption of all of the outstanding Series G and Series I cumulative redeemable preferred shares/units.

82

Liquidity and Capital Resources – continued

Certain Future Cash Requirements
 
Capital Expenditures
 
The following table summarizes anticipated 2019 capital expenditures.
(Amounts in millions, except per square foot data)
Total
 
New York
 
theMART
 
555 California Street
Expenditures to maintain assets
$
110.0

 
$
95.0

 
$
10.0

 
$
5.0

Tenant improvements
77.0

 
64.0

 
13.0

 
—

Leasing commissions
26.0

 
24.0

 
2.0

 
—

Total recurring tenant improvements, leasing commissions and other capital expenditures
$
213.0

 
$
183.0

 
$
25.0

 
$
5.0

 
 
 
 
 
 
 
 
Square feet budgeted to be leased (in thousands)
 
 
1,100

 
250

 
—

Weighted average lease term (years)
 
 
10

 
8

 
—

Tenant improvements and leasing commissions:
 
 
 
 
 
 
 
Per square foot
 
 
$
80.00

 
$
60.00

 
$
—

Per square foot per annum
 
 
8.00

 
7.50

 
—


The table above excludes anticipated capital expenditures of each of our partially owned non-consolidated subsidiaries, as these entities fund their capital expenditures without additional equity contributions from us.

Development and Redevelopment Expenditures
 
We are constructing a residential condominium tower containing 397,000 salable square feet at 220 CPS. The development cost of this project (exclusive of land cost of $515.4 million) is estimated to be approximately $1.4 billion, of which $1.2 billion has been expended as of December 31, 2018.

We are developing a 173,000 square foot Class A office building, located along the western edge of the High Line at 512 West 22nd Street in the West Chelsea submarket of Manhattan (55.0% interest). The development cost of this project is estimated to be approximately $130,000,000, of which our share is $72,000,000. As of December 31, 2018, $95,464,000 has been expended, of which our share is $52,505,000.

We are developing a 34,000 square foot office and retail building at 606 Broadway, located on the northeast corner of Broadway and Houston Street in Manhattan (50.0% interest). The development cost of this project is estimated to be approximately $60,000,000, of which our share is $30,000,000. As of December 31, 2018, $51,202,000 has been expended, of which our share is $25,601,000.

We are redeveloping a 78,000 square foot Class A office building at 345 Montgomery Street, a part of our 555 California Street complex in San Francisco (70.0% interest) located at the corner of California and Pine Street. The development cost of this project is estimated to be approximately $46,000,000, of which our share is $32,000,000. As of December 31, 2018, $21,834,000 has been expended, of which our share is $15,284,000.

We are redeveloping a 165,000 square foot office building at 825 Seventh Avenue, located at the corner of 53rd Street and Seventh Avenue (50.0% interest). The redevelopment cost of this project is estimated to be approximately $30,000,000, of which our share is $15,000,000. As of December 31, 2018, $8,967,000 has been expended, of which our share is $4,484,000.

We are redeveloping PENN1, a 2,545,000 square foot office building located on 34th Street between Seventh and Eighth Avenue. The development cost of this project is estimated to be over $200,000,000, of which $9,725,000 has been expended as of December 31, 2018.


83

Liquidity and Capital Resources – continued

Development and Redevelopment Expenditures - continued

We are in the planning phase to redevelop PENN2, a 1,634,000 square foot office building located on the west side of 7th Avenue between 31st and 33rd Street.

We are also evaluating other development and redevelopment opportunities at certain of our properties in Manhattan, including, in particular, the Penn District.

Farley Office and Retail Building and Moynihan Train Hall

Our 95.0% joint venture (the remaining 5.0% is owned by the Related Companies "Related") is developing the Farley Office and Retail Building (the "Project"), which will include approximately 850,000 rentable square feet of commercial space, comprised of approximately 730,000 square feet of office space and approximately 120,000 square feet of retail space. The total development cost of the Project is estimated to be approximately $800,000,000 (exclusive of a $230,000,000 upfront contribution and net of anticipated historic tax credits). As of December 31, 2018, $144,491,000 has been expended.

The joint venture has entered into a development agreement with Empire State Development (“ESD”), an entity of New York State, to build the adjacent Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture's obligations. The joint venture has entered into a design-build contract with Skanska Moynihan Train Hall Builders pursuant to which they will build the Moynihan Train Hall, thereby fulfilling all of the joint venture's obligations to ESD. The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bear a full guaranty from Skanska AB. The development expenditures for the Moynihan Train Hall are estimated to be approximately $1.6 billion, which will be funded by governmental agencies. Pursuant to Accounting Standards Codification 840-40-55, the joint venture, which we consolidate on our consolidated balance sheets, is required to recognize all development expenditures for the Moynihan Train Hall. Accordingly, the development expenditures paid for by governmental agencies through December 31, 2018 of $445,693,000 are shown as “Moynihan Train Hall development expenditures” with a corresponding obligation recorded in “Moynihan Train Hall obligation” on our consolidated balance sheets. Upon completion of the development, the "Moynihan Train Hall development expenditures" and the offsetting “Moynihan Train Hall obligation” will be removed from our consolidated balance sheets.



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

84

.
Liquidity and Capital Resources – continued

Insurance

We maintain general liability insurance with limits of $300,000,000 per occurrence and per property, and all risk property and rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as flood and earthquake. Our California properties have earthquake insurance with coverage of $260,000,000 per occurrence and in the aggregate, subject to a deductible in the amount of 5% of the value of the affected property. We maintain coverage for terrorism acts with limits of $4.0 billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization Act of 2015, which expires in December 2020.
 
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for acts of terrorism including NBCR acts. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC. For NBCR acts, PPIC is responsible for a deductible of $1,453,000 and 19% of the balance of a covered loss and the Federal government is responsible for the remaining portion of a covered loss. We are ultimately responsible for any loss incurred by PPIC.
 
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism and other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for deductibles and losses in excess of our insurance coverage, which could be material.

Our debt instruments, consisting of mortgage loans secured by our properties, senior unsecured notes and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our ability to finance or refinance our properties and expand our portfolio.
Other Commitments and Contingencies
 
We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not currently expected to have a material adverse effect on our financial position, results of operations or cash flows.
 
Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.
 
Our mortgage loans are non-recourse to us, except for the mortgage loan secured by 7 West 34th Street, which we guaranteed and therefore is part of our tax basis. In certain cases we have provided guarantees or master leased tenant space. These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans. As of December 31, 2018 , the aggregate dollar amount of these guarantees and master leases is approximately $660,000,000 .
 
As of December 31, 2018 , $13,337,000 of letters of credit were outstanding under one of our unsecured revolving credit facilities. Our unsecured revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our unsecured revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

A joint venture in which we own a 95.0% ownership interest was designated by ESD, an entity of New York State, to develop the Farley Office and Retail Building. The joint venture entered into a development agreement with ESD and a design-build contract with Skanska Moynihan Train Hall Builders. Under the development agreement with ESD, the joint venture is obligated to build the Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture’s obligations. Under the design-build agreement, Skanska Moynihan Train Hall Builders is obligated to fulfill all of the joint venture’s obligations. The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bear a full guaranty from Skanska AB.

As of December 31, 2018 , we expect to fund additional capital to certain of our partially owned entities aggregating approximately $18,000,000 .
 
As of December 31, 2018 , we have construction commitments aggregating approximately $404,000,000 .

85

Liquidity and Capital Resources – continued

Cash Flows for the Year Ended December 31, 2018 Compared to December 31, 2017
 
Our cash flow activities for the years ended December 31, 2018 and 2017 are summarized as follows:
(Amounts in thousands)
For the Year Ended December 31,
 
Decrease in Cash Flow
 
2018
 
2017
 
Net cash provided by operating activities
$
802,641

 
$
860,142

 
$
(57,501
)
Net cash used in investing activities
(877,722
)
 
(206,317
)
 
(671,405
)
Net cash used in financing activities
(1,122,826
)
 
(338,344
)
 
(784,482
)

Cash and cash equivalents and restricted cash was $716,905,000 at December 31, 2018 , a $1,197,907,000 decrease from the balance at December 31, 2017 .

Net cash provided by operating activities of $802,641,000 for the year ended December 31, 2018 was comprised of $824,306,000 of cash from operations, including distributions of income from partially owned entities of $78,831,000 and return of capital from real estate fund investments of $20,290,000 , and a net decrease of $21,665,000 in cash due to the timing of cash receipts and payments related to changes in operating assets and liabilities.

The following table details the cash used in investing activities for the years ended December 31, 2018 and 2017 :
(Amounts in thousands)
For the Year Ended December 31,
 
(Decrease) Increase in Cash Flow
 
2018
 
2017
 
Acquisitions of real estate and other
$
(574,812
)
 
$
(30,607
)
 
$
(544,205
)
Development costs and construction in progress
(418,186
)
 
(355,852
)
 
(62,334
)
Additions to real estate
(234,602
)
 
(271,308
)
 
36,706

Proceeds from sales of real estate and related investments
219,731

 
9,543

 
210,188

Proceeds from sale of condominium units at 220 Central Park South
214,776

 
—

 
214,776

Investments in loans receivable
(105,000
)
 
—

 
(105,000
)
Distributions of capital from partially owned entities
100,178

 
366,155

 
(265,977
)
Moynihan Train Hall expenditures
(74,609
)
 
—

 
(74,609
)
Investments in partially owned entities
(37,131
)
 
(40,537
)
 
3,406

Proceeds from repayments of loans receivable
25,757

 
659

 
25,098

Proceeds from sale of marketable securities
4,101

 
—

 
4,101

Net consolidation of Farley Office and Retail Building
2,075

 
—

 
2,075

Proceeds from the repayment of JBG SMITH Properties loan receivable
—

 
115,630

 
(115,630
)
Net cash used in investing activities
$
(877,722
)
 
$
(206,317
)
 
$
(671,405
)


86

Liquidity and Capital Resources – continued

Cash Flows for the Year Ended December 31, 2018 Compared to December 31, 2017 - continued

The following table details the cash used in financing activities for the years ended December 31, 2018 and 2017 :
(Amounts in thousands)
For the Year Ended December 31,
 
(Decrease) Increase
in Cash Flow
 
2018
 
2017
 
Repayments of borrowings
$
(685,265
)
 
$
(631,681
)
 
$
(53,584
)
Proceeds from borrowings
526,766

 
1,055,872

 
(529,106
)
Dividends paid on common shares/Distributions to Vornado
(479,348
)
 
(496,490
)
 
17,142

Redemption of preferred shares/units
(470,000
)
 
—

 
(470,000
)
Distributions to redeemable security holders and noncontrolling interests in consolidated subsidiaries
(76,149
)
 
(109,697
)
 
33,548

Moynihan Train Hall reimbursement from Empire State Development
74,609

 
—

 
74,609

Contributions from noncontrolling interests in consolidated subsidiaries
61,062

 
1,044

 
60,018

Dividends paid on preferred shares/Distributions to preferred unitholders
(55,115
)
 
(64,516
)
 
9,401

Repurchase of shares/Class A units related to stock compensation agreements and related tax withholdings and other
(12,969
)
 
(418
)
 
(12,551
)
Debt issuance costs
(12,908
)
 
(12,325
)
 
(583
)
Proceeds received from exercise of Vornado stock options and other
7,309

 
29,712

 
(22,403
)
Debt prepayment and extinguishment costs
(818
)
 
(3,217
)
 
2,399

Cash and cash equivalents and restricted cash included in the spin-off of JBG SMITH Properties ($275,000 plus The Bartlett financing proceeds less transaction costs and other mortgage items)
—

 
(416,237
)
 
416,237

Proceeds from issuance of preferred shares/units
—

 
309,609

 
(309,609
)
Net cash used in financing activities
$
(1,122,826
)
 
$
(338,344
)
 
$
(784,482
)

87

Liquidity and Capital Resources – continued

Capital Expenditures for the Year Ended December 31, 2018
 
Capital expenditures consist of expenditures to maintain assets, tenant improvement allowances and leasing commissions. Recurring capital expenditures include expenditures to maintain a property’s competitive position within the market and tenant improvements and leasing commissions necessary to re-lease expiring leases or renew or extend existing leases. Non-recurring capital improvements include expenditures to lease space that has been vacant for more than nine months and expenditures completed in the year of acquisition and the following two years that were planned at the time of acquisition, as well as tenant improvements and leasing commissions for space that was vacant at the time of acquisition of a property. 
 
Below is a summary of amounts paid for capital expenditures and leasing commissions for the year ended December 31, 2018 .
(Amounts in thousands)
Total
 
New York
 
theMART
 
555 California Street
Expenditures to maintain assets
$
92,386

 
$
70,954

 
$
13,282

 
$
8,150

Tenant improvements
100,191

 
76,187

 
15,106

 
8,898

Leasing commissions
33,254

 
29,435

 
459

 
3,360

Recurring tenant improvements, leasing commissions and other capital expenditures
225,831

 
176,576

 
28,847

 
20,408

Non-recurring capital expenditures
43,135

 
31,381

 
260

 
11,494

Total capital expenditures and leasing commissions
$
268,966

 
$
207,957

 
$
29,107

 
$
31,902


Development and Redevelopment Expenditures for the Year Ended December 31, 2018
 
Development and redevelopment expenditures consist of all hard and soft costs associated with the development or redevelopment of a property, including capitalized interest, debt and operating costs until the property is substantially completed and ready for its intended use. Our development project estimates below include initial leasing costs, which are reflected as non-recurring capital expenditures in the table above.
 
Below is a summary of amounts paid for development and redevelopment expenditures in the year ended December 31, 2018 . These expenditures include interest and debt expense of $73,166,000, payroll of $12,120,000, and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $66,651,000, which were capitalized in connection with the development and redevelopment of these projects.
(Amounts in thousands)
Total
 
New York
 
theMART
 
555 California Street
 
Other
220 Central Park South
$
295,827

 
$
—

 
$
—

 
$
—

 
$
295,827

Farley Office and Retail Building
18,995

 
18,995

 
—

 
—

 
—

345 Montgomery Street
18,187

 
—

 
—

 
18,187

 
—

606 Broadway
15,959

 
15,959

 
—

 
—

 
—

PENN1
8,856

 
8,856

 
—

 
—

 
—

1535 Broadway
8,645

 
8,645

 
—

 
—

 
—

Other
51,717

 
36,660

 
10,790

 
445

 
3,822

 
$
418,186

 
$
89,115

 
$
10,790

 
$
18,632

 
$
299,649


88

Liquidity and Capital Resources – continued

Capital Expenditures for the Year Ended December 31, 2017
 
Below is a summary of amounts paid for capital expenditures and leasing commissions for the year ended December 31, 2017 .
(Amounts in thousands)
Total
 
New York
 
theMART
 
555 California Street
 
Other
 
Expenditures to maintain assets
$
111,629

 
$
79,567

 
$
12,772

 
$
9,689

 
$
9,601

 
Tenant improvements
128,287

 
83,639

 
8,730

 
19,327

 
16,591

 
Leasing commissions
36,447

 
26,114

 
1,701

 
1,330

 
7,302

 
Recurring tenant improvements, leasing commissions and other capital expenditures
276,363

 
189,320

 
23,203

 
30,346

 
33,494

 
Non-recurring capital expenditures
35,149

 
27,762

 
—

 
7,159

 
228

 
Total capital expenditures and leasing commissions
$
311,512

 
$
217,082

 
$
23,203

 
$
37,505

 
$
33,722

(1)  
___________________
(1)
Effective July 17, 2017, the date of the spin-off of our Washington, DC segment, capital expenditures and leasing commissions of our former Washington, DC segment have been reclassified to the Other segment.

Development and Redevelopment Expenditures for the Year Ended December 31, 2017

Below is a summary of amounts paid for development and redevelopment expenditures in the year ended December 31, 2017 . These expenditures include interest and debt expense of $48,230,000, payroll of $6,044,000, and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $28,197,000, which were capitalized in connection with the development and redevelopment of these projects.
 
(Amounts in thousands)
Total
 
New York
 
theMART
 
555 California Street
 
Other
220 Central Park South
$
265,791

 
$
—

 
$
—

 
$
—

 
$
265,791

606 Broadway
15,997

 
15,997

 
—

 
—

 
—

90 Park Avenue
7,523

 
7,523

 
—

 
—

 
—

345 Montgomery Street
5,950

 
—

 
—

 
5,950

 
—

theMART
5,342

 
—

 
5,342

 
—

 
—

PENN1
1,462

 
1,462

 
—

 
—

 
—

Other
53,787

 
18,392

 
799

 
6,465

 
28,131

 
$
355,852

 
$
43,374

 
$
6,141

 
$
12,415

 
$
293,922


89

Liquidity and Capital Resources – continued

Capital Expenditures for the Year Ended December 31, 2016
 
Below is a summary of amounts paid for capital expenditures and leasing commissions for the year ended December 31, 2016 .
(Amounts in thousands)
Total
 
New York
 
theMART
 
555 California Street
 
Other
 
Expenditures to maintain assets
$
119,076

 
$
65,561

 
$
20,098

 
$
9,954

 
$
23,463

 
Tenant improvements
219,751

 
112,687

 
29,738

 
9,904

 
67,422

 
Leasing commissions
47,906

 
38,134

 
2,070

 
1,486

 
6,216

 
Recurring tenant improvements, leasing commissions and other capital expenditures
386,733

 
216,382

 
51,906

 
21,344

 
97,101

 
Non-recurring capital expenditures
58,693

 
47,642

 
—

 
2,154

 
8,897

 
Total capital expenditures and leasing commissions
$
445,426

 
$
264,024

 
$
51,906

 
$
23,498

 
$
105,998

(1)  
___________________
(1)
Effective July 17, 2017, the date of the spin-off of our Washington, DC segment, capital expenditures and leasing commissions of our former Washington, DC segment have been reclassified to the Other segment.

Development and Redevelopment Expenditures for the Year Ended December 31, 2016
 
Below is a summary of amounts paid for development and redevelopment expenditures in the year ended December 31, 2016. These expenditures include interest and debt expense of $34,097,000, payroll of $12,516,000, and other soft costs (primarily architectural and engineering fees, permits, real estate taxes and professional fees) aggregating $46,995,000, which were capitalized in connection with the development and redevelopment of these projects.
 
(Amounts in thousands)
Total
 
New York
 
theMART
 
555 California Street
 
Other
 
220 Central Park South
$
303,974

 
$
—

 
$
—

 
$
—

 
$
303,974

 
640 Fifth Avenue
46,282

 
46,282

 
—

 
—

 
—

 
90 Park Avenue
33,308

 
33,308

 
—

 
—

 
—

 
theMART
24,788

 
—

 
24,788

 
—

 
—

 
Wayne Towne Center
8,461

 
—

 
—

 
—

 
8,461

 
330 West 34th Street
5,492

 
5,492

 
—

 
—

 
—

 
Other
184,260

 
33,121

 
1,384

 
9,150

 
140,605

(1)  
 
$
606,565

 
$
118,203

 
$
26,172

 
$
9,150

 
$
453,040

 
___________________
(1)
Primarily relates to our former Washington, DC segment which was spun-off on July 17, 2017.


90

Funds From Operations
Vornado Realty Trust
 
FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciable real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are non-GAAP financial measures used by our management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. The calculations of both the numerator and denominator used in the computation of income per share are disclosed in Note 19 – Income Per Share/Income Per Class A Unit , in our consolidated financial statements on page 150 of this Annual Report on Form 10-K.

In accordance with the NAREIT December 2018 restated definition of FFO, we have elected to exclude the mark-to-market adjustments of marketable equity securities from the calculation of FFO. Our FFO for the nine months ended September 30, 2018 has been adjusted to exclude the $26,602,000, or $0.13 per share, decrease in fair value of marketable equity securities previously reported.

FFO attributable to common shareholders plus assumed conversions was $210,100,000 , or $1.10 per diluted share, for the three months ended December 31, 2018 , compared to $153,151,000 , or $0.80 per diluted share, for the prior year's three months. FFO attributable to common shareholders plus assumed conversions was $729,740,000 , or $3.82 per diluted share, for the year ended December 31, 2018 , compared to $717,805,000 , or $3.75 per diluted share, for the prior year. Details of certain items that impact FFO are discussed in the financial results summary of our “Overview.”

91

FFO - continued
Vornado Realty Trust - continued
(Amounts in thousands, except per share amounts)
For the Three Months Ended
December 31,
 
For the Year Ended
December 31,
 
2018
 
2017
 
2018
 
2017
Reconciliation of our net income attributable to common shareholders to FFO attributable to common shareholders plus assumed conversions:
 

 
 
 
 
 
 
Net income attributable to common shareholders
$
100,494

 
$
27,319

 
$
384,832

 
$
162,017

Per diluted share
$
0.53

 
$
0.14

 
$
2.01

 
$
0.85

 
 
 
 
 
 
 
 
FFO adjustments:
 

 
 

 
 
 
 
Depreciation and amortization of real property
$
104,067

 
$
106,017

 
$
413,091

 
$
467,966

Net gains on sale of real estate
—

 
—

 
(158,138
)
 
(3,797
)
Real estate impairment losses
12,000

 
—

 
12,000

 
—

Decrease in fair value of marketable securities
1,652

 
—

 
26,453

 
—

After-tax purchase price fair value adjustment on depreciable real estate
(27,289
)
 
—

 
(27,289
)
 
—

Proportionate share of adjustments to equity in net income of
partially owned entities to arrive at FFO:
 
 
 
 
 
 
 
Depreciation and amortization of real property
24,309

 
28,247

 
101,591

 
137,000

Net gains on sale of real estate
—

 
(585
)
 
(3,998
)
 
(17,777
)
Real estate impairment losses
—

 
145

 
—

 
7,692

Decrease in fair value of marketable securities
2,081

 
—

 
3,882

 
—

 
116,820

 
133,824

 
367,592

 
591,084

Noncontrolling interests' share of above adjustments
(7,229
)
 
(8,010
)
 
(22,746
)
 
(36,420
)
FFO adjustments, net
$
109,591

 
$
125,814

 
$
344,846

 
$
554,664

 
 
 
 
 
 
 
 
FFO attributable to common shareholders
$
210,085

 
$
153,133

 
$
729,678

 
$
716,681

Convertible preferred share dividends
15

 
18

 
62

 
77

Earnings allocated to Out-Performance Plan units
—

 
—

 
—

 
1,047

FFO attributable to common shareholders plus assumed conversions
$
210,100

 
$
153,151

 
$
729,740

 
$
717,805

Per diluted share
$
1.10

 
$
0.80

 
$
3.82

 
$
3.75

 
 
 
 
 
 
 
 
Reconciliation of Weighted Average Shares
 
 
 
 
 
 
 
Weighted average common shares outstanding
190,348

 
189,898

 
190,219

 
189,526

Effect of dilutive securities:
 
 
 
 
 
 
 
Employee stock options and restricted share awards
814

 
1,122

 
933

 
1,448

Convertible preferred shares
37

 
43

 
37

 
46

Out-Performance Plan units
—

 
—

 
—

 
284

Denominator for FFO per diluted share
191,199

 
191,063

 
191,189

 
191,304


92


ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have exposure to fluctuations in market interest rates. Market interest rates are sensitive to many factors that are beyond our control. Our exposure to a change in interest rates on our consolidated and non-consolidated debt (all of which arises out of non-trading activity) is as follows:
(Amounts in thousands, except per share and unit amounts)
2018
 
2017
December 31,
Balance
 
Weighted
Average
Interest Rate
 
Effect of 1%
Change In
Base Rates
 
December 31,
Balance
 
Weighted
Average
Interest Rate
Consolidated debt:
 
 
 
 
 
 
 
 
 
Variable rate
$
3,292,382

 
4.31%
 
$
32,924

 
$
3,492,133

 
3.19%
Fixed rate
6,603,465

 
3.65%
 
—

 
6,311,706

 
3.72%
 
$
9,895,847

 
3.87%
 
32,924

 
$
9,803,839

 
3.53%
Pro rata share of debt of non-consolidated entities (1) :
 
 
 
 
 

 
 
 
 
Variable rate
$
1,300,797

 
4.05%
 
13,008

 
$
1,395,001

 
3.24%
Fixed rate
1,382,068

 
4.19%
 
—

 
2,035,888

 
4.89%
 
$
2,682,865

 
4.12%
 
13,008

 
$
3,430,889

 
4.22%
Noncontrolling interests’ share of consolidated subsidiaries
 
 
 
 
(1,649
)
 
 
 
 
Total change in annual net income attributable to the Operating Partnership
 
 
 
 
44,283


 
 
 
Noncontrolling interests’ share of the Operating Partnership
 
 
 
 
(2,741
)
 
 
 
 
Total change in annual net income attributable to Vornado
 
 
 
 
$
41,542

 
 
 
 
Total change in annual net income attributable to the Operating Partnership per diluted Class A unit
 
 
 
 
$
0.22

 
 
 
 
Total change in annual net income attributable to Vornado per diluted share
 
 
 
 
$
0.22

 
 
 
 
_______________________
(1)
As a result of Toys “R” Us (“Toys”) filing a voluntary petition under chapter 11 of the United States Bankruptcy Code, we determined the Company no longer has the ability to exercise significant influence over Toys. Accordingly, we have excluded our share of Toys debt.

We may utilize various financial instruments to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies, depending on our analysis of the interest rate environment and the costs and risks of such strategies. As of December 31, 2018 , we have an interest rate swap on a $375,000,000 mortgage loan on 888 Seventh Avenue that swapped the rate from LIBOR plus 1.60% (3.99% as of December 31, 2018 ) to a fixed rate of 3.15% through December 2020; an interest rate swap on a $700,000,000 mortgage loan on 770 Broadway that swapped the rate from LIBOR plus 1.75% (4.13% as of December 31, 2018 ) to a fixed rate of 2.56% through September 2020; and an interest rate swap on a $100,000,000 mortgage loan on 33-00 Northern Boulevard that swapped the rate from LIBOR plus 1.80% (4.19% as of December 31, 2018 ) to a fixed rate of 4.14% through January 2025.

In connection with the extension of our $750,000,000 unsecured term loan, we entered into an interest rate swap agreement that swapped the rate from LIBOR plus 1.00% (3.52% as of December 31, 2018) to a fixed rate of 3.87% through October 2023.

Fair Value of Debt
 
The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt. As of December 31, 2018 , the estimated fair value of our consolidated debt was $9,856,000,000.

93


ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




INDEX TO FINANCIAL STATEMENTS

 
 
Page
Number
Vornado Realty Trust
 
 
 
Consolidated Balance Sheets at December 31, 2018 and 2017
 
 
Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016
 
 
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016
 
 
Consolidated Statements of Changes in Equity for the years ended December 31, 2018, 2017 and 2016
 
 
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
 
 
 Vornado Realty L.P.
 
 
 
Consolidated Balance Sheets at December 31, 2018 and 2017
 
 
Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016
 
 
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016
 
 
Consolidated Statements of Changes in Equity for the years ended December 31, 2018, 2017 and 2016
 
 
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
 
 
 
 


94


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Shareholders and Board of Trustees
Vornado Realty Trust
New York, New York

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Vornado Realty Trust and subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2018, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with the accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 11, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey
February 11, 2019

We have served as the Company’s auditor since 1976.








95

VORNADO REALTY TRUST
CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except unit, share and per share amounts)
December 31,
2018
 
December 31,
2017
ASSETS
 
 
 
Real estate, at cost:
 
 
 
Land
$
3,306,280

 
$
3,143,648

Buildings and improvements
10,110,992

 
9,898,605

Development costs and construction in progress
2,266,491

 
1,615,101

Moynihan Train Hall development expenditures
445,693

 
—

Leasehold improvements and equipment
108,427

 
98,941

Total
16,237,883

 
14,756,295

Less accumulated depreciation and amortization
(3,180,175
)
 
(2,885,283
)
Real estate, net
13,057,708

 
11,871,012

Cash and cash equivalents
570,916

 
1,817,655

Restricted cash
145,989

 
97,157

Marketable securities
152,198

 
182,752

Tenant and other receivables, net of allowance for doubtful accounts of $4,154 and $5,526
73,322

 
58,700

Investments in partially owned entities
858,113

 
1,056,829

Real estate fund investments
318,758

 
354,804

220 Central Park South condominium units ready for sale
99,627

 
—

Receivable arising from the straight-lining of rents, net of allowance of $1,644 and $954
935,131

 
926,711

Deferred leasing costs, net of accumulated amortization of $207,529 and $191,827
400,313

 
403,492

Identified intangible assets, net of accumulated amortization of $172,114 and $150,837
136,781

 
159,260

Other assets
431,938

 
469,562

 
$
17,180,794

 
$
17,397,934

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 
 
 
Mortgages payable, net
$
8,167,798

 
$
8,137,139

Senior unsecured notes, net
844,002

 
843,614

Unsecured term loan, net
744,821

 
748,734

Unsecured revolving credit facilities
80,000

 
—

Moynihan Train Hall obligation
445,693

 
—

Accounts payable and accrued expenses
430,976

 
415,794

Deferred revenue
167,730

 
227,069

Deferred compensation plan
96,523

 
109,177

Preferred shares redeemed on January 4 and 11, 2018
—

 
455,514

Other liabilities
311,806

 
468,255

Total liabilities
11,289,349

 
11,405,296

Commitments and contingencies

 

Redeemable noncontrolling interests:
 
 
 
Class A units - 12,544,477 and 12,528,899 units outstanding
778,134

 
979,509

Series D cumulative redeemable preferred units - 177,101 units outstanding
5,428

 
5,428

Total redeemable noncontrolling interests
783,562

 
984,937

Vornado's shareholders' equity:
 
 
 
Preferred shares of beneficial interest: no par value per share; authorized 110,000,000 shares; issued and outstanding 36,798,580 and 36,799,573 shares
891,294

 
891,988

Common shares of beneficial interest: $0.04 par value per share; authorized 250,000,000 shares; issued and outstanding 190,535,499 and 189,983,858 shares
7,600

 
7,577

Additional capital
7,725,857

 
7,492,658

Earnings less than distributions
(4,167,184
)
 
(4,183,253
)
Accumulated other comprehensive income
7,664

 
128,682

Total Vornado shareholders' equity
4,465,231

 
4,337,652

Noncontrolling interests in consolidated subsidiaries
642,652

 
670,049

Total equity
5,107,883

 
5,007,701

 
$
17,180,794

 
$
17,397,934

See notes to the consolidated financial statements.

96

VORNADO REALTY TRUST  
CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share amounts)
Year Ended December 31,
 
2018
 
2017
 
2016
REVENUES:
 
 
 
 
 
Property rentals
$
1,760,205

 
$
1,714,952

 
$
1,662,093

Tenant expense reimbursements
247,128

 
233,424

 
221,563

Fee and other income
156,387

 
135,750

 
120,086

Total revenues
2,163,720

 
2,084,126

 
2,003,742

EXPENSES:
 
 
 
 
 
Operating
963,478

 
886,596

 
844,566

Depreciation and amortization
446,570

 
429,389

 
421,023

General and administrative
141,871

 
150,782

 
143,643

(Benefit) expense from deferred compensation plan liability
(2,480
)
 
6,932

 
5,213

Transaction related costs, impairment loss and other
31,320

 
1,776

 
9,451

Total expenses
1,580,759

 
1,475,475

 
1,423,896

Operating income
582,961

 
608,651

 
579,846

Income from partially owned entities
9,149

 
15,200

 
168,948

(Loss) income from real estate fund investments
(89,231
)
 
3,240

 
(23,602
)
Interest and other investment income, net
17,057

 
30,861

 
24,335

(Loss) income from deferred compensation plan assets
(2,480
)
 
6,932

 
5,213

Interest and debt expense
(347,949
)
 
(345,654
)
 
(330,240
)
Purchase price fair value adjustment
44,060

 
—

 
—

Net gains on disposition of wholly owned and partially owned assets
246,031

 
501

 
160,433

Income before income taxes
459,598

 
319,731

 
584,933

Income tax expense
(37,633
)
 
(42,375
)
 
(7,923
)
Income from continuing operations
421,965

 
277,356

 
577,010

Income (loss) from discontinued operations
638

 
(13,228
)
 
404,912

Net income
422,603

 
264,128

 
981,922

Less net loss (income) attributable to noncontrolling interests in:
 
 
 
 
 
Consolidated subsidiaries
53,023

 
(25,802
)
 
(21,351
)
Operating Partnership
(25,672
)
 
(10,910
)
 
(53,654
)
Net income attributable to Vornado
449,954

 
227,416

 
906,917

Preferred share dividends
(50,636
)
 
(65,399
)
 
(75,903
)
Preferred share issuance costs
(14,486
)
 
—

 
(7,408
)
NET INCOME attributable to common shareholders
$
384,832

 
$
162,017

 
$
823,606

 
 
 
 
 
 
INCOME PER COMMON SHARE – BASIC:
 
 
 
 
 
Income from continuing operations, net
$
2.02

 
$
0.92

 
$
2.35

Income (loss) from discontinued operations, net
—

 
(0.07
)
 
2.01

Net income per common share
$
2.02

 
$
0.85

 
$
4.36

Weighted average shares outstanding
190,219

 
189,526

 
188,837

 
 
 
 
 
 
INCOME PER COMMON SHARE – DILUTED:
 
 
 
 
 
Income from continuing operations, net
$
2.01

 
$
0.91

 
$
2.34

Income (loss) from discontinued operations, net
—

 
(0.06
)
 
2.00

Net income per common share
$
2.01

 
$
0.85

 
$
4.34

Weighted average shares outstanding
191,290

 
191,258

 
190,173


See notes to consolidated financial statements.

97

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(Amounts in thousands)
Year Ended December 31,
 
2018
 
2017
 
2016
Net income
$
422,603

 
$
264,128

 
$
981,922

Other comprehensive income (loss):
 
 
 
 
 
(Reduction) increase in value of interest rate swaps and other
(14,635
)
 
15,477

 
27,432

Pro rata share of other comprehensive income (loss) of nonconsolidated subsidiaries
1,155

 
1,425

 
(2,739
)
(Reduction) increase in unrealized net gain on available-for-sale securities
—

 
(20,951
)
 
52,057

Pro rata share of amounts reclassified from accumulated other comprehensive income of a nonconsolidated subsidiary
—

 
14,402

 
—

Comprehensive income
409,123

 
274,481

 
1,058,672

Less comprehensive loss (income) attributable to noncontrolling interests
28,187

 
(37,356
)
 
(79,704
)
Comprehensive income attributable to Vornado
$
437,310

 
$
237,125

 
$
978,968


See notes to consolidated financial statements.

98

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands)
 
Preferred Shares
 
Common Shares
 
Additional
Capital
 
Earnings
Less Than
Distributions
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
controlling
Interests in
Consolidated
Subsidiaries
 
Total
Equity
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance, December 31, 2017
 
36,800

 
$
891,988

 
189,984

 
$
7,577

 
$
7,492,658

 
$
(4,183,253
)
 
$
128,682

 
$
670,049

 
$
5,007,701

Cumulative effect of accounting change (see Note 2)
 
—

 
—

 
—

 
—

 
—

 
122,893

 
(108,374
)
 
—

 
14,519

Net income attributable to Vornado
 
—

 
—

 
—

 
—

 
—

 
449,954

 
—

 
—

 
449,954

Net loss attributable to noncontrolling interests in consolidated subsidiaries
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(53,023
)
 
(53,023
)
Dividends on common shares
 
—

 
—

 
—

 
—

 
—

 
(479,348
)
 
—

 
—

 
(479,348
)
Dividends on preferred shares
 
—

 
—

 
—

 
—

 
—

 
(50,636
)
 
—

 
—

 
(50,636
)
Common shares issued:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Upon redemption of Class A units, at redemption value
 
—

 
—

 
244

 
10

 
17,058

 
—

 
—

 
—

 
17,068

Under employees' share option plan
 
—

 
—

 
279

 
12

 
5,907

 
(12,185
)
 
—

 
—

 
(6,266
)
Under dividend reinvestment plan
 
—

 
—

 
20

 
1

 
1,389

 
—

 
—

 
—

 
1,390

Contributions
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
62,657

 
62,657

Distributions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate fund investments
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(12,665
)
 
(12,665
)
Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(33,250
)
 
(33,250
)
Conversion of Series A preferred shares to common shares
 
—

 
(31
)
 
2

 
—

 
30

 
—

 
—

 
—

 
(1
)
Deferred compensation shares and options
 
—

 
—

 
6

 
—

 
1,157

 
(121
)
 
—

 
—

 
1,036

Pro rata share of other comprehensive income of nonconsolidated subsidiaries
 
—

 
—

 
—

 
—

 
—

 
—

 
1,155

 
—

 
1,155

Reduction in value of interest rate swaps
 
—

 
—

 
—

 
—

 
—

 
—

 
(14,634
)
 
—

 
(14,634
)
Unearned 2015 Out-Performance Plan awards acceleration
 
—

 
—

 
—

 
—

 
9,046

 
—

 
—

 
—

 
9,046

Adjustments to carry redeemable Class A units at redemption value
 
—

 
—

 
—

 
—

 
198,064

 
—

 
—

 
—

 
198,064

Preferred shares issuance
 
—

 
(663
)
 
—

 
—

 
—

 
(14,486
)
 
—

 
—

 
(15,149
)
Redeemable noncontrolling interests' share of above adjustments
 
—

 
—

 
—

 
—

 
—

 
—

 
836

 
—

 
836

Consolidation of the Farley joint venture
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
8,720

 
8,720

Other
 
—

 
—

 
—

 
—

 
548

 
(2
)
 
(1
)
 
164

 
709

Balance, December 31, 2018
 
36,800

 
$
891,294

 
190,535

 
$
7,600

 
$
7,725,857

 
$
(4,167,184
)
 
$
7,664

 
$
642,652

 
$
5,107,883


See notes to consolidated financial statements.

99

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED


(Amounts in thousands)
 
Preferred Shares
 
Common Shares
 
Additional
Capital
 
Earnings
Less Than
Distributions
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
controlling
Interests in
Consolidated
Subsidiaries
 
Total
Equity
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance, December 31, 2016
 
42,825

 
$
1,038,055

 
189,101

 
$
7,542

 
$
7,153,332

 
$
(1,419,382
)
 
$
118,972

 
$
719,977

 
$
7,618,496

Net income attributable to Vornado
 
—

 
—

 
—

 
—

 
—

 
227,416

 
—

 
—

 
227,416

Net income attributable to noncontrolling interests in consolidated subsidiaries
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
25,802

 
25,802

Dividends on common shares
 
—

 
—

 
—

 
—

 
—

 
(496,490
)
 
—

 
—

 
(496,490
)
Dividends on preferred shares
 
—

 
—

 
—

 
—

 
—

 
(65,399
)
 
—

 
—

 
(65,399
)
Common shares issued:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Upon redemption of Class A units, at redemption value
 
—

 
—

 
403

 
16

 
38,731

 
—

 
—

 
—

 
38,747

Under employees' share option plan
 
—

 
—

 
449

 
18

 
28,235

 
—

 
—

 
—

 
28,253

Under dividend reinvestment plan
 
—

 
—

 
17

 
1

 
1,458

 
—

 
—

 
—

 
1,459

Contributions
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,044

 
1,044

Distributions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
JBG SMITH Properties
 
—

 
—

 
—

 
—

 
—

 
(2,428,345
)
 
—

 
—

 
(2,428,345
)
Real estate fund investments
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(73,850
)
 
(73,850
)
Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(2,618
)
 
(2,618
)
Conversion of Series A preferred shares to common shares
 
(5
)
 
(162
)
 
10

 
—

 
162

 
—

 
—

 
—

 
—

Deferred compensation shares and options
 
—

 
—

 
—

 
—

 
2,246

 
(418
)
 
—

 
—

 
1,828

Reduction in unrealized net gain on available-for-sale securities
 
—

 
—

 
—

 
—

 
—

 
—

 
(20,951
)
 
—

 
(20,951
)
Pro rata share of amounts reclassified related to a nonconsolidated subsidiary
 
—

 
—

 
—

 
—

 
—

 
—

 
14,402

 
—

 
14,402

Pro rata share of other comprehensive income of nonconsolidated subsidiaries
 
—

 
—

 
—

 
—

 
—

 
—

 
1,425

 
—

 
1,425

Increase in value of interest rate swaps
 
—

 
—

 
—

 
—

 
—

 
—

 
15,476

 
—

 
15,476

Adjustments to carry redeemable Class A units at redemption value
 
—

 
—

 
—

 
—

 
268,494

 
—

 
—

 
—

 
268,494

Preferred shares issuance
 
12,780

 
309,609

 
—

 
—

 
—

 
—

 
—

 
—

 
309,609

Cumulative redeemable preferred shares called for redemption
 
(18,800
)
 
(455,514
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(455,514
)
Redeemable noncontrolling interests' share of above adjustments
 
—

 
—

 
—

 
—

 
—

 
—

 
(642
)
 
—

 
(642
)
Other
 
—

 
—

 
4

 
—

 
—

 
(635
)
 
—

 
(306
)
 
(941
)
Balance, December 31, 2017
 
36,800

 
$
891,988

 
189,984

 
$
7,577

 
$
7,492,658

 
$
(4,183,253
)
 
$
128,682

 
$
670,049

 
$
5,007,701


See notes to consolidated financial statements.

100

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CONTINUED


(Amounts in thousands)
 
Preferred Shares
 
Common Shares
 
Additional
Capital
 
Earnings
Less Than
Distributions
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
controlling
Interests in
Consolidated
Subsidiaries
 
Total
Equity
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance, December 31, 2015
 
52,677

 
$
1,276,954

 
188,577

 
$
7,521

 
$
7,132,979

 
$
(1,766,780
)
 
$
46,921

 
$
778,483

 
$
7,476,078

Net income attributable to Vornado
 
—

 
—

 
—

 
—

 
—

 
906,917

 
—

 
—

 
906,917

Net income attributable to noncontrolling interests in consolidated subsidiaries
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
21,351

 
21,351

Dividends on common shares
 
—

 
—

 
—

 
—

 
—

 
(475,961
)
 
—

 
—

 
(475,961
)
Dividends on preferred shares
 
—

 
—

 
—

 
—

 
—

 
(75,903
)
 
—

 
—

 
(75,903
)
Redemption of Series J preferred shares
 
(9,850
)
 
(238,842
)
 
—

 
—

 
—

 
(7,408
)
 
—

 
—

 
(246,250
)
Common shares issued:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Upon redemption of Class A units, at redemption value
 
—

 
—

 
376

 
15

 
36,495

 
—

 
—

 
—

 
36,510

Under employees' share option plan
 
—

 
—

 
123

 
5

 
6,820

 
—

 
—

 
—

 
6,825

Under dividend reinvestment plan
 
—

 
—

 
16

 
1

 
1,443

 
—

 
—

 
—

 
1,444

Contributions
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
19,749

 
19,749

Distributions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate fund investments
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(62,444
)
 
(62,444
)
Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(36,804
)
 
(36,804
)
Conversion of Series A preferred shares to common shares
 
(2
)
 
(56
)
 
3

 
—

 
56

 
—

 
—

 
—

 
—

Deferred compensation shares and options
 
—

 
—

 
7

 
—

 
1,788

 
(186
)
 
—

 
—

 
1,602

Increase in unrealized net gain on available-for-sale securities
 
—

 
—

 
—

 
—

 
—

 
—

 
52,057

 
—

 
52,057

Pro rata share of other comprehensive loss of nonconsolidated subsidiaries
 
—

 
—

 
—

 
—

 
—

 
—

 
(2,739
)
 
—

 
(2,739
)
Increase in value of interest rate swap
 
—

 
—

 
—

 
—

 
—

 
—

 
27,434

 
—

 
27,434

Adjustments to carry redeemable Class A units at redemption value
 
—

 
—

 
—

 
—

 
(26,251
)
 
—

 
—

 
—

 
(26,251
)
Redeemable noncontrolling interests' share of above adjustments
 
—

 
—

 
—

 
—

 
—

 
—

 
(4,699
)
 
—

 
(4,699
)
Other
 
—

 
(1
)
 
(1
)
 
—

 
2

 
(61
)
 
(2
)
 
(358
)
 
(420
)
Balance, December 31, 2016
 
42,825

 
$
1,038,055

 
189,101

 
$
7,542

 
$
7,153,332

 
$
(1,419,382
)
 
$
118,972

 
$
719,977

 
$
7,618,496


See notes to consolidated financial statements.


101

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Amounts in thousands)
Year Ended December 31,
 
2018
 
2017
 
2016
Cash Flows from Operating Activities:
 
 
 
 
 
Net income
$
422,603

 
$
264,128

 
$
981,922

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization (including amortization of deferred financing costs)
472,785

 
529,826

 
595,270

Net gains on disposition of wholly owned and partially owned assets
(246,031
)
 
(501
)
 
(175,735
)
Net realized and unrealized losses on real estate fund investments
84,706

 
15,267

 
40,655

Distributions of income from partially owned entities
78,831

 
82,095

 
214,800

Purchase price fair value adjustment
(44,060
)
 
—

 
—

Amortization of below-market leases, net
(38,573
)
 
(46,790
)
 
(53,202
)
Decrease in fair value of marketable securities
26,453

 
—

 
—

Return of capital from real estate fund investments
20,290

 
91,606

 
71,888

Change in valuation of deferred tax assets and liabilities
12,835

 
34,800

 
—

Real estate impairment losses
12,000

 
—

 
161,165

Equity in net income of partially owned entities
(9,149
)
 
(15,635
)
 
(165,389
)
Straight-lining of rents
(7,605
)
 
(45,792
)
 
(146,787
)
Net gains on sale of real estate and other
—

 
(3,489
)
 
(5,074
)
Net gain on extinguishment of Skyline properties debt
—

 
—

 
(487,877
)
Other non-cash adjustments
39,221

 
56,480

 
39,406

Changes in operating assets and liabilities:
 
 
 
 
 
Real estate fund investments
(68,950
)
 
—

 
—

Tenant and other receivables, net
(14,532
)
 
1,183

 
(4,271
)
Prepaid assets
151,533

 
(12,292
)
 
(7,893
)
Other assets
(84,222
)
 
(79,199
)
 
(76,357
)
Accounts payable and accrued expenses
5,869

 
3,760

 
13,278

Other liabilities
(11,363
)
 
(15,305
)
 
(719
)
Net cash provided by operating activities
802,641

 
860,142

 
995,080

 
 
 
 
 
 
Cash Flows from Investing Activities:
 
 
 
 
 
Acquisitions of real estate and other
(574,812
)
 
(30,607
)
 
(91,103
)
Development costs and construction in progress
(418,186
)
 
(355,852
)
 
(606,565
)
Additions to real estate
(234,602
)
 
(271,308
)
 
(387,545
)
Proceeds from sales of real estate and related investments
219,731

 
9,543

 
183,173

Proceeds from sale of condominium units at 220 Central Park South
214,776

 
—

 
—

Investments in loans receivable
(105,000
)
 
—

 
(11,700
)
Distributions of capital from partially owned entities
100,178

 
366,155

 
196,635

Moynihan Train Hall expenditures
(74,609
)
 
—

 
—

Investments in partially owned entities
(37,131
)
 
(40,537
)
 
(127,608
)
Proceeds from repayments of loans receivable
25,757

 
659

 
45

Proceeds from sale of marketable securities
4,101

 
—

 
3,937

Net consolidation of Farley Office and Retail Building
2,075

 
—

 
—

Proceeds from the repayment of JBG SMITH Properties loan receivable
—

 
115,630

 
—

Net deconsolidation of 7 West 34th Street
—

 
—

 
(48,000
)
Purchases of marketable securities
—

 
—

 
(4,379
)
Net cash used in investing activities
(877,722
)
 
(206,317
)
 
(893,110
)

See notes to consolidated financial statements.


102

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED


(Amounts in thousands)
Year Ended December 31,
 
2018
 
2017
 
2016
Cash Flows from Financing Activities:
 
 
 
 
 
Repayments of borrowings
$
(685,265
)
 
$
(631,681
)
 
$
(1,894,990
)
Proceeds from borrowings
526,766

 
1,055,872

 
2,403,898

Dividends paid on common shares
(479,348
)
 
(496,490
)
 
(475,961
)
Redemption of preferred shares
(470,000
)
 
—

 
(246,250
)
Distributions to noncontrolling interests
(76,149
)
 
(109,697
)
 
(130,590
)
Moynihan Train Hall reimbursement from Empire State Development
74,609

 
—

 
—

Contributions from noncontrolling interests
61,062

 
1,044

 
11,950

Dividends paid on preferred shares
(55,115
)
 
(64,516
)
 
(80,137
)
Repurchase of shares related to stock compensation agreements and related tax withholdings and other
(12,969
)
 
(418
)
 
(186
)
Debt issuance costs
(12,908
)
 
(12,325
)
 
(42,157
)
Proceeds received from exercise of employee share options and other
7,309

 
29,712

 
8,269

Debt prepayment and extinguishment costs
(818
)
 
(3,217
)
 
—

Cash and cash equivalents and restricted cash included in the spin-off of JBG SMITH Properties ($275,000 plus The Bartlett financing proceeds less transaction costs and other mortgage items)
—

 
(416,237
)
 
—

Proceeds from issuance of preferred shares
—

 
309,609

 
—

Net cash used in financing activities
(1,122,826
)
 
(338,344
)
 
(446,154
)
Net (decrease) increase in cash and cash equivalents and restricted cash
(1,197,907
)
 
315,481

 
(344,184
)
Cash and cash equivalents and restricted cash at beginning of period
1,914,812

 
1,599,331

 
1,943,515

Cash and cash equivalents and restricted cash at end of period
$
716,905

 
$
1,914,812

 
$
1,599,331

Reconciliation of Cash and Cash Equivalents and Restricted Cash:
 
 
 
 
 
Cash and cash equivalents at beginning of period
$
1,817,655

 
$
1,501,027

 
$
1,835,707

Restricted cash at beginning of period
97,157

 
95,032

 
99,943

Restricted cash included in discontinued operations at beginning of period
—

 
3,272

 
7,865

Cash and cash equivalents and restricted cash at beginning of period
$
1,914,812

 
$
1,599,331

 
$
1,943,515

 
 
 
 
 
 
Cash and cash equivalents at end of period
$
570,916

 
$
1,817,655

 
$
1,501,027

Restricted cash at end of period
145,989

 
97,157

 
95,032

Restricted cash included in discontinued operations at end of period
—

 
—

 
3,272

Cash and cash equivalents and restricted cash at end of period
$
716,905

 
$
1,914,812

 
$
1,599,331


See notes to consolidated financial statements.

