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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1997
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10/A
AMENDMENT NO. 3
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
VORNADO REALTY L. P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 13-3925979
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
PARK 80 WEST, PLAZA II, SADDLE BROOK, NEW JERSEY 07663
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (201) 587-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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NOT APPLICABLE NOT APPLICABLE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
UNITS OF LIMITED PARTNERSHIP INTEREST
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THIS FORM 10/A AMENDS THE FOLLOWING ITEMS OF THE OPERATING PARTNERSHIP'S
REGISTRATION STATEMENT ON FORM 10 PREVIOUSLY FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON JUNE 12, 1997 AND AMENDED ON JULY 18, 1997 AND AUGUST 21,
1997.
TABLE OF CONTENTS
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ITEM PAGE
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1. Business....................................................................... 3
2. Selected Consolidated Financial Data........................................... 8
3. Properties..................................................................... 18
4. Security Ownership of Certain Beneficial Owners and Management................. 28
5. Directors and Executive Officers of the Registrant............................. 28
6. Executive Compensation......................................................... 29
7. Certain Relationships and Related Transactions................................. 29
8. Legal Proceedings.............................................................. 29
9. Market Price and Distribution.................................................. 29
10. Recent Sales of Unregistered Securities........................................ 29
11. Description of Registrant's Securities to be Registered........................ 29
12. Indemnification of Trustees and Officers....................................... 39
13. Financial Statements and Supplementary Data.................................... 40
14. Changes in and Disagreements with Independent Auditors on Accounting and
Financial Disclosure........................................................... 40
15. Financial Statements and Exhibits.............................................. 40
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PART I
ITEM 1. BUSINESS
GENERAL
Vornado Realty L.P. (including the operations of Vornado Realty Trust prior
to the conversion described below, the "Operating Partnership") is a Delaware
limited partnership. It commenced operations on April 15, 1997, when Vornado
Realty Trust ("Vornado")(1), a real estate investment trust ("REIT"), converted
to an Umbrella Partnership REIT (UPREIT) by transferring all or substantially
all of the interests in its properties and other assets to the Operating
Partnership, of which Vornado is the sole general partner. As a result of such
conversion (referred to herein as the "Consolidation"), Vornado's activities are
conducted through the Operating Partnership.
To date, the Operating Partnership's primary focus has been on shopping
centers and office buildings. The Operating Partnership may expand its focus by
utilizing its senior management's skills and its access to capital to take
advantage of strategic opportunities to acquire additional real estate assets or
interests therein, mortgage loans secured by underlying real estate and
companies that own real estate. Acquisitions may include, among others, assets
or interests in the retail, office building, hotel and residential sectors in
the geographic areas where the Operating Partnership presently operates
(Northeast and Midatlantic regions of the United States and Puerto Rico) or in
other markets with similar attributes. Investments are not necessarily based on
specific allocation by type of property. The Operating Partnership has
historically held its properties for long-term investment; however, it is
possible that properties in the portfolio may be sold in whole or in part, as
circumstances warrant, from time to time. Further, the Operating Partnership has
not adopted a policy that limits the amount or percentage of assets which would
be invested in a specific property.
It is management's intention that the Operating Partnership continually
have access to the capital resources necessary to expand and develop its
business. Accordingly, the Operating Partnership may seek to obtain funds
through debt financing and/or equity offerings of Vornado, although there is no
express policy with respect thereto. The Operating Partnership may offer its
units in exchange for property and repurchase or otherwise reacquire its units
or any other securities and may engage in such activities in the future.
The Operating Partnership owns, leases, develops, redevelops and manages
retail, office and industrial properties primarily located in the Northeast and
Midatlantic regions of the United States. It currently owns (i) fifty-eight
shopping center properties in seven states and Puerto Rico, containing 10.5
million square feet; (ii) all or portions of nine office building properties in
the New York City metropolitan area (primarily in Manhattan) containing 4.2
million square feet; (iii) eight warehouse/industrial properties in New Jersey
containing 2.0 million square feet; and (iv) approximately 29.3% of the common
stock of Alexander's, Inc., a Delaware corporation ("Alexander's"), which has
nine properties in the New York City metropolitan area.