103

VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED


(Amounts in thousands)
Year Ended December 31,
 
2018
 
2017
 
2016
Supplemental Disclosure of Cash Flow Information:
 
 
 
 
 
Cash payments for interest, excluding capitalized interest of $67,402, $43,071 and $29,584
$
311,835

 
$
338,983

 
$
368,762

Cash payments for income taxes
$
62,225

 
$
6,727

 
$
9,716

 
 
 
 
 
 
Non-Cash Investing and Financing Activities:
 
 
 
 
 
Reclassification of condominium units from "development costs and construction in progress" to "220 Central Park South condominium units ready for sale"
$
233,179

 
$
—

 
$
—

Adjustments to carry redeemable Class A units at redemption value
198,064

 
268,494

 
(26,251
)
Accrued capital expenditures included in accounts payable and accrued expenses
88,115

 
102,976

 
120,564

Write-off of fully depreciated assets
(86,064
)
 
(58,810
)
 
(305,679
)
Increase in assets and liabilities resulting from the consolidation of Farley Office and Retail Building:
 
 
 
 
 
Real estate, net
401,708

 
—

 
—

Mortgage payable, net
249,459

 
—

 
—

Increase in assets and liabilities resulting from the consolidation of Moynihan Train Hall:
 
 
 
 
 
Real estate, net
346,926

 
—

 
—

Moynihan Train Hall obligation
346,926

 
—

 
—

Non-cash distribution to JBG SMITH Properties:
 
 
 
 
 
Assets
—

 
3,432,738

 
—

Liabilities
—

 
(1,414,186
)
 
—

Equity
—

 
(2,018,552
)
 
—

Reclassification of Series G and Series I cumulative redeemable preferred shares to liabilities upon call for redemption
—

 
455,514

 
—

Loan receivable established upon the spin-off of JBG SMITH Properties
—

 
115,630

 
—

(Reduction) increase in unrealized net gain on available-for-sale securities
—

 
(20,951
)
 
52,057

Decrease in assets and liabilities resulting from the disposition of Skyline properties:
 
 
 
 
—

Real estate, net
—

 
—

 
(189,284
)
Mortgage payable, net
—

 
—

 
(690,263
)
Decrease in assets and liabilities resulting from the deconsolidation of investments that were previously consolidated:
 
 
 
 
 
Real estate, net
—

 
—

 
(122,047
)
Mortgage payable, net
—

 
—

 
(290,418
)

See notes to consolidated financial statements.

104


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Partners
Vornado Realty L.P.
New York, New York
 
Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Vornado Realty L.P. and subsidiaries (the "Partnership") as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2018, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with the accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Partnership's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 11, 2019, expressed an unqualified opinion on the Partnership's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the Partnership's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey
February 11, 2019

We have served as the Partnership’s auditor since 1997.





105

VORNADO REALTY L.P.
CONSOLIDATED BALANCE SHEETS


(Amounts in thousands, except unit amounts)
December 31,
2018
 
December 31,
2017
ASSETS
 
 
 
Real estate, at cost:
 
 
 
Land
$
3,306,280

 
$
3,143,648

Buildings and improvements
10,110,992

 
9,898,605

Development costs and construction in progress
2,266,491

 
1,615,101

Moynihan Train Hall development expenditures
445,693

 
—

Leasehold improvements and equipment
108,427

 
98,941

Total
16,237,883

 
14,756,295

Less accumulated depreciation and amortization
(3,180,175
)
 
(2,885,283
)
Real estate, net
13,057,708

 
11,871,012

Cash and cash equivalents
570,916

 
1,817,655

Restricted cash
145,989

 
97,157

Marketable securities
152,198

 
182,752

Tenant and other receivables, net of allowance for doubtful accounts of $4,154 and $5,526
73,322

 
58,700

Investments in partially owned entities
858,113

 
1,056,829

Real estate fund investments
318,758

 
354,804

220 Central Park South condominium units ready for sale
99,627

 
—

Receivable arising from the straight-lining of rents, net of allowance of $1,644 and $954
935,131

 
926,711

Deferred leasing costs, net of accumulated amortization of $207,529 and $191,827
400,313

 
403,492

Identified intangible assets, net of accumulated amortization of $172,114 and $150,837
136,781

 
159,260

Other assets
431,938

 
469,562

 
$
17,180,794

 
$
17,397,934

LIABILITIES, REDEEMABLE PARTNERSHIP UNITS AND EQUITY
 
 
 
Mortgages payable, net
$
8,167,798

 
$
8,137,139

Senior unsecured notes, net
844,002

 
843,614

Unsecured term loan, net
744,821

 
748,734

Unsecured revolving credit facilities
80,000

 
—

Moynihan Train Hall obligation
445,693

 
—

Accounts payable and accrued expenses
430,976

 
415,794

Deferred revenue
167,730

 
227,069

Deferred compensation plan
96,523

 
109,177

Preferred units redeemed on January 4 and 11, 2018
—

 
455,514

Other liabilities
311,806

 
468,255

Total liabilities
11,289,349

 
11,405,296

Commitments and contingencies

 

Redeemable partnership units:
 
 
 
Class A units - 12,544,477 and 12,528,899 units outstanding
778,134

 
979,509

Series D cumulative redeemable preferred units - 177,101 units outstanding
5,428

 
5,428

Total redeemable partnership units
783,562

 
984,937

Equity:
 
 
 
Partners' capital
8,624,751

 
8,392,223

Earnings less than distributions
(4,167,184
)
 
(4,183,253
)
Accumulated other comprehensive income
7,664

 
128,682

Total Vornado Realty L.P. equity
4,465,231

 
4,337,652

Noncontrolling interests in consolidated subsidiaries
642,652

 
670,049

Total equity
5,107,883

 
5,007,701

 
$
17,180,794

 
$
17,397,934


See notes to the consolidated financial statements.


106

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF INCOME


(Amounts in thousands, except per unit amounts)
Year Ended December 31,
 
2018
 
2017
 
2016
REVENUES:
 
 
 
 
 
Property rentals
$
1,760,205

 
$
1,714,952

 
$
1,662,093

Tenant expense reimbursements
247,128

 
233,424

 
221,563

Fee and other income
156,387

 
135,750

 
120,086

Total revenues
2,163,720

 
2,084,126

 
2,003,742

EXPENSES:
 
 
 
 
 
Operating
963,478

 
886,596

 
844,566

Depreciation and amortization
446,570

 
429,389

 
421,023

General and administrative
141,871

 
150,782

 
143,643

(Benefit) expense from deferred compensation plan liability
(2,480
)
 
6,932

 
5,213

Transaction related costs, impairment loss and other
31,320

 
1,776

 
9,451

Total expenses
1,580,759

 
1,475,475

 
1,423,896

Operating income
582,961

 
608,651

 
579,846

Income from partially owned entities
9,149

 
15,200

 
168,948

(Loss) income from real estate fund investments
(89,231
)
 
3,240

 
(23,602
)
Interest and other investment income, net
17,057

 
30,861

 
24,335

(Loss) income from deferred compensation plan assets
(2,480
)
 
6,932

 
5,213

Interest and debt expense
(347,949
)
 
(345,654
)
 
(330,240
)
Purchase price fair value adjustment
44,060

 
—

 
—

Net gains on disposition of wholly owned and partially owned assets
246,031

 
501

 
160,433

Income before income taxes
459,598

 
319,731

 
584,933

Income tax expense
(37,633
)
 
(42,375
)
 
(7,923
)
Income from continuing operations
421,965

 
277,356

 
577,010

Income (loss) from discontinued operations
638

 
(13,228
)
 
404,912

Net income
422,603

 
264,128

 
981,922

Less net loss (income) attributable to noncontrolling interests in consolidated subsidiaries
53,023

 
(25,802
)
 
(21,351
)
Net income attributable to Vornado Realty L.P.
475,626

 
238,326

 
960,571

Preferred unit distributions
(50,830
)
 
(65,593
)
 
(76,097
)
Preferred unit issuance costs
(14,486
)
 
—

 
(7,408
)
NET INCOME attributable to Class A unitholders
$
410,310

 
$
172,733

 
$
877,066

 
 
 
 
 
 
INCOME PER CLASS A UNIT – BASIC:
 
 
 
 
 
Income from continuing operations, net
$
2.01

 
$
0.91

 
$
2.34

Income (loss) from discontinued operations, net
0.01

 
(0.07
)
 
2.02

Net income per Class A unit
$
2.02

 
$
0.84

 
$
4.36

Weighted average units outstanding
202,068

 
201,214

 
200,350

 
 
 
 
 
 
INCOME PER CLASS A UNIT – DILUTED:
 
 
 
 
 
Income from continuing operations, net
$
2.00

 
$
0.90

 
$
2.32

Income (loss) from discontinued operations, net
—

 
(0.07
)
 
2.00

Net income per Class A unit
$
2.00

 
$
0.83

 
$
4.32

Weighted average units outstanding
203,412

 
203,300

 
202,017


See notes to consolidated financial statements.


107

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(Amounts in thousands)
Year Ended December 31,
 
2018
 
2017
 
2016
Net income
$
422,603

 
$
264,128

 
$
981,922

Other comprehensive income (loss):
 
 
 
 
 
(Reduction) increase in value of interest rate swaps and other
(14,635
)
 
15,477

 
27,432

Pro rata share of other comprehensive income (loss) of nonconsolidated subsidiaries
1,155

 
1,425

 
(2,739
)
(Reduction) increase in unrealized net gain on available-for-sale securities
—

 
(20,951
)
 
52,057

Pro rata share of amounts reclassified from accumulated other comprehensive income of a nonconsolidated subsidiary
—

 
14,402

 
—

Comprehensive income
409,123

 
274,481

 
1,058,672

Less comprehensive loss (income) attributable to noncontrolling interests in consolidated subsidiaries
53,023

 
(25,802
)
 
(21,351
)
Comprehensive income attributable to Vornado
$
462,146

 
$
248,679

 
$
1,037,321


See notes to consolidated financial statements.

108

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands)
 
Preferred Units
 
Class A Units
Owned by Vornado
 
Earnings
Less Than
Distributions
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
controlling
Interests in
Consolidated
Subsidiaries
 
Total
Equity
 
 
Units
 
Amount
 
Units
 
Amount
 
 
 
 
Balance, December 31, 2017
 
36,800

 
$
891,988

 
189,984

 
$
7,500,235

 
$
(4,183,253
)
 
$
128,682

 
$
670,049

 
$
5,007,701

Cumulative effect of accounting change (see Note 2)
 
—

 
—

 
—

 
—

 
122,893

 
(108,374
)
 
—

 
14,519

Net loss attributable to Vornado Realty L.P.
 
—

 
—

 
—

 
—

 
475,626

 
—

 
—

 
475,626

Net income attributable to redeemable partnership units
 
—

 
—

 
—

 
—

 
(25,672
)
 
—

 
—

 
(25,672
)
Net income attributable to noncontrolling interests in consolidated subsidiaries
 
—

 
—

 
—

 
—

 
—

 
—

 
(53,023
)
 
(53,023
)
Distributions to Vornado
 
—

 
—

 
—

 
—

 
(479,348
)
 
—

 
—

 
(479,348
)
Distributions to preferred unitholders
 
—

 
—

 
—

 
—

 
(50,636
)
 
—

 
—

 
(50,636
)
Class A Units issued to Vornado:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Upon redemption of redeemable Class A units, at redemption value
 
—

 
—

 
244

 
17,068

 
—

 
—

 
—

 
17,068

Under Vornado's employees' share option plan
 
—

 
—

 
279

 
5,919

 
(12,185
)
 
—

 
—

 
(6,266
)
Under Vornado's dividend reinvestment plan
 
—

 
—

 
20

 
1,390

 
—

 
—

 
—

 
1,390

Contributions
 
—

 
—

 
—

 
—

 
—

 
—

 
62,657

 
62,657

Distributions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate fund investments
 
—

 
—

 
—

 
—

 
—

 
—

 
(12,665
)
 
(12,665
)
Other
 
—

 
—

 
—

 
—

 
—

 
—

 
(33,250
)
 
(33,250
)
Conversion of Series A preferred units to Class A units
 
—

 
(31
)
 
2

 
30

 
—

 
—

 
—

 
(1
)
Deferred compensation units and options
 
—

 
—

 
6

 
1,157

 
(121
)
 
—

 
—

 
1,036

Pro rata share of other comprehensive income of nonconsolidated subsidiaries
 
—

 
—

 
—

 
—

 
—

 
1,155

 
—

 
1,155

Reduction in value of interest rate swaps
 
—

 
—

 
—

 
—

 
—

 
(14,634
)
 
—

 
(14,634
)
Unearned 2015 Out-Performance Plan awards acceleration
 
—

 
—

 
—

 
9,046

 
—

 
—

 
—

 
9,046

Adjustments to carry redeemable Class A units at redemption value
 
—

 
—

 
—

 
198,064

 
—

 
—

 
—

 
198,064

Preferred units issuance
 
—

 
(663
)
 
—

 
 
 
(14,486
)
 
—

 
—

 
(15,149
)
Redeemable partnership units' share of above adjustments
 
—

 
—

 
—

 
—

 
—

 
836

 
—

 
836

Consolidation of the Farley joint venture
 
—

 
—

 
—

 
—

 
—

 
—

 
8,720

 
8,720

Other
 
—

 
—

 
—

 
548

 
(2
)
 
(1
)
 
164

 
709

Balance, December 31, 2018
 
36,800

 
$
891,294

 
190,535

 
$
7,733,457

 
$
(4,167,184
)
 
$
7,664

 
$
642,652

 
$
5,107,883


See notes to consolidated financial statements.


109

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – CONTINUED


(Amounts in thousands)
 
Preferred Units
 
Class A Units
Owned by Vornado
 
Earnings
Less Than
Distributions
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
controlling
Interests in
Consolidated
Subsidiaries
 
Total
Equity
 
 
Units
 
Amount
 
Units
 
Amount
 
 
 
 
Balance, December 31, 2016
 
42,825

 
$
1,038,055

 
189,101

 
$
7,160,874

 
$
(1,419,382
)
 
$
118,972

 
$
719,977

 
$
7,618,496

Net income attributable to Vornado Realty L.P.
 
—

 
—

 
—

 
—

 
238,326

 
—

 
—

 
238,326

Net income attributable to redeemable partnership units
 
—

 
—

 
—

 
—

 
(10,910
)
 
—

 
—

 
(10,910
)
Net income attributable to noncontrolling interests in consolidated subsidiaries
 
—

 
—

 
—

 
—

 
—

 
—

 
25,802

 
25,802

Distributions to Vornado
 
—

 
—

 
—

 
—

 
(496,490
)
 
—

 
—

 
(496,490
)
Distributions to preferred unitholders
 
—

 
—

 
—

 
—

 
(65,399
)
 
—

 
—

 
(65,399
)
Class A Units issued to Vornado:
 

 

 
 
 
 
 

 
 
 
 
 

Upon redemption of redeemable Class A units, at redemption value
 
—

 
—

 
403

 
38,747

 
—

 
—

 
—

 
38,747

Under Vornado's employees' share option plan
 
—

 
—

 
449

 
28,253

 
—

 
—

 
—

 
28,253

Under Vornado's dividend reinvestment plan
 
—

 
—

 
17

 
1,459

 
—

 
—

 
—

 
1,459

Contributions
 
—

 
—

 
—

 
—

 
—

 
—

 
1,044

 
1,044

Distributions:
 
 
 
 
 
 
 
 
 
 
 
 
 

 

JBG SMITH Properties
 
—

 
—

 
—

 
—

 
(2,428,345
)
 
—

 
—

 
(2,428,345
)
Real estate fund investments
 
—

 
—

 
—

 
—

 
—

 
—

 
(73,850
)
 
(73,850
)
Other
 
—

 
—

 
—

 
—

 
—

 
—

 
(2,618
)
 
(2,618
)
Conversion of Series A preferred units to Class A units
 
(5
)
 
(162
)
 
10

 
162

 
—

 
—

 
—

 
—

Deferred compensation units and options
 
—

 
—

 
—

 
2,246

 
(418
)
 
—

 
—

 
1,828

Reduction in unrealized net gain on available-for-sale securities
 
—

 
—

 
—

 
—

 
—

 
(20,951
)
 
—

 
(20,951
)
Pro rata share of amounts reclassified related to a nonconsolidated subsidiary
 
—

 
—

 
—

 
—

 
—

 
14,402

 
—

 
14,402

Pro rata share of other comprehensive income of nonconsolidated subsidiaries
 
—

 
—

 
—

 
—

 
—

 
1,425

 
—

 
1,425

Increase in value of interest rate swaps
 
—

 
—

 
—

 
—

 
—

 
15,476

 
—

 
15,476

Adjustments to carry redeemable Class A units at redemption value
 
—

 
—

 
—

 
268,494

 
—

 
—

 
—

 
268,494

Preferred units issuance
 
12,780

 
309,609

 
—

 
—

 
—

 
—

 
—

 
309,609

Cumulative redeemable preferred units called for redemption
 
(18,800
)
 
(455,514
)
 
—

 
—

 
—

 
—

 
 
 
(455,514
)
Redeemable partnership units' share of above adjustments
 
—

 
—

 
—

 
—

 
—

 
(642
)
 
—

 
(642
)
Other
 
—

 
—

 
4

 
—

 
(635
)
 
—

 
(306
)
 
(941
)
Balance, December 31, 2017
 
36,800

 
$
891,988

 
189,984

 
$
7,500,235

 
$
(4,183,253
)
 
$
128,682

 
$
670,049

 
$
5,007,701


See notes to consolidated financial statements.

110

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – CONTINUED


(Amounts in thousands)
 
Preferred Units
 
Class A Units
Owned by Vornado
 
Earnings
Less Than
Distributions
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
controlling
Interests in
Consolidated
Subsidiaries
 
Total
Equity
 
 
Units
 
Amount
 
Units
 
Amount
 
 
 
 
Balance, December 31, 2015
 
52,677

 
$
1,276,954

 
188,577

 
$
7,140,500

 
$
(1,766,780
)
 
$
46,921

 
$
778,483

 
$
7,476,078

Net income attributable to Vornado Realty L.P.
 
—

 
—

 
—

 
—

 
960,571

 
—

 
—

 
960,571

Net income attributable to redeemable partnership units
 
—

 
—

 
—

 
—

 
(53,654
)
 
—

 
—

 
(53,654
)
Net income attributable to noncontrolling interests in consolidated subsidiaries
 
—

 
—

 
—

 
—

 
—

 
—

 
21,351

 
21,351

Distributions to Vornado
 
—

 
—

 
—

 
—

 
(475,961
)
 
—

 
—

 
(475,961
)
Distributions to preferred unitholders
 
—

 
—

 
—

 
—

 
(75,903
)
 
—

 
—

 
(75,903
)
Redemption of Series J preferred units
 
(9,850
)
 
(238,842
)
 
—

 
—

 
(7,408
)
 
—

 
—

 
(246,250
)
Class A Units issued to Vornado:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Upon redemption of redeemable Class A units, at redemption value
 
—

 
—

 
376

 
36,510

 
—

 
—

 
—

 
36,510

Under Vornado's employees' share option plan
 
—

 
—

 
123

 
6,825

 
—

 
—

 
—

 
6,825

Under Vornado's dividend reinvestment plan
 
—

 
—

 
16

 
1,444

 
—

 
—

 
—

 
1,444

Contributions
 
—

 
—

 
—

 
—

 
—

 
—

 
19,749

 
19,749

Distributions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate fund investments
 
—

 
—

 
—

 
—

 
—

 
—

 
(62,444
)
 
(62,444
)
Other
 
—

 
—

 
—

 
—

 
—

 
—

 
(36,804
)
 
(36,804
)
Conversion of Series A preferred units to Class A units
 
(2
)
 
(56
)
 
3

 
56

 
—

 
—

 
—

 
—

Deferred compensation units and options
 
—

 
—

 
7

 
1,788

 
(186
)
 
—

 
—

 
1,602

Increase in unrealized net gain on available-for-sale securities
 
—

 
—

 
—

 
—

 
—

 
52,057

 
—

 
52,057

Pro rata share of other comprehensive loss of nonconsolidated subsidiaries
 
—

 
—

 
—

 
—

 
—

 
(2,739
)
 
—

 
(2,739
)
Increase in value of interest rate swap
 
—

 
—

 
—

 
—

 
—

 
27,434

 
—

 
27,434

Adjustments to carry redeemable Class A units at redemption value
 
—

 
—

 
—

 
(26,251
)
 
—

 
—

 
—

 
(26,251
)
Redeemable partnership units' share of above adjustments
 
—

 
—

 
—

 
—

 
—

 
(4,699
)
 
—

 
(4,699
)
Other
 
—

 
(1
)
 
(1
)
 
2

 
(61
)
 
(2
)
 
(358
)
 
(420
)
Balance, December 31, 2016
 
42,825

 
$
1,038,055

 
189,101

 
$
7,160,874

 
$
(1,419,382
)
 
$
118,972

 
$
719,977

 
$
7,618,496


See notes to consolidated financial statements.

111

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Amounts in thousands)
Year Ended December 31,
 
2018
 
2017
 
2016
Cash Flows from Operating Activities:
 
 
 
 
 
Net income
$
422,603

 
$
264,128

 
$
981,922

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization (including amortization of deferred financing costs)
472,785

 
529,826

 
595,270

Net gains on disposition of wholly owned and partially owned assets
(246,031
)
 
(501
)
 
(175,735
)
Net realized and unrealized losses on real estate fund investments
84,706

 
15,267

 
40,655

Distributions of income from partially owned entities
78,831

 
82,095

 
214,800

Purchase price fair value adjustment
(44,060
)
 
—

 
—

Amortization of below-market leases, net
(38,573
)
 
(46,790
)
 
(53,202
)
Decrease in fair value of marketable securities
26,453

 
—

 
—

Return of capital from real estate fund investments
20,290

 
91,606

 
71,888

Change in valuation of deferred tax assets and liabilities
12,835

 
34,800

 
—

Real estate impairment losses
12,000

 
—

 
161,165

Equity in net income of partially owned entities
(9,149
)
 
(15,635
)
 
(165,389
)
Straight-lining of rents
(7,605
)
 
(45,792
)
 
(146,787
)
Net gains on sale of real estate and other
—

 
(3,489
)
 
(5,074
)
Net gain on extinguishment of Skyline properties debt
—

 
—

 
(487,877
)
Other non-cash adjustments
39,221

 
56,480

 
39,406

Changes in operating assets and liabilities:
 
 
 
 
 
Real estate fund investments
(68,950
)
 
—

 
—

Tenant and other receivables, net
(14,532
)
 
1,183

 
(4,271
)
Prepaid assets
151,533

 
(12,292
)
 
(7,893
)
Other assets
(84,222
)
 
(79,199
)
 
(76,357
)
Accounts payable and accrued expenses
5,869

 
3,760

 
13,278

Other liabilities
(11,363
)
 
(15,305
)
 
(719
)
Net cash provided by operating activities
802,641

 
860,142

 
995,080

 
 
 
 
 
 
Cash Flows from Investing Activities:
 
 
 
 
 
Acquisitions of real estate and other
(574,812
)
 
(30,607
)
 
(91,103
)
Development costs and construction in progress
(418,186
)
 
(355,852
)
 
(606,565
)
Additions to real estate
(234,602
)
 
(271,308
)
 
(387,545
)
Proceeds from sales of real estate and related investments
219,731

 
9,543

 
183,173

Proceeds from sale of condominium units at 220 Central Park South
214,776

 
—

 
—

Investments in loans receivable
(105,000
)
 
—

 
(11,700
)
Distributions of capital from partially owned entities
100,178

 
366,155

 
196,635

Moynihan Train Hall expenditures
(74,609
)
 
—

 
—

Investments in partially owned entities
(37,131
)
 
(40,537
)
 
(127,608
)
Proceeds from repayments of loans receivable
25,757

 
659

 
45

Proceeds from sale of marketable securities
4,101

 
—

 
3,937

Net consolidation of Farley Office and Retail Building
2,075

 
—

 
—

Proceeds from the repayment of JBG SMITH Properties loan receivable
—

 
115,630

 
—

Net deconsolidation of 7 West 34th Street
—

 
—

 
(48,000
)
Purchases of marketable securities
—

 
—

 
(4,379
)
Net cash used in investing activities
(877,722
)
 
(206,317
)
 
(893,110
)

See notes to consolidated financial statements.

112

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED


(Amounts in thousands)
Year Ended December 31,
 
2018
 
2017
 
2016
Cash Flows from Financing Activities:
 
 
 
 
 
Repayments of borrowings
$
(685,265
)
 
$
(631,681
)
 
$
(1,894,990
)
Proceeds from borrowings
526,766

 
1,055,872

 
2,403,898

Distributions to Vornado
(479,348
)
 
(496,490
)
 
(475,961
)
Redemption of preferred units
(470,000
)
 
—

 
(246,250
)
Distributions to redeemable security holders and noncontrolling interests in consolidated subsidiaries
(76,149
)
 
(109,697
)
 
(130,590
)
Moynihan Train Hall reimbursement from Empire State Development
74,609

 
—

 
—

Contributions from noncontrolling interests in consolidated subsidiaries
61,062

 
1,044

 
11,950

Distributions to preferred unitholders
(55,115
)
 
(64,516
)
 
(80,137
)
Repurchase of Class A units related to stock compensation agreements and related tax withholdings and other
(12,969
)
 
(418
)
 
(186
)
Debt issuance costs
(12,908
)
 
(12,325
)
 
(42,157
)
Proceeds received from exercise of Vornado stock options and other
7,309

 
29,712

 
8,269

Debt prepayment and extinguishment costs
(818
)
 
(3,217
)
 
—

Cash and cash equivalents and restricted cash included in the spin-off of JBG SMITH Properties ($275,000 plus The Bartlett financing proceeds less transaction costs and other mortgage items)
—

 
(416,237
)
 
—

Proceeds from issuance of preferred units
—

 
309,609

 
—

Net cash used in financing activities
(1,122,826
)
 
(338,344
)
 
(446,154
)
Net (decrease) increase in cash and cash equivalents and restricted cash
(1,197,907
)
 
315,481

 
(344,184
)
Cash and cash equivalents and restricted cash at beginning of period
1,914,812

 
1,599,331

 
1,943,515

Cash and cash equivalents and restricted cash at end of period
$
716,905

 
$
1,914,812

 
$
1,599,331

Reconciliation of Cash and Cash Equivalents and Restricted Cash:
 
 
 
 
 
Cash and cash equivalents at beginning of period
$
1,817,655

 
$
1,501,027

 
$
1,835,707

Restricted cash at beginning of period
97,157

 
95,032

 
99,943

Restricted cash included in discontinued operations at beginning of period
—

 
3,272

 
7,865

Cash and cash equivalents and restricted cash at beginning of period
$
1,914,812

 
$
1,599,331

 
$
1,943,515

 
 
 
 
 
 
Cash and cash equivalents at end of period
$
570,916

 
$
1,817,655

 
$
1,501,027

Restricted cash at end of period
145,989

 
97,157

 
95,032

Restricted cash included in discontinued operations at end of period
—

 
—

 
3,272

Cash and cash equivalents and restricted cash at end of period
$
716,905

 
$
1,914,812

 
$
1,599,331


See notes to consolidated financial statements.


113

VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED


(Amounts in thousands)
Year Ended December 31,
 
2018
 
2017
 
2016
Supplemental Disclosure of Cash Flow Information:
 
 
 
 
 
Cash payments for interest, excluding capitalized interest of $67,402, $43,071 and $29,584
$
311,835

 
$
338,983

 
$
368,762

Cash payments for income taxes
$
62,225

 
$
6,727

 
$
9,716

 
 
 
 
 
 
Non-Cash Investing and Financing Activities:
 
 
 
 
 
Reclassification of condominium units from "development costs and construction in progress" to "220 Central Park South condominium units ready for sale"
$
233,179

 
$
—

 
$
—

Adjustments to carry redeemable Class A units at redemption value
198,064

 
268,494

 
(26,251
)
Accrued capital expenditures included in accounts payable and accrued expenses
88,115

 
102,976

 
120,564

Write-off of fully depreciated assets
(86,064
)
 
(58,810
)
 
(305,679
)
Increase in assets and liabilities resulting from the consolidation of Farley Office and Retail Building:
 
 
 
 
 
Real estate, net
401,708

 
—

 
—

Mortgage payable, net
249,459

 
—

 
—

Increase in assets and liabilities resulting from the consolidation of Moynihan Train Hall:
 
 
 
 
 
Real estate, net
346,926

 
—

 
—

Moynihan Train Hall obligation
346,926

 
—

 
—

Non-cash distribution to JBG SMITH Properties:
 
 
 
 
 
Assets
—

 
3,432,738

 
—

Liabilities
—

 
(1,414,186
)
 
—

Equity
—

 
(2,018,552
)
 
—

Reclassification of Series G and Series I cumulative redeemable preferred units to liabilities upon call for redemption
—

 
455,514

 
—

Loan receivable established upon the spin-off of JBG SMITH Properties
—

 
115,630

 
—

(Reduction) increase in unrealized net gain on available-for-sale securities
—

 
(20,951
)
 
52,057

Decrease in assets and liabilities resulting from the disposition of Skyline properties:
 
 
 
 
 
Real estate, net
—

 
—

 
(189,284
)
Mortgage payable, net
—

 
—

 
(690,263
)
Decrease in assets and liabilities resulting from the deconsolidation of investments that were previously consolidated:
 
 
 
 
 
Real estate, net
—

 
—

 
(122,047
)
Mortgage payable, net
—

 
—

 
(290,418
)



See notes to consolidated financial statements.


114

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



 
1 .
Organization and Business

Vornado Realty Trust (“Vornado”) is a fully‑integrated real estate investment trust (“REIT”) and conducts its business through, and substantially all of its interests in properties are held by, Vornado Realty L.P., a Delaware limited partnership (the “Operating Partnership”). Accordingly, Vornado’s cash flow and ability to pay dividends to its shareholders is dependent upon the cash flow of the Operating Partnership and the ability of its direct and indirect subsidiaries to first satisfy their obligations to creditors. Vornado is the sole general partner of, and owned approximately 93.4% of the common limited partnership interest in the Operating Partnership as of December 31, 2018 . All references to the “Company,” “we,” “us” and “our” mean, collectively, Vornado, the Operating Partnership and those entities/subsidiaries consolidated by Vornado.
  
We currently own all or portions of:
 
New York:
 
•
19.9 million square feet of Manhattan office in 36 properties;
•
2.6 million square feet of Manhattan street retail in 71 properties;
•
1,999 units in eleven residential properties;
•
The 1,700 room Hotel Pennsylvania located on Seventh Avenue at 33rd Street in the heart of the Penn District; and
•
A 32.4% interest in Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX), which owns seven properties in the greater New York metropolitan area, including 731 Lexington Avenue, the 1.3 million square foot Bloomberg, L.P. headquarters building.
 
Other Real Estate and Related Investments:
 
•
The 3.7 million square foot theMART in Chicago;
•
A 70% controlling interest in 555 California Street, a three -building office complex in San Francisco’s financial district aggregating 1.8 million square feet, known as the Bank of America Center;
•
A 25.0% interest in Vornado Capital Partners, our real estate fund. We are the general partner and investment manager of the fund;
•
Other real estate and other investments.
 

115

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


2 .
Basis of Presentation and Significant Accounting Policies

Basis of Presentation
 
The accompanying consolidated financial statements include the accounts of Vornado and the Operating Partnership and their consolidated subsidiaries. All inter-company amounts have been eliminated. Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Certain prior year balances have been reclassified in order to conform to the current period presentation. For the years ended December 31, 2017 and 2016 , expense of $6,932,000 and $5,213,000 , respectively, related to the mark-to-market of our deferred compensation plan liability was reclassified from "general and administrative" expenses to "expense from deferred compensation plan liability" and income of $6,932,000 and $5,213,000 , respectively, related to the mark-to-market of our deferred compensation plan assets was reclassified from "interest and other investment income, net" to "income from deferred compensation plan assets" on our consolidated statements of income. In addition, for the years ended December 31, 2017 and 2016 , expense of $1,285,000 and $694,000 , respectively, related to New York City Unincorporated Business Tax was reclassified from "general and administrative" expenses to "income tax expense" on our consolidated statements of income. Assets and liabilities related to discontinued operations as of December 31, 2017 were reclassified to “other assets” and “other liabilities”, respectively, on our consolidated balance sheets.
 
Recently Issued Accounting Literature
 
In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update (“ASU 2014-09”) establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which was effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. We adopted this standard effective January 1, 2018 using the modified retrospective method applied to all existing contracts not yet completed as of January 1, 2018 and recorded a $14,519,000 cumulative-effect adjustment to beginning accumulated deficit. The adoption of ASC 606 did not have a material impact on our financial statements (see Note 3 - Revenue Recognition ).

In January 2016, the FASB issued an update (“ASU 2016-01”) Recognition and Measurement of Financial Assets and Financial Liabilities to ASC Topic 825 , Financial Instruments . ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 was effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We adopted this update effective January 1, 2018 using the modified retrospective approach. While the adoption of this update requires us to continue to measure “marketable securities” at fair value on each reporting date, the changes in fair value will be recognized in current period earnings as opposed to “other comprehensive income (loss).” As a result, on January 1, 2018 we recorded a decrease to beginning accumulated deficit of $111,225,000 to recognize the unrealized gains previously recorded in “accumulated other comprehensive income” on our consolidated balance sheets. Subsequent changes in the fair value of our marketable securities will be recorded to “interest and other investment income, net” on our consolidated statements of income. For the year ended December 31, 2018 , we recorded a decrease of $26,453,000 in the fair value of our marketable securities which is included in “interest and other investment income, net” on our consolidated statements of income.

116

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


2 .
Basis of Presentation and Significant Accounting Policies – continued

Recently Issued Accounting Literature - continued

In February 2016, the FASB issued an update (“ASU 2016-02”) establishing ASC Topic 842, Leases ("ASC 842"), as amended by subsequent ASUs on the topic, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to apply a two-method approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase. Lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. Lessees will recognize an expense based on the effective interest method for finance leases or on a straight-line basis for operating leases. The accounting applied by the lessor is largely unchanged from that applied under the existing lease standard. We adopted this standard effective January 1, 2019. We have completed our evaluation of the overall impact of the adoption of ASU 2016-02 on our consolidated financial statements and accounting policies. In transitioning to ASC 842, we elected to use the practical expedient package available to us and did not elect to use hindsight. We have a number of ground leases, which are classified as operating leases, for which we are required to record a right-of-use asset and a lease liability equal to the present value of the remaining minimum lease payments, and will continue to recognize expense on a straight-line basis for these leases. On January 1, 2019, we recorded an aggregate of approximately $527,000,000 of right-of-use assets and corresponding $527,000,000 of lease liabilities as a result of the adoption of this standard.

Under ASU 2016-02, initial direct costs for both lessees and lessors would include only those costs that are incremental to the arrangement and would not have been incurred if the lease had not been obtained. As a result, we will no longer capitalize internal leasing costs and instead will expense these costs as incurred. During the years ended December 31, 2018, 2017 and 2016, we capitalized internal leasing costs of $5,538,000 , $5,243,000 , and $7,352,000 respectively, excluding the internal leasing costs of our former Washington, DC segment which was spun-off on July 17, 2017.

In February 2017, the FASB issued an update (“ASU 2017-05”) Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets to ASC Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets . ASU 2017-05 clarifies the scope of recently established guidance on nonfinancial asset derecognition, as well as the accounting for partial sales of nonfinancial assets. This update conforms the derecognition guidance on nonfinancial assets with the model for transactions in ASC 606. ASU 2017-05 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We adopted this update on January 1, 2018 using the modified retrospective approach applied to all contracts not yet completed. The adoption of this update did not have a material impact on our consolidated financial statements.

In May 2017, the FASB issued an update (“ASU 2017-09”) Scope of Modification Accounting to ASC Topic 718, Compensation - Stock Compensation (“ASC 718”). ASU 2017-09 provides guidance about which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. ASU 2017-09 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The adoption of this update on January 1, 2018 did not have a material impact on our consolidated financial statements.

In August 2017, the FASB issued an update (“ASU 2017-12”) Targeted Improvements to Accounting for Hedging Activities to ASC Topic 815, Derivatives and Hedging (“ASC 815”). ASU 2017-12 amends the hedge accounting recognition and presentation requirements in ASC 815. The update is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting and increase transparency as to the scope and results of hedge programs. ASU 2017-12 requires subsequent changes in fair value of a hedging instrument that has been designated and qualifies as a cash flow hedge to be recognized as a component of “other comprehensive income (loss).” ASU 2017-12 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2018, with early adoption permitted. We early adopted ASU 2017-12 on January 1, 2018 using the modified retrospective approach. The adoption of this update did not have a material impact on our consolidated financial statements.


117

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


2 .
Basis of Presentation and Significant Accounting Policies – continued

In August 2018, the FASB issued an update (“ASU 2018-13”) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement to ASC Topic 820, Fair Value Measurement (“ASC 820”). ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, and/or adding certain disclosures. ASU 2018-13 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019. An entity is permitted to early adopt by modifying existing disclosures and delay adoption of the additional disclosures until the effective date. We are currently evaluating the impact of the adoption of this update on our consolidated financial statements and disclosures.

In October 2018, the FASB issued an update ("ASU 2018-16") Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes to ASC 815. ASU 2018-16 expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting by adding the OIS rate based on SOFR as an eligible benchmark interest rate. ASU 2018-16 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2018, with early adoption permitted. We adopted this update effective January 1, 2019. The adoption of this update did not have a material impact on our consolidated financial statements.

Significant Accounting Policies
 
Real Estate:  Real estate is carried at cost, net of accumulated depreciation and amortization. Betterments, major renewals and certain costs directly related to the improvement and leasing of real estate are capitalized. Maintenance and repairs are expensed as incurred. For redevelopment of existing operating properties, the net book value of the existing property under redevelopment plus the cost for the construction and improvements incurred in connection with the redevelopment are capitalized to the extent the capitalized costs of the property do not exceed the estimated fair value of the redeveloped property when complete. If the cost of the redeveloped property, including the net book value of the existing property, exceeds the estimated fair value of the redeveloped property, the excess is charged to expense. Depreciation is recognized on a straight-line basis over the estimated useful lives which range from 7 to 40 years. Tenant allowances are amortized on a straight-line basis over the lives of the related leases, which approximate the useful lives of the assets. Additions to real estate include interest and debt expense capitalized during construction of $73,166,000 and $48,231,000 for the years ended December 31, 2018 and 2017 , respectively.
 
Upon the acquisition of real estate we assess the fair value of acquired assets (including land, buildings and improvements, identified intangibles, such as acquired above and below-market leases, acquired in-place leases and tenant relationships) and acquired liabilities and we allocate the purchase price based on these assessments which are on a relative fair value basis. We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known trends, and market/economic conditions. We amortize identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired.
 
Our properties, including any related intangible assets, are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis. An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair value. Impairment analyses are based on our current plans, intended holding periods and available market information at the time the analyses are prepared. If our estimates of the projected future cash flows, anticipated holding periods, or market conditions change, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements. The evaluation of anticipated discounted cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results. Plans to hold properties over longer periods decrease the likelihood of recording impairment losses. We recognized impairment losses of $12,000,000 and $160,700,000 for the years ended December 31, 2018 and 2016, respectively. There were no impairment losses in the year ended December 31, 2017.


118

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


2 .
Basis of Presentation and Significant Accounting Policies – continued

Significant Accounting Policies - continued

Partially Owned Entities: We consolidate entities in which we have a controlling financial interest. In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider whether the entity is a variable interest entity (“VIE”) and whether we are the primary beneficiary, or have a majority of the voting interests of the entity. We are deemed to be the primary beneficiary of a VIE when we have (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. We generally do not control a partially owned entity if the approval of all of the partners/members is contractually required with respect to decisions that most significantly impact the performance of the partially owned entity. This includes decisions regarding operating/capital budgets, and the placement of new or additional financing secured by the assets of the venture, among others. We account for investments under the equity method when the requirements for consolidation are not met, and we have significant influence over the operations of the investee. Equity method investments are initially recorded at cost and subsequently adjusted for our share of net income or loss and cash contributions and distributions each period. Investments that do not qualify for consolidation or equity method accounting are accounted for under the cost method.
 
Investments in partially owned entities are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recorded when there is a decline in the fair value below the carrying values and we conclude such decline is other-than-temporary. An impairment loss is measured based on the excess of the carrying amount of an investment over its estimated fair value. Impairment analyses are based on current plans, intended holding periods and available information at the time the analyses are prepared. In the years ended December 31, 2017 and 2016 , we recognized non-cash impairment losses on investments in partially owned entities aggregating $44,465,000 and $20,290,000 , respectively. There were no non-cash impairment losses on investments in partially owned entities in the year ended December 31, 2018 .
 
220 Central Park South Condominium Units Ready For Sale: We are constructing a residential condominium tower at 220 Central Park South ("220 CPS"). Condominium units are reclassed from development costs and construction in progress to 220 Central Park South condominium units ready for sale upon receipt of the unit's temporary certificate of occupancy. These units are substantially complete and ready for sale. Each unit is carried at the lower of its carrying amount or fair value less costs to sell. We have used the relative sales value method to allocate costs to individual condominium units. GAAP income is recognized when legal title transfers upon closing of the condominium unit sales. As of December 31, 2018 , none of the 220 CPS condominium units ready for sale have a carrying value that exceeds fair value.

Cash and Cash Equivalents:  Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less and are carried at cost, which approximates fair value due to their short-term maturities. The majority of our cash and cash equivalents consists of (i) deposits at major commercial banks, which may at times exceed the Federal Deposit Insurance Corporation limit, (ii) United States Treasury Bills, and (iii) Certificate of Deposits placed through an Account Registry Service (“CDARS”). 
 
Restricted Cash:  Restricted cash consists of security deposits, cash restricted for the purposes of facilitating a Section 1031 Like-Kind exchange, cash restricted in connection with our deferred compensation plan and cash escrowed under loan agreements for debt service, real estate taxes, property insurance and capital improvements.   
  
Allowance for Doubtful Accounts:  We periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under the lease agreements. We also maintain an allowance for receivables arising from the straight-lining of rents. These receivables arise from earnings recognized in excess of amounts currently due under the lease agreements. Management exercises judgment in establishing these allowances and considers payment history and current credit status in developing these estimates. As of December 31, 2018 and 2017 , we had $4,154,000 and $5,526,000 , respectively, in allowances for doubtful accounts. In addition, as of December 31, 2018 and 2017 , we had $1,644,000 and $954,000 , respectively, in allowances for receivables arising from the straight-lining of rents.

Deferred Charges: Direct financing costs are deferred and amortized over the terms of the related agreements as a component of interest expense. Direct costs related to successful leasing activities are capitalized and amortized on a straight-line basis over the lives of the related leases. All other deferred charges are amortized on a straight-line basis, which approximates the effective interest rate method, in accordance with the terms of the agreements to which they relate.
 


119

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


2 .
Basis of Presentation and Significant Accounting Policies – continued

Significant Accounting Policies - continued
Income Taxes: Vornado operates in a manner intended to enable it to continue to qualify as a REIT under Sections 856‑860 of the Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. Vornado distributes to its shareholders 100% of its REIT taxable income and therefore, no provision for Federal income taxes is required. Dividends distributed for the year ended December 31, 2018 , were characterized, for federal income tax purposes, as 91.7% ordinary income and 8.3% long-term capital gain. Dividends distributed for the year ended December 31, 2017, were characterized, for federal income tax purposes, as ordinary income. Dividends distributed for the year ended December 31, 2016, were characterized, for federal income tax purposes, as 83.5% ordinary income and 16.5% long-term capital gain.

 We have elected to treat certain consolidated subsidiaries, and may in the future elect to treat newly formed subsidiaries, as taxable REIT subsidiaries pursuant to an amendment to the Internal Revenue Code that became effective January 1, 2001. Taxable REIT subsidiaries may participate in non-real estate related activities and/or perform non-customary services for tenants and are subject to Federal and State income tax at regular corporate tax rates.

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law. The Act includes numerous changes in existing tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018. As a result of the reduction of federal corporate income tax rates, we decreased the value of our taxable REIT subsidiaries' deferred tax assets which resulted in additional income tax expense of $34,800,000 in the year ended December 31, 2017.

At December 31, 2018 and 2017 , our taxable REIT subsidiaries had deferred tax assets, net of valuation allowances, of $109,949,000 and $69,209,000 , respectively, and are included in “other assets” on our consolidated balance sheets. At December 31, 2018 and 2017 , our taxable REIT subsidiaries had deferred tax liabilities of $28,676,000 and $13,697,000 , respectively, which are included in "other liabilities" on our consolidated balance sheets. The deferred tax assets and liabilities relate to net operating loss carryforwards and temporary differences between the book and tax basis of asset and liabilities. During 2018, we utilized $42,035,000 of deferred tax assets related to net operating loss carryforwards associated with our 220 CPS project.

For the years ended December 31, 2018, 2017 and 2016, we recognized $37,633,000 , $42,375,000 and $7,923,000 of income tax expense, respectively, based on effective tax rates of approximately 8.2% , 13.3% and 1.4% , respectively. Income tax expense recorded in each of the years primarily relates to our consolidated taxable REIT subsidiaries, and certain state, local, and franchise taxes. The year ended December 31, 2018 included $16,771,000 of income tax expense relating to the purchase price fair value adjustment recorded upon our acquisition of an additional 44.9% ownership interest in Farley Office and Retail Building and $13,888,000 of income tax expense recognized on the sale of 220 Central Park South condominium units. Income tax expense for the year ended December 31, 2017 included $34,800,000 of additional tax expense resulting from the reduction in the federal corporate tax rate, as discussed above. The Company has no uncertain tax positions recognized as of December 31, 2018 and 2017.
The Operating Partnership’s partners are required to report their respective share of taxable income on their individual tax returns.
The following table reconciles net income attributable to Vornado common shareholders to estimated taxable income for the years ended December 31, 2018 , 2017 and 2016 .
(Amounts in thousands)
For the Year Ended December 31,
 
2018
 
2017
 
2016
Net income attributable to Vornado common shareholders
$
384,832

 
$
162,017

 
$
823,606

Book to tax differences (unaudited):
 
 
 
 
 
Depreciation and amortization
234,325

 
213,083

 
302,092

Tangible property regulations
(86,040
)
 
—

 
—

Sale of real estate and other capital transactions
31,527

 
11,991

 
(39,109
)
Vornado stock options
(22,992
)
 
(6,383
)
 
(3,593
)
Earnings of partially owned entities
15,711

 
(3,054
)
 
(149,094
)
Impairment losses
11,260

 
49,062

 
170,332

Straight-line rent adjustments
(7,133
)
 
(36,696
)
 
(137,941
)
Tax expense related to the reduction of our taxable REIT subsidiaries' deferred tax assets
—

 
32,663

 
—

Net gain on extinguishment of Skyline properties debt
—

 
—

 
(457,970
)
Other, net
18,956

 
25,057

 
9,121

Estimated taxable income (unaudited)
$
580,446

 
$
447,740

 
$
517,444

  The net basis of Vornado’s assets and liabilities for tax reporting purposes is approximately $1.9 billion lower than the amounts reported in Vornado’s consolidated balance sheet at December 31, 2018 .

120

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


3 .
Revenue Recognition

On January 1, 2018, we adopted ASC 606 which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard requires us to recognize for certain of our revenue sources the transfer of promised goods or services to customers in an amount that reflects the consideration we are entitled to in exchange for those goods or services. We adopted this standard effective January 1, 2018 using the modified retrospective method applied to all existing contracts not yet completed as of January 1, 2018 and recorded a $14,519,000 cumulative-effect adjustment to beginning accumulated deficit. The adoption of ASC 606 did not have a material impact on our consolidated financial statements.