While the Operating Partnership may seek the vote of its unitholders in
connection with any particular material transaction, generally the Operating
Partnership's activities are reviewed and may be modified from time to time by
Vornado or its Board of Trustees without the vote of unitholders.
RECENT ACQUISITIONS
Simultaneously with the formation of the Operating Partnership, Vornado
consummated the acquisition of interests in all or a portion of seven Manhattan
office buildings (the "Mendik Properties") and a
- ---------------
(1) The Operating Partnership has filed certain portions of the following
documents of Vornado Realty Trust as Exhibits to this Form 10:
a) Annual Report on Form 10-K for the year ended December 31, 1996;
b) Quarterly Report on Form 10-Q for the period ended March 31, 1997;
c) Notice of 1997 Annual Meeting of Shareholders and Proxy Statement; and
d) Current Report on Form 8-K, dated March 12, 1997, as amended by the Form
8-K/A, dated March 12, 1997.
Information concerning Vornado Realty Trust set forth in this Form 10 is
derived from the foregoing documents.
3
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management company held by the Mendik Group (Bernard H. Mendik, David R.
Greenbaum and certain entities controlled by them) and certain of its affiliates
(the "Mendik Transaction"), which will be operated as the Mendik Division. The
Mendik Properties include (i) wholly-owned properties: Two Penn Plaza, Eleven
Penn Plaza, 1740 Broadway and 866 U.N. Plaza and (ii) partially-owned
properties: 2 Park Avenue (40% interest), 330 Madison Avenue (24.8% interest)
and 570 Lexington Avenue (5.6% interest). The consideration for the Mendik
Transaction was approximately $656 million, including $264 million in cash, $177
million in limited partnership units of the Operating Partnership and $215
million in indebtedness. Vornado financed the cash portion of the Mendik
Transaction by means of a public offering of Series A Convertible Preferred
Shares of Beneficial Interest, liquidation preference $50.00 per share. The
acquisition will be recorded under the purchase method of accounting.
In addition, on April 15, 1997, the Operating Partnership entered into a
Credit Agreement with Union Bank of Switzerland pursuant to which the Operating
Partnership borrowed $400,000,000. The loan bears interest at the rate of LIBOR
plus .625% (6.31% at April 15, 1997) and matures, assuming exercise of extension
options, on April 14, 1998.
On April 18, 1997, the Operating Partnership acquired The Montehiedra Town
Center located in San Juan, Puerto Rico, from Kmart Corporation ("Kmart") for
approximately $74,000,000, of which $63,000,000 is newly-issued ten year
indebtedness. The Montehiedra shopping center, which opened in 1994, contains
525,000 square feet, including a 135,000 square foot Kmart store. In addition,
the Operating Partnership agreed to acquire Kmart's 50% interest in the Caguas
Centrum Shopping Center, which is currently under construction, located in
Caguas, Puerto Rico. This acquisition is expected to close in 1998.
Further, on May 7, 1997, the Operating Partnership acquired a mortgage loan
from a consortium of banks secured by a mortgage on the office building located
at 90 Park Avenue, New York, New York. The purchase price of the mortgage loan
was approximately $185,000,000. The mortgage loan, which is in default, has a
face value of $193,000,000.
SHOPPING CENTERS
The Operating Partnership's shopping centers are generally located on major
regional highways in mature densely populated areas. The Operating Partnership
believes its shopping centers attract consumers from a regional, rather than a
neighborhood, marketplace because of their location on regional highways and the
high percentage of square feet dedicated to large stores. These shopping centers
accounted for 92% of rental revenue for the years ended December 31, 1996 and
1995 and 44% of rental revenue on a pro forma basis for the recent acquisitions
for the year ended December 31, 1996. The occupancy rate of the shopping center
properties was 91% and 90% as of April 1, 1997 and 1996, respectively, and has
been over 90% in each of the past five years.
As of March 31, 1997, approximately 80% of the square footage of the
shopping centers was leased to large stores (over 20,000 square feet) and over
93% was leased to tenants whose businesses are national or regional in scope.
The Operating Partnership's large tenants include destination retailers such as
discount department stores, supermarkets, home improvements stores, discount
apparel stores, membership warehouse clubs and "category killers." Category
killers are large stores which offer a complete selection of a category of items
(e.g., toys, office supplies, etc.) at low prices, often in a warehouse format.