Our revenues primarily consist of property rentals, tenant expense reimbursements, and fee and other income. We operate in two reportable segments: New York and Other, with a significant portion of our revenues included in the “New York” segment. We have the following revenue sources and revenue recognition policies:

•
Base rent is revenue arising from tenant leases. These rents are recognized over the non-cancelable term of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements. We commence rental revenue recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. In addition, in circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease.

•
Hotel revenue arising from the operation of Hotel Pennsylvania consists of room revenue, food and beverage revenue, and banquet revenue. Room revenue is recognized when rooms are occupied. Food and beverage and banquet revenue are recognized when the services have been transferred.

•
Trade shows revenue arising from the operation of trade shows is primarily booth rentals. This revenue is recognized upon the occurrence of the trade shows.

•
Operating expense reimbursements is revenue arising from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes of the common areas of our properties. Revenue is generally recognized in the same period as the related expenses are incurred.

•
Tenant services is revenue arising from sub-metered electric, elevator, trash removal and other services provided to tenants at their request. This revenue is recognized as the services are transferred.

•
Fee and other income includes management, leasing and other revenue arising from contractual agreements with third parties or with partially owned entities, and includes Building Maintenance Service (“BMS”) cleaning, engineering and security services. This revenue is recognized as the services are transferred. Fee and other income also includes lease termination fee income which is recognized immediately if a tenant vacates or is recognized on a straight-line basis over the shortened remaining lease term.

121

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


3 .
Revenue Recognition - continued

Below is a summary of our revenues by segment. Base rent, operating expense reimbursements and lease terminations represent revenues from leases and are recognized in accordance with ASC Topic 840, Leases . Revenues from Hotel Pennsylvania, trade shows, tenant services, BMS cleaning fees, management and leasing fees and other income represent revenues recognized in accordance with ASC 606. Additional financial information related to these reportable segments for the years ended December 31, 2018 , 2017 and 2016 is set forth in Note 25 - Segment Information .

(Amounts in thousands)
For the Year Ended December 31, 2018
 
 
Total
 
New York
 
Other
 
Base rent
$
1,623,122

 
$
1,371,182

 
$
251,940

 
Hotel Pennsylvania
94,399

 
94,399

 
—

 
Trade shows
42,684

 
—

 
42,684

 
Property rentals
1,760,205

 
1,465,581

 
294,624

 
Operating expense reimbursements
193,207

 
177,044

 
16,163

 
Tenant services
53,921

 
41,351

 
12,570

 
Tenant expense reimbursements
247,128

 
218,395

 
28,733

 
BMS cleaning fees
120,357

 
129,088

 
(8,731
)
(1)  
Management and leasing fees
13,324

 
12,203

 
1,121

 
Lease termination fees
2,144

 
858

 
1,286

 
Other income
20,562

 
9,911

 
10,651

 
Fee and other income
156,387

 
152,060

 
4,327

 
Total revenues
$
2,163,720

 
$
1,836,036

 
$
327,684

 


(Amounts in thousands)
For the Year Ended December 31, 2017
 
 
Total
 
New York
 
Other
 
Base rent
$
1,583,443

 
$
1,347,270

 
$
236,173

 
Hotel Pennsylvania
89,302

 
89,302

 
—

 
Trade shows
42,207

 
—

 
42,207

 
Property rentals
1,714,952

 
1,436,572

 
278,380

 
Operating expense reimbursements
179,381

 
165,347

 
14,034

 
Tenant services
54,043

 
42,273

 
11,770

 
Tenant expense reimbursements
233,424

 
207,620

 
25,804

 
BMS cleaning fees
104,143

 
110,986

 
(6,843
)
(1)  
Management and leasing fees
10,087

 
8,599

 
1,488

 
Lease termination fees
8,171

 
7,955

 
216

 
Other income
13,349

 
7,575

 
5,774

 
Fee and other income
135,750

 
135,115

 
635

 
Total revenues
$
2,084,126

 
$
1,779,307

 
$
304,819

 
____________________
See notes on the following page.








122

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


3 .
Revenue Recognition - continued

(Amounts in thousands)
For the Year Ended December 31, 2016
 
 
Total
 
New York
 
Other
 
Base rent
$
1,538,605

 
$
1,313,611

 
$
224,994

 
Hotel Pennsylvania
80,785

 
80,785

 
—

 
Trade shows
42,703

 
—

 
42,703

 
Property rentals
1,662,093

 
1,394,396

 
267,697

 
Operating expense reimbursements
166,103

 
154,734

 
11,369

 
Tenant services
55,460

 
44,304

 
11,156

 
Tenant expense reimbursements
221,563

 
199,038

 
22,525

 
BMS cleaning fees
93,425

 
97,612

 
(4,187
)
(1)  
Management and leasing fees
8,243

 
7,531

 
712

 
Lease termination fees
8,770

 
7,705

 
1,065

 
Other income
9,648

 
7,092

 
2,556

 
Fee and other income
120,086

 
119,940

 
146

 
Total revenues
$
2,003,742

 
$
1,713,374

 
$
290,368

 
____________________
(1)
Represents the elimination of intercompany fees from the New York segment upon consolidation.




123

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


4 .
Acquisitions

537 West 26th Street

On February 9, 2018, we acquired 537 West 26th Street, a 14,000 square foot commercial property adjacent to our 260 Eleventh Avenue office property, and 55,000 square feet of additional zoning air rights for $44,000,000 .

1535 Broadway

On July 30, 2012, we entered into a lease with Host Hotels & Resorts, Inc. (NYSE: HST) (“Host”), under which we redeveloped the retail and signage components of the Marriott Times Square Hotel. We accounted for this lease as a “capital lease” and recorded a $240,000,000 capital lease asset and liability. On September 21, 2018, we acquired the retail condominium from Host for $442,000,000 (inclusive of the $240,000,000 capital lease liability). The original lease transaction provided that we would become the 100% owner through a put/call arrangement, based on a pre-negotiated formula. This transaction satisfies the put/call arrangement. Our 100% fee interest includes 45,000 square feet of retail, the 1,611 seat Marquis Theater and the largest digital sign in New York with a 330 linear foot, 25,000 square foot display.

Farley Office and Retail Building and Moynihan Train Hall

In September 2016, our joint venture with the Related Companies (“Related”) was designated by Empire State Development (“ESD”), an entity of New York State, to develop the Farley Office and Retail Building (the "Project"). The Project will include a new Moynihan Train Hall and approximately 850,000 rentable square feet of commercial space, comprised of approximately 730,000 square feet of office space and approximately 120,000 square feet of retail space. On June 15, 2017, the joint venture closed a 99 -year, triple-net lease with ESD for the commercial space at the Project and made a $230,000,000 upfront contribution towards the construction of the train hall. At that time, we accounted for our investment in the joint venture under the equity method of accounting. The lease calls for annual rent payments of $5,000,000 plus payments in lieu of real estate taxes. Simultaneously, the joint venture completed a $271,000,000 loan facility, of which $257,941,000 is outstanding at December 31, 2018 . The interest-only loan is at LIBOR plus 3.25% ( 4.64% at December 31, 2018 ) and matures in June 2019 with two one -year extension options.

On October 30, 2018, we increased our ownership interest in the joint venture to 95.0% from 50.1% by acquiring a 44.9 % additional ownership interest from Related. The purchase price was $41,500,000 plus the reimbursement of $33,026,000 of costs funded by Related through October 30, 2018. We consolidate the accounts of the joint venture from the date of acquisition as it is a variable interest entity and we are deemed to be the primary beneficiary. In connection therewith, we recorded a net gain of $44,060,000 , which is included in "purchase price fair value adjustment" on our consolidated statements of income. As a result of this gain, because we hold our investment in the joint venture through a taxable REIT subsidiary, $16,771,000 of income tax expense was recognized in our consolidated statements of income.

The joint venture has entered into a development agreement with ESD to build the adjacent Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture's obligations. The joint venture has entered into a design-build contract with Skanska Moynihan Train Hall Builders pursuant to which they will build the Moynihan Train Hall, thereby fulfilling all of the joint venture's obligations to ESD. The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bear a full guaranty from Skanska AB. The development expenditures for the Moynihan Train Hall are estimated to be approximately $1.6 billion , which will be funded by governmental agencies. Pursuant to ASC 840-40-55, the joint venture, which we consolidate on our consolidated balance sheets, is required to recognize all development expenditures for the Moynihan Train Hall. Accordingly, the development expenditures paid for by governmental agencies through December 31, 2018 of $445,693,000 are shown as “Moynihan Train Hall development expenditures” with a corresponding obligation recorded in “Moynihan Train Hall obligation” on our consolidated balance sheets. Upon completion of the development, the "Moynihan Train Hall development expenditures" and the offsetting “Moynihan Train Hall obligation” will be removed from our consolidated balance sheets.


124

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


5 .
Real Estate Fund Investments

We are the general partner and investment manager of Vornado Capital Partners Real Estate Fund (the “Fund”) and own a 25.0% interest in the Fund, which had an initial eight -year term ending February 2019. On January 29, 2018, the Fund's term was extended to February 2023. The Fund's three -year investment period ended in July 2013. The Fund is accounted for under ASC 946, Financial Services – Investment Companies (“ASC 946”) and its investments are reported on its balance sheet at fair value, with changes in value each period recognized in earnings. We consolidate the accounts of the Fund into our consolidated financial statements, retaining the fair value basis of accounting.
 
We are also the general partner and investment manager of the Crowne Plaza Times Square Hotel Joint Venture (the “Crowne Plaza Joint Venture”) and own a 57.1% interest in the joint venture which owns the 24.7% interest in the Crowne Plaza Times Square Hotel not owned by the Fund. The Crowne Plaza Joint Venture is also accounted for under ASC 946 and we consolidate the accounts of the joint venture into our consolidated financial statements, retaining the fair value basis of accounting.
 
  On January 17, 2018, the Fund completed the sale of the retail condominium at 11 East 68th Street, a property located on Madison Avenue and 68th Street, for $82,000,000 . From the inception of this investment through its disposition, the Fund realized a $46,259,000 net gain.

In March 2011, a joint venture (the “Joint Venture”) owned 64.7% by the Fund, 30.3% by Vornado and 5.0% by a third party, acquired One Park Avenue for $394,000,000 . In connection with the acquisition, the Joint Venture paid $3,000,000 of New York City real property transfer tax (the “Transfer Tax”) and filed a Real Property Tax Return (“RPTR”) with the New York City Department of Finance (the “Department of Finance”). The RPTR was audited by the Department of Finance in 2014 and an increased Transfer Tax was assessed. The Joint Venture appealed the increased Transfer Tax assessment and the Joint Venture's appeal was upheld by a New York City Administrative Law Judge (“ALJ”) in January 2017. The Department of Finance appealed the ALJ's decision and on February 16, 2018 the New York City Tax Appeals Tribunal (the “Tax Tribunal”) reversed the ALJ's decision and assessed $9,491,000 of additional Transfer Tax and $6,764,000 of interest. As a result of the Tax Tribunal's decision, we recorded an expense of $15,608,000 , before noncontrolling interests, during the first quarter of 2018, which was subsequently paid on April 5, 2018, in order to permit us to appeal the Tax Tribunal's decision and stop the accrual of interest, of which $10,630,000 is included in “loss (income) from real estate fund investments” and $4,978,000 is included in “income from partially owned entities” (see Note 7 - Investments in Partially Owned Entities) on our consolidated statements of income for the twelve months ended December 31, 2018. We are appealing the Tax Tribunal's decision. Our appeal of the Tax Tribunal's decision is scheduled to be heard by the appellate court in the first half of 2019.

On April 19, 2018, the joint venture between the Fund and the Crowne Plaza Joint Venture completed a $255,000,000 refinancing of the Crowne Plaza Times Square Hotel. The interest-only loan is at LIBOR plus 3.53% ( 6.00% at December 31, 2018) and matures in May 2020 with three one -year extension options. In connection therewith, the joint venture purchased an interest rate cap that caps LIBOR at a rate of 4.00% . The Crowne Plaza Times Square Hotel was previously encumbered by a $310,000,000 interest-only mortgage at LIBOR plus 2.80% , which was scheduled to mature in December 2018.

As of December 31, 2018 , we had four real estate fund investments through the Fund and the Crowne Plaza Joint Venture with an aggregate fair value of $318,758,000 , or $6,806,000 below our cost, and had remaining unfunded commitments of $50,494,000 , of which our share was $ 16,119,000 . At December 31, 2017 , we had five real estate fund investments with an aggregate fair value of $354,804,000 .

125

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


5 .
Real Estate Fund Investments - continued
 
Below is a summary of (loss) income from the Fund and the Crowne Plaza Joint Venture for the years ended December 31, 2018 , 2017 and 2016 .    
 
(Amounts in thousands)
For the Year Ended December 31,
 
2018
 
2017
 
2016
Net investment income
$
6,105

 
$
18,507

 
$
17,053

Net unrealized loss on held investments
(83,794
)
 
(25,807
)
 
(41,162
)
Net realized (loss) gain on exited investments
(912
)
 
36,078

 
14,761

Previously recorded unrealized gain on exited investment
—

 
(25,538
)
 
(14,254
)
Transfer Tax
(10,630
)
 
—

 
—

(Loss) income from real estate fund investments
(89,231
)
 
3,240

 
(23,602
)
Less loss (income) attributable to noncontrolling interests in consolidated subsidiaries
61,230

 
(14,044
)
 
2,560

Loss from real estate fund investments attributable to the Operating Partnership (includes $4,252 of loss related to One Park Avenue potential additional transfer taxes and reduction in carried interest for the year ended December 31, 2018)
(28,001
)
 
(10,804
)
 
(21,042
)
Less loss attributable to noncontrolling interests in the Operating Partnership
1,732

 
673

 
1,270

Loss from real estate fund investments attributable to Vornado
$
(26,269
)
 
$
(10,131
)
 
$
(19,772
)


6 .
Marketable Securities
 
Our portfolio of marketable securities is comprised of equity securities that are presented on our consolidated balance sheets at fair value. On January 1, 2018, we adopted ASU 2016-01, which requires changes in the fair value of our marketable securities to be recorded in current period earnings. Previously, changes in the fair value of marketable securities were recognized in "accumulated other comprehensive income" on our consolidated balance sheets. As a result, on January 1, 2018 we recorded a decrease to beginning accumulated deficit of $111,225,000 to recognize the unrealized gains previously recorded in “accumulated other comprehensive income” on our consolidated balance sheets. Subsequent changes in the fair value of our marketable securities are recorded to “interest and other investment income, net” on our consolidated statements of income.
 
We evaluate our portfolio of marketable securities for impairment each reporting period. For each of the securities in our portfolio with unrealized losses, we review the underlying cause of the decline in value and the estimated recovery period, as well as the severity and duration of the decline. In our evaluation, we consider our ability and intent to hold these investments for a reasonable period of time sufficient for us to recover our cost basis. We also evaluate the near-term prospects for each of these investments in relation to the severity and duration of the decline.  

The table below summarizes the changes of our marketable securities portfolio for the year ended December 31, 2018 .
 
(Amounts in thousands)
For the Year Ended December 31, 2018
 
Total
 
Lexington Realty Trust
 
Other
Beginning balance
$
182,752

 
$
178,226

 
$
4,526

(Decrease) increase in fair value of marketable securities (1)
(26,453
)
 
(26,596
)
 
143

Sale of marketable securities
(4,101
)
 
—

 
(4,101
)
Ending balance
$
152,198

 
$
151,630

 
$
568

  ________________________________________
(1)
Included in “interest and other investment income, net” on our consolidated statements of income (see Note 17 - Interest and Other Investment Income, Net ).

126

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7 .
Investments in Partially Owned Entities

Alexander’s
 
As of December 31, 2018 , we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common equity. We manage, develop and lease Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable. As of December 31, 2018 and 2017 , Alexander’s owed us an aggregate of $708,000 and $2,490,000 , respectively, pursuant to such agreements.
 
As of December 31, 2018 the market value (“fair value” pursuant to ASC 820) of our investment in Alexander’s, based on Alexander’s December 31, 2018 closing share price of $304.74 , was $504,061,000 , or $396,078,000 in excess of the carrying amount on our consolidated balance sheet. As of December 31, 2018 , the carrying amount of our investment in Alexander’s, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander’s by approximately $39,046,000 . The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to real estate (land and buildings). We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in Alexander’s net income. The basis difference related to the land will be recognized upon disposition of our investment.

Alexander's paid $3,971,000 of Transfer Tax upon the November 2012 sale of its Kings Plaza Regional Shopping Center located in Brooklyn, New York. Alexander's accrued $23,797,000 of potential additional Transfer Tax and related interest based on the precedent established by the Tax Tribunal's decision regarding One Park Avenue (see Note 5 - Real Estate Fund Investments for details) during the first quarter of 2018 which was subsequently paid on April 5, 2018 in order to preserve Alexander's rights to continue litigation and stop accrual of interest, of which our 32.4% share is $7,708,000 and is included in “income from partially owned entities” on our consolidated statements of income for the year ended December 31, 2018.

Management, Development, Leasing and Other Agreements
 
We receive an annual fee for managing Alexander’s and all of its properties equal to the sum of (i)  $2,800,000 , (ii) 2% of the gross revenue from the Rego Park II Shopping Center, (iii) $0.50 per square foot of the tenant-occupied office and retail space at 731 Lexington Avenue, and (iv) $315,000 , escalating at 3% per annum, for managing the common area of 731 Lexington Avenue. In addition, we are entitled to a development fee of 6% of development costs, as defined.
 
We provide Alexander’s with leasing services for a fee of 3% of rent for the first ten years of a lease term, 2% of rent for the eleventh through twentieth year of a lease term and 1% of rent for the twenty-first through thirtieth year of a lease term, subject to the payment of rents by Alexander’s tenants. In the event third-party real estate brokers are used, our fee increases by 1% and we are responsible for the fees to the third-parties. We are also entitled to a commission upon the sale of any of Alexander’s assets equal to 3% of gross proceeds, as defined, for asset sales less than $50,000,000 , and 1% of gross proceeds, as defined, for asset sales of $50,000,000 or more.

Building Maintenance Services (“BMS”), our wholly-owned subsidiary, supervises (i) cleaning, engineering and security services at Alexander’s 731 Lexington Avenue property and (ii) security services at Alexander’s Rego Park I, Rego Park II properties and The Alexander apartment tower. During the years ended December 31, 2018 , 2017 and 2016 , we recognized $2,705,000 , $2,678,000 and $2,583,000 of income, respectively, for these services.
 

127

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7 .
Investments in Partially Owned Entities – continued

Urban Edge Properties (“UE”) (NYSE: UE)
 
As of December 31, 2018 , we own 5,717,184 UE operating partnership units, representing a 4.5% ownership interest in UE. We account for our investment in UE under the equity method and record our share of UE’s net income or loss on a one-quarter lag basis. In 2018, 2017 and 2016, we provided UE with information technology support. UE is providing us with leasing and property management services for (i) certain small retail properties that we plan to sell, (ii) our affiliate, Alexander’s, Rego Park retail assets and (iii) Interstate Properties ("Interstate") retail assets. As of December 31, 2018 , the fair value of our investment in UE, based on UE’s December 31, 2018 closing share price of $16.62 , was $95,020,000 , or $49,676,000 in excess of the carrying amount on our consolidated balance sheet.
 
Pennsylvania Real Estate Investment Trust (“PREIT”) (NYSE: PEI)
 
As of December 31, 2018 , we own 6,250,000 PREIT operating partnership units, representing a 7.9% interest in PREIT. We account for our investment in PREIT under the equity method and record our share of PREIT’s net income or loss on a one-quarter lag basis.

As of December 31, 2018 , the fair value of our investment in PREIT, based on PREIT’s December 31, 2018 closing share price of $5.94 , was $37,125,000 , or $22,366,000 below the carrying amount on our consolidated balance sheet. As of December 31, 2018 , the carrying amount of our investment in PREIT exceeds our share of the equity in the net assets of PREIT by approximately $35,744,000 . The majority of this basis difference resulted from the excess of the fair value of the PREIT operating units received over our share of the book value of PREIT’s net assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of PREIT’s assets and liabilities, to real estate (land and buildings). We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in PREIT’s net loss. The basis difference related to the land will be recognized upon disposition of our investment.

Independence Plaza

We have a 50.1% economic interest in a joint venture that owns Independence Plaza, a three -building 1,327 unit residential complex in the Tribeca submarket of Manhattan. The joint venture paid $1,730,000 of Transfer Tax upon its acquisition of the property in December 2012. The joint venture accrued $13,103,000 of potential additional Transfer Tax and related interest based on the precedent established by the Tax Tribunal's decision regarding One Park Avenue (see Note 5 - Real Estate Fund Investments for details) during the first quarter of 2018, which was subsequently paid on April 5, 2018, in order to preserve the joint venture's rights to continue litigation and stop accrual of interest. Because we consolidate the entity that incurred the potential additional Transfer Tax, $13,103,000 of expense is included in “transaction related costs, impairment loss and other” and $6,538,000 is allocated to “noncontrolling interests in consolidated subsidiaries” on our consolidated statements of income.

On June 11, 2018, the joint venture completed a $675,000,000 refinancing of Independence Plaza. The seven -year interest-only loan matures in July 2025 and has a fixed rate of 4.25% . Our share of net proceeds, after repayment of the existing 3.48% $550,000,000 mortgage and closing costs, was $55,618,000 .

Toys "R" Us, Inc. ("Toys")

On September 18, 2017, Toys filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. In the second quarter of 2018, Toys ceased U.S. operations. On February 1, 2019, the plan of reorganization for Toys "R" Us, Inc., in which we owned a 32.5% interest, was declared effective, and our stock in Toys was canceled. At December 31, 2018 and 2017, we carried our Toys investment at zero . The canceling of our stock in Toys will result in approximately a $420,000,000 capital loss deduction for tax purposes in 2019 (which if not offset by capital gains will result in a capital loss carry over available for five years).

128

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7 .
Investments in Partially Owned Entities – continued

666 Fifth Avenue Office Condominium

On August 3, 2018, we completed the sale of our 49.5% interests in the 666 Fifth Avenue Office Condominium. We received net proceeds of $120,000,000 and recognized a financial statement gain of $134,032,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. The gain for tax purposes was approximately $254,000,000 . We continue to own all of the 666 Fifth Avenue Retail Condominium encompassing the Uniqlo, Tissot and Hollister stores with 125 linear feet of frontage on Fifth Avenue between 52nd and 53rd Street.

Concurrently with the sale of our interests, the existing mortgage loan on the property was repaid and we received net proceeds of $55,244,000 for the participation we held in the mortgage loan. We recognized a financial statement gain of $7,308,000 , which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income.


Below is a schedule summarizing our investments in partially owned entities.
(Amounts in thousands)
Percentage
Ownership at
December 31, 2018
 
As of December 31,
 
 
2018
 
2017
Investments:
 
 
 
 
 
Partially owned office buildings/land (1)
Various
 
$
499,005

 
$
504,393

Alexander’s
32.4%
 
107,983

 
126,400

PREIT
7.9%
 
59,491

 
66,572

UE
4.5%
 
45,344

 
46,152

Other investments (2)
Various
 
146,290

 
313,312

 
 
 
$
858,113

 
$
1,056,829

 
 
 
 
 
 
330 Madison Avenue (3)
25.0%
 
$
(58,117
)
 
$
(53,999
)
7 West 34th Street (4)
53.0%
 
(51,579
)
 
(47,369
)
 
 
 
$
(109,696
)
 
$
(101,368
)
________________________________________
(1)
Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 512 West 22nd Street, 85 Tenth Avenue, 61 Ninth Avenue and others.
(2)
Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, Farley Office and Retail Building (in 2017 only) and others. On October 30, 2018, we increased our ownership interest in the joint venture which owns the Farley Office and Retail Building to 95.0% when we acquired a 44.9% additional ownership interest. Accordingly, beginning October 30, 2018 we consolidated the accounts of the joint venture (see page 124 for details).
(3)
Our negative basis resulted from a refinancing distribution and is included in "other liabilities" on our consolidated balance sheets.
(4)
Our negative basis results from a deferred gain from the sale of a 47.0% ownership interest in the property on May 27, 2016 and is included in "other liabilities" on our consolidated balance sheets.

129

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7 .
Investments in Partially Owned Entities – continued

Below is a schedule of net income (loss) from partially owned entities.

(Amounts in thousands)
Percentage
Ownership at
December 31, 2018
 
As of December 31,
 
 
2018
 
2017
 
2016
Our share of net income (loss):
 
 
 
 
 
 
 
Alexander's (see page 127 for details):
 
 
 
 
 
 
 
Equity in net income (1)
32.4%
 
$
10,485

 
$
25,820

 
$
27,470

Management, leasing and development fees
 
 
4,560

 
6,033

 
6,770

 
 
 
15,045

 
31,853

 
34,240

 
 
 
 
 
 
 
 
UE (see page 128 for details):
 
 
 
 
 
 
 
Equity in net income (2)
4.5%
 
4,227

 
26,658

 
5,003

Management fees
 
 
233

 
670

 
836

 
 
 
4,460

 
27,328

 
5,839

 
 
 
 
 
 
 
 
Partially owned office buildings (3)
Various
 
(3,085
)
 
2,109

 
5,773

 
 
 
 
 
 
 
 
PREIT (see page 128 for details) (4)
7.9%
 
(3,015
)
 
(53,325
)
 
(5,213
)
 
 
 
 
 
 
 
 
Other investments (5)
Various
 
(4,256
)
 
7,235

 
128,309

 
 
 
 
 
 
 
 
 
 
 
$
9,149

 
$
15,200

 
$
168,948

____________________
(1)
2018 includes (i) our $7,708 share of Alexander's potential additional Transfer Tax, (ii) our $3,882 share of expense related to the decrease in fair value of marketable securities held by Alexander’s, (iii) our $1,085 share of a non-cash straight-line rent write-off adjustment related to Sears Roebuck and Co. which filed for Chapter 11 bankruptcy relief and (iv) our $518 share of Alexander’s litigation expense due to a settlement. 
(2)
2017 includes $21,100 of net gains resulting from UE operating partnership unit issuances.
(3)
Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 7 West 34th Street, 330 Madison Avenue, 512 West 22nd Street, 85 Tenth Avenue and others. 2018 includes our $4,978 share of potential additional Transfer Tax related to the March 2011 acquisition of One Park Avenue (see Note 5 - Real Estate Fund Investments ).
(4)
2017 includes a $44,465 non-cash impairment loss.
(5)
Includes interests in Independence Plaza, Fashion Centre Mall/Washington Tower, Rosslyn Plaza, 50-70 West 93rd Street, 666 Fifth Avenue Office Condominium (sold on August 3, 2018) and others. In 2017, we recognized $26,687 of net gains, comprised of $15,314 for our share of a net gain on the sale of Suffolk Downs and $11,373 for the net gain on repayment of our debt investments in Suffolk Downs JV. In 2018, 2017 and 2016, we recognized net losses of $4,873 , $25,414 , and $41,532 , respectively, from our 666 Fifth Avenue Office Condominium joint venture as a result of our share of depreciation expense. In 2016, the owner of 85 Tenth Avenue completed a 10 -year, 4.55% $625,000 refinancing of the property and we received net proceeds of $191,779 in repayment of our existing loans and preferred equity investments. We recognized $160,843 of income and no tax gain as a result of this transaction.

130

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7 .
Investments in Partially Owned Entities – continued
 
Below is a summary of the debt of our partially owned entities as of December 31, 2018 and 2017 .

(Amounts in thousands)
Percentage
Ownership at
December 31, 2018
 
Maturity
 
Interest
Rate at
December 31, 2018
 
100% Partially Owned Entities’
Debt at December 31, (1)
 
 
 
 
2018
 
2017
Partially owned office buildings (2) :
 
 
 
 
 
 
 
 
 
Mortgages payable
Various
 
2019-2026
 
4.18%
 
$
3,985,855

 
$
3,934,894

 
 
 
 
 
 
 
 
 
 
PREIT:
 
 
 
 
 
 
 
 
 
Mortgages payable
7.9%
 
2020-2025
 
3.81%
 
1,642,408

 
1,586,045

 
 
 
 
 
 
 
 
 
 
UE:
 
 
 
 
 
 
 
 
 
Mortgages payable
4.5%
 
2021-2034
 
4.09%
 
1,563,375

 
1,415,806

 
 
 
 
 
 
 
 
 
 
Alexander's:
 
 
 
 
 
 
 
 
 
Mortgages payable
32.4%
 
2021-2025
 
3.67%
 
1,170,544

 
1,252,440

 
 
 
 
 
 
 
 
 
 
Other (3) :
 
 
 
 
 
 
 
 
 
Mortgages payable and other
Various
 
2019-2025
 
4.57%
 
1,358,706

 
8,601,383

________________________________________
(1)
All amounts are non-recourse to us except the $300,000 mortgage loan on 7 West 34th Street which we guaranteed in connection with the sale of a 47.0% equity interest in May 2016.
(2)
Includes 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 7 West 34th Street, 330 Madison Avenue, 512 West 22nd Street, 85 Tenth Avenue and others.
(3)
Includes Independence Plaza, Rosslyn Plaza, Fashion Centre Mall/Washington Tower, 50-70 West 93rd Street, Toys, 666 Fifth Avenue Office Condominium (sold on August 3, 2018), Farley Office and Retail Building (in 2017 only) and others. On October 30, 2018, we increased our ownership interest in the joint venture which owns the Farley Office and Retail Building to 95.0% when we acquired a 44.9% additional ownership interest. Accordingly, beginning October 30, 2018 we consolidated the accounts of the joint venture (see page 124 for details).
 
Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $2,682,865,000 and $5,288,276,000 as of December 31, 2018 and 2017 , respectively.
 
Summary of Condensed Combined Financial Information
 
The following is a summary of condensed combined financial information for all of our partially owned entities, including Alexander’s, as of December 31, 2018 and 2017 and for the years ended December 31, 2018 , 2017 and 2016 .
(Amounts in thousands)
Balance as of December 31,
 
2018
 
2017
Balance Sheet:
 
 
 
Assets
$
13,258,000

 
$
24,812,000

Liabilities
10,456,000

 
22,739,000

Noncontrolling interests
139,000

 
140,000

Equity
2,663,000

 
1,933,000

(Amounts in thousands)
For the Year Ended December 31,
 
2018
 
2017
 
2016
Income Statement:
 
 
 
 
 
Total revenue
$
1,798,000

 
$
12,991,000

 
$
13,600,000

Net loss
52,000

 
(542,000
)
 
(65,000
)

131

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


8 .
220 Central Park South ("220 CPS")

We are constructing a residential condominium tower containing 397,000 salable square feet at 220 CPS. The development cost of this project (exclusive of land cost) is estimated to be approximately $1.4 billion , of which $1.2 billion has been expended as of December 31, 2018 .

GAAP income from our 220 CPS project is recognized when legal title transfers upon closing of the condominium unit sales. During the fourth quarter of 2018, we completed the sale of 11 condominium units at 220 CPS for net proceeds aggregating $214,776,000 and resulting in a financial statement net gain of $81,224,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income. In connection with these sales, $13,888,000 of income tax expense was recognized in our consolidated statements of income and $213,000,000 of the $950,000,000 220 CPS loan was repaid.
    
For income tax purposes, we recognize revenue associated with our 220 CPS project using the percentage of completion method. On May 25, 2018, the 220 CPS condominium offering plan was declared effective by the Attorney General of the State of New York. We paid $52,200,000 for estimated Federal, state and local income taxes due, which is included in "other assets" on our consolidated balance sheet as of December 31, 2018 .

As of December 31, 2018, 83% of the condominium units are sold or under sales contracts, with closings scheduled through 2020.


132

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


9 .
Dispositions

New York
 
On June 21, 2018 we completed the $45,000,000 sale of 27 Washington Square North, which resulted in a net gain of $23,559,000 which is included in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income.

Discontinued Operations

Washington, DC

On June 20, 2017, we completed a $220,000,000 financing of The Bartlett residential building. The five -year interest-only loan is at LIBOR plus 1.70% and matures in June 2022. On July 17, 2017, the property, the loan and the $217,000,000 of net proceeds were transferred to JBG SMITH Properties ("JBGS") in connection with the tax-free spin-off of our Washington, DC segment.

On July 17, 2017, prior to completion of the tax-free spin-off of our Washington, DC segment, we repaid the $43,581,000 LIBOR plus 1.25% mortgage encumbering 1700 and 1730 M Street which was scheduled to mature in August 2017. The unencumbered property was then transferred to JBGS in connection with the tax-free spin-off of our Washington, DC segment.

On July 17, 2017, we completed the spin-off of our Washington, DC segment comprised of (i) 37 office properties totaling over 11.1 million square feet, five multifamily properties with 3,133 units and five other assets totaling approximately 406,000 square feet and (ii) 18 future development assets totaling over 10.4 million square feet of estimated potential development density, and (iii) $412.5 million of cash ( $275.0 million plus The Bartlett financing proceeds less transaction costs and other mortgage items) to JBGS. On July 18, 2017, JBGS was combined with the management business and certain Washington, DC assets of The JBG Companies (“JBG”), a Washington, DC real estate company. Steven Roth, the Chairman of the Board of Trustees and Chief Executive Officer of Vornado, is the Chairman of the Board of Trustees of JBGS. Mitchell Schear, former President of our Washington, DC business, is a member of the Board of Trustees of JBGS. We are providing transition services to JBGS initially including information technology, financial reporting and payroll services. The spin-off was effected through a tax-free distribution by Vornado to the holders of Vornado common shares of all of the common shares of JBGS at the rate of one JBGS common share for every two common shares of Vornado and the distribution by the Operating Partnership to the holders of its common units of all of the outstanding common units of JBG SMITH Properties LP (“JBGSLP”) at the rate of one JBGSLP common unit for every two common units of VRLP held of record. See JBGS’ Amendment No. 3 on Form 10 (File No. 1-37994) filed with the Securities and Exchange Commission on June 9, 2017 for additional information. Beginning in the third quarter of 2017, the historical financial results of our Washington, DC segment are reflected in our consolidated financial statements as discontinued operations for all periods presented.

On March 15, 2016, we notified the servicer of the $678,000,000 non-recourse mortgage loan on the Skyline properties located in Fairfax, Virginia, that cash flow would be insufficient to service the debt and pay other property related costs and expenses and that we were not willing to fund additional cash shortfalls. Accordingly, at our request, the loan was transferred to the special servicer. Consequently, based on the shortened holding period for the underlying assets, we concluded that the excess of carrying amount over our estimate of fair value was not recoverable and recognized a $160,700,000 non-cash impairment loss in the first quarter of 2016. The Company’s estimate of fair value was derived from a discounted cash flow model based upon market conditions and expectations of growth and utilized unobservable quantitative inputs including a capitalization rate of 8.0% and a discount rate of 8.2% . In the second quarter of 2016, cash flow became insufficient to service the debt and we ceased making debt service payments. Pursuant to the loan agreement, the loan was in default, and was subject to incremental default interest which increased the weighted average interest rate from 2.97% to 4.51% while the outstanding balance remains unpaid. For the year ended December 31, 2016, we recognized $7,823,000 of default interest expense. On August 24, 2016, the Skyline properties were placed in receivership. On December 21, 2016, the disposition of the Skyline properties was completed by the receiver. In connection therewith, the Skyline properties’ assets (approximately $236,535,000 ) and liabilities (approximately aggregating $724,412,000 ), were removed from our consolidated balance sheet which resulted in a net gain of $487,877,000 . There was no taxable income related to this transaction.



133

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


9 .
Dispositions – continued

Discontinued Operations - continued

We have reclassified the revenues and expenses of our former Washington, DC segment, which was spun off on July 17, 2017, and other related retail assets that were sold to “income (loss) from discontinued operations” and the related assets and liabilities to “other assets” and “other liabilities” for all of the periods presented in the accompanying financial statements. The tables below set forth the assets and liabilities related to discontinued operations as of December 31, 2018 and 2017 , and their combined results of operations and cash flows for the years ended December 31, 2018 , 2017 and 2016 .

(Amounts in thousands)
Balance as of December 31,
 
2018
 
2017
 
 
 
 
Assets related to discontinued operations (included in other assets)
$
113

 
$
1,357

 
 
 
 
Liabilities related to discontinued operations (included in other liabilities)
$
55

 
$
3,620


(Amounts in thousands)
For the Year Ended December 31,
 
2018
 
2017
 
2016
Income (loss) from discontinued operations:
 
 
 
 
 
Total revenues
$
1,114

 
$
261,290

 
$
521,084

Total expenses
1,094

 
212,169

 
442,032

 
20

 
49,121

 
79,052

Net gains on sale of real estate, a lease position and other
618

 
6,605

 
20,376

JBGS spin-off transaction costs
—

 
(68,662
)
 
(16,586
)
Income (loss) from partially-owned entities
—

 
435

 
(3,559
)
Net gain on early extinguishment of debt
—

 
—

 
487,877

Impairment losses
—

 
—

 
(161,165
)
Pretax income (loss) from discontinued operations
638

 
(12,501
)
 
405,995

Income tax expense
—

 
(727
)
 
(1,083
)
Income (loss) from discontinued operations
$
638

 
$
(13,228
)
 
$
404,912

 
 
 
 
 
 
Cash flows related to discontinued operations:
 
 
 
 
 
Cash flows from operating activities
$
(1,683
)
 
$
42,578

 
$
157,484

Cash flows from investing activities
—

 
(48,377
)
 
(216,125
)


134

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


10 .
Identified Intangible Assets and Liabilities

The following summarizes our identified intangible assets (primarily above-market leases) and liabilities (primarily below-market leases) as of December 31, 2018 and 2017 .
 
(Amounts in thousands)
Balance as of December 31,
 
2018
 
2017
Identified intangible assets:
 
 
 
Gross amount
$
308,895

 
$
310,097

Accumulated amortization
(172,114
)
 
(150,837
)
Total, net
$
136,781

 
$
159,260

Identified intangible liabilities (included in deferred revenue):
 
 
 
Gross amount
$
503,373

 
$
530,497

Accumulated amortization
(341,779
)
 
(324,897
)
Total, net
$
161,594

 
$
205,600

 
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase to rental income of $38,573,000 , $46,103,000 and $51,849,000 for the years ended December 31, 2018 , 2017 and 2016 , respectively. Estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding years commencing January 1, 2019 is as follows:
 
(Amounts in thousands)
 

 
 
2019
$
24,661

 
 
2020
23,591

 
 
2021
18,857

 
 
2022
15,746

 
 
2023
13,215

 
 
Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $18,018,000 , $25,057,000 and $28,897,000 for the years ended December 31, 2018 , 2017 and 2016 , respectively. Estimated annual amortization of all other identified intangible assets including acquired in-place leases, customer relationships, and third party contracts for each of the five succeeding years commencing January 1, 2019 is as follows:
 
(Amounts in thousands)
 

 
 
2019
$
13,726

 
 
2020
13,513

 
 
2021
11,974

 
 
2022
10,244

 
 
2023
10,157

 
 
We are a tenant under ground leases at certain properties. Amortization of these acquired below-market leases, net of above-market leases, resulted in an increase to rent expense (a component of operating expense) of $1,747,000 for each of the years ended December 31, 2018 , 2017 and 2016 , respectively. Estimated annual amortization of these below-market leases, net of above-market leases, for each of the five succeeding years commencing January 1, 2019 is as follows:
 
(Amounts in thousands)
 

 
 
2019
$
1,747

 
 
2020
1,747

 
 
2021
1,747

 
 
2022
1,747

 
 
2023
1,747

 


135

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


11 .
Debt

Secured Debt
 
On January 5, 2018, we completed a $100,000,000 refinancing of 33-00 Northern Boulevard (Center Building), a 471,000 square foot office building in Long Island City, New York. The seven -year loan is at LIBOR plus 1.80% , which was swapped to a fixed rate of 4.14% . We realized net proceeds of approximately $37,200,000 after repayment of the existing 4.43% $59,800,000 mortgage and closing costs.

On August 9, 2018, we completed a $120,000,000 refinancing of 4 Union Square South, a 206,000 square foot Manhattan retail property. The interest-only loan carries a rate of LIBOR plus 1.40% ( 3.75% as of December 31, 2018) and matures in 2025, as extended. The property was previously encumbered by a $113,000,000 mortgage at LIBOR plus 2.15% , which was scheduled to mature in 2019.

On November 16, 2018, we completed a $205,000,000 refinancing of 150 West 34th Street, a 78,000 square foot Manhattan retail property. The interest-only loan carries a rate of LIBOR plus 1.88% ( 4.26% as of December 31, 2018) and matures in 2024, as extended. Concurrently, we invested $105,000,000 in a participation in the refinanced mortgage loan, which earns interest at a rate of LIBOR plus 2.00% ( 4.38% as of December 31, 2018) and also matures in 2024, as extended, and is included in "other assets" on our consolidated balance sheets. The property was previously encumbered by a mortgage of the same amount at LIBOR plus 2.25% , which was scheduled to mature in 2020.

Unsecured Term Loan

On October 26, 2018, we extended our $750,000,000 unsecured term loan from October 2020 to February 2024. The interest rate on the extended unsecured term loan was lowered from LIBOR plus 1.15% to LIBOR plus 1.00% ( 3.52% as of December 31, 2018). In connection with the extension of our unsecured term loan, we entered into an interest rate swap from LIBOR plus 1.00% to a fixed rate of 3.87% through October 2023.


136

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


11 .
Debt – continued

The following is a summary of our debt:
 
(Amounts in thousands)
Weighted Average
Interest Rate at
December 31, 2018
 
Balance at December 31,
 
 
2018
 
2017
Mortgages Payable:
 
 
 
 
 
Fixed rate
3.53%
 
$
5,003,465

 
$
5,461,706

Variable rate
4.33%
 
3,212,382

 
2,742,133

Total
3.84%
 
8,215,847

 
8,203,839

Deferred financing costs, net and other
 
 
(48,049
)
 
(66,700
)
Total, net
 
 
$
8,167,798

 
$
8,137,139


Unsecured Debt:
 
 
 
 
 
Senior unsecured notes
4.21%
 
$
850,000

 
$
850,000

Deferred financing costs, net and other
 
 
(5,998
)
 
(6,386
)
Senior unsecured notes, net
 
 
844,002

 
843,614

 
 
 
 
 
 
Unsecured term loan
3.87%
 
750,000

 
750,000

Deferred financing costs, net and other
 
 
(5,179
)
 
(1,266
)
Unsecured term loan, net
 
 
744,821

 
748,734

 
 
 
 
 
 
Unsecured revolving credit facilities
3.46%
 
80,000

 
—

 
 
 
 
 
 
Total, net
 
 
$
1,668,823

 
$
1,592,348


The net carrying amount of properties collateralizing the mortgages payable amounted to $9.1 billion at December 31, 2018 . 



As of December 31, 2018 , the principal repayments required for the next five years and thereafter are as follows:
 
 
(Amounts in thousands)
Mortgages Payable
 
Senior Unsecured
Debt and Unsecured
Resolving Credit Unsecured Facilities
 
 
Year Ended December 31,
 
 
 
 
 
2019
$
2,569,332

 
$
—

 
 
2020
2,192,567

 
—

 
 
2021
1,613,948

 
80,000

 
 
2022
950,000

 
400,000

 
 
2023
391,800

 
—

 
 
Thereafter
498,200

 
1,200,000

 


137

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


12 .
Redeemable Noncontrolling Interests/Redeemable Partnership Units

Redeemable noncontrolling interests on Vornado’s consolidated balance sheets and redeemable partnership units on the consolidated balance sheets of the Operating Partnership are primarily comprised of Class A Operating Partnership units held by third parties and are recorded at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the value from period to period are charged to “additional capital” in Vornado’s consolidated statements of changes in equity and to “partners’ capital” on the consolidated balance sheets of the Operating Partnership. Class A units may be tendered for redemption to the Operating Partnership for cash; Vornado, at its option, may assume that obligation and pay the holder either cash or Vornado common shares on a one-for-one basis. Because the number of Vornado common shares outstanding at all times equals the number of Class A units owned by Vornado, the redemption value of each Class A unit is equivalent to the market value of one Vornado common share, and the quarterly distribution to a Class A unitholder is equal to the quarterly dividend paid to a Vornado common shareholder. 
 
Below are the details of redeemable noncontrolling interests/redeemable partnership units as of December 31, 2018 and 2017 .
(Amounts in thousands, except units and per unit amounts)
 
Balance as of
December 31,
 
Units Outstanding at
December 31,
 
Per Unit
Liquidation
Preference
 
Preferred or
Annual
Distribution
Rate
Unit Series
 
2018
 
2017
 
2018
 
2017
 
 
Common:
 
 
 
 
 
 
 
 
 
 
 
 
Class A units held by third parties
 
$
778,134

 
$
979,509

 
12,544,477

 
12,528,899

 
n/a

 
$
2.52

 
 
 
 
 
 
 
 
 
 
 
 
 
Perpetual Preferred/Redeemable Preferred (1) :
 
 
 
 
 
 
 
 
 
 
 
 
5.00% D-16 Cumulative Redeemable
 
$
1,000

 
$
1,000

 
1

 
1

 
$
1,000,000.00

 
$
50,000.00

3.25% D-17 Cumulative Redeemable
 
$
4,428

 
$
4,428

 
177,100

 
177,100

 
$
25.00

 
$
0.8125

________________________________________
(1)
Holders may tender units for redemption to the Operating Partnership for cash at their stated redemption amount; Vornado, at its option, may assume that obligation and pay the holders either cash or Vornado preferred shares on a one-for-one basis. These units are redeemable at Vornado's option at any time.

Below is a table summarizing the activity of redeemable noncontrolling interests/redeemable partnership units.
(Amounts in thousands)
 
Balance, December 31, 2016
$
1,278,446

Net income
10,910

Other comprehensive income
643

Distributions
(33,229
)
Redemption of Class A units for Vornado common shares, at redemption value
(38,747
)
Adjustments to carry redeemable Class A units at redemption value (including $224,069 attributable to the spin-off of JBGS)
(268,494
)
Other, net
35,408

Balance, December 31, 2017
984,937

Net income
25,672

Other comprehensive loss
(836
)
Distributions
(31,828
)
Redemption of Class A units for Vornado common shares, at redemption value
(17,068
)
Adjustments to carry redeemable Class A units at redemption value
(198,064
)
Other, net
20,749

Balance, December 31, 2018
$
783,562


Redeemable noncontrolling interests/redeemable partnership units exclude our Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units, as they are accounted for as liabilities in accordance with ASC 480, Distinguishing Liabilities and Equity , because of their possible settlement by issuing a variable number of Vornado common shares. Accordingly, the fair value of these units is included as a component of “other liabilities” on our consolidated balance sheets and aggregated $50,561,000 as of December 31, 2018 and 2017 . Changes in the value from period to period, if any, are charged to “interest and debt expense” on our consolidated statements of income.


138

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


13 .
Shareholders' Equity/Partners' Capital
 
Common Shares (Vornado Realty Trust)
 
As of December 31, 2018 , there were 190,535,499 common shares outstanding. During 2018 , we paid an aggregate of $479,348,000 of common dividends comprised of quarterly common dividends of $0.63 per share.
 
Class A Units (Vornado Realty L.P.)
 
As of December 31, 2018 , there were 190,535,499 Class A units outstanding that were held by Vornado. These units are classified as “partners’ capital” on the consolidated balance sheets of the Operating Partnership. As of December 31, 2018 , there were 12,544,477 Class A units outstanding, that were held by third parties. These units are classified outside of “partners’ capital” as “redeemable partnership units” on the consolidated balance sheets of the Operating Partnership (See Note 12 – Redeemable Noncontrolling Interests/Redeemable Partnership Units ). During 2018 , the Operating Partnership paid an aggregate of $479,348,000 of distributions to Vornado comprised of quarterly common distributions of $0.63 per unit.

Preferred Share/Preferred Units

On January 4 and 11, 2018, we redeemed all of the outstanding 6.625% Series G and Series I cumulative redeemable preferred shares/units at their redemption price of $25.00 per share/unit, or $470,000,000 in the aggregate, plus accrued and unpaid dividends/distributions through the date of redemption, and expensed $14,486,000 of previously capitalized issuance costs.

The following table sets forth the details of our preferred shares of beneficial interest and the preferred units of the Operating Partnership as of December 31, 2018 and 2017 .