The Operating Partnership's large store tenants typically offer basic consumer
necessities such as food, health and beauty aids, moderately priced clothing,
building materials and home improvement supplies, and compete primarily on the
basis of price. The Operating Partnership believes that this tenant mix
mitigates the effects on its properties of adverse changes in general economic
conditions. Substantially all of the Operating Partnership's large store leases
are long-term with fixed base rents and provide for step-ups in rent typically
occurring every five years.
In addition, the Operating Partnership's leases generally provide for
additional rents based on a percentage of tenants' sales. Of the Operating
Partnership's $87,424,000 of rental revenue in 1996, base rents accounted for
approximately 99% and percentage rents accounted for approximately 1%. The
leases generally pass through to tenants the tenant's share of all common area
charges (including roof and structure, unless it is the tenant's direct
responsibility), real estate taxes and insurance costs and certain capital
expenditures. As of March 31, 1997, the annual rent per square foot for the
shopping centers was $9.51.
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From 1992 through 1996, property rentals from shopping centers were
$56,900,000, $61,900,000, $64,700,000, $74,300,000 and $80,000,000,
respectively. At March 31, 1997, no single shopping center property accounted
for more than 5.8% of the total leasable area of the Operating Partnership's
shopping center properties or more than 9.3% of property rentals for such
shopping center properties.
OFFICE PROPERTIES
The Operating Partnership's office properties are located in the New York
City metropolitan area (primarily in Manhattan) and are primarily managed and
leased by its Mendik Division. The properties are centrally located,
professionally managed and maintained, attract high-quality tenants, and are
modern structures or have been modernized to successfully compete with newer
buildings.
Of the nine properties, five were constructed in the 1960s, one was
constructed in the 1950s, one was constructed in the 1930s and two were
constructed in the 1920s. In 1988, the Mendik Division initiated an extensive
renovation program in order to retain tenants and assure the continued
competitiveness of these properties. Approximately $85 million was expended at
the properties (excluding the redevelopment costs associated with 570 Lexington
Avenue) for building improvements and equipment upgrades (excluding the costs of
tenant improvements). As a result of this recently completed renovation program,
the Operating Partnership believes that the properties have state-of-the-art
infrastructure and are well positioned to compete with other Class A office
properties in their respective submarkets.
The office properties currently are leased to over 375 tenants, which are
engaged in a variety of businesses, including financial services, investment
banking, publishing, computer technology, health care services, accounting and
law. The average lease term of a tenant's lease is eleven years. Leases
typically provide for step-ups in rent periodically over the term of the lease
and pass through to tenants the tenant's share of increases in real estate taxes
and operating expenses for a building over a base year. Electricity is provided
to tenants on a submetered basis or rent inclusion basis. Leases also typically
provide for tenant improvement allowances for all or a portion of the tenant's
initial construction of its premises. At March 31, 1997, no single tenant
accounted for more than 5% of the Operating Partnership's total leasable office
property square footage.
Office properties accounted for 52% of the pro forma rental revenue for the
year ended December 31, 1996. The occupancy rate of the properties was 92% as of
March 31, 1997. The annual rent per square foot as of March 31, 1997 for the
office properties was $28.49. Revenues for three of the office properties, Two
Penn Plaza, Eleven Penn Plaza and 1740 Broadway, accounted for 18.6%, 10.8% and
10%, respectively, of total pro forma revenues for the year ended December 31,
1996. No other office property exceeded 10% of the total pro forma revenues (see
Item 3, Properties, page 21 for certain additional information with respect to
these properties). In addition to managing the Operating Partnership's office
buildings, the Mendik Division manages other properties in the New York City
Metropolitan area which contain approximately 5,600,000 of rentable square feet.
MAJOR TENANTS
Only one of the Operating Partnership's tenants, Bradlees, represented more
than 3% of pro forma revenues for the year ended December 31, 1996. Bradlees
accounted for 10.5% of total pro forma property rentals.
In June 1995, Bradlees filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. The Operating Partnership currently leases 17 locations to
Bradlees. Of these locations, 14 are fully guaranteed by Stop & Shop Companies,
Inc. ("Stop & Shop"), a wholly-owned subsidiary of Royal Ahold NV, a leading
international food retailer, and one is guaranteed as to 70% of the rent.
RELATIONSHIP WITH ALEXANDER'S
The Operating Partnership owns 29.3% of the common stock of Alexander's.
(See "Interstate Properties" for a description of Interstate Properties'
ownership of Vornado and Alexander's.)
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Alexander's has nine properties (where its department stores were formerly
located) consisting of:
Operating properties:
(i) the Rego Park I property located in Queens, New York;
(ii) a 50% interest in the 427,000 square feet of mall stores at the
Kings Plaza Shopping Center (the "Kings Plaza Mall") located in Brooklyn,
New York;
(iii) the Fordham Road property located in the Bronx, New York;
(iv) the Flushing property located in Flushing, New York; and
(v) the Third Avenue property located in the Bronx, New York.
The occupancy rate of Alexander's operating properties was 73% as of April
1, 1997.
Non-operating properties to be redeveloped:
(vi) the Lexington Avenue property which comprises the entire square
block bounded by Lexington Avenue, East 59th Street, Third Avenue and East
58th Street in Manhattan, New York. This Property is owned by a limited
partnership in which Alexander's is the general partner and owns
approximately 92% of the limited partnership interests. Alexander's
redevelopment plans include razing the existing building and developing a
large, multi-use building, requiring capital expenditures in excess of $300
million. No development decisions have been finalized;
(vii) the Paramus property which consists of 39.3 acres of land,
including its former store building, located at the intersection of Routes
4 and 17 in Paramus, New Jersey. Approximately 9 acres located on the
property's periphery are subject to condemnation by the State of New
Jersey. Alexander's and the New Jersey Department of Transportation (the
"DOT") are negotiating an agreement, pursuant to which the DOT will pay
approximately $14.7 million for the acreage subject to condemnation and
grant Alexander's the right to develop up to 550,000 square feet on the
remaining acreage. The agreement with the DOT is subject to negotiation of
final documentation and to certain municipal approvals. Alexander's is
considering razing the existing building and developing a two or three
level shopping center on the site. The estimated total cost of such
redevelopment is between $60 million and $70 million. No development
decisions have been finalized;
(viii) the Kings Plaza Store, a 339,000 square foot anchor store,
which is one of the two anchor stores at the Kings Plaza Mall Shopping
Center. In January 1997, Sears leased 289,000 square feet at this location
for use as a full-line department store expected to open in the last
quarter of 1997; and
(ix) Rego Park II, comprising one and one-half blocks of vacant land
adjacent to the Rego Park I location.
The Operating Partnership expects to provide a portion of the financing
required for Alexander's redevelopment projects. None of the redevelopment plans
for the non-operating properties above have been finalized. See Item 3.
"Properties -- Alexander's".
In March 1995, the Operating Partnership lent Alexander's $45 million to
repay its creditors and provide working capital. The loan matures in March 1998,
and bears interest at 15.60%. Management believes there are no indications of
impairment in accordance with SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan".
Property rentals from Caldor, which filed for relief under Chapter 11 of
the United States Bankruptcy Code in September 1995, represented approximately
36% of the Alexander's consolidated revenues for the three months ended March
31, 1997 and the year ended December 31, 1996. In June 1997, Caldor rejected its
Fordham Road lease. Alexander's will file a claim for damages based on such
rejection. The annual base rental under this lease was $3,537,000 (approximately
19% of Alexander's consolidated revenues). The loss of property rental payments
under the Caldor leases (for the Flushing and Fordham Road Properties) could
have a material adverse effect on the financial condition and results of
operations of Alexander's.
The Operating Partnership manages, develops and leases the Alexander's
properties under a management and development agreement (the "Management
Agreement") and a leasing agreement (the "Leasing Agreement") pursuant to which
the Operating Partnership receives annual fees from Alexander's.
Alexander's common stock is listed on the New York Stock Exchange under the
symbol "ALX".