(Amounts in thousands, except share/unit and per share/per unit amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Share/Unit
 
 
 
Balance as of
December 31,
 
Shares/Units Outstanding at December 31,
 
Liquidation
Preference
 
Annual
Dividend/
Distribution (1)
 
Preferred Shares/Units
 
2018
 
2017
 
2018
 
2017
 
 
 
Convertible Preferred:
 
 
 
 
 
 
 
 
 
 
 
 
 
6.5% Series A: authorized 83,977 shares/units (2)
 
$
1,071

 
$
1,102

 
18,580

 
19,573

 
$
50.00

 
$
3.25

 
Cumulative Redeemable Preferred:
 
 
 
 
 
 
 
 
 
 
 
 
 
5.70% Series K: authorized 12,000,000 shares/units (3)
 
290,971

 
290,971

 
12,000,000

 
12,000,000

 
25.00

 
1.425

 
5.40% Series L: authorized 12,000,000 shares/units (3)
 
290,306

 
290,306

 
12,000,000

 
12,000,000

 
25.00

 
1.35

 
5.25% Series M: authorized 12,780,000 shares/units (3)
 
308,946

 
309,609

 
12,780,000

 
12,780,000

 
25.00

 
1.3125

 
 
 
$
891,294

 
$
891,988

 
36,798,580

 
36,799,573

 
 
 
 
 
________________________________________
(1)
Dividends on preferred shares and distributions on preferred units are cumulative and are payable quarterly in arrears.
(2)
Redeemable at the option of Vornado under certain circumstances, at a redemption price of 1.9531 common shares/Class A units per Series A Preferred Share/Unit plus accrued and unpaid dividends/distributions through the date of redemption, or convertible at any time at the option of the holder for 1.9531 common shares/Class A units per Series A Preferred Share/Unit.
(3)
Redeemable at Vornado's option at a redemption price of $25.00 per share/unit, plus accrued and unpaid dividends/distributions through the date of redemption.



During 2018, we paid an aggregate of $55,115,000 of preferred dividends.

139

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


13 .      Shareholders' Equity/Partners' Capital - continued

Accumulated Other Comprehensive Income (Loss)

The following table sets forth the changes in accumulated other comprehensive income (loss) by component.

(Amounts in thousands)
For the Year Ended December 31, 2018
 
Total
 
Securities
available-
for-sale
 
Pro rata share of
nonconsolidated
subsidiaries' OCI
 
Interest
rate
swap
 
Other
Balance as of December 31, 2017
$
128,682

 
$
109,554

 
$
3,769

 
$
23,542

 
$
(8,183
)
Cumulative effect of accounting change (see Note 2)
(108,374
)
 
(109,554
)
 
(1,671
)
 
2,851

 
—

Net current period other comprehensive income
(12,644
)
 
—

 
1,155

 
(14,634
)
 
835

Balance as of December 31, 2018
$
7,664

 
$
—

 
$
3,253

 
$
11,759

 
$
(7,348
)

14 .
Variable Interest Entities (“VIEs”)

Unconsolidated VIEs

As of December 31, 2018 and 2017 , we have several unconsolidated VIEs. We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities does not give us power over decisions that significantly affect these entities’ economic performance. We account for our investment in these entities under the equity method (see Note 7 – Investments in Partially Owned Entities ). As of December 31, 2018 and 2017 , the net carrying amount of our investments in these entities was $257,882,000 and $352,925,000 , respectively, and our maximum exposure to loss in these entities is limited to the carrying amount of our investments.
 
Consolidated VIEs
 
Our most significant consolidated VIEs are the Operating Partnership (for Vornado), the Fund and the Crowne Plaza Joint Venture, the Farley joint venture and certain properties that have non-controlling interests. These entities are VIEs because the non-controlling interests do not have substantive kick-out or participating rights. We consolidate these entities because we control all significant business activities.

As of December 31, 2018 , the total assets and liabilities of our consolidated VIEs, excluding the Operating Partnership, were $4,445,436,000 and $2,533,753,000 respectively. As of December 31, 2017 , the total assets and liabilities of our consolidated VIEs, excluding the Operating Partnership, were $3,561,062,000 and $1,753,798,000 , respectively.

140

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


15 .
Fair Value Measurements

ASC 820 defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).   ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities. Accordingly, our fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon sale or disposition of these assets.   
 
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
Financial assets and liabilities that are measured at fair value on our consolidated balance sheets consist of (i) marketable securities, (ii) real estate fund investments, (iii) the assets in our deferred compensation plan (for which there is a corresponding liability on our consolidated balance sheets), (iv) interest rate swaps and (v) mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred units, Series D-13 cumulative redeemable preferred units, and 6.625% Series G and Series I cumulative redeemable preferred shares/units which were redeemed on January 4 and 11, 2018 (See Note 13 - Shareholders' Equity/Partners' Capital )). The tables below aggregate the fair values of these financial assets and liabilities by their levels in the fair value hierarchy as of December 31, 2018 and 2017 , respectively. 
 
(Amounts in thousands)
As of December 31, 2018
 
Total
 
Level 1
 
Level 2
 
Level 3
Marketable securities
$
152,198

 
$
152,198

 
$
—

 
$
—

Real estate fund investments
318,758

 
—

 
—

 
318,758

Deferred compensation plan assets ($8,402 included in restricted cash and $88,122 in other assets)
96,524

 
58,716

 
—

 
37,808

Interest rate swaps (included in other assets)
27,033

 
—

 
27,033

 
—

Total assets
$
594,513

 
$
210,914

 
$
27,033

 
$
356,566

 
 
 
 
 
 
 
 
Mandatorily redeemable instruments (included in other liabilities)
$
50,561

 
$
50,561

 
$
—

 
$
—

Interest rate swaps (included in other liabilities)
15,236

 
—

 
15,236

 
—

Total liabilities
$
65,797

 
$
50,561

 
$
15,236

 
$
—

(Amounts in thousands)
As of December 31, 2017
 
Total
 
Level 1
 
Level 2
 
Level 3
Marketable securities
$
182,752

 
$
182,752

 
$
—

 
$
—

Real estate fund investments
354,804

 
—

 
—

 
354,804

Deferred compensation plan assets ($11,545 included in restricted cash and $97,632 in other assets)
109,177

 
69,049

 
—

 
40,128

Interest rate swaps (included in other assets)
27,472

 
—

 
27,472

 
—

Total assets
$
674,205

 
$
251,801

 
$
27,472

 
$
394,932

 
 
 
 
 
 
 
 
Mandatorily redeemable instruments ($50,561 included in other liabilities)
$
520,561

 
$
520,561

 
$
—

 
$
—

Interest rate swaps (included in other liabilities)
1,052

 
—

 
1,052

 
—

Total liabilities
$
521,613

 
$
520,561

 
$
1,052

 
$
—

 

141

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


15 .
Fair Value Measurements – continued

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued
 
Real Estate Fund Investments
 
As of December 31, 2018 , we had four real estate fund investments through the Fund and the Crowne Plaza Joint Venture with an aggregate fair value of $318,758,000 , or $6,806,000 below our cost. These investments are classified as Level 3. We use a discounted cash flow valuation technique to estimate the fair value of each of these investments, which is updated quarterly by personnel responsible for the management of each investment and reviewed by senior management at each reporting period. The discounted cash flow valuation technique requires us to estimate cash flows for each investment over the anticipated holding period, which currently ranges from 0.3 years to 4.0 years. Cash flows are derived from property rental revenue (base rents plus reimbursements) less operating expenses, real estate taxes and capital and other costs, plus projected sales proceeds in the year of exit. Property rental revenue is based on leases currently in place and our estimates for future leasing activity, which are based on current market rents for similar space plus a projected growth factor. Similarly, estimated operating expenses and real estate taxes are based on amounts incurred in the current period plus a projected growth factor for future periods. Anticipated sales proceeds at the end of an investment’s expected holding period are determined based on the net cash flow of the investment in the year of exit, divided by a terminal capitalization rate, less estimated selling costs. 
 
The fair value of each property is calculated by discounting the future cash flows (including the projected sales proceeds), using an appropriate discount rate and then reduced by the property’s outstanding debt, if any, to determine the fair value of the equity in each investment. Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates. These rates are based on the location, type and nature of each property, and current and anticipated market conditions, industry publications and from the experience of our Acquisitions and Capital Markets departments. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these real estate fund investments as of December 31, 2018 and 2017 .    

 
Range
 
Weighted Average
(based on fair value of investments)
Unobservable Quantitative Input
December 31, 2018
 
December 31, 2017
 
December 31, 2018
 
December 31, 2017
Discount rates
10.0% to 15.0%
 
2.0% to 14.9%
 
13.4%
 
11.9%
Terminal capitalization rates
5.4% to 7.7%
 
4.7% to 6.7%
 
5.7%
 
5.5%
 
The above inputs are subject to change based on changes in economic and market conditions and/or changes in use or timing of exit. Changes in discount rates and terminal capitalization rates result in increases or decreases in the fair values of these investments. The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates and the amount and timing of cash flows. Therefore, a change in the fair value of these investments resulting from a change in the terminal capitalization rate may be partially offset by a change in the discount rate. It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values.
 
The table below summarizes the changes in the fair value of real estate fund investments that are classified as Level 3, for the years ended December 31, 2018 and 2017 .
 
(Amounts in thousands)
For the Year Ended December 31,
 
2018
 
2017
Beginning balance
$
354,804

 
$
462,132

Net unrealized loss on held investments
(83,794
)
 
(25,807
)
Purchases/additional fundings
68,950

 
—

Dispositions
(20,290
)
 
(91,606
)
Net realized (loss) gain on exited investments
(912
)
 
36,078

Previously recorded unrealized gain on exited investment
—

 
(25,538
)
Other, net
—

 
(455
)
Ending balance
$
318,758

 
$
354,804


142

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


15 .
Fair Value Measurements – continued

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued
 
Deferred Compensation Plan Assets
 
Deferred compensation plan assets that are classified as Level 3 consist of investments in limited partnerships and investment funds, which are managed by third parties. We receive quarterly financial reports from a third-party administrator, which are compiled from the quarterly reports provided to them from each limited partnership and investment fund. The quarterly reports provide net asset values on a fair value basis which are audited by independent public accounting firms on an annual basis. The third-party administrator does not adjust these values in determining our share of the net assets and we do not adjust these values when reported in our consolidated financial statements.
 
The table below summarizes the changes in the fair value of deferred compensation plan assets that are classified as Level 3, for the years ended December 31, 2018 and 2017 .
 
(Amounts in thousands)
For the Year Ended December 31,
 
2018
 
2017
Beginning balance
$
40,128

 
$
57,444

Sales
(12,621
)
 
(27,715
)
Purchases
9,183

 
5,786

Realized and unrealized (losses) gains
(274
)
 
2,519

Other, net
1,392

 
2,094

Ending balance
$
37,808

 
$
40,128


Fair Value Measurements on a Nonrecurring Basis
 
Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist primarily of real estate assets required to be measured for impairment at December 31, 2018 . There were no assets measured at fair value on a nonrecurring basis on our consolidated balance sheets at December 31, 2017 . The fair values of real estate assets required to be measured for impairment were determined using comparable sales activity.

(Amounts in thousands)
As of December 31, 2018
 
Total
 
Level 1
 
Level 2
 
Level 3
Real estate asset
$
14,971

 
$
—

 
$
—

 
$
14,971

 
    

143

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


15 .
Fair Value Measurements – continued

Financial Assets and Liabilities not Measured at Fair Value
 
Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents (primarily money market funds, which invest in obligations of the United States government), and our secured and unsecured debt. Estimates of the fair value of these instruments are determined by the standard practice of modeling the contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk adjusted interest rate, which is provided by a third-party specialist. For floating rate debt, we use forward rates derived from observable market yield curves to project the expected cash flows we would be required to make under the instrument. The fair value of cash equivalents and borrowings under our unsecured revolving credit facilities and unsecured term loan are classified as Level 1. The fair value of our secured debt and unsecured debt are classified as Level 2. The table below summarizes the carrying amounts and fair value of these financial instruments as of December 31, 2018 and 2017 .

(Amounts in thousands)
As of December 31, 2018
 
As of December 31, 2017
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Cash equivalents
$
261,981

 
$
262,000

 
$
1,500,227

 
$
1,500,000

Debt:
 
 
 
 
 
 
 
Mortgages payable
$
8,215,847

 
$
8,179,000

 
$
8,203,839

 
$
8,194,000

Senior unsecured notes
850,000

 
847,000

 
850,000

 
878,000

Unsecured term loan
750,000

 
750,000

 
750,000

 
750,000

Unsecured revolving credit facilities
80,000

 
80,000

 
—

 
—

Total
$
9,895,847

(1)  
$
9,856,000

 
$
9,803,839

(1)  
$
9,822,000

____________________
(1)
Excludes $59,226 and $74,352 of deferred financing costs, net and other as of December 31, 2018 and 2017 respectively.  

16 .
Stock-based Compensation

Vornado’s 2010 Omnibus Share Plan (the “Plan”) provides the Compensation Committee of Vornado’s Board of Trustees (the “Committee”) the ability to grant incentive and non-qualified Vornado stock options, restricted stock, Appreciation-Only Long-Term Incentive Plan Units ("AO LTIP Units"), restricted Operating Partnership units (the "OP Units") and out-performance plan awards (the "OPPs" to certain of our employees and officers. Under the Plan, awards may be granted up to a maximum of 6,000,000 Vornado shares, if all awards granted are Full Value Awards, as defined, and up to 12,000,000 Vornado shares, if all of the awards granted are Not Full Value Awards, as defined, plus shares in respect of awards forfeited after May 2010 that were issued pursuant to Vornado’s 2002 Omnibus Share Plan. Full Value Awards are awards of securities, such as Vornado restricted shares, that, if all vesting requirements are met, do not require the payment of an exercise price or strike price to acquire the securities. Not Full Value Awards are awards of securities, such as Vornado stock options, that do require the payment of an exercise price or strike price. This means, for example, if the Committee were to award only Vornado restricted shares, it could award up to 6,000,000 Vornado restricted shares. On the other hand, if the Committee were to award only Vornado stock options, it could award options to purchase up to 12,000,000 Vornado common shares (at the applicable exercise price). The Committee may also issue any combination of awards under the Plan, with reductions in availability of future awards made in accordance with the above limitations. As of December 31, 2018 , Vornado has approximately 1,848,000 shares available for future grants under the Plan, if all awards granted are Full Value Awards, as defined.

On February 8, 2019, the Committee approved an amendment to our previously issued OP Units and Vornado restricted stock agreements which provides that the time-based vesting requirement no longer applies to participants who have reached 65 years of age. However, the right to convert such OP units and to sell such Vornado restricted stock are still subject to time-based vesting.

144

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


16 .
Stock-based Compensation - continued

We account for all equity-based compensation in accordance with ASC 718. Below is a summary of our stock-based based compensation expense, a component of "general and administrative" expenses on our consolidated statements of income, during the years ended December 31, 2018 , 2017 and 2016 .

 (Amounts in thousands)
December 31,
 
2018
 
2017
 
2016
OP Units
$
17,763

 
$
20,630

 
$
21,136

OPPs
10,689

 
10,723

 
11,055

AO LTIP Units
2,113

 
—

 
—

Vornado stock options
587

 
747

 
937

Vornado restricted stock
570

 
729

 
851

 
$
31,722

 
$
32,829

 
$
33,979


Below is a summary of unrecognized compensation expense for the year ended December 31, 2018 .
(Amounts in thousands)
 
December 31, 2018
 
Weighted-Average
Remaining Contractual Term
OP Units
 
$
17,930

 
1.6
OPPs
 
3,798

 
1.8
AO LTIP Units
 
1,371

 
1.6
Vornado stock options
 
902

 
1.7
Vornado restricted stock
 
913

 
1.7
 
 
$
24,914

 
1.6

OPPs
 
OPPs are multi-year, performance-based equity compensation plans under which participants have the opportunity to earn a class of units (“OPP units”) of the Operating Partnership if, and only if, Vornado outperforms a predetermined total shareholder return (“TSR”) and/or outperform the market with respect to a relative TSR during the three -year performance period (the “Performance Period”) as described below. OPP units, if earned, become convertible into Class A units of the Operating Partnership (and ultimately into Vornado common shares) following vesting.
Awards under the 2017 OPP may be earned if Vornado (i) achieves a TSR level greater than 21% over the Performance Period (the “2017 Absolute Component”) and/or (ii) achieves a TSR above that of the SNL US Equity REIT Index over the three-year performance period (the “2017 Relative Component”).
Awards under the 2018 OPP may be earned if Vornado (i) achieves a TSR level greater than 21% over the Performance Period (the “2018 Absolute Component”, collectively with the 2017 Absolute Component, the “Absolute Components”) and/or (ii) achieves a TSR above a benchmark weighted index comprised of 70% of the SNL US Office REIT Index and 30% of the SNL US Retail Index over the Performance Period (the “2018 Relative Component”, collectively with the 2017 Relative Component, the “Relative Components”).
The value of awards under the Relative Components and Absolute Components will be calculated separately and will each be subject to an aggregate $35,000,000 maximum award cap for all participants. The two components will be added together to determine the aggregate award size, which shall also be subject to the aggregate $35,000,000 maximum award cap for all participants. In the event awards are earned under the Absolute Components, but Vornado underperforms the index by more than 200 basis points per annum over the Performance Period (600 basis points over the three years), the amount earned under the Absolute Components will be reduced (and potentially fully negated) based on the degree by which the index exceeds Vornado’s TSR. In the event 2017 awards are earned under the 2017 Relative Component, but Vornado fails to achieve a TSR of at least 3% per annum, award earned under the 2017 Relative Component will be reduced on a ratable sliding scale based on Vornado’s absolute TSR performance, with no awards being earned in the event Vornado’s TSR during the applicable measurement period is 0% or negative. In the event 2018 awards are earned under the 2018 Relative Component, but Vornado fails to achieve a TSR of at least 3% per annum, awards earned under the 2018 Relative Component will be reduced on a ratable sliding scale based on Vornado’s absolute TSR performance, with awards earned under the Relative Component being reduced by a maximum of 50% in the event Vornado’s TSR during the applicable measurement period is 0% or negative.

145

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


16 .
Stock-based Compensation - continued

OPPs - continued

If the designated performance objectives are achieved, awards under the 2017 and 2018 OPP will vest ratably in each of years three, four and five. In addition, all of Vornado’s Named Executive Officers (as defined in Vornado’s Proxy Statement filed on Schedule 14A with the Securities and Exchange Commission on April 6, 2018) are required to hold any earned and vested awards for one year following each such vesting date. Dividends on awards granted under the 2017 and 2018 OPP accrue during the Performance Period and are paid to participants if awards are ultimately earned based on the achievement of the designated performance objectives.

Below is the summary of the OPP units granted during the years December 31, 2018 , 2017 and 2016 .
Plan Year
 
Total Plan
Notional Amount
 
Percentage of Notional
Amount Granted
 
Grant Date
Fair Value (1)
 
OPP Units Earned
2018
 
$
35,000,000

 
78.2
%
 
$
10,300,000

 
To be determined in 2021
2017
 
35,000,000

 
86.6
%
 
10,800,000

 
To be determined in 2020
2016
 
40,000,000

 
86.7
%
 
11,800,000

 
Not earned
________________________________________
(1)
During the years ended December 31, 2018, 2017 and 2016, $8,040,000 , $7,558,000 , and $7,250,000 , respectively, was immediately expensed on the respective grant date due to acceleration of vesting for employees who are retirement eligible (have reached age 65 or age 60 with at least 20 years of service). The remaining $10,052,000 , in aggregate, is being amortized into expense over a 5 -year period from the date of each grant, using a graded vesting attribution model.

Vornado Stock Options     

Vornado stock options are granted at an exercise price equal to the average of the high and low market price of Vornado’s common shares on the NYSE on the date of grant, generally vest over 4 years and expire 10 years from the date of grant. Compensation expense related to Vornado stock option awards is recognized on a straight-line basis over the vesting period.
 
Below is a summary of Vornado’s stock option activity for the year ended December 31, 2018 .
 
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
Outstanding at January 1, 2018
2,823,900

 
$
46.62

 
 
 
 
Granted
33,897

 
72.40

 
 
 
 
Exercised
(620,157
)
 
28.52

 
 
 
 
Cancelled or expired
(7,347
)
 
75.25

 
 
 
 
Outstanding at December 31, 2018
2,230,293

 
$
51.95

 
1.6
 
$
26,464,877

Options vested and expected to vest at December 31, 2018
2,240,526

 
$
52.13

 
1.6
 
$
26,472,765

Options exercisable at December 31, 2018
2,162,843

 
$
51.15

 
1.4
 
$
26,464,877

The fair value of each option grant is estimated on the date of grant using an option-pricing model with the following weighted-average assumptions for grants in the years ended December 31, 2018 , 2017 and 2016 .
 
December 31,
 
2018
 
2017
 
2016
Expected volatility
35%
 
35%
 
35%
Expected life
5.0 years
 
5.0 years
 
5.0 years
Risk free interest rate
2.25%
 
1.95%
 
1.76%
Expected dividend yield
2.9%
 
3.0%
 
3.2%
The weighted average grant date fair value of options granted during the years ended December 31, 2018 , 2017 and 2016 was $18.42 , $25.84 and $22.14 , respectively. Cash received from option exercises for the years ended December 31, 2018 , 2017 and 2016 was $5,927,000 , $28,253,000 and $6,825,000 , respectively. The total intrinsic value of options exercised during the years ended December 31, 2018 , 2017 and 2016 was $25,820,000 , $9,178,000 and $5,519,000 , respectively.

146

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


16 . Stock-based Compensation – continued

AO LTIP Units

AO LTIP Units are a class of partnership interests in the Operating Partnership that are intended to qualify as “profits interests” for federal income tax purposes and generally only allow the recipient to realize value to the extent the fair market value of a Vornado common share exceeds the threshold level set at the time the AO LTIP Units are granted, subject to any vesting conditions applicable to the award. The threshold level is intended to be equal to 100% of the then fair market value of a Vornado common share on the date of grant.  The value of vested AO LTIP Units is realized through conversion of the AO LTIP Units into Class A Operating Partnership units.  The number of Class A Units into which vested AO LTIP Units may be converted is determined based on the quotient of (i) the excess of the conversion value on the conversion date over the threshold value designated at the time the AO LTIP Unit was granted, divided by (ii) the conversion value on the conversion date.  The “conversion value” is the value of a Vornado common share on the conversion date multiplied by the Conversion Factor as defined in the Partnership Agreement, which is currently one.  AO LTIP Units have a term of 10 years from the grant date. Each holder will generally receive special income allocations in respect of an AO LTIP Unit equal to 10% (or such other percentage specified in the applicable award agreement) of the income allocated in respect of a Class A Unit.  Upon conversion of AO LTIP Units to Class A Units, holders will be entitled to receive in respect of each such AO LTIP Unit, on a per unit basis, a special distribution equal to 10% (or such other percentage specified in the applicable award agreement) of the distributions received by a holder of an equivalent number of Class A Units during the period from the grant date of the AO LTIP Units through the date of conversion.

Below is a summary of AO LTIP Units activity for the year ended December 31, 2018 . 

 
 
Units
 
Weighted-Average
Grant-Date
Fair Value
Granted at January 12, 2018
 
185,046

 
$
72.40

Cancelled or expired
 
(6,200
)
 
72.40

Outstanding at December 31, 2018
 
178,846

 
72.40

 
AO LTIP Units granted during the year ended December 31, 2018 had a fair value of $3,484,000 . The fair value of each AO LTIP Units granted is estimated on the date of grant using an option-pricing model with the following weighted-average assumptions for grants in the year ended December 31, 2018 .
 
December 31, 2018
Expected volatility
35%
Expected life
5.0 years
Risk free interest rate
2.25%
Expected dividend yield
2.9%
 


147

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


16 .
Stock-based Compensation – continued
 
OP Units
 
OP Units are granted at the average of the high and low market price of Vornado’s common shares on the NYSE on the date of grant, vest ratably over four years and are subject to a taxable book-up event, as defined. Compensation expense related to OP Units is recognized ratably over the vesting period using a graded vesting attribution model. Distributions paid on unvested OP Units are charged to “net income attributable to noncontrolling interests in the Operating Partnership” on Vornado’s consolidated statements of income and to “preferred unit distributions” on the Operating Partnership’s consolidated statements of income and amounted to $2,559,000 , $2,310,000 and $1,968,000 in the years ended December 31, 2018, 2017 and 2016, respectively.   

Below is a summary of restricted OP unit activity for the year ended December 31, 2018 .
 
Unvested Units
 
Units
 
Weighted-Average
Grant-Date
Fair Value
Unvested at January 1, 2018
 
628,962

 
$
76.13

Granted
 
267,203

 
65.36

Vested
 
(246,670
)
 
73.12

Cancelled or expired
 
(7,651
)
 
76.62

Unvested at December 31, 2018
 
641,844

 
72.79

 
OP Units granted in 2018 , 2017 and 2016 had a fair value of $17,463,000 , $24,927,000 and $18,492,000 , respectively. The fair value of OP Units that vested during the years ended December 31, 2018 , 2017 and 2016 was $18,037,000 , $20,903,000 and $22,701,000 , respectively.

  Vornado Restricted Stock
 
Vornado restricted stock awards are granted at the average of the high and low market price of Vornado’s common shares on the NYSE on the date of grant and generally vest over four years. Compensation expense related to Vornado’s restricted stock awards is recognized on a straight-line basis over the vesting period. Dividends paid on unvested Vornado restricted stock are charged directly to retained earnings and amounted to $44,000 , $46,000 and $56,000 for the years ended December 31, 2018 , 2017 and 2016 , respectively.
 
Below is a summary of Vornado’s restricted stock activity for the year ended December 31, 2018 .
Unvested Shares
 
Shares
 
Weighted-Average
Grant-Date
Fair Value
Unvested at January 1, 2018
 
14,845

 
$
81.05

Granted
 
8,602

 
72.40

Vested
 
(6,247
)
 
78.75

Cancelled or expired
 
(514
)
 
78.38

Unvested at December 31, 2018
 
16,686

 
77.54

 
Vornado restricted stock awards granted in 2018 , 2017 and 2016 had a fair value of $623,000 , $601,000 and $927,000 , respectively. The fair value of restricted stock that vested during the years ended December 31, 2018 , 2017 and 2016 was $492,000 , $645,000 and $641,000 , respectively.

148

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


17 .
Interest and Other Investment Income, Net

The following table sets forth the details of our interest and other investment income, net:
(Amounts in thousands)
For the Year Ended December 31,
 
2018
 
2017
 
2016
(Decrease) increase in fair value of marketable securities:


 


 


Lexington Realty Trust
$
(26,596
)
 
$
—

 
$
—

Other
143

 
—

 
—

 
(26,453
)
 
—

 
—

Interest on cash and cash equivalents and restricted cash
15,827

 
8,171

 
3,622

Dividends on marketable securities
13,339

 
13,276

 
13,135

Interest on loans receivable (1)
10,298

 
4,352

 
3,890

Other, net
4,046

 
5,062

 
3,688

 
$
17,057

 
$
30,861

 
$
24,335

________________________________________
(1)
Includes $6,707 of profit participation in connection with an investment in a mezzanine loan which was previously repaid to us for the year ended December 31, 2018.

18 .
Interest and Debt Expense

The following table sets forth the details of interest and debt expense. 
(Amounts in thousands)
For the Year Ended December 31,
 
2018
 
2017
 
2016
Interest expense
$
389,136

 
$
359,819

 
$
328,398

Amortization of deferred financing costs
31,979

 
34,066

 
32,185

Capitalized interest and debt expense
(73,166
)
 
(48,231
)
 
(30,343
)
 
$
347,949

 
$
345,654

 
$
330,240



149

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


19 .
Income Per Share/Income Per Class A Unit

Vornado Realty Trust
 
The following table provides a reconciliation of both net income attributable to Vornado and the number of common shares used in the computation of (i) basic income per common share - which includes the weighted average number of common shares outstanding without regard to dilutive potential common shares, and (ii) diluted income per common share - which includes the weighted average common shares and dilutive share equivalents. Dilutive share equivalents may include our Series A convertible preferred shares, employee stock options, restricted stock awards, OP Units, AO LTIP Units and OPPs.
(Amounts in thousands, except per share amounts)
Year Ended December 31,
 
2018
 
2017
 
2016
Numerator:
 
 
 
 
 
Income from continuing operations, net of income attributable to noncontrolling interests
$
449,356

 
$
239,824

 
$
526,686

Income (loss) from discontinued operations, net of income attributable to noncontrolling interests
598

 
(12,408
)
 
380,231

Net income attributable to Vornado
449,954

 
227,416

 
906,917

Preferred share dividends
(50,636
)
 
(65,399
)
 
(75,903
)
Preferred share issuance costs
(14,486
)
 
—

 
(7,408
)
Net income attributable to common shareholders
384,832

 
162,017

 
823,606

Earnings allocated to unvested participating securities
(44
)
 
(46
)
 
(96
)
Numerator for basic income per share
384,788

 
161,971

 
823,510

Impact of assumed conversions:
 
 
 
 
 
Earnings allocated to Out-Performance Plan units
174

 
230

 
806

Convertible preferred share dividends
62

 
—

 
86

Numerator for diluted income per share
$
385,024

 
$
162,201

 
$
824,402

 
 
 
 
 
 
Denominator:
 
 
 
 
 
Denominator for basic income per share – weighted average shares 
190,219

 
189,526

 
188,837

Effect of dilutive securities (1) :
 
 
 
 
 
Employee stock options and restricted share awards
933

 
1,448

 
1,064

Out-Performance Plan units
101

 
284

 
230

Convertible preferred shares
37

 
—

 
42

Denominator for diluted income per share – weighted average shares and assumed conversions
191,290

 
191,258

 
190,173

 
 
 
 
 
 
INCOME PER COMMON SHARE – BASIC:
 
 
 
 
 
Income from continuing operations, net
$
2.02

 
$
0.92

 
$
2.35

Income (loss) from discontinued operations, net
—

 
(0.07
)
 
2.01

Net income per common share
$
2.02

 
$
0.85

 
$
4.36

 
 
 
 
 
 
INCOME PER COMMON SHARE – DILUTED:
 
 
 
 
 
Income from continuing operations, net
$
2.01

 
$
0.91

 
$
2.34

Income (loss) from discontinued operations, net
—

 
(0.06
)
 
2.00

Net income per common share
$
2.01

 
$
0.85

 
$
4.34

________________________________________
(1)
The effect of dilutive securities in the years ended December 31, 2018 , 2017 and 2016 excludes an aggregate of 12,232 , 12,165 and 12,022 weighted average common share equivalents, respectively, as their effect was anti-dilutive.
 

150

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


19 .
Income Per Share/Income Per Class A Unit – continued

Vornado Realty L.P.
 
The following table provides a reconciliation of both net income attributable to Vornado Realty L.P. and the number of Class A units used in the computation of (i) basic income per Class A unit - which includes the weighted average number of Class A units outstanding without regard to dilutive potential Class A units, and (ii) diluted income per Class A unit - which includes the weighted average Class A units and dilutive unit equivalents. Dilutive unit equivalents may include our Series A convertible preferred units, Vornado stock options, Vornado restricted stock awards, OP Units, AO LTIP Units and OPPs.  
(Amounts in thousands, except per unit amounts)
Year Ended December 31,
 
2018
 
2017
 
2016
Numerator:
 
 
 
 
 
Income from continuing operations, net of income attributable to noncontrolling interests
$
474,988

 
$
251,554

 
$
555,659

Income (loss) from discontinued operations
638

 
(13,228
)
 
404,912

Net income attributable to Vornado Realty L.P.
475,626

 
238,326

 
960,571

Preferred unit distributions
(50,830
)
 
(65,593
)
 
(76,097
)
Preferred unit issuance costs
(14,486
)
 
—

 
(7,408
)
Net income attributable to Class A unitholders
410,310

 
172,733

 
877,066

Earnings allocated to unvested participating securities
(2,973
)
 
(3,232
)
 
(4,177
)
Numerator for basic income per Class A unit
407,337

 
169,501

 
872,889

Impact of assumed conversions:
 
 
 
 
 
Convertible preferred unit distributions
62

 
—

 
86

Numerator for diluted income per Class A unit
$
407,399

 
$
169,501

 
$
872,975

 
 
 
 
 
 
Denominator:
 
 
 
 
 
Denominator for basic income per Class A unit – weighted average units
202,068

 
201,214

 
200,350

Effect of dilutive securities (1) :
 
 
 
 
 
Vornado stock options and restricted unit awards
1,307

 
2,086

 
1,625

Convertible preferred units
37

 
—

 
42

Denominator for diluted income per Class A unit – weighted average units and assumed conversions
203,412

 
203,300

 
202,017

 
 
 
 
 
 
INCOME PER CLASS A UNIT – BASIC:
 
 
 
 
 
Income from continuing operations, net
$
2.01

 
$
0.91

 
$
2.34

Income (loss) from discontinued operations, net
0.01

 
(0.07
)
 
2.02

Net income per Class A unit
2.02

 
0.84

 
4.36

 
 
 
 
 
 
INCOME PER CLASS A UNIT – DILUTED:
 
 
 
 
 
Income from continuing operations, net
$
2.00

 
$
0.90

 
$
2.32

Income (loss) from discontinued operations, net
—

 
(0.07
)
 
2.00

Net income per Class A unit
$
2.00

 
$
0.83

 
$
4.32

________________________________________
(1)
The effect of dilutive securities in the years ended December 31, 2018 , 2017 and 2016 excludes an aggregate of 110 , 124 and 178 weighted average Class A unit equivalents, respectively, as their effect was anti-dilutive.

151

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


20 .
Leases

As lessor:
 
We lease space to tenants under operating leases. Most of the leases provide for the payment of fixed base rentals payable monthly in advance. Office building leases generally require the tenants to reimburse us for operating costs and real estate taxes above their base year costs. Certain leases provide for pass-through to tenants for the tenant’s share of real estate taxes, insurance and maintenance. Certain leases also provide for the payment by the lessee of additional rent based on a percentage of the tenants’ sales. As of December 31, 2018 , future base rental revenue under non-cancelable operating leases, excluding rents for leases with an original term of less than one year and rents resulting from the exercise of renewal options, are as follows:
 
(Amounts in thousands)
 
 
 
Year Ending December 31:
 
 
 
2019
$
1,547,162

 
 
2020
1,510,097

 
 
2021
1,465,024

 
 
2022
1,407,615

 
 
2023
1,269,141

 
 
Thereafter
5,832,467

 
 
These amounts do not include percentage rentals based on tenants’ sales. These percentage rents approximated $4,746,000 , $4,062,000 and $3,590,000 , for the years ended December 31, 2018 , 2017 and 2016 , respectively.
 
None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2018 , 2017 and 2016 .
 
As lessee:          
We are a tenant under operating leases for certain properties. These leases have terms that expire during the next ninety-nine years. Future minimum lease payments under operating leases at December 31, 2018 are as follows:
 
 
(Amounts in thousands)
 
 
 
Year Ending December 31:
 
 
 
2019
$
46,147

 
 
2020
45,258

 
 
2021
42,600

 
 
2022
43,840

 
 
2023
44,747

 
 
Thereafter
1,612,627

 
 
Rent expense, a component of “operating" expenses on our consolidated statements of income, was $41,063,000 , $40,219,000 and $40,170,000 for the years ended December 31, 2018 , 2017 and 2016 , respectively.
 

152

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


21 .
Multiemployer Benefit Plans

Our subsidiaries make contributions to certain multiemployer defined benefit plans (“Multiemployer Pension Plans”) and health plans (“Multiemployer Health Plans”) for our union represented employees, pursuant to the respective collective bargaining agreements.
 
Multiemployer Pension Plans
 
Multiemployer Pension Plans differ from single-employer pension plans in that (i) contributions to multiemployer plans may be used to provide benefits to employees of other participating employers and (ii) if other participating employers fail to make their contributions, each of our participating subsidiaries may be required to bear its then pro rata share of unfunded obligations. If a participating subsidiary withdraws from a plan in which it participates, it may be subject to a withdrawal liability. As of December 31, 2018 , our subsidiaries’ participation in these plans was not significant to our consolidated financial statements.
 
In the years ended December 31, 2018 , 2017 and 2016 , we contributed $10,377,000 , $10,113,000 and $9,479,000 , respectively, towards Multiemployer Pension Plans, which is included as a component of “operating” expenses on our consolidated statements of income. Our subsidiaries’ contributions did not represent more than 5% of total employer contributions in any of these plans for the years ended December 31, 2018 , 2017 and 2016 .
 
Multiemployer Health Plans
 
Multiemployer Health Plans in which our subsidiaries participate provide health benefits to eligible active and retired employees. In the years ended December 31, 2018 , 2017 and 2016 , our subsidiaries contributed $30,354,000 , $29,549,000 and $32,998,000 , respectively, towards these plans, which is included as a component of “operating” expenses on our consolidated statements of income.
 
22 .
Commitments and Contingencies

Insurance
 
We maintain general liability insurance with limits of $300,000,000 per occurrence and per property, and all risk property and rental value insurance with limits of $2.0 billion per occurrence, with sub-limits for certain perils such as flood and earthquake. Our California properties have earthquake insurance with coverage of $260,000,000 per occurrence and in the aggregate, subject to a deductible in the amount of 5% of the value of the affected property. We maintain coverage for terrorism acts with limits of $4.0 billion per occurrence and in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear, biological, chemical and radiological (“NBCR”) terrorism events, as defined by Terrorism Risk Insurance Program Reauthorization Act of 2015, which expires in December 2020.
 
Penn Plaza Insurance Company, LLC (“PPIC”), our wholly owned consolidated subsidiary, acts as a re-insurer with respect to a portion of all risk property and rental value insurance and a portion of our earthquake insurance coverage, and as a direct insurer for coverage for acts of terrorism including NBCR acts. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to PPIC. For NBCR acts, PPIC is responsible for a deductible of $1,453,000 and 19% of the balance of a covered loss and the Federal government is responsible for the remaining portion of a covered loss. We are ultimately responsible for any loss incurred by PPIC.
 
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism and other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for uninsured losses and for deductibles and losses in excess of our insurance coverage, which could be material.
 
Our debt instruments, consisting of mortgage loans secured by our properties, senior unsecured notes and revolving credit agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain it could adversely affect our ability to finance or refinance our properties and expand our portfolio.
 

153

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


22 .
Commitments and Contingencies – continued
 
Other Commitments and Contingencies
 
We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not currently expected to have a material adverse effect on our financial position, results of operations or cash flows.
 
Each of our properties has been subjected to varying degrees of environmental assessment at various times. The environmental assessments did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.
 
Our mortgage loans are non-recourse to us, except for the mortgage loan secured by 7 West 34th Street, which we guaranteed and therefore is part of our tax basis. In certain cases we have provided guarantees or master leased tenant space. These guarantees and master leases terminate either upon the satisfaction of specified circumstances or repayment of the underlying loans. As of December 31, 2018 , the aggregate dollar amount of these guarantees and master leases is approximately $660,000,000 .
 
As of December 31, 2018 , $13,337,000 of letters of credit were outstanding under one of our unsecured revolving credit facilities. Our unsecured revolving credit facilities contain financial covenants that require us to maintain minimum interest coverage and maximum debt to market capitalization ratios, and provide for higher interest rates in the event of a decline in our ratings below Baa3/BBB. Our unsecured revolving credit facilities also contain customary conditions precedent to borrowing, including representations and warranties, and also contain customary events of default that could give rise to accelerated repayment, including such items as failure to pay interest or principal.

A joint venture in which we own a 95.0% ownership interest was designated by ESD, an entity of New York State, to develop the Farley Office and Retail Building (see Note 4 - Acquisitions ). The joint venture entered into a development agreement with ESD and a design-build contract with Skanska Moynihan Train Hall Builders. Under the development agreement with ESD, the joint venture is obligated to build the Moynihan Train Hall, with Vornado and Related each guaranteeing the joint venture’s obligations. Under the design-build agreement, Skanska Moynihan Train Hall Builders is obligated to fulfill all of the joint venture’s obligations. The obligations of Skanska Moynihan Train Hall Builders have been bonded by Skanska USA and bear a full guaranty from Skanska AB.

As of December 31, 2018 , we expect to fund additional capital to certain of our partially owned entities aggregating approximately $18,000,000 .
 
As of December 31, 2018 , we have construction commitments aggregating approximately $404,000,000 .

154

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


23 .
Related Party Transactions

Alexander’s, Inc.
 
We own 32.4% of Alexander’s. Steven Roth, the Chairman of Vornado’s Board of Trustee’s and its Chief Executive Officer, is also the Chairman of the Board of Directors and Chief Executive Officer of Alexander’s. We provide various services to Alexander’s in accordance with management, development and leasing agreements. These agreements are described in Note 7 - Investments in Partially Owned Entities .
 
Interstate Properties (“Interstate”)
 
Interstate is a general partnership in which Mr. Roth is the managing general partner. David Mandelbaum and Russell B. Wight, Jr., Trustees of Vornado and Directors of Alexander’s, respectively, are Interstate’s two other general partners. As of December 31, 2018 , Interstate and its partners beneficially owned an aggregate of approximately 7.1% of the common shares of beneficial interest of Vornado and 26.2% of Alexander’s common stock.
 
We manage and lease the real estate assets of Interstate pursuant to a management agreement for which we receive an annual fee equal to 4% of annual base rent and percentage rent. The management agreement has a term of one year and is automatically renewable unless terminated by either of the parties on 60 days’ notice at the end of the term. We believe, based upon comparable fees charged by other real estate companies, that the management agreement terms are fair to us. We earned $453,000 , $501,000 , and $521,000 of management fees under the agreement for the years ended December 31, 2018 , 2017 and 2016 , respectively.

Urban Edge Properties
 
We own 4.5% of UE. In 2018, 2017 and 2016, we provided UE with information technology support. UE is providing us with leasing and property management services for (i) certain small retail properties that we plan to sell and (ii) our affiliate, Alexander's, Rego retail assets. Fees paid to UE for servicing the retail assets of Alexander’s are similar to the fees that we are receiving from Alexander’s . 


155

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


24 .
Summary of Quarterly Results (Unaudited)

Vornado Realty Trust
 
The following summary represents the results of operations for each quarter in 2018 and 2017 :
 
(Amounts in thousands, except per share amounts)
 
 
Net Income (Loss)
Attributable
to Common
Shareholders (1)
 
Net Income (Loss) Per
Common Share (2)
 
Revenues
 
 
Basic
 
Diluted
2018
 
 
 
 
 
 
 
December 31
$
543,417

 
$
100,494

 
$
0.53

 
$
0.53

September 30
542,048

 
190,645

 
1.00

 
1.00

June 30
541,818

 
111,534

 
0.59

 
0.58

March 31
536,437

 
(17,841
)
 
(0.09
)
 
(0.09
)
 
 
 
 
 
 
 
 
2017
 
 
 
 
 
 
 
December 31
$
536,226

 
$
27,319

 
$
0.14

 
$
0.14

September 30
528,755

 
(29,026
)
 
(0.15
)
 
(0.15
)
June 30
511,087

 
115,972

 
0.61

 
0.61

March 31
508,058

 
47,752

 
0.25

 
0.25

____________________
(1)
Fluctuations among quarters resulted primarily from non-cash impairment losses, net gains on extinguishment of debt, net gains on sale of real estate and other items and from seasonality of business operations.
(2)
The total for the year may differ from the sum of the quarters as a result of weighting.

Vornado Realty L.P.
 
The following summary represents the results of operations for each quarter in 2018 and 2017 :
 
(Amounts in thousands, except per unit amounts)
 
 
Net Income (Loss)
Attributable
to Class A
Unitholders (1)
 
Net Income (Loss)
Per Class A Unit (2)
 
Revenues
 
 
Basic
 
Diluted
2018
 
 
 
 
 
 
 
December 31
$
543,417

 
$
107,125

 
$
0.53

 
$
0.52

September 30
542,048

 
203,268

 
1.00

 
0.99

June 30
541,818

 
118,931

 
0.58

 
0.58

March 31
536,437

 
(19,014
)
 
(0.10
)
 
(0.10
)
 
 
 
 
 
 
 
 
2017
 
 
 
 
 
 
 
December 31
$
536,226

 
$
29,123

 
$
0.14

 
$
0.14

September 30
528,755

 
(30,952
)
 
(0.16
)
 
(0.16
)
June 30
511,087

 
123,630

 
0.61

 
0.61

March 31
508,058

 
50,932

 
0.25

 
0.25

____________________
(1)
Fluctuations among quarters resulted primarily from non-cash impairment losses, net gains on extinguishment of debt, net gains on sale of real estate and other items and from seasonality of business operations.
(2)
The total for the year may differ from the sum of the quarters as a result of weighting.


156

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


25 . Segment Information

Net Operating Income ("NOI") represents total revenues less operating expenses. We consider NOI to be the primary non-GAAP financial measure for making decisions and assessing the unlevered performance of our segments as it relates to the total return on assets as opposed to the levered return on equity. As properties are bought and sold based on NOI, we utilize this measure to make investment decisions as well as to compare the performance of our assets to that of our peers. NOI should not be considered a substitute for net income. NOI may not be comparable to similarly titled measures employed by other companies.

Below is a reconciliation of net income to NOI at share and NOI at share - cash basis for the years ended December 31, 2018 , 2017 and 2016 .
(Amounts in thousands)
For the Year Ended December 31,
 
2018
 
2017
 
2016
Net income
$
422,603

 
$
264,128

 
$
981,922

 
 
 
 
 
 
Deduct:
 
 
 
 
 
Income from partially owned entities
(9,149
)
 
(15,200
)
 
(168,948
)
Loss (income) from real estate fund investments
89,231

 
(3,240
)
 
23,602

Interest and other investment income, net
(17,057
)
 
(30,861
)
 
(24,335
)
Net gains on disposition of wholly owned and partially owned assets
(246,031
)
 
(501
)
 
(160,433
)
Purchase price fair value adjustment
(44,060
)
 
—

 
—

(Income) loss from discontinued operations
(638
)
 
13,228

 
(404,912
)
NOI attributable to noncontrolling interests in consolidated subsidiaries
(71,186
)
 
(65,311
)
 
(66,182
)
 
 
 
 
 
 
Add:
 
 
 
 
 
Depreciation and amortization expense
446,570

 
429,389

 
421,023

General and administrative expense
141,871

 
150,782

 
143,643

Transaction related costs, impairment loss and other
31,320

 
1,776

 
9,451

NOI from partially owned entities
253,564

 
269,164

 
271,114

Interest and debt expense
347,949

 
345,654

 
330,240

Income tax expense
37,633

 
42,375

 
7,923

NOI at share
1,382,620

 
1,401,383

 
1,364,108

Non cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other
(44,704
)
 
(86,842
)
 
(170,477
)
NOI at share - cash basis
$
1,337,916

 
$
1,314,541

 
$
1,193,631


157

VORNADO REALTY TRUST AND VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


25 . Segment Information - continued

Below is a summary of NOI at share and selected balance sheet data by segment for the years ended December 31, 2018 , 2017 and 2016 .

(Amounts in thousands)
For the Year Ended December 31, 2018
 
Total
 
New York
 
Other
Total revenues
$
2,163,720

 
$
1,836,036

 
$
327,684

Operating expenses
963,478

 
806,464

 
157,014

NOI - consolidated
1,200,242

 
1,029,572

 
170,670

Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries
(71,186
)
 
(48,490
)
 
(22,696
)
Add: Our share of NOI from partially owned entities
253,564

 
195,908

 
57,656

NOI at share
1,382,620

 
1,176,990

 
205,630

Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other
(44,704
)
 
(45,427
)
 
723

NOI at share - cash basis
$
1,337,916

 
$
1,131,563

 
$
206,353

 
 
 
 
 
 
Balance Sheet Data:
 
 
 
 
 
Real estate, at cost
$
16,237,883

 
$
12,351,943

 
$
3,885,940

Investments in partially owned entities
858,113

 
719,456

 
138,657

Total assets
17,180,794

 
14,628,712

 
2,552,082


(Amounts in thousands)
For the Year Ended December 31, 2017
 
Total
 
New York
 
Other
Total revenues
$
2,084,126

 
$
1,779,307

 
$
304,819

Operating expenses
886,596

 
756,670

 
129,926

NOI - consolidated
1,197,530

 
1,022,637

 
174,893

Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries
(65,311
)
 
(45,899
)
 
(19,412
)
Add: Our share of NOI from partially owned entities
269,164

 
189,327

 
79,837

NOI at share
1,401,383

 
1,166,065

 
235,318

Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other
(86,842
)
 
(79,202
)
 
(7,640
)
NOI at share - cash basis
$
1,314,541

 
$
1,086,863

 
$
227,678

 
 
 
 
 
 
Balance Sheet Data:
 
 
 
 
 
Real estate, at cost
$
14,756,295

 
$
11,025,092

 
$
3,731,203

Investments in partially owned entities
1,056,829

 
861,430

 
195,399

Total assets
17,397,934

 
13,780,817

 
3,617,117


(Amounts in thousands)
For the Year Ended December 31, 2016
 
Total
 
New York
 
Other
Total revenues
$
2,003,742

 
$
1,713,374

 
$
290,368

Operating expenses
844,566

 
716,754

 
127,812

NOI - consolidated
1,159,176

 
996,620

 
162,556

Deduct: NOI attributable to noncontrolling interests in consolidated subsidiaries
(66,182
)
 
(47,480
)
 
(18,702
)
Add: Our share of NOI from partially owned entities
271,114

 
159,386

 
111,728

NOI at share
1,364,108

 
1,108,526

 
255,582

Non-cash adjustments for straight-line rents, amortization of acquired below-market leases, net and other
(170,477
)
 
(143,239
)
 
(27,238
)
NOI at share - cash basis
$
1,193,631

 
$
965,287

 
$
228,344



158


ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

ITEM 9A.     CONTROLS AND PROCEDURES

Vornado Realty Trust
 
Disclosure Controls and Procedures: Our management, with the participation of Vornado’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a‑15 (e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, Vornado’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.
 