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INTERSTATE PROPERTIES
As of March 31, 1997, Interstate Properties owned 21.9% of the common
shares of beneficial interest (assuming the conversion of all Operating
Partnership units) of Vornado and 27.1% of Alexander's common stock. Interstate
Properties is a general partnership in which Steven Roth, David Mandelbaum and
Russell B. Wight, Jr. are partners. Mr. Roth is the Chairman of the Board and
Chief Executive Officer of the Company, the Managing General Partner of
Interstate Properties, and the Chief Executive Officer and a director of
Alexander's. Messrs. Mandelbaum and Wight are trustees of Vornado and are also
directors of Alexander's. Effective March 2, 1995, for a three-year period, the
Operating Partnership and Interstate Properties agreed not to own in excess of
two-thirds of Alexander's common stock or enter into certain other transactions
with Alexander's, without the consent of the independent directors of
Alexander's.
COMPETITION
The leasing of real estate is highly competitive. The principal means of
competition are rent charged, location, services provided and the nature and
condition of the facility to be leased. The Operating Partnership directly
competes with all lessors and developers of similar space in the areas in which
its properties are located. Demand for retail space has been impacted by the
recent bankruptcy of a number of retail companies and a general trend toward
consolidation in the retail industry which could adversely affect the ability of
the Operating Partnership to attract or retain tenants.
ENVIRONMENTAL REGULATIONS
Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up certain hazardous substances released at a property,
and may 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
the parties in connection with the contamination. Such laws often impose
liability without regard to whether the owner or operator knew of, or was
responsible for, the release of such hazardous substances. The presence of
contamination or the failure to remediate contamination may adversely affect the
owner's ability to sell or lease real estate or to borrow using the real estate
as collateral. Other Federal, state and local laws, ordinances and regulations
require abatement or removal of certain asbestos-containing materials in the
event of demolition or certain renovations or remodeling and also govern
emissions of and exposure to asbestos fibers in the air. The operation and
subsequent removal of certain underground storage tanks are also regulated by
Federal and state laws. In connection with the ownership, operation and
management of its properties, the Operating Partnership could be held liable for
the costs of remedial action with respect to such regulated substances or tanks
or related claims.
Each of the Operating Partnership's properties has been subjected to
varying degrees of environmental assessment, which generally did not include
soil sampling or subsurface investigations, at various times. The environmental
assessments did not reveal any environmental condition or liability that the
Operating Partnership believes will have a material adverse effect on the
Operating Partnership's business, assets or results of operation. However, there
can be no assurance that the identification of new areas of contamination,
change 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 the Operating Partnership.
EMPLOYEES
The Operating Partnership has 135 employees.
SEGMENT DATA
The Operating Partnership operates in one business segment -- real estate.
The Operating Partnership engages in no foreign operations.
The Operating Partnership's principal executive offices are located at Park
80 West, Plaza II, Saddle Brook, New Jersey 07663; telephone (201) 587-1000. The
Mendik Division is located at 330 Madison Avenue, New York City, New York 10017;
telephone (212) 557-1100.
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ITEM 2. SELECTED CONSOLIDATED FINANCIAL DATA
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VORNADO REALTY TRUST (PREDECESSOR)
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PRO FORMA
THREE PRO FORMA
MONTHS THREE MONTHS YEAR
ENDED ENDED MARCH 31, ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ------------------------- DEC. 31, -------------------------
1997(1) 1997 1996 1996(1) 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT AMOUNTS)
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Operating Data
Revenues:
Property rentals................. $ 56,748 $ 22,467 $ 21,337 $ 181,712 $ 87,424 $ 80,429
Expense reimbursements........... 8,948 6,210 6,881 40,195 26,644 24,091
Other income..................... 620 620 392 2,819 2,819 4,198
----------- ----------- ----------- ----------- ----------- -----------
Total Revenues..................... 66,316 29,297 28,610 224,726 116,887 108,718
----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Operating........................ 19,789 8,507 8,914 83,180 36,412 32,282
Depreciation and amortization.... 11,078 2,967 2,835 35,559 11,589 10,790
General and administrative....... 2,788 1,845 1,189 8,162 5,167 6,687
Amortization of officer's
deferred compensation
expense........................ 6,249 6,249 -- 2,083 2,083 --
Costs incurred in connection with
the merger Vornado, Inc. into
Vornado Realty Trust........... -- -- -- -- -- --
Cost incurred upon exercise of a
stock option by an officer and
subsequent repurchase of a
portion of the shares.......... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total Expenses..................... 39,904 19,568 12,938 128,984 55,251 49,759
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Operating income................... 26,412 9,729 15,672 95,742 61,636 58,959
Income (loss) applicable to
Alexander's:
Equity in income (loss).......... (61) (61) (136) 1,679 1,679 (1,972)
Depreciation..................... (150) (150) (157) (571) (571) (417)
Interest income on loan.......... 1,616 1,616 1,802 6,848 6,848 6,343
Equity in net income of Management
Companies........................ 729 -- -- 3,326 1,855 788
Equity in net income of
investees........................ 667 217 1,141 3,418 -- --
Interest income on mortgage note
receivable....................... 612 612 594 2,579 2,579 --
Interest and dividend income....... 2,561 1,518 871 5,667 3,151 5,439
Interest and debt expense.......... (7,413) (4,078) (4,223) (31,708) (16,726) (16,426)
Net gain on marketable
securities....................... 287 287 358 913 913 294
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes......... 25,260 9,690 15,922 87,893 61,364 53,008
Provision (benefit) for income
taxes............................ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income......................... 25,260 9,690 15,922 87,893 61,364 53,008
Preferred unit distributions....... (4,950) -- -- (19,800) -- --
Preferential allocations........... (2,593) -- -- (10,372) -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income applicable to Class A
units............................ $ 17,717 $ 9,690 $ 15,922 $ 57,721 $ 61,364 $ 53,008
----------- ----------- ----------- ----------- ----------- -----------
Weighted average number of Class A
units............................ 26,549,698 26,549,698 24,464,478 24,603,442 24,603,442 23,579,669
Net income per Class A units....... $ .67 $ .36 $ .65 $ 2.35 $ 2.49 $ 2.25
Cash distributions declared per
Class A Unit..................... $ .64 $ .64 $ .61 $ 2.44 $ 2.44 $ 2.24
* Does not include special
distribution of $3.36 per unit of
accumulated earnings and profits
paid in June 1993
Balance Sheet Data
As at:
Total assets....................... $ 1,194,580 $ 561,485 $ 471,742 $ 1,198,460 $ 565,204 $ 491,496
Real estate, at cost............... 1,140,683 397,663 383,975 1,144,069 397,298 382,476
Accumulated depreciation........... 324,627 154,016 142,328 319,437 151,049 139,495
Debt............................... 398,651 232,197 243,178 399,322 232,387 233,353
Partnership equity (deficit)....... 722,191 269,262 196,083 729,186 276,257 194,274
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1994 1993 1992
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Operating Data
Revenues:
Property rentals................. $ 70,755 $ 67,213 $ 63,186
Expense reimbursements........... 21,784 19,839 17,898
Other income..................... 1,459 1,738 913
----------- ----------- -----------
Total Revenues..................... 93,998 88,790 81,997
----------- ----------- -----------
Expenses:
Operating........................ 30,223 27,994 27,587
Depreciation and amortization.... 9,963 9,392 9,309
General and administrative....... 6,495 5,890 4,612
Amortization of officer's
deferred compensation
expense........................ -- -- --
Costs incurred in connection with
the merger Vornado, Inc. into
Vornado Realty Trust........... -- 856 --
Cost incurred upon exercise of a
stock option by an officer and
subsequent repurchase of a
portion of the shares.......... -- -- 15,650
----------- ----------- -----------
Total Expenses..................... 46,681 44,132 57,158
----------- ----------- -----------
Operating income................... 47,317 44,658 24,839
Income (loss) applicable to
Alexander's:
Equity in income (loss).......... -- -- --
Depreciation..................... -- -- --
Interest income on loan.......... -- -- --
Equity in net income of Management
Companies........................ -- -- --
Equity in net income of
investees........................ -- -- --
Interest income on mortgage note
receivable....................... -- -- --