Internal Control Over Financial Reporting: There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) during the fourth quarter of the fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Management’s Report on Internal Control over Financial Reporting
 
Management of Vornado Realty Trust, together with its consolidated subsidiaries (the “Company”), is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of Vornado’s principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.
 
As of December 31, 2018 , management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that our internal control over financial reporting as of December 31, 2018 was effective.
 
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures are being made only in accordance with authorizations of management and our trustees; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.
 
The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing on the following page, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2018 .


159

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Shareholders and Board of Trustees
Vornado Realty Trust
New York, New York
 
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Vornado Realty Trust and subsidiaries (the “Company”) as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013 ) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018, of the Company and our report dated February 11, 2019, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey
February 11, 2019




160


ITEM 9A. - CONTINUED

Vornado Realty L.P.
 
Disclosure Controls and Procedures: Vornado Realty L.P.’s management, with the participation of Vornado’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a‑15 (e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, Vornado’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.
 
Internal Control Over Financial Reporting: There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) during the fourth quarter of the fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Management’s Report on Internal Control over Financial Reporting
 
Management of Vornado Realty Trust, sole general partner of Vornado Realty L.P., together with Vornado Realty L.P.’s consolidated subsidiaries (the “Company”), is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of Vornado’s principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.
 
As of December 31, 2018 , management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that our internal control over financial reporting as of December 31, 2018 was effective.
 
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures are being made only in accordance with authorizations of management and Vornado’s trustees; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.
 
The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing on the following page, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2018 .


161

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 
Partners
Vornado Realty L.P.
New York, New York
 
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Vornado Realty L.P. and subsidiaries (the “Partnership”) as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018, of the Partnership and our report dated February 11, 2019, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey
February 11, 2019




162


ITEM 9B. 
OTHER INFORMATION
 None.

PART III

ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information relating to trustees of Vornado, the Operating Partnership’s sole general partner, including its audit committee and audit committee financial expert, will be contained in Vornado’s definitive Proxy Statement involving the election of Vornado’s trustees which Vornado will file with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 not later than 120 days after December 31, 2018 , and such information is incorporated herein by reference. Also incorporated herein by reference is the information under the caption “16(a) Beneficial Ownership Reporting Compliance” of the Proxy Statement.
 
The following is a list of the names, ages, principal occupations and positions with Vornado of the executive officers of Vornado and the positions held by such officers during the past five years. All executive officers of Vornado have terms of office that run until the next succeeding meeting of the Board of Trustees of Vornado following the Annual Meeting of Vornado’s Shareholders unless they are removed sooner by Vornado’s Board.
 
Name
 
Age
 
PRINCIPAL OCCUPATION, POSITION AND OFFICE
(Current and during past five years with Vornado unless otherwise stated)
 
Steven Roth
 
77
 
Chairman of the Board; Chief Executive Officer since April 2013 and from May 1989 to May 2009; Managing General Partner of Interstate Properties, an owner of shopping centers and an investor in securities and partnerships; Chief Executive Officer of Alexander’s, Inc. since March 1995, a Director since 1989, and Chairman since May 2004.
 
David R. Greenbaum
 
67
 
President of the New York Division since April 1997 (date of our acquisition); President of Mendik Realty (the predecessor to the New York Office division) from 1990 until April 1997.
 
Michael J. Franco
 
50
 
Executive Vice President - Chief Investment Officer since April 2015; Executive Vice President - Head of Acquisitions and Capital Markets since November 2010; Managing Director (2003-2010) and Executive Director (2001-2003) of the Real Estate Investing Group of Morgan Stanley.
 
Joseph Macnow
 
73
 
Executive Vice President - Chief Financial Officer and Chief Administrative Officer since February 2017; Executive Vice President - Finance and Chief Administrative Officer from June 2013 to February 2017; Executive Vice President - Finance and Administration from January 1998 to June 2013, and Chief Financial Officer from March 2001 to June 2013; Treasurer since May 2017, and Executive Vice President and Chief Financial Officer from August 1995 to April 2017 of Alexander's Inc.

Vornado, the Operating Partnership’s sole general partner, has adopted a Code of Business Conduct and Ethics that applies to, among others, the above executive officers, and its principal accounting officer, Matthew Iocco, Vornado's Executive Vice President - Chief Accounting Officer. Mr. Iocco, 48 years of age, has been the Executive Vice President - Chief Accounting Officer of Vornado since May 2015 and Chief Financial Officer of Alexanders, Inc. since April 2017. From May 2012 to May 2015, Mr. Iocco was the Senior Vice President - Chief Accounting Officer of Vornado. This Code is available on Vornado’s website at www.vno.com.


163


ITEM 11. 
EXECUTIVE COMPENSATION
Information relating to Vornado’s executive officer and trustee compensation will be contained in Vornado’s Proxy Statement referred to above in Item 10, “Directors, Executive Officers and Corporate Governance,” and such information is incorporated herein by reference.

ITEM 12. 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information relating to security ownership of certain beneficial owners and management and related stockholder matters will be contained in Vornado’s Proxy Statement referred to in Item 10, “Directors, Executive Officers and Corporate Governance,” and such information is incorporated herein by reference.
 
Equity compensation plan information
The following table provides information as of December 31, 2018 regarding Vornado’s equity compensation plans.
 
Plan Category
 
Number of securities to be
issued upon exercise of
outstanding options, warrants and rights
 
Weighted-average
exercise price of
outstanding options, warrants and rights
 
Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in the second column)
 
Equity compensation plans approved by security holders
 
4,567,784

(1)  
$
51.95

 
1,847,679

(2)  
Equity compensation awards not approved by security holders
 
—

 
—

 
—

 
Total
 
4,567,784

 
$
51.95

 
1,847,679

 
________________________________________
(1)
Includes an aggregate of 2,337,491 shares/units, comprised of (i) 16,686 restricted Vornado common shares, (ii) 641,844 restricted Operating Partnership units, (iii) 178,846 Appreciation-Only Long-Term Incentive Plan units and (iv) 1,500,115 Out-Performance Plan units, which do not have an exercise price.         
(2)
Based on awards being granted as "Full Value Awards," as defined. If we were to grant "Not Full Value Awards," as defined, the number of securities available for future grants would be 3,695,358.


ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information relating to certain relationships and related transactions, and director independence will be contained in Vornado’s Proxy Statement referred to in Item 10, “Directors, Executive Officers and Corporate Governance,” and such information is incorporated herein by reference.

ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Information relating to principal accounting fees and services will be contained in Vornado’s Proxy Statement referred to in Item 10, “Directors, Executive Officers and Corporate Governance,” under the caption “Ratification of The Appointment of Independent Accounting Firm” and such information is incorporated herein by reference.

164


PART IV
 
Item 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this report:
 
1.
The consolidated financial statements are set forth in Item 8 of this Annual Report on Form 10-K.
 
The following financial statement schedules should be read in conjunction with the financial statements included in Item 8 of this Annual Report on Form 10-K.
 
Pages in this
Annual Report
on Form 10-K
II--Valuation and Qualifying Accounts--years ended December 31, 2018, 2017 and 2016
III--Real Estate and Accumulated Depreciation as of December 31, 2018, 2017 and 2016

Schedules other than those listed above are omitted because they are not applicable or the information required is included in the consolidated financial statements or the notes thereto.

165


VORNADO REALTY TRUST AND VORNADO REALTY L.P.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
December 31, 2018
(Amounts in Thousands)

Column A
 
Column B
 
Column C
 
Column D
 
Column E
Description
 
Balance at Beginning of Year
 
Additions
Charged
Against
Operations
 
Uncollectible
Accounts
Written-off
 
Balance
at End
of Year
Year Ended December 31, 2018
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
 
$
6,480

 
$
1,910

 
$
(2,592
)
 
$
5,798

Year Ended December 31, 2017
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
 
$
8,621

 
$
26

 
$
(2,167
)
 
$
6,480

Year Ended December 31, 2016
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
 
$
10,075

 
$
1,827

 
$
(3,281
)
 
$
8,621



166
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
(Amounts in thousands)

COLUMN A
COLUMN B
 
COLUMN C
 
COLUMN D
 
COLUMN E
 
COLUMN F
COLUMN G
COLUMN H
COLUMN I
 
Encumbrances (2)
 
Initial cost to company (1)
 
Costs
capitalized
subsequent
to acquisition
 
Gross amount at which
carried at close of period
 
Accumulated
depreciation
and
amortization
Date of
construction (4)
Date
acquired
Life on which
depreciation
in latest
income
statement
is computed
Land
 
Buildings
and
improvements
Land
 
Buildings
and
improvements
 
Total (3)
New York
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Manhattan
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1290 Avenue of the Americas
$
950,000

 
$
515,539

 
$
923,653

 
$
231,245

 
$
515,539

 
$
1,154,898

 
$
1,670,437

 
$
336,807

1963
2007
(5)
697-703 Fifth Avenue
450,000

 
152,825

 
584,230

 
566

 
152,825

 
584,796

 
737,621

 
61,014

 
2014
(5)
350 Park Avenue
400,000

 
265,889

 
363,381

 
50,265

 
265,889

 
413,646

 
679,535

 
130,828

1960
2006
(5)
666 Fifth Avenue (Retail Condo)
390,000

 
189,005

 
471,072

 
—

 
189,005

 
471,072

 
660,077

 
73,059

 
2012
(5)
PENN1
—

 
—

 
412,169

 
257,803

 
—

 
669,972

 
669,972

 
300,399

1972
1998
(5)
100 West 33rd Street
398,402

 
242,776

 
247,970

 
35,200

 
242,776

 
283,170

 
525,946

 
88,054

1911
2007
(5)
1535 Broadway
—

 
130,433

 
322,581

 
161,766

 
130,439

 
484,341

 
614,780

 
36,439

 
2012
(5)
150 West 34th Street
205,000

 
119,657

 
268,509

 
—

 
119,657

 
268,509

 
388,166

 
24,054

1900
2015
(5)
1540 Broadway
—

 
105,914

 
214,208

 
28,868

 
105,914

 
243,076

 
348,990

 
61,252

 
2006
(5)
655 Fifth Avenue
140,000

 
102,594

 
231,903

 
—

 
102,594

 
231,903

 
334,497

 
30,681

 
2013
(5)
PENN2
575,000

 
53,615

 
164,903

 
119,920

 
52,689

 
285,749

 
338,438

 
161,909

1968
1997
(5)
90 Park Avenue
—

 
8,000

 
175,890

 
183,882

 
8,000

 
359,772

 
367,772

 
128,983

1964
1997
(5)
Manhattan Mall
181,598

 
88,595

 
113,473

 
71,596

 
88,595

 
185,069

 
273,664

 
65,646

2009
2007
(5)
770 Broadway
700,000

 
52,898

 
95,686

 
135,290

 
52,898

 
230,976

 
283,874

 
93,238

1907
1998
(5)
888 Seventh Avenue
375,000

 
—

 
117,269

 
142,980

 
—

 
260,249

 
260,249

 
122,204

1980
1998
(5)
PENN11
450,000

 
40,333

 
85,259

 
110,281

 
40,333

 
195,540

 
235,873

 
79,373

1923
1997
(5)
640 Fifth Avenue
—

 
38,224

 
25,992

 
160,092

 
38,224

 
186,084

 
224,308

 
61,374

1950
1997
(5)
909 Third Avenue
350,000

 
—

 
120,723

 
107,457

 
—

 
228,180

 
228,180

 
98,992

1969
1999
(5)
150 East 58th Street
—

 
39,303

 
80,216

 
47,732

 
39,303

 
127,948

 
167,251

 
60,078

1969
1998
(5)
595 Madison Avenue
—

 
62,731

 
62,888

 
40,335

 
62,731

 
103,223

 
165,954

 
41,920

1968
1999
(5)
330 West 34th Street
—

 
—

 
8,599

 
145,486

 
—

 
154,085

 
154,085

 
30,432

1925
1998
(5)
828-850 Madison Avenue
—

 
107,937

 
28,261

 
2,115

 
107,937

 
30,376

 
138,313

 
9,658

 
2005
(5)
33-00 Northern Boulevard
100,000

 
46,505

 
86,226

 
7,518

 
46,505

 
93,744

 
140,249

 
9,831

1915
2015
(5)
715 Lexington Avenue
—

 
—

 
26,903

 
63,249

 
63,000

 
27,152

 
90,152

 
9,346

1923
2001
(5)
478-486 Broadway
—

 
30,000

 
20,063

 
36,107

 
30,000

 
56,170

 
86,170

 
13,790

2009
2007
(5)
4 Union Square South
120,000

 
24,079

 
55,220

 
3,037

 
24,079

 
58,257

 
82,336

 
21,022

1965/2004
1993
(5)
Farley Office and Retail Building
257,941

 
—

 
476,235

 
33,988

 
—

 
510,223

 
510,223

 
—

1912
2018
(5)
Moynihan Train Hall
—

 
—

 
346,926

 
98,767

 
—

 
445,693

 
445,693

 
—

1912
2018
(5)
260 Eleventh Avenue
—

 
—

 
80,482

 
1,966

 
—

 
82,448

 
82,448

 
7,734

1911
2015
(5)
510 Fifth Avenue
—

 
34,602

 
18,728

 
35,545

 
48,403

 
40,472

 
88,875

 
9,616

 
2010
(5)
606 Broadway
51,290

 
45,406

 
8,993

 
39,821

 
—

 
94,220

 
94,220

 
—

 
2016
(5)
40 Fulton Street
—

 
15,732

 
26,388

 
23,527

 
15,732

 
49,915

 
65,647

 
22,146

1987
1998
(5)
689 Fifth Avenue
—

 
19,721

 
13,446

 
25,575

 
19,721

 
39,021

 
58,742

 
13,986

1925
1998
(5)
443 Broadway
—

 
11,187

 
41,186

 
—

 
11,187

 
41,186

 
52,373

 
5,821

 
2013
(5)

167
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
(Amounts in thousands)


COLUMN A
COLUMN B
 
COLUMN C
 
COLUMN D
 
COLUMN E
 
COLUMN F
COLUMN G
COLUMN H
COLUMN I
 
Encumbrances (2)
 
Initial cost to company (1)
 
Costs
capitalized
subsequent
to acquisition
 
Gross amount at which
carried at close of period
 
Accumulated
depreciation
and
amortization
Date of
construction (4)
Date
acquired
Life on which
depreciation
in latest
income
statement
is computed
Land
 
Buildings
and
improvements
Land
 
Buildings
and
improvements
 
Total (3)
New York - continued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Manhattan - continued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40 East 66th Street
$
—

 
$
13,616

 
$
34,635

 
$
248

 
$
13,616

 
$
34,883

 
$
48,499

 
$
11,415

 
2005
(5)
155 Spring Street
—

 
13,700

 
30,544

 
4,872

 
13,700

 
35,416

 
49,116

 
9,910

 
2007
(5)
435 Seventh Avenue
95,782

 
19,893

 
19,091

 
40

 
19,893

 
19,131

 
39,024

 
7,903

2002
1997
(5)
3040 M Street
—

 
7,830

 
27,490

 
3,583

 
7,830

 
31,073

 
38,903

 
10,940

 
2006
(5)
608 Fifth Avenue
—

 
—

 
—

 
39,608

 
—

 
39,608

 
39,608

 
11,836

1932
2012
(5)
692 Broadway
—

 
6,053

 
22,908

 
3,690

 
6,053

 
26,598

 
32,651

 
9,185

 
2005
(5)
131-135 West 33rd Street
—

 
8,315

 
21,312

 
24

 
8,315

 
21,336

 
29,651

 
1,424

 
2016
(5)
265 West 34th Street
—

 
28,500

 
—

 
295

 
28,500

 
295

 
28,795

 
—

1920
2015
(5)
304 Canal Street
—

 
3,511

 
12,905

 
(731
)
 
3,511

 
12,174

 
15,685

 
714

1910
2014
(5)
677-679 Madison Avenue
—

 
13,070

 
9,640

 
541

 
13,070

 
10,181

 
23,251

 
3,169

 
2006
(5)
1135 Third Avenue
—

 
7,844

 
7,844

 
5,708

 
7,844

 
13,552

 
21,396

 
1,901

 
1997
(5)
486 Eighth Avenue
—

 
20,000

 
71

 
244

 
20,000

 
315

 
20,315

 
—

1928
2016
(5)
431 Seventh Avenue
—

 
16,700

 
2,751

 
—

 
16,700

 
2,751

 
19,451

 
808

 
2007
(5)
138-142 West 32nd Street
—

 
9,252

 
9,936

 
37

 
9,252

 
9,973

 
19,225

 
973

1920
2015
(5)
334 Canal Street
—

 
1,693

 
6,507

 
7,603

 
1,693

 
14,110

 
15,803

 
1,300

 
2011
(5)
267 West 34th Street
—

 
5,099

 
10,037

 
(9,760
)
 
5,099

 
277

 
5,376

 
—

 
2013
(5)
1540 Broadway Garage
—

 
4,086

 
8,914

 
—

 
4,086

 
8,914

 
13,000

 
2,815

1990
2006
(5)
966 Third Avenue
—

 
8,869

 
3,631

 
—

 
8,869

 
3,631

 
12,500

 
484

 
2013
(5)
148 Spring Street
—

 
3,200

 
8,112

 
406

 
3,200

 
8,518

 
11,718

 
2,277

 
2008
(5)
150 Spring Street
—

 
3,200

 
5,822

 
300

 
3,200

 
6,122

 
9,322

 
1,664

 
2008
(5)
137 West 33rd Street
—

 
6,398

 
1,550

 
—

 
6,398

 
1,550

 
7,948

 
145

1932
2015
(5)
488 Eighth Avenue
—

 
10,650

 
1,767

 
(4,653
)
 
6,859

 
905

 
7,764

 
245

 
2007
(5)
484 Eighth Avenue
—

 
3,856

 
762

 
758

 
3,856

 
1,520

 
5,376

 
—

 
1997
(5)
825 Seventh Avenue
—

 
1,483

 
697

 
159

 
1,483

 
856

 
2,339

 
400

 
1997
(5)
537 West 26th Street
—

 
10,370

 
17,632

 
16,263

 
26,632

 
17,633

 
44,265

 
414

 
2018
(5)
339 Greenwich
—

 
2,622

 
12,333

 
—

 
2,622

 
12,333

 
14,955

 
572

 
2017
(5)
Other (Including Signage)
—

 
86,299

 
506

 
115,778

 
86,299

 
116,284

 
202,583

 
35,135

 
 
 
Total Manhattan
6,190,013

 
2,859,609

 
6,597,028

 
2,586,992

 
2,902,555

 
9,141,074

 
12,043,629

 
2,325,315

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Other Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hotel Pennsylvania
—

 
29,903

 
121,712

 
111,168

 
29,903

 
232,880

 
262,783

 
118,994

1919
1997
(5)
Paramus
—

 
—

 
—

 
24,935

 
1,036

 
23,899

 
24,935

 
16,849

1967
1987
(5)
Total Other Properties
—

 
29,903

 
121,712

 
136,103

 
30,939

 
256,779

 
287,718

 
135,843

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total New York
6,190,013

 
2,889,512

 
6,718,740

 
2,723,095

 
2,933,494

 
9,397,853

 
12,331,347

 
2,461,158

 
 
 

168
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
(Amounts in thousands)


COLUMN A
COLUMN B
 
COLUMN C
 
COLUMN D
 
COLUMN E
 
COLUMN F
COLUMN G
COLUMN H
COLUMN I
 
Encumbrances (2)
 
Initial cost to company (1)
 
Costs
capitalized
subsequent
to acquisition
 
Gross amount at which
carried at close of period
 
Accumulated
depreciation
and
amortization
Date of
construction (4)
Date
acquired
Life on which
depreciation
in latest
income
statement
is computed
Land
 
Buildings
and
improvements
Land
 
Buildings
and
improvements
 
Total (3)
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
theMART
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Illinois
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
theMART, Chicago
$
675,000

 
$
64,528

 
$
319,146

 
$
414,820

 
$
64,535

 
$
733,959

 
$
798,494

 
$
311,470

1930
1998
(5)
527 West Kinzie, Chicago
—

 
5,166

 
—

 
32

 
5,166

 
32

 
5,198

 
—

 
1998
 
Total Illinois 
675,000

 
69,694

 
319,146

 
414,852

 
69,701

 
733,991

 
803,692

 
311,470

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New York
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MMPI Piers
—

 
—

 
—

 
16,412

 
—

 
16,412

 
16,412

 
3,003

 
2008
(5)
Total theMART
675,000

 
69,694

 
319,146

 
431,264

 
69,701

 
750,403

 
820,104

 
314,473

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
555 California Street
558,914

 
221,903

 
893,324

 
186,321

 
209,916

 
1,091,632

 
1,301,548

 
294,139

1922,1969 -1970
2007
(5)
220 Central Park South
737,369

 
115,720

 
16,445

 
1,339,283

 
—

 
1,471,448

 
1,471,448

 
—

 
2005
(5)
Borgata Land, Atlantic City, NJ
54,551

 
83,089

 
—

 
—

 
83,089

 
—

 
83,089

 
—

 
2010
(5)
40 East 66th Residential
—

 
29,199

 
85,798

 
(93,222
)
 
8,454

 
13,321

 
21,775

 
3,923

 
2005
(5)
677-679 Madison
—

 
1,462

 
1,058

 
284

 
1,626

 
1,178

 
2,804

 
478

 
2006
(5)
Annapolis
—

 
—

 
9,652

 
—

 
—

 
9,652

 
9,652

 
3,960

 
2005
 
Wayne Towne Center
—

 
—

 
26,137

 
56,955

 
—

 
83,092

 
83,092

 
20,474

 
2010
 
Other
—

 
—

 
—

 
4,597

 
—

 
4,597

 
4,597

 
1,350

 
2005
(5)
Total Other
2,025,834

 
521,067

 
1,351,560

 
1,925,482

 
372,786

 
3,425,323

 
3,798,109

 
638,797

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leasehold improvements equipment and other
—

 
—

 
—

 
108,427

 
—

 
108,427

 
108,427

 
80,220

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
$
8,215,847

 
$
3,410,579

 
$
8,070,300

 
$
4,757,004

 
$
3,306,280

 
$
12,931,603

 
$
16,237,883

 
$
3,180,175

 
 
 
________________________________________
(1)
Initial cost is cost as of January 30, 1982 (the date on which we commenced real estate operations) unless acquired subsequent to that date see Column H.
(2)
Represents the contractual debt obligations.
(3)
The net basis of Vornado's assets and liabilities for tax reporting purposes is approximately $1.9 billion lower than the amounts reported for financial statement purposes.
(4)
Date of original construction –– many properties have had substantial renovation or additional construction –– see Column D.
(5)
Depreciation of the buildings and improvements are calculated over lives ranging from the life of the lease to forty years.

169
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
(Amounts in thousands)

The following is a reconciliation of real estate assets and accumulated depreciation:
 
Year Ended December 31,
 
2018
 
2017
 
2016
Real Estate
 
 
 
 
 
Balance at beginning of period
$
14,756,295

 
$
14,187,820

 
$
13,545,295

Additions during the period:
 
 
 
 
 
Land
170,065

 
21,298

 
30,805

Buildings & improvements
1,665,684

 
598,820

 
854,194

 
16,592,044

 
14,807,938

 
14,430,294

Less: Assets sold, written-off and deconsolidated
354,161

 
51,643

 
242,474

Balance at end of period
$
16,237,883

 
$
14,756,295

 
$
14,187,820

 
 
 
 
 
 
Accumulated Depreciation
 
 
 
 
 
Balance at beginning of period
$
2,885,283

 
$
2,581,514

 
$
2,356,728

Additions charged to operating expenses
381,500

 
360,391

 
346,755

 
3,266,783

 
2,941,905

 
2,703,483

Less: Accumulated depreciation on assets sold, written-off and deconsolidated
86,608

 
56,622

 
121,969

Balance at end of period
$
3,180,175

 
$
2,885,283

 
$
2,581,514


170


Item 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES - continued
(b)
Exhibits:
Exhibit No.
 
 
 
 
 
 
—
Master Transaction Agreement, dated as of October 31, 2016, by and among Vornado
*
 
 
 
 
Realty Trust, Vornado Realty L.P., JBG Properties, Inc., JBG/Operating Partners, L.P.,
 
 
 
 
 
certain affiliates of JBG Properties Inc. and JBG/Operating Partners set forth on
 
 
 
 
 
Schedule A thereto, JBG SMITH Properties and JBG SMITH Properties LP. Incorporated by
 
 
 
 
 
reference to Exhibit 2.1 to Vornado Realty Trust's Annual Report on Form 10-K for the year ended
 
 
 
 
 
December 31, 2016 (File No. 001-11954), filed February 13, 2017
 
 
 
 
 
 
 
 
—
Articles of Restatement of Vornado Realty Trust, as filed with the State
*
 
 
 
 
Department of Assessments and Taxation of Maryland on July 30, 2007 - Incorporated
 
 
 
 
 
by reference to Exhibit 3.75 to Vornado Realty Trust’s Quarterly Report on Form 10-Q
 
 
 
 
 
for the quarter ended June 30, 2007 (File No. 001-11954), filed on July 31, 2007
 
 
 
 
 
 
 
 
—
Amended and Restated Bylaws of Vornado Realty Trust, as amended on March 2, 2000 -
*
 
 
 
 
Incorporated by reference to Exhibit 3.12 to Vornado Realty Trust’s Annual Report on
 
 
 
 
 
Form 10-K for the year ended December 31, 1999 (File No. 001-11954), filed on
 
 
 
 
 
Thursday, March 9, 2000
 
 
 
 
 
 
 
 
—
Articles Supplementary, 5.40% Series L Cumulative Redeemable Preferred Shares of
*
 
 
 
 
Beneficial Interest, liquidation preference $25.00 per share, no par value – Incorporated by
 
 
 
 
 
reference to Exhibit 3.6 to Vornado Realty Trust’s Registration Statement on Form 8-A
 
 
 
 
 
(File No. 001-11954), filed on January 25, 2013
 
 
 
 
 
 
 
 
—
Articles Supplementary Classifying Vornado Realty Trust's 5.25% Series M Cumulative Redeemable Preferred
*
 
 
 
 
Shares of Beneficial Interest, liquidation preference $25.00 per share, no par value - Incorporated by
 
 
 
 
 
reference to Exhibit 3.7 to Vornado Realty Trust's Registration Statement on
 
 
 
 
 
 Form 8-A (File No. 001-11954), filed on December 13, 2017
 
 
 
 
 
 
 
 
—
Second Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P.,
*
 
 
 
 
dated as of October 20, 1997 (the “Partnership Agreement”) – Incorporated by reference
 
 
 
 
 
to Exhibit 3.26 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter
 
 
 
 
 
ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003
 
 
 
 
 
 
 
 
—
Amendment to the Partnership Agreement, dated as of December 16, 1997 – Incorporated by
*
 
 
 
 
reference to Exhibit 3.27 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for
 
 
 
 
 
the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003
 
 
 
 
 
 
 
 
—
Second Amendment to the Partnership Agreement, dated as of April 1, 1998 – Incorporated
*
 
 
 
 
by reference to Exhibit 3.5 to Vornado Realty Trust’s Registration Statement on Form S-3
 
 
 
 
 
(File No. 333-50095), filed on April 14, 1998
 
 
 
 
 
 
 
 
—
Third Amendment to the Partnership Agreement, dated as of November 12, 1998 -
*
 
 
 
 
Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on
 
 
 
 
 
Form 8-K (File No. 001-11954), filed on November 30, 1998
 
 
 
 
 
 
 
 
—
Fourth Amendment to the Partnership Agreement, dated as of November 30, 1998 -
*
 
 
 
 
Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on
 
 
 
 
 
Form 8-K (File No. 001-11954), filed on February 9, 1999
 
 
 
 
 
 
 
3. 10
 
—
Fifth Amendment to the Partnership Agreement, dated as of March 3, 1999 - Incorporated by
*
 
 
 
 
reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on Form 8-K
 
 
 
 
 
(File No. 001-11954), filed on March 17, 1999
 
 
 
 
 
 
 
 
—
Sixth Amendment to the Partnership Agreement, dated as of March 17, 1999 - Incorporated
*
 
 
 
 
by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K
 
 
 
 
 
(File No. 001-11954), filed on July 7, 1999
 
 
 
 
 
 
 
 
—
Seventh Amendment to the Partnership Agreement, dated as of May 20, 1999 - Incorporated
*
 
 
 
 
by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on Form 8-K
 
 
 
 
 
(File No. 001-11954), filed on July 7, 1999
 
 
 
 
 
__________________________________________
 
 
*
 
Incorporated by reference
 
 
 
 
 
 
 
 
 
 
 
 
 

171


 
—
Eighth Amendment to the Partnership Agreement, dated as of May 27, 1999 - Incorporated
*
 
 
 
 
by reference to Exhibit 3.4 to Vornado Realty Trust’s Current Report on Form 8-K
 
 
 
 
 
(File No. 001-11954), filed on July 7, 1999
 
 
 
 
 
 
 
 
—
Ninth Amendment to the Partnership Agreement, dated as of September 3, 1999 -
*
 
 
 
 
Incorporated by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on
 
 
 
 
 
Form 8-K (File No. 001-11954), filed on October 25, 1999
 
 
 
 
 
 
 
 
—
Tenth Amendment to the Partnership Agreement, dated as of September 3, 1999 -
*
 
 
 
 
Incorporated by reference to Exhibit 3.4 to Vornado Realty Trust's Current Report on
 
 
 
 
 
Form 8-K (File No. 001-11954), filed on October 25, 1999
 
 
 
 
 
 
 
 
—
Eleventh Amendment to the Partnership Agreement, dated as of November 24, 1999 -
*
 
 
 
 
Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on
 
 
 
 
 
Form 8-K (File No. 001-11954), filed on December 23, 1999
 
 
 
 
 
 
 
 
—
Twelfth Amendment to the Partnership Agreement, dated as of May 1, 2000 - Incorporated
*
 
 
 
 
by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on Form 8-K
 
 
 
 
 
(File No. 001-11954), filed on May 19, 2000
 
 
 
 
 
 
 
 
—
Thirteenth Amendment to the Partnership Agreement, dated as of May 25, 2000 -
*
 
 
 
 
Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on
 
 
 
 
 
Form 8-K (File No. 001-11954), filed on June 16, 2000
 
 
 
 
 
 
 
 
—
Fourteenth Amendment to the Partnership Agreement, dated as of December 8, 2000 -
*
 
 
 
 
Incorporated by reference to Exhibit 3.2 to Vornado Realty Trust’s Current Report on
 
 
 
 
 
Form 8-K (File No. 001-11954), filed on December 28, 2000
 
 
 
 
 
 
 
3. 20
 
—
Fifteenth Amendment to the Partnership Agreement, dated as of December 15, 2000 -
*
 
 
 
 
Incorporated by reference to Exhibit 4.35 to Vornado Realty Trust’s Registration
 
 
 
 
 
Statement on Form S-8 (File No. 333-68462), filed on August 27, 2001
 
 
 
 
 
 
 
 
—
Sixteenth Amendment to the Partnership Agreement, dated as of July 25, 2001 - Incorporated
*
 
 
 
 
by reference to Exhibit 3.3 to Vornado Realty Trust’s Current Report on Form 8-K
 
 
 
 
 
(File No. 001-11954), filed on October 12, 2001
 
 
 
 
 
 
 
 
—
Seventeenth Amendment to the Partnership Agreement, dated as of September 21, 2001 -
*
 
 
 
 
Incorporated by reference to Exhibit 3.4 to Vornado Realty Trust’s Current Report on
 
 
 
 
 
Form 8-K (File No. 001-11954), filed on October 12, 2001
 
 
 
 
 
 
 
 
—
Eighteenth Amendment to the Partnership Agreement, dated as of January 1, 2002 -
*
 
 
 
 
Incorporated by reference to Exhibit 3.1 to Vornado Realty Trust’s Current Report on
 
 
 
 
 
Form 8-K/A (File No. 001-11954), filed on March 18, 2002
 
 
 
 
 
 
 
 
—
Nineteenth Amendment to the Partnership Agreement, dated as of July 1, 2002 - Incorporated
*
 
 
 
 
by reference to Exhibit 3.47 to Vornado Realty Trust’s Quarterly Report on Form 10-Q
 
 
 
 
 
for the quarter ended June 30, 2002 (File No. 001-11954), filed on August 7, 2002
 
 
 
 
 
 
 
 
—
Twentieth Amendment to the Partnership Agreement, dated April 9, 2003 - Incorporated by
*
 
 
 
 
reference to Exhibit 3.46 to Vornado Realty Trust’s Quarterly Report on Form 10-Q for
 
 
 
 
 
the quarter ended March 31, 2003 (File No. 001-11954), filed on May 8, 2003
 
 
 
 
 
 
 
 
—
Twenty-First Amendment to the Partnership Agreement, dated as of July 31, 2003 -
*
 
 
 
 
Incorporated by reference to Exhibit 3.47 to Vornado Realty Trust’s Quarterly Report
 
 
 
 
 
on Form 10-Q for the quarter ended September 30, 2003 (File No. 001-11954), filed on
 
 
 
 
 
November 7, 2003
 
 
 
 
 
 
 
 
—
Twenty-Second Amendment to the Partnership Agreement, dated as of November 17, 2003 –
*
 
 
 
 
Incorporated by reference to Exhibit 3.49 to Vornado Realty Trust’s Annual Report on
 
 
 
 
 
Form 10-K for the year ended December 31, 2003 (File No. 001-11954), filed on
 
 
 
 
 
March 3, 2004
 
 
__________________________________________
 
 
*
 
Incorporated by reference
 

172


 
—
Twenty-Third Amendment to the Partnership Agreement, dated May 27, 2004 – Incorporated
*
 
 
 
 
by reference to Exhibit 99.2 to Vornado Realty Trust’s Current Report on Form 8-K
 
 
 
 
 
(File No. 001-11954), filed on June 14, 2004
 
 
 
 
 
 
 
 
—
Twenty-Fourth Amendment to the Partnership Agreement, dated August 17, 2004 –
*
 
 
 
 
Incorporated by reference to Exhibit 3.57 to Vornado Realty Trust and Vornado Realty
 
 
 
 
 
L.P.’s Registration Statement on Form S-3 (File No. 333-122306), filed on
 
 
 
 
 
January 26, 2005
 
 
 
 
 
 
 
3. 30
 
—
Twenty-Fifth Amendment to the Partnership Agreement, dated November 17, 2004 –
*
 
 
 
 
Incorporated by reference to Exhibit 3.58 to Vornado Realty Trust and Vornado Realty
 
 
 
 
 
L.P.’s Registration Statement on Form S-3 (File No. 333-122306), filed on
 
 
 
 
 
January 26, 2005
 
 
 
 
 
 
 
 
—
Twenty-Sixth Amendment to the Partnership Agreement, dated December 17, 2004 –
*
 
 
 
 
Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on
 
 
 
 
 
Form 8-K (File No. 000-22685), filed on December 21, 2004
 
 
 
 
 
 
 
 
—
Twenty-Seventh Amendment to the Partnership Agreement, dated December 20, 2004 –
*
 
 
 
 
Incorporated by reference to Exhibit 3.2 to Vornado Realty L.P.’s Current Report on
 
 
 
 
 
Form 8-K (File No. 000-22685), filed on December 21, 2004
 
 
 
 
 
 
 
 
—
Twenty-Eighth Amendment to the Partnership Agreement, dated December 30, 2004 -
*
 
 
 
 
Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on
 
 
 
 
 
Form 8-K (File No. 000-22685), filed on January 4, 2005
 
 
 
 
 
 
 
 
—
Twenty-Ninth Amendment to the Partnership Agreement, dated June 17, 2005 - Incorporated
*
 
 
 
 
by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K
 
 
 
 
 
(File No. 000-22685), filed on June 21, 2005
 
 
 
 
 
 
 
 
—
Thirtieth Amendment to the Partnership Agreement, dated August 31, 2005 - Incorporated by
*
 
 
 
 
reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on Form 8-K
 
 
 
 
 
(File No. 000-22685), filed on September 1, 2005
 
 
 
 
 
 
 
 
—
Thirty-First Amendment to the Partnership Agreement, dated September 9, 2005 -
*
 
 
 
 
Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s Current Report on
 
 
 
 
 
Form 8-K (File No. 000-22685), filed on September 14, 2005
 
 
 
 
 
 
 
 
—
Thirty-Second Amendment and Restated Agreement of Limited Partnership, dated as of
*
 
 
 
 
December 19, 2005 – Incorporated by reference to Exhibit 3.59 to Vornado Realty L.P.’s
 
 
 
 
 
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006
 
 
 
 
 
(File No. 000-22685), filed on May 8, 2006
 
 
 
 
 
 
 
 
—
Thirty-Third Amendment to Second Amended and Restated Agreement of Limited
*
 
 
 
 
Partnership, dated as of April 25, 2006 – Incorporated by reference to Exhibit 10.2 to
 
 
 
 
 
Vornado Realty Trust’s Form 8-K (File No. 001-11954), filed on May 1, 2006
 
 
 
 
 
 
 
 
—
Thirty-Fourth Amendment to Second Amended and Restated Agreement of Limited
*
 
 
 
 
Partnership, dated as of May 2, 2006 – Incorporated by reference to Exhibit 3.1 to
 
 
 
 
 
Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on
 
 
 
 
 
May 3, 2006
 
 
 
 
 
 
 
3. 40
 
—
Thirty-Fifth Amendment to Second Amended and Restated Agreement of Limited
*
 
 
 
 
Partnership, dated as of August 17, 2006 – Incorporated by reference to Exhibit 3.1 to
 
 
 
 
 
Vornado Realty L.P.’s Form 8-K (File No. 000-22685), filed on August 23, 2006
 
 
 
 
 
 
 
 
—
Thirty-Sixth Amendment to Second Amended and Restated Agreement of Limited
*
 
 
 
 
Partnership, dated as of October 2, 2006 – Incorporated by reference to Exhibit 3.1 to
 
 
 
 
 
Vornado Realty L.P.’s Form 8-K (File No. 000-22685), filed on January 22, 2007
 
 
__________________________________________
 
 
*
 
Incorporated by reference
 

173


 
—
Thirty-Seventh Amendment to Second Amended and Restated Agreement of Limited
*
 
 
 
 
Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.1 to
 
 
 
 
 
Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on
 
 
 
 
 
June 27, 2007
 
 
—
Thirty-Eighth Amendment to Second Amended and Restated Agreement of Limited
*
 
 
 
 
Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.2 to
 
 
 
 
 
Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on
 
 
 
 
 
June 27, 2007
 
 
—
Thirty-Ninth Amendment to Second Amended and Restated Agreement of Limited
*
 
 
 
 
Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.3 to
 
 
 
 
 
Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on
 
 
 
 
 
June 27, 2007
 
 
—
Fortieth Amendment to Second Amended and Restated Agreement of Limited
*
 
 
 
 
Partnership, dated as of June 28, 2007 – Incorporated by reference to Exhibit 3.4 to
 
 
 
 
 
Vornado Realty L.P.’s Current Report on Form 8-K (File No. 000-22685), filed on
 
 
 
 
 
June 27, 2007
 
 
—
Forty-First Amendment to Second Amended and Restated Agreement of Limited
*
 
 
 
 
Partnership, dated as of March 31, 2008 – Incorporated by reference to Exhibit 3.44 to
 
 
 
 
 
Vornado Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31,
 
 
 
 
 
2008 (file No. 001-11954), filed on May 6, 2008
 
 
—
Forty-Second Amendment to Second Amended and Restated Agreement of Limited Partnership,
*
 
 
 
 
dated as of December 17, 2010 – Incorporated by reference to Exhibit 99.1 to Vornado
 
 
 
 
 
Realty L.P.'s Current Report on Form 8-K (File No. 000-22685), filed on December 21, 2010
 
 
—
Forty-Third Amendment to Second Amended and Restated Agreement of Limited Partnership,
*
 
 
 
 
dated as of April 20, 2011 – Incorporated by reference to Exhibit 3.1 to Vornado
 
 
 
 
 
Realty L.P.'s Current Report on Form 8-K (File No. 000-22685), filed on April 21, 2011
 
 
—
Forty-Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership
*
 
 
 
 
of Vornado Realty L.P., dated as of March 30, 2012 - Incorporated by reference to Exhibit 99.1
 
 
 
 
 
to Vornado Realty L.P.'s Current Report on Form 8-K (File No. 001-34482), filed on
 
 
 
 
 
 April 5, 2012
 
3. 50
 
—
Forty-Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership
*
 
 
 
 
dated as of July 18, 2012 – Incorporated by reference to Exhibit 3.1 to Vornado Realty L.P.’s
 
 
 
 
 
Current Report on Form 8-K (File No. 001-34482), filed on July 18, 2012
 
 
—
Forty-Fifth Amendment to Second Amended and Restated Agreement of Limited Partnership,
*
 
 
 
 
dated as of January 25, 2013 – Incorporated by reference to Exhibit 3.1 to Vornado Realty
 
 
 
 
 
L.P.’s Current Report on Form 8-K (File No. 001-34482), filed on January 25, 2013
 
 
—
Forty-Sixth Amendment to Second Amended and Restated Agreement of Limited Partnership
*
 
 
 
 
of Vornado Realty L.P., dated April 1, 2015 - Incorporated by reference to Exhibit 3.1
 
 
 
 
 
to Vornado Realty L.P.'s Current Report on Form 8-K (File No. 001-34482), filed on
 
 
 
 
 
April 2, 2015
 
**
—
Forty-Seventh Amendment to Second Amended and Restated Agreement of Limited Partnership of
*
 
 
 
 
Vornado Realty L.P., dated December 13, 2017 - Incorporated by reference to Exhibit 3.2 to Vornado
 
 
 
 
 
Realty L.P.'s Current Report on Form 8-K (File No. 001-34482), filed on December 13, 2017
 
**
—
Forty-Eighth Amendment to Second Amended and Restated Agreement of Limited Partnership
*
 
 
 
 
of Vornado Realty L.P dated as of January 12, 2018 - Incorporated by reference to Exhibit 3.53
 
 
 
 
 
to Vornado Realty Trust's Annual Report on 10-K for the year ended December 31, 2017
 
 
 
 
 
(File No. 001-11954), filed on February 12, 2018
 
 
—
Articles of Amendment to Declaration of Trust, dated June 13, 2018 - Incorporated by reference
*
 
 
 
 
to Exhibit 3.54 to Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended
 
 
 
 
 
June 30, 2018 (File No. 001-11954), filed on July 30, 2018
 
 
 
 
 
__________________________________________
 
 
*
 
Incorporated by reference
 
 
**
 
Management contract or compensatory agreement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

174


 
—
Amended and Restated Bylaws of Vornado Related Trust, as amended on July 25, 2018 - Incorporated
*
 
 
 
 
by reference to Exhibit 3.55 to Vornado Realty Trust's Quarterly Report on Form 10-Q for the
 
 
 
 
 
quarter ended June 30, 2018 (File No. 001-11954), filed on July 30, 2018
 
 
 
Indenture, dated as of November 25, 2003, between Vornado Realty L.P. and The Bank of
*
 
 
 
 
New York, as Trustee - Incorporated by reference to Exhibit 4.10 to Vornado Realty
 
 
 
 
 
Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005
 
 
 
 
 
(File No. 001-11954), filed on April 28, 2005
 
 
—
Indenture, dated as of November 20, 2006, among Vornado Realty Trust, as Issuer, Vornado
*
 
 
 
 
Realty L.P., as Guarantor and The Bank of New York, as Trustee – Incorporated by
 
 
 
 
 
reference to Exhibit 4.1 to Vornado Realty Trust’s Current Report on Form 8-K
 
 
 
 
 
(File No. 001-11954), filed on November 27, 2006
 
 
 
 
Certain instruments defining the rights of holders of long-term debt securities of Vornado
 
 
 
 
 
Realty Trust and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation
 
 
 
 
 
S-K. Vornado Realty Trust hereby undertakes to furnish to the Securities and Exchange
 
 
 
 
 
Commission, upon request, copies of such instruments
 
10.1
 
—
Registration Rights Agreement between Vornado, Inc. and Steven Roth, dated December 29,
*
 
 
 
 
1992 - Incorporated by reference to Vornado Realty Trust’s Annual Report on Form 10-K
 
 
 
 
 
for the year ended December 31, 1992 (File No. 001-11954), filed February 16, 1993
 
10.2
**
—
Management Agreement between Interstate Properties and Vornado, Inc. dated July 13, 1992
*
 
 
 
 
– Incorporated by reference to Vornado, Inc.’s Annual Report on Form 10-K for the year
 
 
 
 
 
ended December 31, 1992 (File No. 001-11954), filed February 16, 1993
 
**
—
Employment Agreement, dated as of April 15, 1997, by and among Vornado Realty Trust,
*
 
 
 
 
The Mendik Company, L.P. and David R. Greenbaum - Incorporated by reference to
 
 
 
 
 
Exhibit 10.4 to Vornado Realty Trust’s Current Report on Form 8-K
 
 
 
 
 
(File No. 001-11954), filed on April 30, 1997
 
 
—
Tax Reporting and Protection Agreement, dated December 31, 2001, by and among Vornado,
*
 
 
 
 
Vornado Realty L.P., Charles E. Smith Commercial Realty L.P. and Charles E. Smith
 
 
 
 
 
Commercial Realty L.L.C. - Incorporated by reference to Exhibit 10.3 to Vornado Realty
 
 
 
 
 
Trust’s Current Report on Form 8-K/A (File No. 1-11954), filed on March 18, 2002
 
**
—
Amendment to Real Estate Retention Agreement, dated as of July 3, 2002, by and between
*
 
 
 
 
Alexander’s, Inc. and Vornado Realty L.P. - Incorporated by reference to Exhibit
 
 
 
 
 
10(i)(E)(3) to Alexander’s Inc.’s Quarterly Report for the quarter ended June 30, 2002
 
 
 
 
 
(File No. 001-06064), filed on August 7, 2002
 
**
—
59th Street Real Estate Retention Agreement, dated as of July 3, 2002, by and between
*
 
 
 
 
Vornado Realty L.P., 731 Residential LLC and 731 Commercial LLC - Incorporated by
 
 
 
 
 
reference to Exhibit 10(i)(E)(4) to Alexander’s Inc.’s Quarterly Report for the quarter
 
 
 
 
 
ended June 30, 2002 (File No. 001-06064), filed on August 7, 2002
 
 
—
Amended and Restated Management and Development Agreement, dated as of July 3, 2002,
*
 
 
 
 
by and between Alexander's, Inc., the subsidiaries party thereto and Vornado
 
 
 
 
 
Management Corp. - Incorporated by reference to Exhibit 10(i)(F)(1) to Alexander's
 
 
 
 
 
Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 001-06064),
 
 
 
 
 
filed on August 7, 2002
 
**
—
Form of Vornado Realty Trust's 2002 Omnibus Share Plan - Incorporated by reference to
*
 
 
 
 
Exhibit 4.2 to Vornado Realty Trust's Registration Statement on Form S-8
 
 
 
 
 
(File No. 333-102216), filed on December 26, 2002.
 
**
—
Amended and Restated Employment Agreement between Vornado Realty Trust and Joseph
*
 
 
 
 
Macnow dated July 27, 2006 – Incorporated by reference to Exhibit 10.54 to Vornado
 
 
 
 
 
Realty Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006
 
 
 
 
 
(File No. 001-11954), filed on August 1, 2006
 
 
 
 
 
__________________________________________
 
 
*
 
Incorporated by reference
 
 
**
 
Management contract or compensatory agreement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

175


**
—
Second Amendment to Real Estate Retention Agreement, dated January 1, 2007, by and between
*
 
 
 
 
Vornado Realty L.P. and Alexander’s Inc. – Incorporated by reference to Exhibit 10.55
 
 
 
 
 
to Vornado Realty Trust’s Annual Report on Form 10-K for the year ended
 
 
 
 
 
December 31, 2006 (File No. 001-11954), filed on February 27, 2007
 
**
—
Amendment to 59th Street Real Estate Retention Agreement, dated January 1, 2007, by and
*
 
 
 
 
among Vornado Realty L.P., 731 Retail One LLC, 731 Restaurant LLC, 731 Office One
 
 
 
 
 
LLC and 731 Office Two LLC. – Incorporated by reference to Exhibit 10.56 to
 
 
 
 
 
Vornado Realty Trust’s Annual Report on Form 10-K for the year ended
 
 
 
 
 
December 31, 2006 (File No. 001-11954), filed on February 27, 2007
 
 
 
 
 
 
 
**
—
Employment Agreement between Vornado Realty Trust and Mitchell Schear, as of April 19,
*
 
 
 
 
2007 – Incorporated by reference to Exhibit 10.46 to Vornado Realty Trust’s Quarterly
 
 
 
 
 
Report on Form 10-Q for the quarter ended March 31, 2007 (File No. 001-11954),
 
 
 
 
 
filed on May 1, 2007
 
 
 
 
 
 
 
**
—
Amendment to Employment Agreement between Vornado Realty Trust and Joseph Macnow,
*
 
 
 
 
dated December 29, 2008 - Incorporated by reference to Exhibit 10.48 to Vornado Realty
 
 
 
 
 
Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No.
 
 
 
 
 
001-11954) filed on February 24, 2009
 
 
 
 
 
 
 
**
—
Amendment to Employment Agreement between Vornado Realty Trust and David R.
*
 
 
 
 
Greenbaum, dated December 29, 2008 - Incorporated by reference to Exhibit 10.49 to
 
 
 
 
 
Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31,
 
 
 
 
 
2008 (File No. 001-11954) filed on February 24, 2009
 
 
 
 
 
 
 
**
—
Amendment to Indemnification Agreement between Vornado Realty Trust and David R.
*
 
 
 
 
Greenbaum, dated December 29, 2008 - Incorporated by reference to Exhibit 10.50 to
 
 
 
 
 
Vornado Realty Trust’s Annual Report on Form 10-K for the year ended December 31,
 
 
 
 
 
2008 (File No. 001-11954) filed on February 24, 2009
 
 
 
 
 
 
 
**
—
Amendment to Employment Agreement between Vornado Realty Trust and Mitchell N.
*
 
 
 
 
Schear, dated December 29, 2008 - Incorporated by reference to Exhibit 10.51 to Vornado
 
 
 
 
 
Realty Trust’s Annual Report on Form 10-K for the year ended December 31, 2008 (File
 
 
 
 
 
No. 001-11954) filed on February 24, 2009
 
 
 
 
 
 
 
**
—
Vornado Realty Trust's 2010 Omnibus Share Plan - Incorporated by reference to Exhibit 10.41 to
*
 
 
 
 
Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010
 
 
 
 
 
(File No. 001-11954) filed on August 3, 2010
 
 
 
 
 
 
 
**
—
Form of Vornado Realty Trust 2010 Omnibus Share Plan Incentive / Non-Qualified Stock Option
*
 
 
 
 
Agreement. Incorporated by reference to Exhibit 99.1 to Vornado Realty Trust's Current
 
 
 
 
 
Report on Form 8-K (File No. 001-11954) filed on April 5, 2012
 
 
 
 
 
 
 
**
—
Form of Vornado Realty Trust 2010 Omnibus Share Plan Restricted Stock Agreement.
*
 
 
 
 
Incorporated by reference to Exhibit 99.2 to Vornado Realty Trust's Current Report on Form
 
 
 
 
 
8-K (File No. 001-11954) filed on April 5, 2012
 
 
 
 
 
 
 
**
—
Form of Vornado Realty Trust 2010 Omnibus Share Plan Restricted LTIP Unit Agreement.
*
 
 
 
 
Incorporated by reference to Exhibit 99.3 to Vornado Realty Trust's Current Report on Form
 
 
 
 
 
8-K (File No. 001-11954) filed on April 5, 2012
 
 
 
 
 
 
 
**
—
Form of Vornado Realty Trust 2012 Outperformance Plan Award Agreement.
*
 
 
 
 
Incorporated by reference to Exhibit 10.45 to Vornado Realty Trust's Annual Report on Form
 
 
 
 
 
10-K for the year ended December 31, 2012 (File No. 001-11954) filed on February 26, 2013
 
 
__________________________________________
 
 
*
 
Incorporated by reference
 
 
**
 
Management contract or compensatory agreement
 

176


**
—
Form of Vornado Realty Trust 2013 Outperformance Plan Award Agreement. Incorporated
*
 
 
 
 
by reference to Exhibit 10.50 to Vornado Realty Trust’s Quarterly Report on Form 10-Q
 
 
 
 
 
for the quarter ended March 31, 2013 (File No. 001-11954), filed on May 6, 2013
 
 
 
 
 
 
 
**
—
Employment agreement between Vornado Realty Trust and Stephen W. Theriot dated
*
 
 
 
 
June 1, 2013 - Incorporated by reference to Exhibit 10.51 to Vornado Realty Trust’s
 
 
 
 
 
Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (File No. 001-11954),
 
 
 
 
 
filed on August 5, 2013
 
 
 
 
 
 
 
**
—
Employment agreement between Vornado Realty Trust and Michael J. Franco dated
*
 
 
 
 
January 10, 2014 - Incorporated by reference to Exhibit 10.52 to Vornado Realty Trust's
 
 
 
 
 
Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (File No. 001-11954),
 
 
 
 
 
filed on May 5, 2014
 
 
 
 
 
 
 
**
—
Form of Vornado Realty Trust 2014 Outperformance Plan Award Agreement. Incorporated
*
 
 
 
 
by reference to Exhibit 10.53 to Vornado Realty Trust's Quarterly Report on Form 10-Q
 
 
 
 
 
for the quarter ended March 31, 2014 (File No. 001-11954), filed on May 5, 2014
 
 
 
 
 
 
 
 
—
Amended and Restated Revolving Credit Agreement dated as of September 30, 2014, by and
*
 
 
 
 
among Vornado Realty L.P. as Borrower, Vornado Realty Trust as General Partner, the
 
 
 
 
 
Banks listed on the signature pages thereof, and JPMorgan Chase Bank N.A. as
 
 
 
 
 
Administrative Agent for the Banks. Incorporated by reference to Exhibit 10.54 to
 
 
 
 
 
Vornado Realty Trust's Quarterly Report on Form 10-Q for the quarter ended
 
 
 
 
 
September 30, 2014 (File No. 001-11954), filed on November 3, 2014
 
 
 
 
 
 
 
**
—
Form of Vornado Realty Trust 2016 Outperformance Plan Award Agreement. Incorporated by
*
 
 
 
 
reference to Exhibit 99.1 to Vornado Realty Trust’s Current Report on Form 8-K
 
 
 
 
 
(File No. 001-11954), filed on January 21, 2016
 
 
 
 
 
 
 
 
—
Term Loan Agreement dated as of October 30, 2015, by and among Vornado Realty L.P. as
*
 
 
 
 
Borrower, Vornado Realty Trust as General Partner, the Banks listed on the signature
 
 
 
 
 
pages thereof, and JPMorgan Chase Bank, N.A. as Administrative Agent for the Banks.
 
 
 
 
 
Incorporated by reference to Exhibit 10.32 to Vornado Realty Trust's Annual Report on
 
 
 
 
 
Form 10-K for the year ended December 31, 2015 (File No. 001-11954), filed on
 
 
 
 
 
February 16, 2016
 
 
 
 
 
 
 
 
—
Amended and Restated Revolving Credit Agreement dated as of November 7, 2016, among
*
 
 
 
 
Vornado Realty L.P. as Borrower, Vornado Realty Trust as General Partner, the Banks
 
 
 
 
 
listed on the signature pages thereof, and JPMorgan Chase Bank N.A. as Administrative
 
 
 
 
 
Agent for the Banks. Incorporated by reference to Exhibit 10.29 to Vornado Realty Trust's
 
 
 
 
 
Annual Report on Form 10-K for the year ended December 31, 2016 (File No. 001-11954),
 
 
 
 
 
filed on February 13, 2017
 
 
 
 
 
 
 
**
—
Amendment to Employment Agreement, dated March 10, 2017, between Vornado Realty Trust
*
 
 
 
 
and Mitchell Schear. Incorporated by reference to Exhibit 10.30 to Vornado Realty
 
 
 
 
 
Trust's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017
 
 
 
 
 
(File No. 001-11954), filed on May 1, 2017
 
 
 
 
 
 
 
**
—
Consulting Agreement, dated March 10, 2017, between JBG SMITH Properties and Mitchell
*
 
 
 
 
Schear. Incorporated by reference to Exhibit 10.31 to Vornado Realty Trust's
 
 
 
 
 
Quarterly Report on Form 10-Q for the quarter ended March 31, 2017
 
 
 
 
 
(File No. 001-11954), filed on May 1, 2017
 
 
__________________________________________
 
 
*
 
Incorporated by reference
 
 
**
 
Management contract or compensatory agreement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

177


**
—
Form of 2017 Amendment to Vornado Realty Trust 2015, 2016, 2017 Outperformance Plan
*
 
 
 
 
Award Agreements. Incorporated by reference to Exhibit 10.32 to Vornado Realty Trust's
 
 
 
 
 
Quarterly Report on Form 10-Q for the quarter ended June 30, 2017
 
 
 
 
 
(File No. 001-11954), filed on July 31, 2017
 
 
 
 
 
 
 
 
—
Amended and Restated Revolving Credit Agreement dated as of October 17, 2017, among
*
 
 
 
 
Vornado Realty L.P. as Borrower, Vornado Realty Trust as General Partner, the Banks
 
 
 
 
 
listed on the signature pages thereof, and JPMorgan Chase Bank N.A. as Administrative
 
 
 
 
 
Agent for the Banks. Incorporated by reference to Exhibit 10.33 to Vornado Realty Trust's
 
 
 
 
 
Annual Report on Form 10-K for the year ended December 31, 2017
 
 
 
 
 
(File No. 001-11954), filed on February 12, 2018
 
**
—
Form of Vornado Realty Trust 2010 Omnibus Share Plan AO LTIP Unit Award Agreement
*
 
 
 
 
Incorporated by reference to Exhibit 10.33 to Vornado Realty Trust's
 
 
 
 
 
Annual Report on Form 10-K for the year ended December 31, 2017
 
 
 
 
 
(File No. 001-11954), filed on February 12, 2018
 
**
—
Form of Vornado Realty Trust 2018 Outperformance Plan Award Agreement
*
 
 
 
 
Incorporated by reference to Exhibit 10.35 to Vornado Realty Trust's Quarterly Report on Form 10-Q
 
 
 
 
 
for the quarter ended March 31, 2018 (File No. 001-11954) filed on April 30, 2018
 
**
—
Form of Performance Conditioned AO LTIP Award Agreement
***
**
—
Form of 2019 Amendment to Restricted LTIP Unit and Restricted Stock Agreements
***
**
—
Form of Vornado Realty Trust 2010 Omnibus Share Plan Restricted LTIP Unit Agreement
***
**
—
Form of Vornado Realty Trust 2010 Omnibus Share Plan Restricted Stock Agreement
***
 
 
 
 
 
 
 
__________________________________________
 
 
*
 
Incorporated by reference
 
 
**
 
Management contract or compensatory agreement
 
 
***
 
Filed herewith
 


178


—
Subsidiaries of Vornado Realty Trust and Vornado Realty L.P.
***
 
 
 
 
—
Consent of Independent Registered Public Accounting Firm for Vornado Realty Trust
***
 
 
 
 
—
Consent of Independent Registered Public Accounting Firm for Vornado Realty L.P.
***
 
 
 
 
—
Rule 13a-14 (a) Certification of the Chief Executive Officer of Vornado Realty Trust
***
 
 
 
 
—
Rule 13a-14 (a) Certification of the Chief Financial Officer of Vornado Realty Trust
***
 
 
 
 
—
Rule 13a-14 (a) Certification of the Chief Executive Officer of Vornado Realty L.P.
***
 
 
 
 
—
Rule 13a-14 (a) Certification of the Chief Financial Officer of Vornado Realty L.P.
***
 
 
 
 
—
Section 1350 Certification of the Chief Executive Officer of Vornado Realty Trust
***
 
 
 
 
—
Section 1350 Certification of the Chief Financial Officer of Vornado Realty Trust
***
 
 
 
 
—
Section 1350 Certification of the Chief Executive Officer of Vornado Realty L.P.
***
 
 
 
 
—
Section 1350 Certification of the Chief Financial Officer of Vornado Realty L.P.
***
 
 
 
 
101.INS
—
XBRL Instance Document of Vornado Realty Trust and Vornado Realty L.P.
***
 
 
 
 
101.SCH
—
XBRL Taxonomy Extension Schema of Vornado Realty Trust and Vornado Realty L.P.
***
 
 
 
 
101.CAL
—
XBRL Taxonomy Extension Calculation Linkbase of Vornado Realty Trust and Vornado Realty L.P.
***
 
 
 
 
101.DEF
—
XBRL Taxonomy Extension Definition Linkbase of Vornado Realty Trust and Vornado Realty L.P.
***
 
 
 
 
101.LAB
—
XBRL Taxonomy Extension Label Linkbase of Vornado Realty Trust and Vornado Realty L.P.
***
 
 
 
 
101.PRE
—
XBRL Taxonomy Extension Presentation Linkbase of Vornado Realty Trust and Vornado Realty L.P.
***
 
 
__________________________________________
 
 
***
Filed herewith
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 16.     FORM 10-K SUMMARY
None.

179




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: February 11, 2019
By:
/s/ Matthew Iocco
 
 
Matthew Iocco, Chief Accounting Officer
(duly authorized officer and principal accounting officer)
 













































180




SIGNATURES - continued

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

 
Signature
 
Title
 
Date
 
 
 
 
 
 
By:
/s/Steven Roth
 
Chairman of the Board of Trustees
 
February 11, 2019
 
(Steven Roth)
 
and Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
 
 
 
 
By:
/s/Candace K. Beinecke
 
Trustee
 
February 11, 2019
 
(Candace K. Beinecke)
 
 
 
 
 
 
 
 
 
 
By:
/s/Michael D. Fascitelli
 
Trustee
 
February 11, 2019
 
(Michael D. Fascitelli)
 
 
 
 
 
 
 
 
 
 
By:
/s/Robert P. Kogod
 
Trustee
 
February 11, 2019
 
(Robert P. Kogod)
 
 
 
 
 
 
 
 
 
 
By:
/s/Michael Lynne
 
Trustee
 
February 11, 2019
 
(Michael Lynne)
 
 
 
 
 
 
 
 
 
 
By:
/s/David Mandelbaum
 
Trustee
 
February 11, 2019
 
(David Mandelbaum)
 
 
 
 
 
 
 
 
 
 
By:
/s/Mandakini Puri
 
Trustee
 
February 11, 2019
 
(Mandakini Puri)
 
 
 
 
 
 
 
 
 
 
By:
/s/Daniel R. Tisch
 
Trustee
 
February 11, 2019
 
(Daniel R. Tisch)
 
 
 
 
 
 
 
 
 
 
By:
/s/Richard R. West
 
Trustee
 
February 11, 2019
 
(Richard R. West)
 
 
 
 
 
 
 
 
 
 
By:
/s/Russell B. Wight, Jr.
 
Trustee
 
February 11, 2019
 
(Russell B. Wight, Jr.)
 
 
 
 
 
 
 
 
 
 
By:
/s/Joseph Macnow
 
Chief Financial Officer
 
February 11, 2019
 
(Joseph Macnow)
 
(Principal Financial Officer)
 
 
 
 
 
 
 
 
By:
/s/Matthew Iocco
 
Chief Accounting Officer
 
February 11, 2019
 
(Matthew Iocco)
 
(Principal Accounting Officer)
 
 
 
 
 
 
 
 

181




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 L.P.
 
 
(Registrant)
 
 
 
Date: February 11, 2019
By:
/s/ Matthew Iocco
 
 
Matthew Iocco, Chief Accounting Officer of Vornado Realty Trust, sole General Partner of Vornado Realty L.P. (duly authorized officer and principal accounting officer)
 












































182




SIGNATURES - continued

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

 
Signature
 
Title
 
Date
 
 
 
 
 
 
By:
/s/Steven Roth
 
Chairman of the Board of Trustees and
 
February 11, 2019
 
(Steven Roth)
 
Chief Executive Officer of Vornado Realty Trust
(Principal Executive Officer)
 
 
 
 
 
 
 
 
By:
/s/Candace K. Beinecke
 
Trustee of Vornado Realty Trust
 
February 11, 2019
 
(Candace K. Beinecke)
 
 
 
 
 
 
 
 
 
 
By:
/s/Michael D. Fascitelli
 
Trustee of Vornado Realty Trust
 
February 11, 2019
 
(Michael D. Fascitelli)
 
 
 
 
 
 
 
 
 
 
By:
/s/Robert P. Kogod
 
Trustee of Vornado Realty Trust
 
February 11, 2019
 
(Robert P. Kogod)
 
 
 
 
 
 
 
 
 
 
By:
/s/Michael Lynne
 
Trustee of Vornado Realty Trust
 
February 11, 2019
 
(Michael Lynne)
 
 
 
 
 
 
 
 
 
 
By:
/s/David Mandelbaum
 
Trustee of Vornado Realty Trust
 
February 11, 2019
 
(David Mandelbaum)
 
 
 
 
 
 
 
 
 
 
By:
/s/Mandakini Puri
 
Trustee of Vornado Realty Trust
 
February 11, 2019
 
(Mandakini Puri)
 
 
 
 
 
 
 
 
 
 
By:
/s/Daniel R. Tisch
 
Trustee of Vornado Realty Trust
 
February 11, 2019
 
(Daniel R. Tisch)
 
 
 
 
 
 
 
 
 
 
By:
/s/Richard R. West
 
Trustee of Vornado Realty Trust
 
February 11, 2019
 
(Richard R. West)
 
 
 
 
 
 
 
 
 
 
By:
/s/Russell B. Wight, Jr.
 
Trustee of Vornado Realty Trust
 
February 11, 2019
 
(Russell B. Wight, Jr.)
 
 
 
 
 
 
 
 
 
 
By:
/s/Joseph Macnow
 
Chief Financial Officer of Vornado Realty Trust
 
February 11, 2019
 
(Joseph Macnow)
 
(Principal Financial Officer)
 
 
 
 
 
 
 
 
By:
/s/Matthew Iocco
 
Chief Accounting Officer of Vornado Realty Trust
 
February 11, 2019
 
(Matthew Iocco)
 
(Principal Accounting Officer)
 
 
 
 
 
 
 
 

183


EXHIBIT 10.36

VORNADO REALTY TRUST 2010 OMNIBUS SHARE PLAN
FORM OF PERFORMANCE CONDITIONED AO LTIP UNIT AWARD AGREEMENT

 
PERFORMANCE CONDITIONED AO LTIP UNIT AWARD AGREEMENT made as of date set forth on  Schedule A  hereto between Vornado Realty Trust, a Maryland real estate investment trust (the “ Company ”), its subsidiary Vornado Realty L.P., a Delaware limited partnership and the entity through which the Company conducts substantially all of its operations (the “ Partnership ”), and the employee of the Company or one of its affiliates listed on  Schedule A  (the “ Employee ”).
 
RECITALS
 
A.  In accordance with the Vornado Realty Trust 2010 Omnibus Share Plan, as it may be amended from time to time (the “ Share Plan ”), the Company desires in connection with the employment of the Employee, to provide the Employee with an opportunity to acquire Class A Units (as defined in the agreement of limited partnership of the Partnership, as amended (the “ Partnership Agreement ”)) (“ Class A Units ”) upon conversion of AO LTIP Units (as defined in the Partnership Agreement) having the rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption and conversion set forth herein, in the Share Plan and in the Partnership Agreement, and thereby provide additional incentive for the Employee to promote the progress and success of the business of the Company, the Partnership and its subsidiaries (the “ Award ”). The Award was approved by the Compensation Committee (the “ Committee ”) of the Board of Trustees of the Company (the “ Board ”) pursuant to authority delegated to it by the Board, including authority to make grants of equity interests in the Partnership which may, under certain circumstances, be redeemed through the delivery of common shares of beneficial interest, par value $0.04 per share, of the Company (the “ Common Shares ”) reserved for issuance under the Share Plan.
 
B.   Schedule A  hereto sets forth certain significant details of the AO LTIP Unit grant herein, including regarding the right to convert AO LTIP Units into Class A Units, and is incorporated herein by reference.  Capitalized terms used herein and not otherwise defined have the meanings provided on  Schedule A or, if such terms are not defined on Schedule A , the meanings provided in the Share Plan.
 
NOW, THEREFORE, the Company, the Partnership and the Employee hereby agree as follows:
 
AGREEMENT
 
1.   GRANT OF AO LTIP UNITS :  On the terms and conditions set forth below, as well as the terms and conditions of the Share Plan and subject to adjustment as provided in Section 7 hereof, the Company hereby grants to the Employee an aggregate of such number of AO LTIP Units as is set forth on  Schedule A  having an AO LTIP Unit Participation Threshold as is set forth on  Schedule A (the “ Award AO LTIP Units ”). 



.
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2.   TERMS AND CONDITIONS OF AWARD : 

(I)    The term of the Award shall be the time period indicated on  Schedule A  from the Grant Date set forth on Schedule A until the Final Conversion Date set forth on  Schedule A,  subject to earlier termination or cancellation as provided in this Agreement.
 
(II)    Except as otherwise permitted under Section 6 hereof, the Award AO LTIP Units shall not be convertible into Class A Units unless (i) they are Vested AO LTIP Units and (ii) the Employee shall, at the time of conversion, be an employee of the Company or its affiliates.

(III)    Conversion of Award AO LTIP Units into Class A Units is subject to satisfaction of a performance condition that the Common Share Price equal or exceed 110% of the AO LTIP Unit Participation Threshold (as defined in Schedule A ) during each of at least 20 consecutive trading days during the period commencing on the Grant Date (as set forth in Schedule A ) and ending on the End Date (as set forth in Schedule A ) (the “ Performance Condition ”). Unless and until the Performance Condition has been satisfied, the Employee (or his or her successors, heirs, assigns, or personal representatives, as applicable) will not have the right to convert his or her Award AO LTIP Units into Class A Units. If the Performance Condition has not been satisfied, on the End Date, on such date all Award AO LTIP Units, whether vested or unvested, shall, without payment of any consideration by the Partnership, automatically and without notice be forfeited and be and become null and void, and neither the Employee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such vested or unvested Award AO LTIP Units.

For purposes of this Section 2(III) , the following terms shall have the following meanings:

“ Common Share Price ” means, as of a particular date, the Fair Market Value of one Common Share.

“ Fair Market Value ” means, as of any given date, the fair market value of a security determined by the Committee using any reasonable method and in good faith (such determination will be made in a manner that satisfies Section 409A of the Code and in good-faith as required by Section 422(c)(1) of the Code); provided that with respect to a Common Share “Fair Market Value” means the value of such Common Share determined as follows: (A) if on the determination date the Common Shares are listed on the New York Stock Exchange, The NASDAQ Stock Market, Inc. or another national securities exchange or is publicly traded on an established securities market, the Fair Market Value of a Common Share shall be the closing price of the Common Shares on such exchange or in such market (if there is more than one such exchange or market, the Committee shall determine the appropriate exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean

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between the highest bid and lowest asked prices or between the high and low sale prices on such trading day) or, if no sale of Common Shares is reported for such trading day, on the next preceding day on which any sale shall have been reported; or (B) if the Common Shares are not listed on such an exchange, quoted on such system or traded on such a market, the Fair Market Value of a Common Share shall be the value of a Common Shares as determined by the Committee in good faith in a manner consistent with Code Section 409A.

3.   RESTRICTIONS ON TRANSFER :  Except as otherwise permitted by the Committee, none of the Award AO LTIP Units granted hereunder nor any of the Class A Units into which such Award AO LTIP Units may be converted (the “ Award Class A Units ”) shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of, encumbered, whether voluntarily or by operation of law (each such action a “ Transfer ”), and the Redemption Right (as defined in the Partnership Agreement) may not be exercised with respect to the Award Class A Units, provided that, at any time after the date that is at least two (2) years after the Grant Date, (i) Award AO LTIP Units may be Transferred to the Employee’s Family Members by gift or pursuant to domestic relations order in settlement of marital property rights; (ii) Award AO LTIP Units may be Transferred to an entity in which fifty percent (50%) of the voting interests are owned by Family Members (or the Employee) in exchange for an interest in such entity; and (iii) the Redemption Right may be exercised with respect to Award Class A Units issued upon conversion of Award AO LTIP Units in accordance with this Agreement and such Award Class A Units may be Transferred to the Partnership or the Company in connection with the exercise of the Redemption Right, in each case in accordance with and to the extent otherwise permitted by the terms of the Partnership Agreement. Additionally, the transferee must agree in writing with the Company and the Partnership to be bound by all the terms and conditions of this Agreement and the Partnership Agreement and that subsequent transfers shall be prohibited except those in accordance with this Section 3 and all Transfers of Award AO LTIP Units must be in compliance with all applicable securities laws (including, without limitation, the Securities Act of 1933, as amended (the “ Securities Act ”)) and the applicable terms and conditions of the Partnership Agreement. In connection with any Transfer of Award AO LTIP Units, the Partnership may require the Employee to provide an opinion of counsel, satisfactory to the Partnership, that such Transfer is in compliance with all federal and state securities laws (including, without limitation, the Securities Act). Any attempted Transfer of Award AO LTIP Units not in accordance with the terms and conditions of this Section 3 shall be null and void, and the Partnership shall not reflect on its records any change in record ownership of any Award AO LTIP Units as a result of any such Transfer, shall otherwise refuse to recognize any such Transfer and shall not in any way give effect to any such Transfer of any Award AO LTIP Units. Except as provided expressly in this Section 3 , this Agreement is personal to the Employee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.
For purposes of this Section 3 , “ Family Member ” means a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the Employee, any person sharing the Employee’s household (other than a tenant or employee), a trust in which any one or more of these persons have more than fifty percent (50%) of the beneficial interest, a foundation in which

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any one or more of these persons (or the Employee) control the management of assets, and any other entity in which one or more of these persons (or the Employee) own more than fifty percent (50%) of the voting interests.
 
4.   CONVERSION :  Subject to the satisfaction of the Performance Condition, from and after the date on which an Award AO LTIP Unit vests, as set forth on Schedule A , it shall be convertible into Class A Units in accordance with the terms of the Partnership Agreement. The “ Mandatory Conversion Date ” for the Award AO LTIP Units will be the earlier of: (i) the Termination Conversion Date (as set forth on Schedule A ) and (ii) the Final Conversion Date (as set forth on Schedule A ). As set forth in the Partnership Agreement, any Award AO LTIP Units that are “Vested AO LTIP Units” and have not been converted prior to the Mandatory Conversion Date will automatically be converted on such date so long as the Performance Condition has been satisfied. In addition, as set forth in the Partnership Agreement, the Company, as the general partner of the Partnership, may elect to convert the Award AO LTIP Units as provided in the Partnership Agreement.

Notwithstanding the foregoing or anything to the contrary set forth herein, upon (a) the occurrence of a Change in Control (as defined below) and (b) the termination of employment of the Employee with the Company or its affiliates within 24 months after such Change in Control either (i) by the Company (or its successor) without Cause (as defined below) or (ii) by the Employee for Good Reason (as defined below), then all unvested Award AO LTIP Units shall become Vested AO LTIP Units and be subject to conversion into Class A Units, subject to the satisfaction of the Performance Condition, as provided in the Partnership Agreement at the times and in the manner set forth herein and in the Partnership Agreement.  For purposes of this Agreement, a “ Change in Control ” of the Company means the occurrence of one of the following events: 
 
(i) individuals who, on the date hereof, constitute the Board (the “ Incumbent Trustees ”) cease for any reason to constitute at least a majority of the Board,  provided  that any person becoming a trustee subsequent to the date hereof whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Trustees then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for trustee, without objection to such nomination) shall be an Incumbent Trustee;  provided ,  however , that no individual initially elected or nominated as a trustee of the Company as a result of an actual or threatened election contest with respect to trustees or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Trustee; or
 
(ii) any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the “ Exchange Act ”) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after the date hereof, a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “ Company Voting Securities ”);  provided ,  however , that an event described in this paragraph

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(ii) shall not be deemed to be a Change in Control if any of following becomes such a beneficial owner:  (A) the Company or any majority-owned subsidiary of the Company ( provided  that this exclusion applies solely to the ownership levels of the Company or the majority-owned subsidiary), (B) any tax-qualified, broad-based employee benefit plan sponsored or maintained by the Company or any such majority-owned subsidiary, (C) any underwriter temporarily holding securities pursuant to an offering of such securities, (D) any person pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)), (E) (a) any of the partners (as of the date hereof) in Interstate Properties (“ Interstate ”) including immediate family members and family trusts or family-only partnerships and any charitable foundations of such partners (the “ Interstate Partners ”), (b) any entities the majority of the voting interests of which are beneficially owned by the Interstate Partners, or (c) any “group” (as described in Rule 13d-5(b)(1) under the Exchange Act) including the Interstate Partners (the persons in (a), (b) and (c) shall be individually and collectively referred to herein as, “ Interstate Holders ”); or
 
(iii) the consummation of a merger, consolidation, share exchange or similar form of transaction involving the Company or any of its subsidiaries, or the sale of all or substantially all of the Company’s assets (a “ Business Transaction ”), unless immediately following such Business Transaction (a) more than 50% of the total voting power of the entity resulting from such Business Transaction or the entity acquiring the Company’s assets in such Business Transaction (the “ Surviving Corporation ”) is beneficially owned, directly or indirectly, by the Interstate Holders or the Company’s shareholders immediately prior to any such Business Transaction, and (b) no person (other than the persons set forth in clauses (A), (B), (C), or (E) of paragraph (ii) above or any tax-qualified, broad-based employee benefit plan of the Surviving Corporation or its affiliates) beneficially owns, directly or indirectly, 30% or more of the total voting power of the Surviving Corporation (a “ Non-Qualifying Transaction ”); or
 
(iv) Board approval of a liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the Company’s shareholders in substantially the same proportions as such shareholders owned the Company Voting Securities immediately prior to such liquidation and such ongoing entity assumes all existing obligations of the Company to Employee under this Agreement.
 
For the purposes of this Section 4  and Section 6 , “ Cause ” will mean (A) if the Employee is a party to any employment, consulting or similar service agreement (including without limitation a separation, severance or similar agreement if any) between the Employee on the one hand and the Company or one of its affiliates on the other hand (a “ Service Agreement ”) immediately prior to the termination of the Employee’s employment with the Company or one of its affiliates and “Cause” or a substantially equivalent term is defined therein, then “Cause” shall have the meaning set forth in such Service Agreement for such term (or its substantial equivalent); or (B) if the Employee is not party to a Service Agreement immediately prior to such termination or the Employee’s Service Agreement does not define “Cause” or a substantially equivalent term, then “Cause” shall mean: with respect to the Employee, the Employee’s:  (i) conviction of, or plea of guilty or  nolo contendre  to, a felony pertaining or

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otherwise relating to his or her employment with the Company or an affiliate; or (ii) willful misconduct that is materially economically injurious to the Company or any of its affiliates, in each case as determined in the Company’s sole discretion. 

For the purposes of this Section 4 , “ Good Reason ” will mean (A) if the Employee is a party to a Service Agreement immediately prior to the termination of the Employee’s employment with the Company or one of its affiliates, and “Good Reason” or a substantially equivalent term is defined therein, then “Good Reason” shall have the meaning set forth in such Service Agreement for such term (or its substantial equivalent), or (B) if the Employee is not party to a Service Agreement immediately prior to such termination or the Employee’s Service Agreement does not define “good reason” or a substantially equivalent term, then “good reason” shall mean: (i) the assignment to the Employee of duties materially and adversely inconsistent with the Employee’s status as of the Grant Date or a material and adverse alteration in the nature of the Employee’s duties, responsibilities or authority; (ii) a reduction in the Employee’s base salary; or (iii) a relocation of the Employee’s own office location to a location more than thirty (30) miles from its location as of the Grant Date.
 
5.   DISTRIBUTIONS :  The holder of the Award AO LTIP Units shall be entitled to receive distributions with respect to such Award AO LTIP Units to the extent provided for in the Partnership Agreement. The Distribution Measurement Date (as defined in the Partnership Agreement) with respect to the Award AO LTIP Units shall be the Grant Date. The AO LTIP Unit Sharing Percentage (as defined in the Partnership Agreement) with respect to the Award AO LTIP Units shall be 10%.
 
6.   TERMINATION OF EMPLOYMENT :  Any Award AO LTIP Units held by the Employee upon termination of employment shall be treated as follows: 

(I)  If the Employee’s termination of employment is (i) due to death, Disability (as defined below) or Retirement (as defined below), (ii) a qualifying termination in connection with a Change in Control pursuant to Section 4 , or (iii) termination by the Company without Cause, all unvested Award AO LTIP Units shall become Vested AO LTIP Units and, subject to satisfaction of the Performance Condition, be entitled to conversion into Class A Units as provided in the Partnership Agreement until the Final Conversion Date by the Employee or his or her permitted transferee (or in the event of death his or her designated beneficiary, or, if none, the person(s) to whom such Employee’s rights under the Award are transferred by will or the laws of descent and distribution);
 
(II)  If the Employee’s termination of employment is (i) termination by the Company for Cause or (ii) due to resignation by the Employee for any reason other than as provided in Section 6(I) above, all unvested Award AO LTIP Units shall terminate on the date of termination and all Vested AO LTIP Units as of the date of termination, to the extent convertible under the terms of the Partnership Agreement as of the date of termination (including satisfaction of the Performance Condition on or prior to such date) shall be entitled to conversion into Class A Units as provided in the Partnership Agreement until the Mandatory Conversion Date;










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(III) Notwithstanding the foregoing, in the event that the Employee is a party to a Service Agreement (to the extent in effect as of the date of termination) that would provide for stock options or AO LTIPs awarded by the Company to the Employee to vest and/or remain exercisable or convertible through a date after the date on which the Employee ceases to be an employee of the Company or any of its subsidiaries that is later than the Termination Conversion Date provided on Schedule A, then the Termination Conversion Date shall be such later date (but in no event after the Final Conversion Date). An Employee’s status as an employee shall not be considered terminated in the case of a leave of absence agreed to in writing by the Company (including, but not limited to, military and sick leave); provided, that, such leave is for a period of not more than one year or re-employment upon expiration of such leave is guaranteed by contract or statute.

For purposes of this Section 6 , “ Disability ” will mean: (A) if the Employee is a party to a Service Agreement immediately prior to the applicable event, and “Disability” is defined therein, then “Disability” shall have the meaning set forth in such definition; or (B) if the Employee is not party to a Service Agreement immediately prior to such event or the Employee’s Service Agreement does not define “Disability” or a substantially equivalent term, then “Disability” shall mean a disability which renders the Employee incapable of performing all of his or her material duties for a period of at least 180 consecutive or non-consecutive days during any consecutive twelve-month period.
For purposes of this Section 6 , “ Retirement ” will mean: (A) if the Employee is a party to a Service Agreement immediately prior to such event, and “Retirement” is defined therein, then “Retirement” shall have the meaning set forth in such Service Agreement, or (B) if the Employee is not party to a Service Agreement immediately prior to such event and/or the Employee’s Service Agreement does not define “Retirement” or a substantially equivalent term, then “Retirement” shall mean the Employee’s termination of his or her employment with the Company and its affiliates after attainment of age 65 or attainment of age 60 and completion of twenty (20) years of employment with the Company and/or an affiliate.
7.   CHANGES IN CAPITAL STRUCTURE :  If (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or shares of the Company, spin-off of a subsidiary, business unit or significant portion of its assets or other transaction similar thereto, (ii) any stock dividend, stock split, reverse stock split, stock combination, reclassification, recapitalization, significant repurchases of stock, or other similar change in the capital stock of the Company or any other event that constitutes a change in stock under the terms of the Share Plan shall occur, (iii) any extraordinary dividend or other distribution to holders of Common Shares or Class A Units shall be declared and paid other than in the ordinary course, or (iv) any other event shall occur that in each case in the good faith judgment of the Committee necessitates action by way of appropriate equitable or proportionate adjustment in the terms of this Award, this Agreement or the Award AO LTIP Units to avoid distortion in the value of this Award, then the Committee shall take such action as it deems necessary to maintain the Employee’s rights hereunder so that they are substantially proportionate to the rights existing under this Award and the terms of the Award AO LTIP Units prior to such event, including, without limitation: (A) interpretations of

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or modifications to any defined term in this Agreement; (B) adjustments in any calculations provided for in this Agreement, and (C) substitution of other awards under the Share Plan or otherwise.
 
8.   MISCELLANEOUS : 
(a) Amendment . This Agreement may be amended or modified only with the consent of the Company and the Partnership acting through the Committee; provided that any such amendment or modification materially and adversely affecting the rights of the Employee hereunder must be consented to by the Employee to be effective as against the Employee. Notwithstanding the foregoing, this Agreement may be amended in writing signed only by the Company and the Partnership to correct any errors or ambiguities in this Agreement and/or to make such changes that do not materially adversely affect the Employee’s rights hereunder. This grant shall in no way affect the Employee’s participation or benefits under any other plan or benefit program maintained or provided by the Company or the Partnership.
(b)      Incorporation of Share Plan; Committee Determinations . The provisions of the Share Plan are hereby incorporated by reference as if set forth herein. In the event of a conflict between this Agreement and the Share Plan, the Share Plan shall govern. The Committee will make the determinations and certifications required by this Award as promptly as reasonably practicable following the occurrence of the event or events necessitating such determinations or certifications.
(c)      Payments by Award Recipients; Status as Partner . No amount shall be payable to the Company or the Partnership by the Employee at any time in respect of this Agreement. The Employee shall have no rights with respect to this Agreement (and the Award evidenced hereby) unless he or she shall have accepted this Agreement by (i) signing and delivering to the Partnership a copy of this Agreement and (ii) unless the Employee is already a Partner (as defined in the Partnership Agreement), signing, as a Limited Partner, and delivering to the Partnership a counterpart signature page to the Partnership Agreement (attached hereto as Exhibit A ). Upon acceptance of this Agreement by the Employee, Exhibit A of the Partnership Agreement shall be updated to reflect the issuance to the Employee of the AO LTIP Units so accepted. Thereupon, the Employee shall have all the rights of a Limited Partner of the Partnership with respect to the number of AO LTIP Units specified on Schedule A hereto, as set forth in the Partnership Agreement, subject, however, to the restrictions and conditions specified herein. Award AO LTIP Units constitute and shall be treated for all purposes as the property of the Employee, subject to the terms of this Agreement and the Partnership Agreement.
(d)      Status of Award AO LTIP Units under the Share Plan . This Award constitutes an award of OP Units by the Company under the Share Plan. The Award AO LTIP Units are interests in the Partnership. The number of Common Shares reserved for issuance under the Share Plan underlying outstanding Award AO LTIP Units will be determined by the Committee in light of all applicable circumstances, including calculations made or to be made hereunder, vesting, capital account allocations and/or balances under the Partnership Agreement, the conversion ratio in effect between AO LTIP Units and Class A Units and the conversion factor in effect with respect to the redemption of Class A Units by delivery of Common Shares. Upon any permitted exercise by a holder of the redemption right with respect to Award Class A

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Units, the Company will have the right at its option, as set forth in the Partnership Agreement, to issue Common Shares in exchange for Award Class A Units in accordance with the Partnership Agreement, subject to certain limitations set forth in the Partnership Agreement, and such Common Shares, if issued, will be issued under the Share Plan. The Employee must be eligible to receive the Award AO LTIP Units in compliance with applicable federal and state securities laws and to that effect is required to complete, execute and deliver certain covenants, representations and warranties (attached as Exhibit B ). The Employee acknowledges that the Employee will have no right to approve or disapprove such determination by the Committee.
(e)      Legend . The records of the Partnership evidencing the Award AO LTIP Units shall bear an appropriate legend, as determined by the Partnership in its sole discretion, to the effect that such Award AO LTIP Units are subject to restrictions as set forth herein, in the Share Plan, and in the Partnership Agreement.
(f)      Compliance With Law . The Partnership and the Employee will make reasonable efforts to comply with all applicable securities laws. In addition, notwithstanding any provision of this Agreement to the contrary, no Award AO LTIP Units will become vested or be paid at a time that such vesting or payment would result in a violation of any such law.
(g)      Investment Representations; Registration . The Employee hereby makes the covenants, representations and warranties set forth on Exhibit B attached hereto. All of such covenants, warranties and representations shall survive the execution and delivery of this Agreement by the Employee. The Partnership will have no obligation to register under the Securities Act any Award AO LTIP Units or any Award Class A Units or any other securities issued pursuant to this Agreement or upon conversion or redemption of Award AO LTIP Units or Award Class A Units. The Employee agrees that any sale of Award Class A Units or of Common Shares received upon the redemption of Award Class A Units shall not occur during the “blackout periods” forbidding sales of Company securities, as set forth in the then applicable Company employee manual or insider trading policy. In addition, any such sale shall only be made in compliance with the registration requirements of the Securities Act or an applicable exemption therefrom, including, without limitation, the exemption provided by Rule 144 promulgated thereunder (or any successor rule).
(h)      Section 83(b) Election . In connection with the issuance of AO LTIP Units pursuant hereto the Employee hereby agrees to make an election to include in gross income in the year of transfer the applicable AO LTIP Units pursuant to Section 83(b) of the the Internal Revenue Code of 1986, as amended (the “ Code ”) substantially in the form attached hereto as Exhibit C and to supply the necessary information in accordance with the regulations promulgated thereunder. The Employee agrees to file the election (or to permit the Partnership to file such election on the Employee’s behalf) within thirty (30) days after the award of the AO LTIP Units hereunder.
(i)      Severability . If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not so held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision,

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together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.
(j)      Governing Law . This Agreement is made under, and will be construed in accordance with, the laws of State of New York, without giving effect to the principles of conflict of laws of such State.
(k)      No Obligation to Continue Position as an Employee, Consultant or Advisor . Neither the Company nor any affiliate is obligated by or as a result of this Agreement to continue to have the Employee as an employee, consultant or advisor and this Agreement shall not interfere in any way with the right of the Company or any subsidiary to terminate the Employee’s employment with the Company and its subsidiaries at any time.
(l)      Notices . Any notice to be given to the Company shall be addressed to the Secretary of the Company at 888 Seventh Avenue, New York, New York 10019 and any notice to be given the Employee shall be addressed to the Employee at the Employee’s address as it appears on the employment records of the Company, or at such other address as the Company or the Employee may hereafter designate in writing to the other.
(m)      Withholding and Taxes . No later than the date as of which an amount first becomes includible in the gross income of the Employee for income tax purposes or subject to the Federal Insurance Contributions Act withholding with respect to this Award, the Employee will pay to the Company or, if appropriate, any of its affiliates, or make arrangements satisfactory to the Committee regarding the payment of, any United States federal, state or local or foreign taxes of any kind required by law to be withheld with respect to such amount; provided , however , that if any Award AO LTIP Units or Class A Units into which Award AO LTIP Units have been converted are withheld (or returned), the number of Award AO LTIP Units or Award Class A Units so withheld (or returned) shall be limited to a number which has a fair market value on the date of withholding equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income. The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company and its affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Employee.
(n)      Headings . The headings of paragraphs hereof are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.
(o)      Counterparts . This Agreement may be executed in multiple counterparts with the same effect as if each of the signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.
(p)      Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties hereto and any successors to the Company and the Partnership, on the one hand, and any successors to the Employee, on the other hand, by will or the laws of descent

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and distribution, but this Agreement shall not otherwise be assignable or otherwise subject to hypothecation by the Employee.
(q)      Section 409A . This Agreement shall be construed, administered and interpreted in accordance with a good faith interpretation of Section 409A of the Code. Any provision of this Agreement that is inconsistent with Section 409A of the Code, or that may result in penalties under Section 409A of the Code, shall be amended, with the reasonable cooperation of the Employee, the Company and the Partnership, to the extent necessary to exempt it from, or bring it into compliance with Section 409A of the Code.
 
[signature page follows]
 


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IN WITNESS WHEREOF , the undersigned have caused this Award Agreement to be executed as of the [__] day of 20__.
 
 
VORNADO REALTY TRUST
 
 
 
 
 
By:
 
 
 


 
 
 
 
 
 
 
VORNADO REALTY L.P.
 
 
 
By:  Vornado Realty Trust, its general partner
 
 
 
 
 
 
By:
 
 
 
 
 
 
 
 
 
EMPLOYEE
 
 
 
 
 
 
 
Name:
 
 


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  SCHEDULE A TO AO LTIP UNIT AWARD AGREEMENT
 (Terms being defined are in quotation marks.)
 

Date of AO LTIP Unit Award Agreement:
 

_____________, 20__
 
 
 
Name of Employee:
 
 ____________________________
 
 
 
Number of AO LTIP Units:
 
 _________________
 
 
 
“ AO LTIP Unit Participation Threshold ”:
 
$__.__
 
 
 
“ Grant Date ”:
 
___________, 20__
 
 
 
Distributions:
 
Upon conversion into Class A Units, special distribution per AO LTIP Unit that was converted equal to 10% of the per unit distributions received by holders of Class A Units during the period from the Grant Date to the date of conversion.
 
 
 
“ End Date ”

“ Final Conversion Date ”:

“ Mandatory Conversion Date ”:

“ Performance Condition ”:
 
_____________, 20__

_____________, 20__

See Section 4

See Section 2(III)
 
 
 
 
Vesting:
 
Number of AO LTIP Units that vest on each of the following dates:

[_________, 20__: __%]
[_________, 20__: __%]
[_________, 20__: __%]
[_________, 20__: __%]


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“ Termination Conversion Date ”:

 
The date following the applicable date of termination of employment that falls on the last day of the period set forth below:

Death (Section 6(I)(i)): Final Conversion Date  
 
Disability (Section 6(I)(i)): Final Conversion Date
 
Retirement (Section 6(I)(i): Final Conversion Date

Qualifying Termination in connection with a Change of Control (Section 6(I)(ii)): Final Conversion Date
 
By the Company Without Cause (Section 6(I)(iii)): Final Conversion Date

By the Company for Cause (Section 6(II)(i)): 60 days  
 
By the Employee Other Than as provided in Section 6(I): 60 days
 
 
 
 
 
 
 
Initials of Company representative:         
 
Initials of Employee:         


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EXHIBIT A
FORM OF LIMITED PARTNER SIGNATURE PAGE
The Employee, desiring to become one of the within named Limited Partners of Vornado Realty L.P., hereby accepts all of the terms and conditions of (including, without limitation, the Section 15.11 “Power of Attorney” thereof), and becomes a party to, the Second Amended and Restated Agreement of Limited Partnership, dated as of October 20, 1997, of Vornado Realty L.P., as amended (the “ Partnership Agreement ”). The Employee agrees that this signature page may be attached to any counterpart of the Partnership Agreement and further agrees as follows (where the term “ Limited Partner ” refers to the Employee):
1. The Limited Partner hereby confirms that it has reviewed the terms of the Partnership Agreement and affirms and agrees that it is bound by each of the terms and conditions of the Partnership Agreement, including, without limitation, the provisions thereof relating to limitations and restrictions on the transfer of Partnership Units (as defined in the Partnership Agreement).
2.      The Limited Partner hereby confirms that it is acquiring the Partnership Units for its own account as principal, for investment and not with a view to resale or distribution, and that the Partnership Units may not be transferred or otherwise disposed of by the Limited Partner otherwise than in a transaction pursuant to a registration statement filed by the Partnership (which it has no obligation to file) or that is exempt from the registration requirements of the Securities Act of 1933, as amended (the “ Securities Act ”), and all applicable state and foreign securities laws, and the General Partner (as defined in the Partnership Agreement) may refuse to transfer any Partnership Units as to which evidence of such registration or exemption from registration satisfactory to the General Partner is not provided to it, which evidence may include the requirement of a legal opinion regarding the exemption from such registration. If the General Partner delivers to the Limited Partner Common Shares of Beneficial Interest of the General Partner (“ Common Shares ”) upon redemption of any Partnership Units, the Common Shares will be acquired for the Limited Partner’s own account as principal, for investment and not with a view to resale or distribution, and the Common Shares may not be transferred or otherwise disposed of by the Limited Partner otherwise than in a transaction pursuant to a registration statement filed by the General Partner with respect to such Common Shares (which it has no obligation under the Partnership Agreement to file) or that is exempt from the registration requirements of the Securities Act and all applicable state and foreign securities laws, and the General Partner may refuse to transfer any Common Shares as to which evidence of such registration or exemption from such registration satisfactory to the General Partner is not provided to it, which evidence may include the requirement of a legal opinion regarding the exemption from such registration.
3.      The Limited Partner hereby affirms that it has appointed the General Partner, any Liquidator (as defined in the Partnership Agreement) and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead, in accordance with Section 15.11 of the Partnership Agreement, which section is hereby

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incorporated by reference. The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, and it shall survive and not be affected by the death, incompetency, dissolution, disability, incapacity, bankruptcy or termination of the Limited Partner and shall extend to the Limited Partner’s heirs, executors, administrators, legal representatives, successors and assigns.
4.      The Limited Partner hereby confirms that, notwithstanding any provisions of the Partnership Agreement to the contrary, the Award LTIP Units shall not be redeemable by the Limited Partner pursuant to Section 8.6 of the Partnership Agreement.
5.      (a)    The Limited Partner hereby irrevocably consents in advance to any amendment to the Partnership Agreement, as may be recommended by the General Partner, intended to avoid the Partnership being treated as a publicly-traded partnership within the meaning of Section 7704 of the Internal Revenue Code, including, without limitation, (x) any amendment to the provisions of Section 8.6 of the Partnership Agreement intended to increase the waiting period between the delivery of a Notice of Redemption (as defined in the Partnership Agreement) and the Specified Redemption Date (as defined in the Partnership Agreement) and/or the Valuation Date (as defined in the Partnership Agreement) to up to sixty (60) days or (y) any other amendment to the Partnership Agreement intended to make the redemption and transfer provisions, with respect to certain redemptions and transfers, more similar to the provisions described in Treasury Regulations Section 1.7704-1(f).
(b)    The Limited Partner hereby appoints the General Partner, any Liquidator and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead, to execute and deliver any amendment referred to in the foregoing paragraph 5(a) on the Limited Partner’s behalf. The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, and it shall survive and not be affected by the death, incompetency, dissolution, disability, incapacity, bankruptcy or termination of the Limited Partner and shall extend to the Limited Partner’s heirs, executors, administrators, legal representatives, successors and assigns.
6.      The Limited Partner agrees that it will not transfer any interest in the Partnership Units (x) through (i) a national, non-U.S., regional, local or other securities exchange, or (ii) an over-the-counter market (including an interdealer quotation system that regularly disseminates firm buy or sell quotations by identified brokers or dealers by electronic means or otherwise) or (y) to or through (a) a person, such as a broker or dealer, that makes a market in, or regularly quotes prices for, interests in the Partnership or (b) a person that regularly makes available to the public (including customers or subscribers) bid or offer quotes with respect to any interests in the Partnership and stands ready to effect transactions at the quoted prices for itself or on behalf of others.
7.      The Limited Partner acknowledges that the General Partner shall be a third party beneficiary of the representations, covenants and agreements set forth in Sections 4 and 6 hereof. The Limited Partner agrees that it will transfer, whether by assignment or otherwise, Partnership Units only to the General Partner or to transferees that provide the Partnership and the General Partner with the representations and covenants set forth in Sections 4 and 6 hereof.

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8.      This Acceptance shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law.
Signature Line for Limited Partner:


Name: ______________________

Date: __________ __, 20__


Address of Limited Partner:

______________________

______________________



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EXHIBIT B
EMPLOYEE’S COVENANTS, REPRESENTATIONS AND WARRANTIES
The Employee hereby represents, warrants and covenants as follows:
(a)    The Employee has received and had an opportunity to review the following documents (the “ Background Documents ”):
(i)    The Company’s latest Annual Report to Stockholders;
(ii)    The Company’s Proxy Statement for its most recent Annual Meeting of Stockholders;
(iii)    The Company’s Report on Form 10-K for the fiscal year most recently ended;
(iv)    The Company’s Form 10-Q, if any, for the most recently ended quarter if one has been filed by the Company with the Securities and Exchange Commission since the filing of the Form 10-K described in clause (iii) above;
(v)    Each of the Company’s Current Report(s) on Form 8-K, if any, filed since the end of the fiscal year most recently ended for which a Form 10-K has been filed by the Company;
(vi)    The Partnership Agreement;
(vii)    The Share Plan; and
(viii)    The Company’s Declaration of Trust, as amended.
The Employee also acknowledges that any delivery of the Background Documents and other information relating to the Company and the Partnership prior to the determination by the Partnership of the suitability of the Employee as a holder of AO LTIP Units shall not constitute an offer of AO LTIP Units until such determination of suitability shall be made.
(b)    The Employee hereby represents and warrants that
(i)    The Employee either (A) is an “accredited investor” as defined in Rule 501(a) under the Securities Act of 1933, as amended (the “ Securities Act ”), or (B) by reason of the business and financial experience of the Employee, together with the business and financial experience of those persons, if any, retained by the Employee to represent or advise him with respect to the grant to him of AO LTIP Units, the potential conversion of AO LTIP Units into Class A Units of the Partnership (“ Common Units ”) and the potential redemption of such Common Units for the Company’s Common Shares (“ REIT Shares ”), has such knowledge, sophistication and experience in financial and business matters and in making investment decisions of this type that the Employee (I) is capable of evaluating the merits and risks of an

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investment in the Partnership and potential investment in the Company and of making an informed investment decision, (II) is capable of protecting his own interest or has engaged representatives or advisors to assist him in protecting his interests, and (III) is capable of bearing the economic risk of such investment.
(ii)    The Employee, after due inquiry, hereby certifies that for purposes of Rule 506(d) and Rule 506(e) of the Securities Act, he is not subject to any felony or misdemeanor conviction related to any securities matter; any federal or state order, judgment, decree or injunction related to any securities, insurance, banking or U.S. Postal Service matter; any SEC disciplinary or cease and desist order; or any suspension, expulsion or bar related to a registered national securities exchange, national or affiliated securities association or member thereof, whether it occurred or was issued before, on or after September 23, 2013, and agrees that he will notify the Company immediately upon becoming aware that the foregoing is not, or is no longer, complete and accurate in every material respect, including as a result of events occurring after the date hereof.
(iii)    The Employee understands that (A) the Employee is responsible for consulting his own tax advisors with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Employee is or by reason of the award of AO LTIP Units may become subject, to his particular situation; (B) the Employee has not received or relied upon business or tax advice from the Company, the Partnership or any of their respective employees, agents, consultants or advisors, in their capacity as such; (C) the Employee provides or will provide services to the Partnership on a regular basis and in such capacity has access to such information, and has such experience of and involvement in the business and operations of the Partnership, as the Employee believes to be necessary and appropriate to make an informed decision to accept this Award of AO LTIP Units; and (D) an investment in the Partnership and/or the Company involves substantial risks. The Employee has been given the opportunity to make a thorough investigation of matters relevant to the AO LTIP Units and has been furnished with, and has reviewed and understands, materials relating to the Partnership and the Company and their respective activities (including, but not limited to, the Background Documents). The Employee has been afforded the opportunity to obtain any additional information (including any exhibits to the Background Documents) deemed necessary by the Employee to verify the accuracy of information conveyed to the Employee. The Employee confirms that all documents, records, and books pertaining to his receipt of AO LTIP Units which were requested by the Employee have been made available or delivered to the Employee. The Employee has had an opportunity to ask questions of and receive answers from the Partnership and the Company, or from a person or persons acting on their behalf, concerning the terms and conditions of the AO LTIP Units. The Employee has relied upon, and is making its decision solely upon, the Background Documents and other written information provided to the Employee by the Partnership or the Company.
(iv)    The AO LTIP Units to be issued, the Common Units issuable upon conversion of the AO LTIP Units and any REIT Shares issued in connection with the redemption of any such Common Units will be acquired for the account of the Employee for investment only and not with a current view to, or with any intention of, a distribution or resale thereof, in whole or in part, or the grant of any participation therein, without prejudice, however, to the Employee’s right (subject to the terms of the AO LTIP Units, the Share Plan and this

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Agreement) at all times to sell or otherwise dispose of all or any part of his AO LTIP Units, Common Units or REIT Shares in compliance with the Securities Act, and applicable state securities laws, and subject, nevertheless, to the disposition of his assets being at all times within his control.
(v)    The Employee acknowledges that (A) neither the AO LTIP Units to be issued, nor the Common Units issuable upon conversion of the AO LTIP Units, have been registered under the Securities Act or state securities laws by reason of a specific exemption or exemptions from registration under the Securities Act and applicable state securities laws and, if such AO LTIP Units or Common Units are represented by certificates, such certificates will bear a legend to such effect, (B) the reliance by the Partnership and the Company on such exemptions is predicated in part on the accuracy and completeness of the representations and warranties of the Employee contained herein, (C) such AO LTIP Units or Common Units, therefore, cannot be resold unless registered under the Securities Act and applicable state securities laws, or unless an exemption from registration is available, (D) there is no public market for such AO LTIP Units and Common Units and (E) neither the Partnership nor the Company has any obligation or intention to register such AO LTIP Units or the Common Units issuable upon conversion of the AO LTIP Units under the Securities Act or any state securities laws or to take any action that would make available any exemption from the registration requirements of such laws, except, that, upon the redemption of the Common Units for REIT Shares, the Company may issue such REIT Shares under the Share Plan and pursuant to a Registration Statement on Form S-8 under the Securities Act, to the extent that (I) the Employee is eligible to receive such REIT Shares under the Share Plan at the time of such issuance, (II) the Company has filed a Form S-8 Registration Statement with the Securities and Exchange Commission registering the issuance of such REIT Shares and (III) such Form S-8 is effective at the time of the issuance of such REIT Shares. The Employee hereby acknowledges that because of the restrictions on transfer or assignment of such AO LTIP Units acquired hereby and the Common Units issuable upon conversion of the AO LTIP Units which are set forth in the Partnership Agreement or this Agreement, the Employee may have to bear the economic risk of his ownership of the AO LTIP Units acquired hereby and the Common Units issuable upon conversion of the AO LTIP Units for an indefinite period of time.
(vi)    The Employee has determined that the AO LTIP Units are a suitable investment for the Employee.
(vii)    No representations or warranties have been made to the Employee by the Partnership or the Company, or any officer, trustee, shareholder, agent, or affiliate of any of them, and the Employee has received no information relating to an investment in the Partnership or the AO LTIP Units except the information specified in paragraph (b) above.
(c)    So long as the Employee holds any AO LTIP Units, the Employee shall disclose to the Partnership in writing such information as may be reasonably requested with respect to ownership of AO LTIP Units as the Partnership may deem reasonably necessary to ascertain and to establish compliance with provisions of the Code, applicable to the Partnership or to comply with requirements of any other appropriate taxing authority.




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(d)    The address set forth on the signature page of this Agreement is the address of the Employee’s principal residence, and the Employee has no present intention of becoming a resident of any country, state or jurisdiction other than the country and state in which such residence is sited.


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EXHIBIT C
Section 83(b) Election
The undersigned hereby elects pursuant to §83(b) of the Internal Revenue Code of 1986, as amended, to include in gross income as compensation for services the excess (if any) of the fair market value of the units described below over the amount paid for those shares.
1.
The name, taxpayer identification number, address of the undersigned, and the taxable year for which this election is being made are:

Taxpayer’s Name: ___________________________________
Taxpayer’s Social Security Number: ___________________________________
Address: ___________________________________
Taxable Year: Calendar Year 20___
2.
The property which is the subject of this election is _____________ AO LTIP Units in Vornado Realty L.P.

3.
The property was transferred to the undersigned on _______________ ___, 20___.

4.
The property is subject to the following restrictions:

The AO LTIP Units will be subject to restrictions on transfer and risk of forfeiture upon termination of service relationship and in certain other events.

5.
The fair market value of the property at time of transfer (determined without regard to any restrictions other than nonlapse restrictions as defined in §1.83-3(h) of the Income Tax Regulations) is $0.

6.
For the property transferred, the undersigned paid $0.

7.
The amount to include in gross income is $0.

The undersigned taxpayer will file this election with the Internal Revenue Service Office with which the taxpayer files his or her annual income tax return not later than 30 days after the date of transfer of the property. A copy of the election will also be furnished to the

_________________
1         The 83(b) Election must be filed no later than 30 days after the date on which the property is transferred. The IRS has indicated that the election form should be sent to the IRS address listed for the taxpayer’s state under “Are you not including a check or money order . . .” given in Where Do You File in the Instructions for Form 1040 and the Instructions for Form 1040A (this information can also be found by clicking on your state at: http://www.irs.gov/file/content/0,,id=105690,00.html).


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person for whom the services were performed. The undersigned is the person performing services in connection with which the property was transferred.


Dated: __________________, 20__     ______________________________
Taxpayer




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Schedule to Section 83(b) Election – Vesting Provisions of AO LTIP Units
AO LTIP Units are subject to time-based vesting with 25% vesting on each of the first four anniversaries following the award, provided that the Taxpayer remains an employee of Vornado Realty Trust or its subsidiaries through such dates, subject to acceleration in the event of certain extraordinary transactions. AO LTIP Units are subject to forfeiture in the event of failure to satisfy a performance-based condition (trading at or above 110% of the AO LTIP Unit Participation Threshold for any 20 consecutive trading days on or before the fourth anniversary following the award).

        
EXHIBIT 10.37


FORM OF 2019 AMENDMENT
TO RESTRICTED LTIP UNIT AND RESTRICTED STOCK AGREEMENTS
THIS AMENDMENT (this “ Amendment ”) is made and entered into as of [ ], 2019.
W I T N E S S E T H:
WHEREAS , VORNADO REALTY TRUST, a Maryland real estate investment trust (the “ Company ”), its subsidiary VORNADO REALTY L.P., a Delaware limited partnership and the entity through which the Company conducts substantially all of its operations (the “ Partnership ”), and the person named on the signature page hereof (the “ Grantee ”) are parties to one or more Restricted LTIP Unit Agreements (collectively, the “ LTIP Unit Agreements ”) and/or the Company and the Grantee are parties to one or more Restricted Stock Agreements (collectively, the “ Restricted Stock Agreements ” and, together with the LTIP Unit Agreements, the “ Agreements ”), in each case dated 2016, 2017, 2018 and/or 2019 whereby the Grantee was awarded by the Compensation Committee of the Board of Trustees of the Company (the “ Committee ”) awards of Restricted LTIP Units or Restricted Stock (collectively, the “ Awards ”) pursuant to the Company’s 2010 Omnibus Share Plan, as amended; and
WHEREAS , the Committee resolved to amend the Agreements with respect to vesting of the Awards upon retirement.
NOW, THEREFORE , the Company and, with respect to the LTIP Unit Agreements, the Partnership, with Grantee’s approval, hereby amend the Agreements as follows:
SECTION 1. The first sentence of Section 3 of each of the Restricted Stock Agreements is amended by replacing it in its entirety with the following text:
If the employment of the Employee by the Company or its affiliates terminates for any reason except Retirement, death or following a Change in Control as described below, the shares of Restricted Stock for which the applicable Vesting Period has not expired as of the date of such termination shall be forfeited and returned to the Company. Upon the Employee’s Retirement, any shares of Restricted Stock for which the applicable Vesting Period has not expired as of the date of such termination shall not be forfeited, and shall continue to vest in accordance with the vesting schedule set forth on Schedule A as if the Employee had remained employed with the Company and the Employee shall have the right to receive a cash amount in accordance with Section 2 equal to dividends payable on such shares of Restricted Stock following the Employee’s Retirement as if the Employee was employed on the applicable payroll date.
SECTION 2. The first sentence of Section 3 of each of the LTIP Unit Agreements is amended by replacing it in its entirety with the following text:
If the employment of the Employee by the Company or an affiliate terminates for any reason except Retirement, death or following a Change in Control as described below, the Restricted LTIP Units for which the applicable Vesting Period has not expired as of the date of such termination shall be forfeited and returned to the Company for delivery to the Partnership and cancellation. Upon the Employee’s Retirement, any Restricted LTIP Units for which the applicable Vesting Period has not expired as of the date of such termination


        

shall not be forfeited and shall continue to vest in accordance with the vesting schedule set forth on Schedule A as if the Employee had remained employed by the Company and the Employee shall have the right to receive distributions in accordance with Section 2 with respect to such Restricted LTIP Units following the Employee’s Retirement as if the Employee was employed on the applicable payroll date.
SECTION 3. Section 3 of each of the Agreements is amended by adding the following paragraph to the end of such Section:
For the purposes of this Section, “Retirement” will mean (A) if the Employee is a party to an employment agreement with the Company or an affiliate thereof immediately prior to such event, and “Retirement” is defined therein, then “Retirement” shall have the meaning set forth in such agreement, or (B) if the Employee is not party to an employment agreement with the Company or an affiliate thereof immediately prior to such event or if the Employee is party to such an agreement and such agreement does not define “Retirement” or a substantially equivalent term, then “Retirement” shall mean the Employee’s termination of his or her employment with the Company and its affiliates after attainment of age 65.
SECTION 4. All other terms of the Agreements shall be unaffected by this Amendment and shall remain in full force and effect in accordance with their terms.
IN WITNESS WHEREOF, the undersigned have executed this Amendment on the day and year first written above.
 
VORNADO REALTY TRUST
 
 
 
 
 
By:
 
 
 
 
 
 
 
 
 
 
VORNADO REALTY L.P.
 
 
 
By:
Vornado Realty Trust, its general partner
 
 
 
 
 
By:
 
 
 
 
 
 
 
 
 
 
Grantee’s consent:
 
 
 
 
 
Name:
 
 


 
EXHIBIT 10.38

FORM OF VORNADO REALTY TRUST 2010 OMNIBUS SHARE PLAN
RESTRICTED LTIP UNIT AGREEMENT
 
RESTRICTED LTIP UNIT AGREEMENT made as of date set forth on Schedule A hereto between VORNADO REALTY TRUST, a Maryland real estate investment trust (the “ Company ”), its subsidiary Vornado Realty L.P., a Delaware limited partnership (the “Partnership”), and the employee of the Company or one of its affiliates listed on Schedule A (the “ Employee ”).
 
RECITALS
 
A. In accordance with the Vornado Realty Trust 2010 Omnibus Share Plan, as it may be amended from time to time (the “ Plan ”), the Company desires in connection with the employment of the Employee, to provide the Employee with an opportunity to acquire LTIP Units (as defined in the agreement of limited partnership of the Partnership, as amended (the “ Partnership Agreement ”)) having the rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption and conversion set forth herein, in the Plan and in the Partnership Agreement, and thereby provide additional incentive for the Employee to promote the progress and success of the business of the Company, the Partnership and its subsidiaries.
 
B. Schedule A hereto sets forth certain significant details of the LTIP Unit grant herein and is incorporated herein by reference. Capitalized terms used herein and not otherwise defined have the meanings provided on Schedule A .
 
NOW, THEREFORE, the Company, the Partnership and the Employee hereby agree as follows:
 
AGREEMENT
 
1. Grant of Restricted LTIP Units . On the terms and conditions set forth below, as well as the terms and conditions of the Plan, the Company hereby grants to the Employee such number of LTIP Units as is set forth on Schedule A (the “ Restricted LTIP Units ”).
 
2. Vesting Period . The vesting period of the Restricted LTIP Units (the “ Vesting Period ”) begins on the Grant Date and continues until such date as is set forth on Schedule A as the date on which the Restricted LTIP Units are fully vested. On the first Annual Vesting Date following the date of this Agreement and each Annual Vesting Date thereafter, the number of LTIP Units equal to the Annual Vesting Amount shall become vested, subject to earlier forfeiture as provided in this Agreement. To the extent that Schedule A provides for amounts or schedules of vesting that conflict with the provisions of this paragraph, the provisions of Schedule A will govern. Except as permitted under Section 10, the Restricted LTIP Units for which the applicable Vesting Period has not expired may not be sold, assigned, transferred, pledged or otherwise




disposed of or encumbered (whether voluntary or involuntary or by judgment, levy, attachment, garnishment or other legal or equitable proceeding).

The Employee shall be entitled to receive distributions with respect to Restricted LTIP Units to the extent provided for in the Partnership Agreement, as modified hereby, if applicable. The Distribution Participation Date (as defined in the Partnership Agreement) for the Restricted LTIP Units shall be the Grant Date. Notwithstanding the foregoing, the Employee shall not have the right to receive cash distributions paid on Restricted LTIP Units for which the applicable Vesting Period has not expired unless the Employee is employed by the Company or an affiliate on the payroll date coinciding with or immediately following the date any such distributions are payable.
 
The Employee shall have the right to vote the Restricted LTIP Units if and when voting is allowed under the Partnership Agreement, regardless of whether the applicable Vesting Period has expired.
 
3. Forfeiture of Restricted LTIP Units . If the employment of the Employee by the Company or an affiliate terminates for any reason except Retirement, death or following a Change in Control as described below, the Restricted LTIP Units for which the applicable Vesting Period has not expired as of the date of such termination shall be forfeited and returned to the Company for delivery to the Partnership and cancellation. Upon the Employee’s Retirement, any Restricted LTIP Units for which the applicable Vesting Period has not expired as of the date of such termination shall not be forfeited and shall continue to vest in accordance with the vesting schedule set forth on Schedule A as if the Employee had remained employed by the Company and the Employee shall have the right to receive distributions in accordance with Section 2 with respect to such Restricted LTIP Units following the Employee’s Retirement as if the Employee was employed on the applicable payroll date. Upon the Employee’s death, all of the Restricted LTIP Units (whether or not vested) shall become fully vested and shall not be forfeitable. Upon the occurrence of (a) a Change in Control of the Company, and (b) the termination of employment of the Employee with the Company or its affiliates within 24 months of such Change in Control either (i) by the Company (or its successor) without Cause (as defined below) or (ii) by the Employee for Good Reason (as defined below), then any Restricted LTIP Units for which the applicable Vesting Period has not expired, shall become fully vested and shall not be forfeitable. For purposes of this Restricted LTIP Unit Agreement, a “ Change in Control ” of the Company means the occurrence of one of the following events:

(i) individuals who, on the Grant Date, constitute the Board of Trustees of the Company (the “ Incumbent Trustees ”) cease for any reason to constitute at least a majority of the Board of Trustees (the “ Board ”), provided that any person becoming a trustee subsequent to the Grant Date whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Trustees then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for trustee, without

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objection to such nomination) shall be an Incumbent Trustee; provided , however , that no individual initially elected or nominated as a trustee of the Company as a result of an actual or threatened election contest with respect to trustees or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Trustee;
(ii) any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the “ Exchange Act ”) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after the Grant Date, a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “ Company Voting Securities ”); provided , however , that an event described in this paragraph (ii) shall not be deemed to be a Change in Control if any of following becomes such a beneficial owner:  (A) the Company or any majority-owned subsidiary of the Company ( provided that this exclusion applies solely to the ownership levels of the Company or the majority-owned subsidiary), (B) any tax-qualified, broad-based employee benefit plan sponsored or maintained by the Company or any such majority-owned subsidiary, (C) any underwriter temporarily holding securities pursuant to an offering of such securities, (D) any person pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)), (E) (a) any of the partners (as of the Grant Date) in Interstate Properties (“ Interstate ”) including immediate family members and family trusts or family-only partnerships and any charitable foundations of such partners (the “ Interstate Partners ”), (b) any entities the majority of the voting interests of which are beneficially owned by the Interstate Partners, or (c) any “group” (as described in Rule 13d-5(b)(i) under the Exchange Act) including the Interstate Partners (the persons in (a), (b) and (c) shall be individually and collectively referred to herein as, “ Interstate Holders ”);
(iii) the consummation of a merger, consolidation, share exchange or similar form of transaction involving the Company or any of its subsidiaries, or the sale of all or substantially all of the Company’s assets (a “ Business Transaction ”), unless immediately following such Business Transaction (a) more than 50% of the total voting power of the entity resulting from such Business Transaction or the entity acquiring the Company’s assets in such Business Transaction (the “ Surviving Corporation ”) is beneficially owned, directly or indirectly, by the Interstate Holders or the Company’s shareholders immediately prior to any such Business Transaction, and (b) no person (other than the persons set forth in clauses (A), (B), (C), or (F) of paragraph (ii) above or any tax-qualified, broad-based employee benefit plan of the Surviving Corporation or its affiliates) beneficially owns, directly or indirectly, 30% or more of the total voting power of the Surviving Corporation (a “ Non-Qualifying Transaction ”); or
 
(iv) Board approval of a liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating

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trust) are beneficially owned, directly or indirectly, by the Company’s shareholders in substantially the same proportions as such shareholders owned the Company’s Voting Securities immediately prior to such liquidation and such ongoing entity assumes all existing obligations of the Company to Employee under this Restricted LTIP Unit Agreement.
 
For the purposes of this Section, “ Cause ” will mean with respect to the Employee, the Employee’s:  (a) conviction of, or plea of guilty or nolo contendre to, a felony pertaining or otherwise relating to his or her employment with the Company or an affiliate; or (b) willful misconduct that is materially economically injurious to the Company or any of its affiliates, in each case as determined in the Company’s sole discretion. For the purposes of this Section, “ Good Reason ” will mean (a) the assignment to the Employee of duties materially and adversely inconsistent with the Employee’s status prior to the Change in Control or a material and adverse alteration in the nature of the Employee’s duties, responsibilities or authority; (b) a reduction in the Employee’s base salary; or (c) a relocation of the Employee’s own office location to a location more than 30 miles from its location prior to the Change in Control. In the event the Employee is a party to an employment agreement with the Company or an affiliate thereof, and the definitions of Cause or Good Reason contained herein conflict with terms provided therefor in such employment agreement (or similar terms or provisions intended to cover substantially similar circumstances) the definitions contained in such employment agreement will govern.

For the purposes of this Section, “ Retirement ” will mean (A) if the Employee is a party to an employment agreement with the Company or an affiliate thereof immediately prior to such event, and “Retirement” is defined therein, then “Retirement” shall have the meaning set forth in such agreement, or (B) if the Employee is not party to an employment agreement with the Company or an affiliate thereof immediately prior to such event or if the Employee is party to such an agreement and such agreement does not define “Retirement” or a substantially equivalent term, then “Retirement” shall mean the Employee’s termination of his or her employment with the Company and its affiliates after attainment of age 65.

4. Certificates . Each certificate, if any, issued in respect of the Restricted LTIP Units awarded under this Restricted LTIP Unit Agreement shall be registered in the Employee’s name and held by the Company until the expiration of the applicable Vesting Period. If certificates representing the LTIP Units are issued by the Partnership at the time, at the expiration of each Vesting Period, the Company shall deliver to the Employee (or, if applicable, to the Employee’s legal representatives, beneficiaries or heirs) certificates representing the number of LTIP Units that vested upon the expiration of such Vesting Period. The Employee agrees that any resale of the LTIP Units received upon the expiration of the applicable Vesting Period (or shares of Company’s common shares of beneficial interest, par value $0.04 per share (the “ Common Shares ”) received upon redemption of or in exchange for LTIP Units or Class A Units of the Partnership into which LTIP Units may have been converted) shall not occur during the “blackout periods” forbidding sales of Company securities, as set forth in the then applicable

4


Company employee manual or insider trading policy. In addition, any resale shall be made in compliance with the registration requirements of the Securities Act of 1933, as amended (the “ Securities Act ”), or an applicable exemption therefrom, including, without limitation, the exemption provided by Rule 144 promulgated thereunder (or any successor rule).
 
5. Tax Withholding . The Company or its applicable affiliate has the right to withhold from cash compensation payable to the Employee all applicable income and employment taxes due and owing at the time the applicable portion of the Restricted LTIP Units becomes includible in the Employee’s income (the “ Withholding Amount ”), and/or to delay delivery of Restricted LTIP Units until appropriate arrangements have been made for payment of such withholding. In the alternative, the Company has the right to retain and cancel, or sell or otherwise dispose of such number of Restricted LTIP Units as have a market value determined at date the applicable LTIP Units vest, approximately equal to the Withholding Amount with any excess proceeds being paid to Employee.
 
6. Certain Adjustments . If (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or stock of the Company or other transaction similar thereto, (ii) any stock dividend, stock split, reverse stock split, stock combination, reclassification, recapitalization, significant repurchases of stock, or other similar change in the capital structure of the Company, or any extraordinary dividend or other distribution to holders of Common Shares or Class A Units other than regular dividends shall occur, or (iii) any other event shall occur that in each case in the good faith judgment of the Committee necessitates action by way of appropriate equitable adjustment in the terms of this Restricted LTIP Unit Agreement, the Plan or the LTIP Units, then the Committee shall take such action as it deems necessary to maintain the Employee’s rights hereunder so that they are substantially proportionate to the rights existing under this Agreement and the terms of the LTIP Units prior to such event, including, without limitation: (A) adjustments in the LTIP Units; and (B) substitution of other awards under the Plan or otherwise. In the event of any change in the outstanding Common Shares (or corresponding change in the Conversion Factor applicable to Class A Units of the Partnership) by reason of any share dividend or split, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other corporate change, or any distribution to common shareholders of the Company other than regular dividends, any Class A Units, shares or other securities received by the Employee with respect to the applicable Restricted LTIP Units for which the Vesting Period shall not have expired will be subject to the same restrictions as the Restricted LTIP Units with respect to an equivalent number of shares or securities and shall be deposited with the Company.
 
7. No Right to Employment . Nothing herein contained shall affect the right of the Company or any affiliate to terminate the Employee’s services, responsibilities and duties at any time for any reason whatsoever.
 

5


8. Notice . Any notice to be given to the Company shall be addressed to the Executive Vice President of the Company at 888 Seventh Avenue, New York, New York 10019 and any notice to be given the Employee shall be addressed to the Employee at the Employee’s address as it appears on the employment records of the Company, or at such other address as the Company or the Employee may hereafter designate in writing to the other.
 
9. Governing Law . This Restricted LTIP Unit Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Maryland, without references to principles of conflict of laws.
 
10. Successors and Assigns . This Restricted LTIP Unit Agreement shall be binding upon and inure to the benefit of the parties hereto and any successors to the Company and any successors to the Employee by will or the laws of descent and distribution, but this Restricted LTIP Unit Agreement shall not otherwise be assignable or otherwise subject to hypothecation by the Employee. None of the LTIP Units shall be sold, assigned, transferred, pledged or otherwise disposed of or encumbered (whether voluntarily or involuntarily or by judgment, levy, attachment, garnishment or other legal or equitable proceeding) (each such action a “ Transfer ”), or redeemed in accordance with the Partnership Agreement (a) prior to vesting and (b) unless such Transfer is in compliance with all applicable securities laws (including, without limitation, the Securities Act, and such Transfer is in accordance with the applicable terms and conditions of the Partnership Agreement. Any attempted Transfer of LTIP Units not in accordance with the terms and conditions of this Section 10 shall be null and void, and the Partnership shall not reflect on its records any change in record ownership of any LTIP Units as a result of any such Transfer, and shall otherwise refuse to recognize any such Transfer.
 
11. Severability . If, for any reason, any provision of this Restricted LTIP Unit Agreement is held invalid, such invalidity shall not affect any other provision of this Restricted LTIP Unit Agreement not so held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Restricted LTIP Unit Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Restricted LTIP Unit Agreement, shall to the full extent consistent with law continue in full force and effect.
 
12. Headings . The headings of paragraphs hereof are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Restricted LTIP Unit Agreement.
 
13. Counterparts . This Restricted LTIP Unit Agreement may be executed in multiple counterparts with the same effect as if each of the signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.
 

6


14. Miscellaneous . This Restricted LTIP Unit Agreement may not be amended except in writing signed by the Company and the Employee. Notwithstanding the foregoing, this Restricted LTIP Unit Agreement may be amended in writing signed only by the Company to:  (a) correct any errors or ambiguities in this Restricted LTIP Unit Agreement; and/or (b) to make such changes that do not materially adversely affect the Employee’s rights hereunder. This grant shall in no way affect the Employee’s participation or benefits under any other plan or benefit program maintained or provided by the Company. In the event of a conflict between this Restricted LTIP Unit Agreement and the Plan, the Plan shall govern.
 
15. Conflict With Employment Agreement . If (and only if) the Employee and the Company or its affiliates have entered into an employment agreement, in the event of any conflict between any of the provisions of this Agreement and any such employment agreement the provisions of such employment agreement will govern. As further provided in Section 7, nothing herein shall imply that any employment agreement exists between the Employee and the Company or its affiliates.
 
16. Status as a Partner . As of the Grant Date, the Employee shall be admitted as a partner of the Partnership with beneficial ownership of the number of LTIP Units issued to the Employee as of such date pursuant to this Restricted LTIP Unit Agreement by: (A) signing and delivering to the Partnership a copy of this Agreement; and (B) signing, as a Limited Partner, and delivering to the Partnership a counterpart signature page to the Partnership Agreement (attached hereto as Exhibit A ).
 
17. Status of LTIP Units under the Plan . The LTIP Units are both issued as equity securities of the Partnership and granted as awards under the Plan. The Company will have the right at its option, as set forth in the Partnership Agreement, to issue Common Shares in exchange for Class A Units into which LTIP Units may have been converted pursuant to the Partnership Agreement, subject to certain limitations set forth in the Partnership Agreement, and such Common Shares, if issued, will be issued under the Plan. The Employee must be eligible to receive the LTIP Units in compliance with applicable federal and state securities laws and to that effect is required to complete, execute and deliver certain covenants, representations and warranties (attached as Exhibit B ). The Employee acknowledges that the Employee will have no right to approve or disapprove such determination by the Company.
 
18. Investment Representations; Registration . The Employee hereby makes the covenants, representations and warranties and set forth on Exhibit B attached hereto. All of such covenants, warranties and representations shall survive the execution and delivery of this Restricted LTIP Unit Agreement by the Employee. The Partnership will have no obligation to register under the Securities Act any LTIP Units or any other securities issued pursuant to this Restricted LTIP Unit Agreement or upon conversion or exchange of LTIP Units.
 
19. Section 83(b) Election . In connection with this Restricted LTIP Unit Agreement the Employee hereby agrees to make an election to include in gross income in

7


the year of transfer the applicable LTIP Units pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, substantially in the form attached hereto as Exhibit C and to supply the necessary information in accordance with the regulations promulgated thereunder.
 
[signature page follows]
 


8


 
IN WITNESS WHEREOF, this Restricted LTIP Unit Agreement has been executed by the parties hereto as of the date and year first above written.
 
 
VORNADO REALTY TRUST
 
 
 
 
 
 
 
 
By:
 
 
 


 
 
 
 
 
 
 
 
 
 
 
VORNADO REALTY L.P.
 
 
 
 
 
By:  Vornado Realty Trust, its general partner
 
 
 
 
 
 
 
 
 
By:
 
 
 
 
 
 
 
   

 
 
 
 
 
EMPLOYEE
 
 
 
 
 
 
 
 
 
 
 
Name:
 
 
 
 
 
 
 
 
 
 
 
 
 
 



9


EXHIBIT A
 
FORM OF LIMITED PARTNER SIGNATURE PAGE
 
The Employee, desiring to become one of the within named Limited Partners of Vornado Realty L.P., hereby accepts all of the terms and conditions of (including, without limitation, the provisions related to powers of attorney), and becomes a party to, the Second Amended and Restated Agreement of Limited Partnership, dated as of October 20, 1997, of Vornado Realty L.P., as amended (the “ Partnership Agreement ”). The Employee agrees that this signature page may be attached to any counterpart of the Partnership Agreement and further agrees as follows (where the term “Limited Partner” refers to the Employee: Capitalized terms used but not defined herein have the meaning ascribed thereto in the Partnership Agreement
 
1. The Limited Partner hereby confirms that it has reviewed the terms of the Partnership Agreement and affirms and agrees that it is bound by each of the terms and conditions of the Partnership Agreement, including, without limitation, the provisions thereof relating to limitations and restrictions on the transfer of Partnership Units.
 
2. The Limited Partner hereby confirms that it is acquiring the Partnership Units for its own account as principal, for investment and not with a view to resale or distribution, and that the Partnership Units may not be transferred or otherwise disposed of by the Limited Partner otherwise than in a transaction pursuant to a registration statement filed by the Partnership (which it has no obligation to file) or that is exempt from the registration requirements of the Securities Act of 1933, as amended (the “ Securities Act ”), and all applicable state and foreign securities laws, and the General Partner may refuse to transfer any Partnership Units as to which evidence of such registration or exemption from registration satisfactory to the General Partner is not provided to it, which evidence may include the requirement of a legal opinion regarding the exemption from such registration. If the General Partner delivers to the Limited Partner Common Shares of Beneficial Interest of the General Partner (“ Common Shares ”) upon redemption of any Partnership Units, the Common Shares will be acquired for the Limited Partner’s own account as principal, for investment and not with a view to resale or distribution, and the Common Shares may not be transferred or otherwise disposed of by the Limited Partner otherwise than in a transaction pursuant to a registration statement filed by the General Partner with respect to such Common Shares (which it has no obligation under the Partnership Agreement to file) or that is exempt from the registration requirements of the Securities Act and all applicable state and foreign securities laws, and the General Partner may refuse to transfer any Common Shares as to which evidence of such registration or exemption from such registration satisfactory to the General Partner is not provided to it, which evidence may include the requirement of a legal opinion regarding the exemption from such registration.
 
3. The Limited Partner hereby affirms that it has appointed the General Partner, any Liquidator and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and

Ex. A-1



attorney-in-fact, with full power and authority in its name, place and stead, in accordance with Section 15.11 of the Partnership Agreement, which section is hereby incorporated by reference. The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, and it shall survive and not be affected by the death, incompetency, dissolution, disability, incapacity, bankruptcy or termination of the Limited Partner and shall extend to the Limited Partner’s heirs, executors, administrators, legal representatives, successors and assigns.
 
4. The Limited Partner hereby confirms that, notwithstanding any provisions of the Partnership Agreement to the contrary, the LTIP Units shall not be redeemable by the Limited Partner pursuant to Section 8.6 of the Partnership Agreement.
 
5. a. The Limited Partner hereby irrevocably consents in advance to any amendment to the Partnership Agreement, as may be recommended by the General Partner, intended to avoid the Partnership being treated as a publicly-traded partnership within the meaning of Section 7704 of the Internal Revenue Code, including, without limitation, (x) any amendment to the provisions of Section 8.6 of the Partnership Agreement intended to increase the waiting period between the delivery of a Notice of Redemption and the Specified Redemption Date and/or the Valuation Date to up to sixty (60) days or (y) any other amendment to the Partnership Agreement intended to make the redemption and transfer provisions, with respect to certain redemptions and transfers, more similar to the provisions described in Treasury Regulations Section 1.7704-1(f).
 
b. The Limited Partner hereby appoints the General Partner, any Liquidator and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead, to execute and deliver any amendment referred to in the foregoing paragraph 5(a) on the Limited Partner’s behalf. The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, and it shall survive and not be affected by the death, incompetency, dissolution, disability, incapacity, bankruptcy or termination of the Limited Partner and shall extend to the Limited Partner’s heirs, executors, administrators, legal representatives, successors and assigns.
 
6. The Limited Partner agrees that it will not transfer any interest in the Partnership Units (x) through (i) a national, non-U.S., regional, local or other securities exchange, (ii) PORTAL or (iii) an over-the-counter market (including an interdealer quotation system that regularly disseminates firm buy or sell quotations by identified brokers or dealers by electronic means or otherwise) or (y) to or through (a) a person, such as a broker or dealer, that makes a market in, or regularly quotes prices for, interests in the Partnership or (b) a person that regularly makes available to the public (including customers or subscribers) bid or offer quotes with respect to any interests in the Partnership and stands ready to effect transactions at the quoted prices for itself or on behalf of others.
 

Ex. A-2



7. The Limited Partner acknowledges that the General Partner shall be a third party beneficiary of the representations, covenants and agreements set forth in Sections 4 and 6 hereof. The Limited Partner agrees that it will transfer, whether by assignment or otherwise, Partnership Units only to the General Partner or to transferees that provide the Partnership and the General Partner with the representations and covenants set forth in Sections 4 and 6 hereof.
 
8. This Acceptance shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law.
 
 
 
Signature Line for Limited Partner:
 
 
 
 
 
Name:
 
 
 
 
 
 
 
 
 
 
 
 
Date:
 
 
 
, 20__
 
 
 
 Address of Limited Partner:
 
  

 
  

 
 


 


Ex. A-3



. EXHIBIT B
 
EMPLOYEE’S COVENANTS, REPRESENTATIONS AND WARRANTIES
 
The Employee hereby represents, warrants and covenants as follows:
 
(a) The Employee has received and had an opportunity to review the following documents (the “ Background Documents ”):
 
(i) Vornado Realty Trust’s latest Annual Report to Shareholders;
 
(ii) Vornado Realty Trust’s Proxy Statement for its most recent Annual Meeting of Shareholders;
 
(iii) Vornado Realty Trust’s and Vornado Realty L.P.’s Report on Form 10-K for the fiscal year most recently ended;
 
(iv) Vornado Realty Trust’s and Vornado Realty L.P.’s Form 10-Q, if any, for the most recently ended quarter filed by Vornado Realty Trust and Vornado Realty L.P. with the Securities and Exchange Commission since the filing of the Form 10-K described in clause (iii) above;
 
(v) Each of the Current Report(s) on Form 8-K of Vornado Realty Trust and Vornado Realty L.P., if any, filed since the end of the fiscal year most recently ended for which a Form 10-K has been filed by Vornado Realty Trust and Vornado Realty L.P.;
 
(vi) The Partnership Agreement;
 
(vii) Vornado Realty Trust’s 2010 Omnibus Share Plan; and
 
(viii) Vornado Realty L.P.’s Second Amended and Restated Agreement of Limited Partnership, as amended.
 
The Employee also acknowledges that any delivery of the Background Documents and other information relating to Vornado Realty Trust and Vornado Realty L.P. prior to the determination by Vornado Realty L.P. of the suitability of the Employee as a holder of LTIP Units shall not constitute an offer of LTIP Units until such determination of suitability shall be made.
 
(b) The Employee hereby represents and warrants that
 
(i) The Employee either (A) is an “accredited investor” as defined in Rule 501(a) under the Securities Act of 1933, as amended (the “ Securities Act ”), or (B) by reason of the business and financial experience of the Employee,

Ex. B-1



together with the business and financial experience of those persons, if any, retained by the Employee to represent or advise him with respect to the grant to him of LTIP Units, the potential conversion of LTIP Units into Class A Units of the Partnership (“ Common Units ”) and the potential redemption of such Common Units for Vornado Realty Trust’s Common Shares (“ REIT Shares ”), has such knowledge, sophistication and experience in financial and business matters and in making investment decisions of this type that the Employee (I) is capable of evaluating the merits and risks of an investment in the Partnership and potential investment in Vornado Realty Trust and of making an informed investment decision, (II) is capable of protecting his own interest or has engaged representatives or advisors to assist him in protecting his interests, and (III) is capable of bearing the economic risk of such investment.
 
(ii) The Employee understands that (A) the Employee is responsible for consulting his own tax advisors with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Employee is or by reason of the award of LTIP Units may become subject, to his particular situation; (B) the Employee has not received or relied upon business or tax advice from Vornado Realty Trust, the Partnership or any of their respective employees, agents, consultants or advisors, in their capacity as such; (C) the Employee provides services to the Partnership on a regular basis and in such capacity has access to such information, and has such experience of and involvement in the business and operations of the Partnership, as the Employee believes to be necessary and appropriate to make an informed decision to accept this award of LTIP Units; and (D) an investment in the Partnership and/or Vornado Realty Trust involves substantial risks. The Employee has been given the opportunity to make a thorough investigation of matters relevant to the LTIP Units and has been furnished with, and has reviewed and understands, materials relating to the Partnership and Vornado Realty Trust and their respective activities (including, but not limited to, the Background Documents). The Employee has been afforded the opportunity to obtain any additional information (including any exhibits to the Background Documents) deemed necessary by the Employee to verify the accuracy of information conveyed to the Employee. The Employee confirms that all documents, records, and books pertaining to his receipt of LTIP Units which were requested by the Employee have been made available or delivered to the Employee. The Employee has had an opportunity to ask questions of and receive answers from the Partnership and Vornado Realty Trust, or from a person or persons acting on their behalf, concerning the terms and conditions of the LTIP Units. The Employee has relied upon, and is making its decision solely upon, the Background Documents and other written information provided to the Employee by the Partnership or Vornado Realty Trust.
 
(iii) The LTIP Units to be issued, the Common Units issuable upon conversion of the LTIP Units and any REIT Shares issued in connection with the redemption of any such Common Units will be acquired for the account of the

Ex. B-2



Employee for investment only and not with a current view to, or with any intention of, a distribution or resale thereof, in whole or in part, or the grant of any participation therein, without prejudice, however, to the Employee’s right (subject to the terms of the LTIP Units, the Stock Plan and this Agreement) at all times to sell or otherwise dispose of all or any part of his LTIP Units, Common Units or REIT Shares in compliance with the Securities Act, and applicable state securities laws, and subject, nevertheless, to the disposition of his assets being at all times within his control.
 
(iv) The Employee acknowledges that (A) neither the LTIP Units to be issued, nor the Common Units issuable upon conversion of the LTIP Units, have been registered under the Securities Act or state securities laws by reason of a specific exemption or exemptions from registration under the Securities Act and applicable state securities laws and, if such LTIP Units or Common Units are represented by certificates, such certificates will bear a legend to such effect, (B) the reliance by the Partnership and Vornado Realty Trust on such exemptions is predicated in part on the accuracy and completeness of the representations and warranties of the Employee contained herein, (C) such LTIP Units or Common Units, therefore, cannot be resold unless registered under the Securities Act and applicable state securities laws, or unless an exemption from registration is available, (D) there is no public market for such LTIP Units and Common Units and (E) neither the Partnership nor Vornado Realty Trust has any obligation or intention to register such LTIP Units or the Common Units issuable upon conversion of the LTIP Units under the Securities Act or any state securities laws or to take any action that would make available any exemption from the registration requirements of such laws, except, that, upon the redemption of the Common Units for REIT Shares, Vornado Realty Trust may issue such REIT Shares under the 2010 Omnibus Share Plan (the “Stock Plan”) and pursuant to a Registration Statement on Form S-8 under the Securities Act, to the extent that (I) the Employee is eligible to receive such REIT Shares under the Stock Plan at the time of such issuance, (II) Vornado Realty Trust has filed a Form S-8 Registration Statement with the Securities and Exchange Commission registering the issuance of such REIT Shares and (III) such Form S-8 is effective at the time of the issuance of such REIT Shares. The Employee hereby acknowledges that because of the restrictions on transfer or assignment of such LTIP Units acquired hereby and the Common Units issuable upon conversion of the LTIP Units which are set forth in the Partnership Agreement or this Agreement, the Employee may have to bear the economic risk of his ownership of the LTIP Units acquired hereby and the Common Units issuable upon conversion of the LTIP Units for an indefinite period of time.
 
(v) The Employee has determined that the LTIP Units are a suitable investment for the Employee.
 
(vi) No representations or warranties have been made to the Employee by the Partnership or Vornado Realty Trust, or any officer, director,

Ex. B-3



shareholder, agent, or affiliate of any of them, and the Employee has received no information relating to an investment in the Partnership or the LTIP Units except the information specified in paragraph (b) above.
 
(c) So long as the Employee holds any LTIP Units, the Employee shall disclose to the Partnership in writing such information as may be reasonably requested with respect to ownership of LTIP Units as the Partnership may deem reasonably necessary to ascertain and to establish compliance with provisions of the Code, applicable to the Partnership or to comply with requirements of any other appropriate taxing authority.
 
(d) The Employee hereby agrees to make an election under Section 83(b) of the Code with respect to the LTIP Units awarded hereunder, and has delivered with this Agreement a completed, executed copy of the election form attached hereto as Exhibit C . The Employee agrees to file the election (or to permit the Partnership to file such election on the Employee’s behalf) within thirty (30) days after the award of the LTIP Units hereunder with the IRS Service Center at which such Employee files his personal income tax returns, and to file a copy of such election with the Employee’s U.S. federal income tax return for the taxable year in which the LTIP Units are awarded to the Employee.
 
(e) The address set forth on the signature page of this Agreement is the address of the Employee’s principal residence, and the Employee has no present intention of becoming a resident of any country, state or jurisdiction other than the country and state in which such residence is sited.
 



    
    

Ex. B-4



SCHEDULE A TO RESTRICTED LTIP UNIT AGREEMENT
. 
(Terms being defined are in quotation marks.)
 

Date of Restricted LTIP Unit Agreement:
 

Name of Employee:
 

Number of LTIP Units Subject to Grant:
 

Date of Grant:
 

Date on Which Restricted LTIP Units are Fully Vested:
 

Vesting Period:

[__] years

“ Annual Vesting Amount ”  
Insert the number of LTIP Units that vest each year or other applicable vesting schedule.
 
 
[__]

“ Annual Vesting Date ” (or if such date is not a business day, on the next succeeding business day):  
Insert the calendar date of each year on which LTIP Units will vest or other appropriate vesting schedule.






Additional Matters :

 
 

Initials of Vornado Realty Trust representative:         

Initials of Employee:             

EXHIBIT 10.39

FORM OF VORNADO REALTY TRUST 2010 OMNIBUS SHARE PLAN
RESTRICTED STOCK AGREEMENT
 
RESTRICTED STOCK AGREEMENT made as of date set forth on Schedule A hereto between VORNADO REALTY TRUST, a Maryland real estate investment trust (the “ Company ”), and the employee of the Company or one of its affiliates listed on Schedule A (the “ Employee ”).
 
RECITALS
 
A. In accordance with the Vornado Realty Trust 2010 Omnibus Share Plan, as it may be amended from time to time (the “ Plan ”), the Company desires in connection with the employment of the Employee, to provide the Employee with an opportunity to acquire shares of the Company’s common shares of beneficial interest, par value $0.04 per share (the “ Common Shares ”), and thereby provide additional incentive for the Employee to promote the progress and success of the business of the Company and its subsidiaries.
 
B.  Schedule A hereto sets forth certain significant details of the share grant herein and is incorporated herein by reference.  Capitalized terms used herein and not otherwise defined have the meanings provided on Schedule A .
 
NOW, THEREFORE, the Company and the Employee hereby agree as follows:
 
AGREEMENT
 
1. Grant of Restricted Stock .  On the terms and conditions set forth below, as well as the terms and conditions of the Plan, the Company hereby grants to the Employee such number of Common Shares as is set forth on Schedule A (the “ Restricted Stock ”).
 
2. Vesting Period .  The vesting period of the Restricted Stock (the “ Vesting Period ”) begins on the Grant Date and continues until such date as is set forth on Schedule A as the date on which the Restricted Stock is fully vested.  On the first Annual Vesting Date following the date of this Agreement and each Annual Vesting Date thereafter the number of shares of Restricted Stock equal to the Annual Vesting Amount shall become vested, subject to earlier forfeiture as provided in this Agreement.  To the extent that Schedule A provides for amounts or schedules of vesting that conflict with the provisions of this paragraph, the provisions of Schedule A will govern.  Except as permitted under Section 10, the shares of Restricted Stock for which the applicable Vesting Period has not expired may not be sold, assigned, transferred, pledged or otherwise disposed of or encumbered (whether voluntary or involuntary or by judgment, levy, attachment, garnishment or other legal or equitable proceeding).




 
The Employee shall not have the right to receive dividends paid on shares of Restricted Stock for which the applicable Vesting Period has not expired.  In lieu thereof, the Employee shall have the right to receive from the Company an amount, in cash, equal to the dividends payable on shares of Restricted Stock for which the applicable Vesting Period has not expired, provided the Employee is employed by the Company or its affiliates on the payroll date coinciding with or immediately following the date any such dividends are paid on the Restricted Shares.
 
The Employee shall have the right to vote the Restricted Stock, regardless of whether the applicable Vesting Period has expired.
 
3. Forfeiture of Restricted Stock .  If the employment of the Employee by the Company or its affiliates terminates for any reason except Retirement, death or following a Change in Control as described below, the shares of Restricted Stock for which the applicable Vesting Period has not expired as of the date of such termination shall be forfeited and returned to the Company.  Upon the Employee’s Retirement, any shares of Restricted Stock for which the applicable Vesting Period has not expired as of the date of such termination shall not be forfeited, and shall continue to vest in accordance with the vesting schedule set forth on Schedule A as if the Employee had remained employed with the Company and the Employee shall have the right to receive a cash amount in accordance with Section 2 equal to dividends payable on such shares of Restricted Stock following the Employee’s Retirement as if the Employee was employed on the applicable payroll date.  Upon the Employee’s death, all of the shares of Restricted Stock (whether or not vested) shall become fully vested and shall not be forfeitable. Upon the occurrence of (a) a Change in Control of the Company, and (b) the termination of employment of the Employee with the Company or its affiliates within 24 months of such Change in Control either (i) by the Company (or its successor) without Cause (as defined below) or (ii) by the Employee for Good Reason (as defined below), then any shares of Restricted Stock for which the applicable Vesting Period has not expired, shall become fully vested and shall not be forfeitable.  For purposes of this Restricted Stock Agreement, a “ Change in Control ” of the Company means the occurrence of one of the following events:
 
(i) individuals who, on the Grant Date, constitute the Board of Trustees of the Company (the “Incumbent Trustees”) cease for any reason to constitute at least a majority of the Board of Trustees (the “ Board ”), provided that any person becoming a trustee subsequent to the Grant Date whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Trustees then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for trustee, without objection to such nomination) shall be an Incumbent Trustee; provided , however , that no individual initially elected or nominated as a trustee of the Company as a result of an actual or threatened election contest with respect to trustees or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Trustee;
 

2



(ii) any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the “ Exchange Act ”) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after the Grant Date, a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “ Company Voting Securities ”); provided , however , that an event described in this paragraph (ii) shall not be deemed to be a Change in Control if any of following becomes such a beneficial owner:  (A) the Company or any majority-owned subsidiary of the Company ( provided that this exclusion applies solely to the ownership levels of the Company or the majority-owned subsidiary), (B) any tax-qualified, broad-based employee benefit plan sponsored or maintained by the Company or any such majority-owned subsidiary, (C) any underwriter temporarily holding securities pursuant to an offering of such securities, (D) any person pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)), (E) (a) any of the partners (as of the Grant Date) in Interstate Properties (“ Interstate ”) including immediate family members and family trusts or family-only partnerships and any charitable foundations of such partners (the “ Interstate Partners ”), (b) any entities the majority of the voting interests of which are beneficially owned by the Interstate Partners, or (c) any “group” (as described in Rule 13d-5(b)(i) under the Exchange Act) including the Interstate Partners (the persons in (a), (b) and (c) shall be individually and collectively referred to herein as, “ Interstate Holders ”);
 
(iii) the consummation of a merger, consolidation, share exchange or similar form of transaction involving the Company or any of its subsidiaries, or the sale of all or substantially all of the Company’s assets (a “ Business Transaction ”), unless immediately following such Business Transaction (a) more than 50% of the total voting power of the entity resulting from such Business Transaction or the entity acquiring the Company’s assets in such Business Transaction (the “ Surviving Corporation ”) is beneficially owned, directly or indirectly, by the Interstate Holders or the Company’s shareholders immediately prior to any such Business Transaction, and (b) no person (other than the persons set forth in clauses (A), (B), (C), or (F) of paragraph (ii) above or any tax-qualified, broad-based employee benefit plan of the Surviving Corporation or its affiliates) beneficially owns, directly or indirectly, 30% or more of the total voting power of the Surviving Corporation (a “ Non-Qualifying Transaction ”); or
 
(iv) Board approval of a liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the Company’s shareholders in substantially the same proportions as such shareholders owned the Company’s Voting Securities immediately prior to such liquidation and such ongoing entity assumes all existing obligations of the Company to Employee under this Restricted Stock Agreement.

3




For the purposes of this Section, “ Cause ” will mean with respect to the Employee, the Employee’s:  (a) conviction of, or plea of guilty or nolo contendre to, a felony pertaining or otherwise relating to his or her employment with the Company or an affiliate; or (b) willful misconduct that is materially economically injurious to the Company or any of its affiliates, in each case as determined in the Company’s sole discretion. For the purposes of this Section, “ Good Reason ” will mean (a) the assignment to the Employee of duties materially and adversely inconsistent with the Employee’s status prior to the Change in Control or a material and adverse alteration in the nature of the Employee’s duties, responsibilities or authority; (b) a reduction in the Employee’s base salary; or (c) a relocation of the Employee’s own office location to a location more than 30 miles from its location prior to the Change in Control. In the event the Employee is a party to an employment agreement with the Company or an affiliate thereof, and the definitions of Cause or Good Reason contained herein conflict with terms provided therefor in such employment agreement (or similar terms or provisions intended to cover substantially similar circumstances) the definitions contained in such employment agreement will govern.

For the purposes of this Section, “ Retirement ” will mean (A) if the Employee is a party to an employment agreement with the Company or an affiliate thereof immediately prior to such event, and “Retirement” is defined therein, then “Retirement” shall have the meaning set forth in such agreement, or (B) if the Employee is not party to an employment agreement with the Company or an affiliate thereof immediately prior to such event or if the Employee is party to such an agreement and such agreement does not define “Retirement” or a substantially equivalent term, then “Retirement” shall mean the Employee’s termination of his or her employment with the Company and its affiliates after attainment of age 65.

4. Certificates .  Each certificate issued in respect of the Restricted Stock awarded under this Restricted Stock Agreement shall be registered in the Employee’s name and held by the Company until the expiration of the applicable Vesting Period.  At the expiration of each Vesting Period, the Company shall deliver to the Employee (or, if applicable, to the Employee’s legal representatives, beneficiaries or heirs) certificates representing the number of Common Shares that vested upon the expiration of such Vesting Period.  The Employee agrees that any resale of the Common Shares received upon the expiration of the applicable Vesting Period shall not occur during the “blackout periods” forbidding sales of Company securities, as set forth in the then applicable Company employee manual or insider trading policy.  In addition, any resale shall be made in compliance with the registration requirements of the Securities Act of 1933, as amended, or an applicable exemption therefrom, including, without limitation, the exemption provided by Rule 144 promulgated thereunder (or any successor rule).
 
5. Tax Withholding .  The Company or its applicable affiliate has the right to withhold from cash compensation payable to the Employee all applicable income and employment taxes due and owing at the time the applicable portion of the Restricted Stock becomes includible in the Employee’s income (the “ Withholding Amount ”), and/or to delay delivery of Restricted Stock until appropriate arrangements have been made for

4



payment of such withholding.  In the alternative, the Company has the right to retain and cancel, or sell or otherwise dispose of such number of shares of Restricted Stock as have a market value determined at date the applicable shares vest, approximately equal to the Withholding Amount with any excess proceeds being paid to Employee.
 
6. Certain Adjustments .  In the event of any change in the outstanding Common Shares by reason of any share dividend or split, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other corporate change, or any distribution to common shareholders other than regular dividends, any shares or other securities received by the Employee with respect to the applicable Restricted Stock for which the Vesting Period shall not have expired will be subject to the same restrictions as the Restricted Stock with respect to an equivalent number of shares and shall be deposited with the Company.
 
7. No Right to Employment .  Nothing herein contained shall affect the right of the Company or any affiliate to terminate the Employee’s services, responsibilities and duties at any time for any reason whatsoever.
 
8. Notice .  Any notice to be given to the Company shall be addressed to the Secretary of the Company at 888 Seventh Avenue, New York, New York 10019 and any notice to be given the Employee shall be addressed to the Employee at the Employee’s address as it appears on the employment records of the Company, or at such other address as the Company or the Employee may hereafter designate in writing to the other.
 
9. Governing Law .  This Restricted Stock Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Maryland, without references to principles of conflict of laws.
 
10. Successors and Assigns .  This Restricted Stock Agreement shall be binding upon and inure to the benefit of the parties hereto and any successors to the Company and any successors to the Employee by will or the laws of descent and distribution, but this Restricted Stock Agreement shall not otherwise be assignable or otherwise subject to hypothecation by the Employee.
 
11. Severability .  If, for any reason, any provision of this Restricted Stock Agreement is held invalid, such invalidity shall not affect any other provision of this Restricted Stock Agreement not so held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect.  If any provision of this Restricted Stock Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Restricted Stock Agreement, shall to the full extent consistent with law continue in full force and effect.
 

5



12. Headings .  The headings of paragraphs hereof are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Restricted Stock Agreement.
 
13. Counterparts .  This Restricted Stock Agreement may be executed in multiple counterparts with the same effect as if each of the signing parties had signed the same document.  All counterparts shall be construed together and constitute the same instrument.
 
14. Miscellaneous .  This Restricted Stock Agreement may not be amended except in writing signed by the Company and the Employee.  Notwithstanding the foregoing, this Restricted Stock Agreement may be amended in writing signed only by the Company to:  (a) correct any errors or ambiguities in this Restricted Stock Agreement; and/or (b) to make such changes that do not materially adversely affect the Employee’s rights hereunder.  This grant shall in no way affect the Employee’s participation or benefits under any other plan or benefit program maintained or provided by the Company.  In the event of a conflict between this Restricted Stock Agreement and the Plan, the Plan shall govern.
 
15. CONFLICT WITH EMPLOYMENT AGREEMENT .  If (and only if) the Employee and the Company or its affiliates have entered into an employment agreement, in the event of any conflict between any of the provisions of this Agreement and any such employment agreement the provisions of such employment agreement will govern.  As further provided in Section 7, nothing herein shall imply that any employment agreement exists between the Employee and the Company or its affiliates.
 
[signature page follows]
 

6



 
IN WITNESS WHEREOF, this Restricted Stock Agreement has been executed by the parties hereto as of the date and year first above written.
 
 
 
VORNADO REALTY TRUST
 
 
 
 
 
By:
 
 
 
Name:
 
 
Title:

 
 
 
 
 
Name


7



SCHEDULE A TO RESTRICTED STOCK AGREEMENT
 (Terms being defined are in quotation marks.)
 


Date of Restricted Stock Agreement:

 

Name of Employee:

 

Number of Common Shares Subject to Grant:

 

Date of Grant:

 

Date on Which Restricted Stock is Fully Vested:

 

Vesting Period:


[__] years

“ Annual Vesting Amount ”  
Insert the number of Restricted Shares that vest each year or other applicable vesting schedule.
 
[__]

“ Annual Vesting Date ”
(or if such date is not a business day, on the next succeeding business day):  
Insert the calendar date of each year on which Restricted Shares will vest or other appropriate vesting schedule.

 



 

Initials of Company representative:         
 

Initials of Employee:         

8


EXHIBIT 21

All of the following are subsidiaries of both Vornado Realty Trust and Vornado Realty, L.P. as of December 31, 2018, except Vornado Realty, L.P. is a subsidiary of only Vornado Realty Trust.
 
VORNADO REALTY TRUST AND VORNADO REALTY L.P.
 
 
FORM 10-K
 
 
SUBSIDIARIES OF THE REGISTRANT
 
 
AS OF DECEMBER 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
State of
 
 
Name of Subsidiary
 
 
 
Organization
 
 
 
 
 
 
 
 
1
11 East 68th Street LLC
 
 
 
Delaware
1
2
11 East 68th TRS LLC
 
 
 
Delaware
2
3
1290 Management II, LLC
 
 
 
Delaware
3
4
131 West 33rd Street Owner LLC
 
 
 
Delaware
4
5
137 West 33rd Street Owner LLC
 
 
 
Delaware
5
6
138-142 West 32nd EAT LLC
 
 
 
Delaware
6
7
144-150 West 34th Street EAT LLC
 
 
 
Delaware
7
8
144-150 West 34th Street Owner II LLC
 
 
 
Delaware
8
9
148 Spring Street, LLC
 
 
 
Delaware
9
10
150 East 58th Street, L.L.C.
 
 
 
New York
10
11
150 Spring Street LLC
 
 
 
Delaware
11
12
1535 Broadway LLC
 
 
 
Delaware
12
13
1800 Park REIT LLC
 
 
 
Delaware
13
14
201 East 66th Street LLC
 
 
 
New York
14
15
205-217 E. 138th Street LLC
 
 
 
Delaware
15
16
220 Building Owner LLC
 
 
 
Delaware
16
17
265 West 34th Street Owner LLC
 
 
 
Delaware
17
18
27 Washington Sq North Owner LLC
 
 
 
Delaware
18
19
280 Park Administration LLC
 
 
 
Delaware
19
20
280 Park Cleaning LLC
 
 
 
Delaware
20
21
280 Park Junior Mezzanine LLC
 
 
 
Delaware
21
22
280 Park Senior Mezzanine LLC
 
 
 
Delaware
22
23
29 West 57th Street Owner LLC
 
 
 
Delaware
23
24
304-306 Canal Street LLC
 
 
 
Delaware
24
25
31 West 57th Street Owner LLC
 
 
 
Delaware
25
26
330 Madison Company LLC
 
 
 
Delaware
26
27
330 Madison Property Owner LLC
 
 
 
Delaware
27
28
334 Canal Street LLC
 
 
 
Delaware
28
29
350 Park EAT LLC
 
 
 
Delaware
29
30
4 USS LLC
 
 
 
Delaware
30
31
40 East 14 Realty Associates, L.L.C.
 
 
 
New York
31
32
40 Fulton Street LLC
 
 
 
New York
32
33
401 Commercial Son II LLC
 
 
 
Delaware
33
34
401 Commercial Son, LLC
 
 
 
Delaware
34
35
401 Commercial, L.P.
 
 
 
Delaware
35
36
401 General Partner, L.L.C.
 
 
 
Delaware
36
37
401 Hotel General Partner, L.L.C.
 
 
 
Delaware
37
38
401 Hotel REIT, LLC
 
 
 
Delaware
38





39
401 Hotel TRS, Inc.
 
 
 
Delaware
39
40
401 Hotel, L.P.
 
 
 
Delaware
40
41
408 West 15th Street Owner LLC
 
 
 
Delaware
41
42
480-486 Broadway, LLC
 
 
 
Delaware
42
43
486 8th Avenue Owner LLC
 
 
 
Delaware
43
44
488 Eighth Avenue Owner LLC
 
 
 
Delaware
44
45
49 West 57th Street Owner LLC
 
 
 
Delaware
45
46
50 East 86th Street Owner LLC
 
 
 
Delaware
46
47
501 Broadway Parallel REIT LLC
 
 
 
Delaware
47
48
501 Broadway REIT LLC
 
 
 
Delaware
48
49
527 West Kinzie LLC
 
 
 
Delaware
49
50
555 California Restaurant LLC
 
 
 
Delaware
50
51
555 California Restaurant Trust
 
 
 
Maryland
51
52
555 California Services JV LLC
 
 
 
Delaware
52
53
555 California TRS LLC
 
 
 
Delaware
53
54
58 Central Park III LLC
 
 
 
Delaware
54
55
58 Central Park LLC
 
 
 
Delaware
55
56
61 Ninth Avenue Development Holdings LLC
 
 
 
Delaware
56
57
61 Ninth Avenue Development LLC
 
 
 
Delaware
57
58
61 Ninth Avenue Development Member LLC
 
 
 
Delaware
58
59
61 Ninth Avenue Management LLC
 
 
 
Delaware
59
60
61 Ninth Retail Manager LLC
 
 
 
Delaware
60
61
650 Madison GP LLC
 
 
 
Delaware
61
62
650 Madison GP LP
 
 
 
Delaware
62
63
650 Madison Junior Mezz LLC
 
 
 
Delaware
63
64
650 Madison Office Manager LLC
 
 
 
Delaware
64
65
650 Madison Owner LLC
 
 
 
Delaware
65
66
650 Madison Retail Manager LLC
 
 
 
Delaware
66
67
650 Madison Senior Mezz LLC
 
 
 
Delaware
67
68
655 Fifth Avenue LLC
 
 
 
Delaware
68
69
655 Fifth Avenue Owner LLC
 
 
 
Delaware
69
70
655 Fifth Holdings LLC
 
 
 
Delaware
70
71
655 Fifth II LLC
 
 
 
Delaware
71
72
655 Fifth III LLC
 
 
 
Delaware
72
73
655 Fifth IV LLC
 
 
 
Delaware
73
74
689 Fifth Avenue L.L.C.
 
 
 
New York
74
75
697 Fifth/2 East 55th Street Manager LLC
 
 
 
Delaware
75
76
697 Fifth/2 East 55th Street TIC A Holdings LLC
 
 
 
Delaware
76
77
697 Fifth/2 East 55th Street TIC A Mezz LLC
 
 
 
Delaware
77
78
697 Fifth/2 East 55th Street TIC A Titleholder LLC
 
 
 
Delaware
78
79
697 Fifth/2 East 55th Street TIC B Lower-Tier LLC
 
 
 
Delaware
79
80
697 Fifth/2 East 55th Street TIC B Mezz LLC
 
 
 
Delaware
80
81
697 Fifth/2 East 55th Street TIC B Upper-Tier LLC
 
 
 
Delaware
81
82
697 Fifth/2 East 55th TIC B Holdings LLC
 
 
 
Delaware
82
83
697 Fifth/2 East 55th TIC B Mortgage Borrower LLC
 
 
 
Delaware
83
84
6M Investor LP
 
 
 
Delaware
84





85
6M REIT LLC
 
 
 
Delaware
85
86
7 West 34th Street LLC
 
 
 
New York
86
87
715 Lexington Avenue LLC
 
 
 
New York
87
88
715 Lexington Avenue TIC II LLC
 
 
 
Delaware
88
89
715 Lexington Avenue TIC LLC
 
 
 
Delaware
89
90
770 Broadway Company LLC
 
 
 
New York
90
91
770 Broadway Mezzanine LLC
 
 
 
Delaware
91
92
770 Broadway Owner LLC
 
 
 
Delaware
92
93
825 Seventh Avenue Holding Corporation
 
 
 
New York
93
94
825 Seventh Avenue Holding L.L.C.
 
 
 
New York
94
95
85 Tenth Junior Mezz LLC
 
 
 
Delaware
95
96
888 Seventh Avenue LLC
 
 
 
Delaware
96
97
909 Third Avenue Assignee LLC
 
 
 
New York
97
98
909 Third Company, L.P.
 
 
 
New York
98
99
909 Third GP, LLC
 
 
 
Delaware
99
100
968 Third, L.L.C.
 
 
 
New York
100
101
Alexander's, Inc.
 
 
 
Delaware
101
102
Arbor Property, L.P.
 
 
 
Delaware
102
103
Art on theMart LLC
 
 
 
Delaware
103
104
Art Patron Holdings LLC
 
 
 
Delaware
104
105
Balena Real Estate Development II LLC
 
 
 
Delaware
105
106
Balena Real Estate Development III LLC
 
 
 
Delaware
106
107
Balena Real Estate Development IV LLC
 
 
 
Delaware
107
108
Balena Real Estate Development LLC
 
 
 
Delaware
108
109
Bensalem VF, L.L.C.
 
 
 
Pennsylvania
109
110
Building Maintenance Service LLC
 
 
 
Delaware
110
111
Circle 1 LLC
 
 
 
Delaware
111
112
CPTS Domestic Owner LLC
 
 
 
Delaware
112
113
CPTS Hotel Lessee LLC
 
 
 
Delaware
113
114
CPTS Hotel Lessee Mezz 1 LLC
 
 
 
Delaware
114
115
CPTS Hotel Lessee Mezz 2 LLC
 
 
 
Delaware
115
116
CPTS Hotel Lessee Mezz 3 LLC
 
 
 
Delaware
116
117
CPTS Parallel Owner LLC
 
 
 
Delaware
117
118
CPTS TRS LLC
 
 
 
Delaware
118
119
CV Harlem Park LLC
 
 
 
Delaware
119
120
Design Center Owner (D.C.), L.L.C.
 
 
 
Delaware
120
121
Durham Leasing II L.L.C.
 
 
 
New Jersey
121
122
Durham Leasing L.L.C.
 
 
 
New Jersey
122
123
Eleven Penn Plaza LLC
 
 
 
New York
123
124
Farley Building Leasing LLC
 
 
 
Delaware
124
125
Farley Building Master Tenant LLC
 
 
 
Delaware
125
126
Farley Building TRS LLC
 
 
 
Delaware
126
127
Farley Cleaning LLC
 
 
 
Delaware
127
128
Farley Developer LLC
 
 
 
Delaware
128
129
Farley Lease Management LLC
 
 
 
Delaware
129
130
Farley Property Manager LLC
 
 
 
Delaware
130





131
Franconia GP, L.L.C.
 
 
 
Delaware
131
132
Fuller Madison LLC
 
 
 
New York
132
133
Gallery Market Holding Company, L.L.C.
 
 
 
Pennsylvania
133
134
Gallery Market Holding Company, L.P.
 
 
 
Pennsylvania
134
135
Gallery Market Properties Holding Company, L.L.C.
 
 
 
Pennsylvania
135
136
Gallery Market Properties Holding Company, L.P.
 
 
 
Pennsylvania
136
137
Garfield Parcel L.L.C.
 
 
 
New Jersey
137
138
Geneva Associates Owner LLC
 
 
 
Delaware
138
139
Green Acres 666 Fifth Retail EAT TIC Owner LLC
 
 
 
Delaware
139
140
Green Acres 666 Fifth Retail TIC Owner LLC
 
 
 
Delaware
140
141
Green Acres Mall, L.L.C.
 
 
 
Delaware
141
142
Guard Management Service Corp.
 
 
 
Delaware
142
143
HBR Properties Annapolis, L.L.C.
 
 
 
Delaware
143
144
HBR Properties, L.L.C.
 
 
 
Delaware
144
145
IP Mezz Borrower I LLC
 
 
 
Delaware
145
146
IP Mezz Borrower II LLC
 
 
 
Delaware
146
147
IP Mortgage Borrower LLC
 
 
 
Delaware
147
148
LaSalle Hubbard L.L.C.
 
 
 
Delaware
148
149
Leva II Holdings LLC
 
 
 
Delaware
149
150
Leva III Holdings LLC
 
 
 
Delaware
150
151
Lincoln Road II LLC
 
 
 
Delaware
151
152
Lincoln Road Management LLC
 
 
 
Delaware
152
153
Lincoln Road Parallel REIT LLC
 
 
 
Delaware
153
154
Lincoln Road REIT LLC
 
 
 
Delaware
154
155
M 330 Associates L.P.
 
 
 
New York
155
156
M 393 Associates LLC
 
 
 
New York
156
157
Mart Parking II, LLC
 
 
 
Delaware
157
158
Mart Parking LLC
 
 
 
Delaware
158
159
Mart Trade Show L.L.C.
 
 
 
Delaware
159
160
Menands Holding Corporation
 
 
 
New York
160
161
Menands VF L.L.C.
 
 
 
New York
161
162
Merchandise Mart First Mezzanine Borrower L.L.C.
 
 
 
Delaware
162
163
Merchandise Mart Holdco L.L.C.
 
 
 
Delaware
163
164
Merchandise Mart L.L.C.
 
 
 
Delaware
164
165
Merchandise Mart Properties, Inc.
 
 
 
Delaware
165
166
Merchandise Mart Second Mezzanine Borrower L.L.C.
 
 
 
Delaware
166
167
MMPI Piers MTS L.L.C.
 
 
 
Delaware
167
168
MMPI Volta LLC
 
 
 
Delaware
168
169
Mortgage Owner LLC
 
 
 
Delaware
169
170
Moynihan Interim Tenant LLC
 
 
 
Delaware
170
171
Moynihan Train Hall Developer LLC
 
 
 
Delaware
171
172
MTS-MM L.L.C.
 
 
 
Delaware
172
173
New Jersey GL LLC
 
 
 
Delaware
173
174
Ninety Park Lender LLC
 
 
 
New York
174
175
Ninety Park Lender QRS, Inc.
 
 
 
Delaware
175
176
Ninety Park Manager LLC
 
 
 
New York
176





177
Ninety Park Property LLC
 
 
 
New York
177
178
Office Center Owner (D.C.) L.L.C.
 
 
 
Delaware
178
179
One Park Owner JV LP
 
 
 
Delaware
179
180
One Penn Plaza LLC
 
 
 
New York
180
181
One Penn Plaza TRS, Inc.
 
 
 
Delaware
181
182
Orleans Hubbard LLC
 
 
 
Delaware
182
183
Paris Associates Owner LLC
 
 
 
Delaware
183
184
PCJ I Inc.
 
 
 
New York
184
185
Peak Power One LLC
 
 
 
Delaware
185
186
Penn Plaza Insurance Company, L.L.C.
 
 
 
Vermont
186
187
Philadelphia VF L.L.C.
 
 
 
Pennsylvania
187
188
Philadelphia VF L.P.
 
 
 
Pennsylvania
188
189
Piers 92/94 LLC
 
 
 
Delaware
189
190
Pike Holding Company, L.L.C.
 
 
 
Pennsylvania
190
191
Pike Holding Company, L.P.
 
 
 
Pennsylvania
191
192
Pike VF L.L.C.
 
 
 
Pennsylvania
192
193
Pike VF L.P.
 
 
 
Pennsylvania
193
194
Powerspace & Services, Inc.
 
 
 
Delaware
194
195
Rahway Leasing L.L.C.
 
 
 
New Jersey
195
196
RTR VW LLC
 
 
 
Delaware
196
197
RV Farley Developer LLC
 
 
 
Delaware
197
198
RVS Partners LLC
 
 
 
Delaware
198
199
Shenandoah Parent LLC
 
 
 
Delaware
199
200
Skyline Parent LLC
 
 
 
Delaware
200
201
SMB Administration LLC
 
 
 
Delaware
201
202
SMB Tenant Services LLC
 
 
 
Delaware
202
203
SO Hudson 555 Management, Inc.
 
 
 
Delaware
203
204
SO Hudson Westside I Corp.
 
 
 
Delaware
204
205
T53 Condominium, L.L.C.
 
 
 
New York
205
206
The Armory Show Inc.
 
 
 
New York
206
207
The Palisades A/V Company, L.L.C.
 
 
 
Delaware
207
208
The Park Laurel Condominium
 
 
 
Delaware
208
209
The Pennsy Holdings LLC
 
 
 
Delaware
209
210
Thebes I LLC
 
 
 
Delaware
210
211
theMart Manager LLC
 
 
 
Delaware
211
212
TheMart Tots LLC
 
 
 
Delaware
212
213
TMO 1 LLC
 
 
 
Delaware
213
214
Trees Acquisition Subsidiary, Inc.
 
 
 
Delaware
214
215
Two Guys From Harrison N.Y. L.L.C.
 
 
 
New York
215
216
Two Penn Plaza REIT, Inc.
 
 
 
New York
216
217
Umbra Holdings LLC
 
 
 
Delaware
217
218
Upper Moreland Holding Company, L.L.C.
 
 
 
Pennsylvania
218
219
Upper Moreland Holding Company, L.P.
 
 
 
Pennsylvania
219
220
Upper Moreland VF, L.L.C.
 
 
 
Pennsylvania
220
221
VBL Company, L.L.C.
 
 
 
New York
221
222
VCP COI One Park LP
 
 
 
Delaware
222





223
VCP IM L.L.C.
 
 
 
Delaware
223
224
VCP Lincoln Road LLC
 
 
 
Delaware
224
225
VCP LP L.L.C.
 
 
 
Delaware
225
226
VCP One Park Parallel REIT LLC
 
 
 
Delaware
226
227
VCP Parallel COI One Park LP
 
 
 
Delaware
227
228
VFC New Jersey Holding, L.L.C.
 
 
 
Delaware
228
229
Virgin Sign L.L.C.
 
 
 
Delaware
229
230
VMS Lender LLC
 
 
 
Delaware
230
231
VNK L.L.C.
 
 
 
Delaware
231
232
VNO 100 West 33rd Street LLC
 
 
 
Delaware
232
233
VNO 11 East 68th Street Holding Company LLC
 
 
 
Delaware
233
234
VNO 11 East 68th Street Mezz LLC
 
 
 
Delaware
234
235
VNO 11 East 68th Street Property Owner LLC
 
 
 
Delaware
235
236
VNO 125 West 31st Street Mezz LLC
 
 
 
Delaware
236
237
VNO 154 Spring Street LLC
 
 
 
Delaware
237
238
VNO 155 Spring Street LLC
 
 
 
Delaware
238
239
VNO 1750 Pennsylvania Avenue LLC
 
 
 
Delaware
239
240
VNO 1800 Park LLC
 
 
 
Delaware
240
241
VNO 220 Development LLC
 
 
 
Delaware
241
242
VNO 225 West 58th Street LLC
 
 
 
Delaware
242
243
VNO 225 West 58th Street Mezz Owner LLC
 
 
 
Delaware
243
244
VNO 267 West 34th LLC
 
 
 
Delaware
244
245
VNO 280 Park JV Member LLC
 
 
 
Delaware
245
246
VNO 33 West 57th Street LLC
 
 
 
Delaware
246
247
VNO 33-00 Northern Blvd LLC
 
 
 
Delaware
247
248
VNO 3500 US Highway 9 LLC
 
 
 
Delaware
248
249
VNO 401 Commercial Lessee LLC
 
 
 
Delaware
249
250
VNO 431 Seventh Avenue LLC
 
 
 
Delaware
250
251
VNO 435 Seventh Avenue LLC
 
 
 
Delaware
251
252
VNO 443 Broadway Holdings II LLC
 
 
 
Delaware
252
253
VNO 443 Broadway Holdings III LLC
 
 
 
Delaware
253
254
VNO 443 Broadway LLC
 
 
 
Delaware
254
255
VNO 501 Broadway LLC
 
 
 
Delaware
255
256
VNO 510 Fifth LLC
 
 
 
Delaware
256
257
VNO 510 West 22nd JV Member LLC
 
 
 
Delaware
257
258
VNO 510 West 22nd Lender LLC
 
 
 
Delaware
258
259
VNO 535-545 5th Loan LLC
 
 
 
Delaware
259
260
VNO 537 West 26th Street Owner LLC
 
 
 
Delaware
260
261
VNO 555 Fifth LLC
 
 
 
Delaware
261
262
VNO 606 Broadway LLC
 
 
 
Delaware
262
263
VNO 606 Broadway Manager Member LLC
 
 
 
Delaware
263
264
VNO 61 Ninth Avenue Member LLC
 
 
 
Delaware
264
265
VNO 63rd Street LLC
 
 
 
Delaware
265
266
VNO 650 Madison Investor LLC
 
 
 
Delaware
266
267
VNO 650 Madison LLC
 
 
 
Delaware
267
268
VNO 655 Partners LLC
 
 
 
Delaware
268





269
VNO 666 Fifth Holding LLC
 
 
 
Delaware
269
270
VNO 666 Fifth Retail TIC Lessee LLC
 
 
 
Delaware
270
271
VNO 7 West 34th Street Owner LLC
 
 
 
Delaware
271
272
VNO 7 West 34th Street Sub LLC
 
 
 
Delaware
272
273
VNO 701 Seventh Avenue Mezz LLC
 
 
 
Delaware
273
274
VNO 701 Seventh Avenue TRS LLC
 
 
 
Delaware
274
275
VNO 757 Third Avenue LLC
 
 
 
Delaware
275
276
VNO 86 Lex LLC
 
 
 
Delaware
276
277
VNO 93rd Street LLC
 
 
 
Delaware
277
278
VNO 966 Third Avenue LLC
 
 
 
Delaware
278
279
VNO AC LLC
 
 
 
Delaware
279
280
VNO Belmont Wonderland LLC
 
 
 
Delaware
280
281
VNO Building Acquisition LLC
 
 
 
Delaware
281
282
VNO Capital Partners REIT LLC
 
 
 
Delaware
282
283
VNO Capital Partners TRS LLC
 
 
 
Delaware
283
284
VNO CP Co-Investor LP
 
 
 
Delaware
284
285
VNO CP GP LLC
 
 
 
Delaware
285
286
VNO CP LLC
 
 
 
Delaware
286
287
VNO CPPIB Member LLC
 
 
 
Delaware
287
288
VNO Fashion LLC
 
 
 
Delaware
288
289
VNO IF GP LLC
 
 
 
Delaware
289
290
VNO IP Loan LLC
 
 
 
Delaware
290
291
VNO IP Warrant LLC
 
 
 
Delaware
291
292
VNO Island Global LLC
 
 
 
Delaware
292
293
VNO LF 50 West 57th Street Holding LLC
 
 
 
Delaware
293
294
VNO LF 50 West 57th Street JV LLC
 
 
 
Delaware
294
295
VNO LF 50 West 57th Street LLC
 
 
 
Delaware
295
296
VNO LF 50 West 57th Street Management LLC
 
 
 
Delaware
296
297
VNO LNR Holdco, L.L.C.
 
 
 
Delaware
297
298
VNO Morris Avenue GL LLC
 
 
 
Delaware
298
299
VNO New York Office Management LLC
 
 
 
Delaware
299
300
VNO One Park LLC
 
 
 
Delaware
300
301
VNO One Park Management LLC
 
 
 
Delaware
301
302
VNO Pentagon City LLC
 
 
 
Delaware
302
303
VNO Roosevelt Hotel Mezz II LLC
 
 
 
Delaware
303
304
VNO RTR AP, LLC
 
 
 
Delaware
304
305
VNO SC Note LLC
 
 
 
Delaware
305
306
VNO SM GP LLC
 
 
 
Delaware
306
307
VNO SM LLC
 
 
 
Delaware
307
308
VNO Suffolk II LLC
 
 
 
Delaware
308
309
VNO Surplus 2006 LLC
 
 
 
Delaware
309
310
VNO T-Hotel Loan LLC
 
 
 
Delaware
310
311
VNO TRU Kennedy Road LLC
 
 
 
Delaware
311
312
VNO TRU Mall Drive L.P.
 
 
 
Delaware
312
313
VNO TRU MICH L.P.
 
 
 
Delaware
313
314
VNO TRU Military Road L.P.
 
 
 
Delaware
314





315
VNO TRU Rand Road LLC
 
 
 
Delaware
315
316
VNO TRU TX LLC
 
 
 
Delaware
316
317
VNO VE LLC
 
 
 
Delaware
317
318
VNO Wayne License LLC
 
 
 
Delaware
318
319
VNO Wayne Towne Center Holding LLC
 
 
 
Delaware
319
320
VNO Wayne Towne Center LLC
 
 
 
Delaware
320
321
VNO/Farley BL Member LLC
 
 
 
Delaware
321
322
VNO/Farley Developer LLC
 
 
 
Delaware
322
323
VNO/Farley PM Member LLC
 
 
 
Delaware
323
324
Vornado 1399 LLC
 
 
 
Delaware
324
325
Vornado 1540 Broadway LLC
 
 
 
Delaware
325
326
Vornado 220 Central Park South II LLC
 
 
 
Delaware
326
327
Vornado 220 Central Park South LLC
 
 
 
Delaware
327
328
Vornado 25W14 LLC
 
 
 
Delaware
328
329
Vornado 3040 M Street LLC
 
 
 
Delaware
329
330
Vornado 330 W 34 Mezz LLC
 
 
 
Delaware
330
331
Vornado 330 West 34th Street L.L.C.
 
 
 
Delaware
331
332
Vornado 40 East 66th Street LLC
 
 
 
Delaware
332
333
Vornado 40 East 66th Street Member LLC
 
 
 
Delaware
333
334
Vornado 40 East 66th Street TRS LLC
 
 
 
Delaware
334
335
Vornado 401 Commercial LLC
 
 
 
Delaware
335
336
Vornado 601 Madison Avenue, L.L.C.
 
 
 
Delaware
336
337
Vornado 620 Sixth Avenue L.L.C.
 
 
 
Delaware
337
338
Vornado 640 Fifth Avenue L.L.C.
 
 
 
Delaware
338
339
Vornado 677 Madison LLC
 
 
 
Delaware
339
340
Vornado 692 Broadway, L.L.C.
 
 
 
Delaware
340
341
Vornado 90 Park Avenue L.L.C.
 
 
 
Delaware
341
342
Vornado 90 Park Member L.L.C.
 
 
 
Delaware
342
343
Vornado 90 Park QRS, Inc.
 
 
 
Delaware
343
344
Vornado Acquisition Co. LLC
 
 
 
Delaware
344
345
Vornado Air Rights LLC
 
 
 
Delaware
345
346
Vornado Auto L.L.C.
 
 
 
Delaware
346
347
Vornado BAP LLC
 
 
 
Delaware
347
348
Vornado Capital Partners GP LLC
 
 
 
Delaware
348
349
Vornado Capital Partners Parallel GP LLC
 
 
 
Delaware
349
350
Vornado Capital Partners Parallel LP
 
 
 
Delaware
350
351
Vornado Capital Partners Parallel REIT LLC
 
 
 
Delaware
351
352
Vornado Capital Partners, L.P.
 
 
 
Delaware
352
353
Vornado Cogen Holdings LLC
 
 
 
Delaware
353
354
Vornado Communications, LLC
 
 
 
Delaware
354
355
Vornado Concierge LLC
 
 
 
Delaware
355
356
Vornado Condominium Management LLC
 
 
 
Delaware
356
357
Vornado Dune LLC
 
 
 
Delaware
357
358
Vornado Eleven Penn Plaza LLC
 
 
 
Delaware
358
359
Vornado Eleven Penn Plaza Owner LLC
 
 
 
Delaware
359
360
Vornado Everest Lender, L.L.C.
 
 
 
Delaware
360
361
Vornado Everest, L.L.C.
 
 
 
Delaware
361




362
Vornado Farley Member LLC
 
 
 
Delaware
362
363
Vornado Finance GP L.L.C.
 
 
 
Delaware
363
364
Vornado Finance L.P.
 
 
 
Delaware
364
365
Vornado Fort Lee L.L.C.
 
 
 
Delaware
365
366
Vornado Fortress LLC
 
 
 
Delaware
366
367
Vornado Green Acres Acquisition L.L.C.
 
 
 
Delaware
367
368
Vornado Green Acres Holdings L.L.C.
 
 
 
Delaware
368
369
Vornado Green Acres SPE Managing Member, Inc.
 
 
 
Delaware
369
370
Vornado Harlem Park LLC
 
 
 
Delaware
370
371
Vornado India Retail Management LLC
 
 
 
Delaware
371
372
Vornado Investment Corporation
 
 
 
Delaware
372
373
Vornado Investments L.L.C.
 
 
 
Delaware
373
374
Vornado Lending L.L.C.
 
 
 
New Jersey
374
375
Vornado Lodi L.L.C.
 
 
 
Delaware
375
376
Vornado LXP, L.L.C.
 
 
 
Delaware
376
377
Vornado M 330 L.L.C.
 
 
 
Delaware
377
378
Vornado M 393 L.L.C.
 
 
 
Delaware
378
379
Vornado Management Corp.
 
 
 
Delaware
379
380
Vornado Manhattan House Mortgage LLC
 
 
 
Delaware
380
381
Vornado Marketing LLC
 
 
 
Delaware
381
382
Vornado New York RR One L.L.C.
 
 
 
Delaware
382
383
Vornado Newkirk Advisory LLC
 
 
 
Delaware
383
384
Vornado Newkirk L.L.C.
 
 
 
Delaware
384
385
Vornado Office Inc.
 
 
 
Delaware
385
386
Vornado Office Management LLC
 
 
 
Delaware
386
387
Vornado PC LLC
 
 
 
Delaware
387
388
Vornado Penn Plaza Master Plan Developer LLC
 
 
 
Delaware
388
389
Vornado Property Advisor LLC
 
 
 
Delaware
389
390
Vornado Realty L.L.C.
 
 
 
Delaware
390
391
Vornado Realty, L.P.
 
 
 
Delaware
391
392
Vornado Records 2006, L.L.C.
 
 
 
Delaware
392
393
Vornado Retail Finance Manager LLC
 
 
 
Delaware
393
394
Vornado Rosslyn LLC
 
 
 
Delaware
394
395
Vornado RTR DC LLC
 
 
 
Delaware
395
396
Vornado RTR Lessee JV LLC
 
 
 
Delaware
396
397
Vornado RTR Sub LLC
 
 
 
Delaware
397
398
Vornado RTR Urban Development LLC
 
 
 
Delaware
398
399
Vornado RTR Urban Development TMP LLC
 
 
 
Delaware
399
400
Vornado RTR, Inc.
 
 
 
Delaware
400
401
Vornado San Jose LLC
 
 
 
Delaware
401
402
Vornado Savanna LLC
 
 
 
Delaware
402
403
Vornado Savanna SM LLC
 
 
 
Delaware
403
404
Vornado SB 9 L.P.
 
 
 
Delaware
404
405
Vornado SB LLC
 
 
 
Delaware
405
406
Vornado SC Properties II LLC
 
 
 
Delaware
406
407
Vornado SC Properties LLC
 
 
 
Delaware
407
408
Vornado Shenandoah Holdings II LLC
 
 
 
Delaware
408
409
Vornado Sign LLC
 
 
 
Delaware
409
410
Vornado Springfield Mall LLC
 
 
 
Delaware
410




411
Vornado Square Mile LLC
 
 
 
Delaware
411
412
Vornado Suffolk LLC
 
 
 
Delaware
412
413
Vornado Sun LLC
 
 
 
Delaware
413
414
Vornado Title L.L.C.
 
 
 
Delaware
414
415
Vornado Toys Bridge LLC
 
 
 
Delaware
415
416
Vornado Truck LLC
 
 
 
Delaware
416
417
Vornado TSQ LLC
 
 
 
Delaware
417
418
Vornado Two Penn Plaza L.L.C.
 
 
 
Delaware
418
419
Vornado Two Penn Property L.L.C.
 
 
 
Delaware
419
420
Vornado Westbury Retail II LLC
 
 
 
Delaware
420
421
Vornado Westbury Retail LLC
 
 
 
Delaware
421
422
VRT Development Rights LLC
 
 
 
New York
422
423
VSPS LLC
 
 
 
Delaware
423
424
Washington Design Center L.L.C.
 
 
 
Delaware
424
425
Washington Design Center Subsidiary L.L.C.
 
 
 
Delaware
425
426
Washington Mart SPE LLC
 
 
 
Delaware
426
427
Washington Office Center L.L.C.
 
 
 
Delaware
427
428
WDC 666 Fifth Retail TIC Owner LLC
 
 
 
Delaware
428
429
Wells Kinzie L.L.C.
 
 
 
Delaware
429
430
West 57th Street Holding LLC
 
 
 
Delaware
430
431
West 57th Street JV LLC
 
 
 
Delaware
431
432
West 57th Street Management LLC
 
 
 
Delaware
432
433
WOC 666 Fifth Retail TIC Owner LLC
 
 
 
Delaware
433
434
WREC San Pasqual LLC
 
 
 
Delaware
434
435
York VF L.L.C.
 
 
 
Pennsylvania
435
436
 
 
 
 
 
436
437
 
 
 
 
 
437
438
 
 
 
 
 
438
439
 
 
 
 
 
439
440
 
 
 
 
 
440
441
 
 
 
 
 
441
442
 
 
 
 
 
442
443
 
 
 
 
 
443
444
 
 
 
 
 
444
445
 
 
 
 
 
445
446
 
 
 
 
 
446
447
 
 
 
 
 
447
448
 
 
 
 
 
448
449
 
 
 
 
 
449
450
 
 
 
 
 
450
451
 
 
 
 
 
451
452
 
 
 
 
 
452
453
 
 
 
 
 
453
454
 
 
 
 
 
454
455
 
 
 
 
 
455
456
 
 
 
 
 
456
457
 
 
 
 
 
457
458
 
 
 
 
 
458
459
 
 
 
 
 
459

EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements of our reports dated February 11, 2019, relating to the financial statements of Vornado Realty Trust and subsidiaries, and the effectiveness of Vornado Realty Trust and subsidiaries’ internal control over financial reporting, appearing in the Annual Report on Form 10-K of Vornado Realty Trust and Vornado Realty L.P. for the year ended December 31, 2018:

Amendment No.1 to Registration Statement No. 333-36080 on Form S-3
Registration Statement No. 333-64015 on Form S-3
Amendment No.1 to Registration Statement No. 333-50095 on Form S-3
Registration Statement No. 333-52573 on Form S-8
Registration Statement No. 333-76327 on Form S-3
Amendment No.1 to Registration Statement No. 333-89667 on Form S-3
Amendment No.1 to Registration Statement No. 333-102215 on Form S-3
Amendment No.1 to Registration Statement No. 333-102217 on Form S-3
Registration Statement No. 333-105838 on Form S-3
Registration Statement No. 333-107024 on Form S-3
Registration Statement No. 333-114146 on Form S-3
Registration Statement No. 333-121929 on Form S-3
Amendment No.1 to Registration Statement No. 333-120384 on Form S-3
Registration Statement No. 333-126963 on Form S-3
Registration Statement No. 333-139646 on Form S-3
Registration Statement No. 333-141162 on Form S-3
Registration Statement No. 333-150592 on Form S-3
Registration Statement No. 333-166856 on Form S-3
Registration Statement No. 333-172880 on Form S-8
Registration Statement No. 333-191865 on Form S-4
and in the following joint registration statements of Vornado Realty Trust and Vornado Realty L.P.:
Registration Statement No. 333-203294 on Form S-3


/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey
February 11, 2019






EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this Registration Statement No. 333-203294 on Form S-3 of our reports dated February 11, 2019, relating to the financial statements of Vornado Realty L.P., and subsidiaries, and the effectiveness of Vornado Realty L. P. and subsidiaries' internal control over financial reporting, appearing in the Annual Report on Form 10-K of Vornado Realty L.P. and subsidiaries and Vornado Realty Trust for the year ended December 31, 2018.

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey
February 11, 2019






EXHIBIT 31.1
CERTIFICATION
I, Steven Roth, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Vornado Realty Trust;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
February 11, 2019
 
 
 
 
 
/s/ Steven Roth
 
 
Steven Roth
 
 
Chairman of the Board and Chief Executive Officer
 





EXHIBIT 31.2
CERTIFICATION
I, Joseph Macnow, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Vornado Realty Trust;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
February 11, 2019
 
 
 
 
 
/s/ Joseph Macnow
 
 
Joseph Macnow
 
 
Executive Vice President – Chief Financial Officer and
Chief Administrative Officer
 





EXHIBIT 31.3
CERTIFICATION
I, Steven Roth, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Vornado Realty L.P.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
February 11, 2019
 
 
 
 
 
/s/ Steven Roth
 
 
Steven Roth
 
 
Chairman of the Board and Chief Executive Officer
of Vornado Realty Trust, sole General Partner of Vornado Realty L.P.
 






EXHIBIT 31.4
CERTIFICATION
I, Joseph Macnow, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Vornado Realty L.P.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
February 11, 2019
 
 
 
 
 
/s/ Joseph Macnow
 
 
Joseph Macnow
 
 
Executive Vice President – Chief Financial Officer and
Chief Administrative Officer of Vornado Realty Trust,
sole General Partner of Vornado Realty L.P.
 






EXHIBIT 32.1
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsection (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code)

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

The Annual Report on Form 10-K for the year ended December 31, 2018 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

February 11, 2019
 
 
/s/ Steven Roth
 
 
Name:
Steven Roth
 
 
Title:
Chairman of the Board and Chief Executive Officer





EXHIBIT 32.2
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsection (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code)

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

The Annual Report on Form 10-K for the year ended December 31, 2018 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

February 11, 2019
 
 
/s/ Joseph Macnow
 
 
Name:
Joseph Macnow
 
 
Title:
Executive Vice President – Chief Financial Officer
and Chief Administrative Officer





EXHIBIT 32.3
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsection (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code)

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

The Annual Report on Form 10-K for the year ended December 31, 2018 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 
 
 
February 11, 2019
 
 
/s/ Steven Roth
 
 
Name:
Steven Roth
 
 
Title:
Chairman of the Board and Chief Executive Officer
of Vornado Realty Trust, sole General Partner of
Vornado Realty L.P.






EXHIBIT 32.4
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsection (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code)

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

The Annual Report on Form 10-K for the year ended December 31, 2018 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 
 
 
February 11, 2019
 
 
/s/ Joseph Macnow
 
 
Name:
Joseph Macnow
 
 
Title:
Executive Vice President – Chief Financial Officer
and Chief Administrative Officer of Vornado Realty
Trust, sole General Partner of Vornado Realty L.P.