Interest and dividend income....... 7,489 11,620 8,555
Interest and debt expense.......... (14,209) (31,155) (33,910)
Net gain on marketable
securities....................... 643 263 2,779
----------- ----------- -----------
Income before income taxes......... 41,240 25,386 2,263
Provision (benefit) for income
taxes............................ -- (6,369) 1,080
----------- ----------- -----------
Net income......................... 41,240 31,755 1,183
Preferred unit distributions....... -- -- --
Preferential allocations........... -- -- --
----------- ----------- -----------
Net income applicable to Class A
units............................ $ 41,240 $ 31,755 $ 1,183
----------- ----------- -----------
Weighted average number of Class A
units............................ 21,853,720 19,790,448 16,559,330
Net income per Class A units....... $ 1.89 $ 1.60 $ .07
Cash distributions declared per
Class A Unit..................... $ 2.00 $ 1.50* $ 1.15
* Does not include special
distribution of $3.36 per unit of
accumulated earnings and profits
paid in June 1993
Balance Sheet Data
As at:
Total assets....................... $ 393,538 $ 385,830 $ 420,616
Real estate, at cost............... 365,832 340,415 314,651
Accumulated depreciation........... 128,705 118,742 111,142
Debt............................... 234,160 235,037 341,701
Partnership equity (deficit)....... 116,688 115,737 (3,242)
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<TABLE>
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VORNADO REALTY TRUST (PREDECESSOR)
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PRO FORMA
THREE PRO FORMA
MONTHS THREE MONTHS YEAR
ENDED ENDED MARCH 31, ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ------------------------- DEC. 31, -------------------------
1997(1) 1997 1996 1996(1) 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Operating Data
Other Data
Funds from operations(2):
Net income applicable to Class A
units.......................... $ 17,717 $ 9,690 $ 15,922 $ 57,721 $ 61,364 $ 53,008
Depreciation and amortization of
real property.................. 10,971 2,681 2,612 34,553 10,583 10,019
Straight-lining of rental
income......................... (2,696) (669) (642) (11,530) (2,676) (2,569)
Leasing fees received in excess
of income recognized........... 454 454 514 1,805 1,805 1,052
Losses/(gains) on sale of
securities available for
sale........................... -- -- -- -- -- 360
Proportionate share of
adjustments to income from
equity investments to arrive at
funds from operations.......... 368 74 10 17 (1,760) 539
Costs incurred in connection with
the merger/upon exercise of a
stock option................... -- -- -- -- -- --
Non-recurring lease cancellation
income and the write-off of
related costs.................. (13,682) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Funds from operations.............. $ 13,132 $ 12,230 $ 18,416 $ 82,566 $ 69,316 $ 62,409
----------- ----------- ----------- ----------- ----------- -----------
Cash flow provided by (used in):
Operating activities............. $ 22,478 $ 19,753 $ 18,202 $ 109,377 $ 70,703 $ 62,882
Investing activities............. $ (334,573) $ (283) $ 22,691 $ (321,988) $ 14,912 $ (103,891)
Financing activities............. $ 269,690 $ (16,739) $ (34,348) $ 243,457 $ (15,046) $ 36,577
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Operating Data
Other Data
Funds from operations(2):
Net income applicable to Class A
units.......................... $ 41,240 $ 25,386 $ 2,263
Depreciation and amortization of
real property.................. 9,192 8,842 8,778
Straight-lining of rental
income......................... (2,181) (2,200) (2,200)
Leasing fees received in excess
of income recognized........... -- -- --
Losses/(gains) on sale of
securities available for
sale........................... (51) (263) (846)
Proportionate share of
adjustments to income from
equity investments to arrive at
funds from operations.......... -- -- --
Costs incurred in connection with
the merger/upon exercise of a
stock option................... -- 856 15,650
Non-recurring lease cancellation
income and the write-off of
related costs.................. -- -- --
----------- ----------- -----------
Funds from operations.............. $ 48,200 $ 32,621 $ 23,645
----------- ----------- -----------
Cash flow provided by (used in):
Operating activities............. $ 46,948 $ 27,725 $ 17,607
Investing activities............. $ (15,434) $ 1,350 $ 14,800
Financing activities............. $ (32,074) $ (56,433) $ 4,384
</TABLE>
- ---------------
(1) The unaudited condensed consolidated pro forma financial information set
forth above presents (i) the condensed consolidated pro forma statement of
income for the Operating Partnership for the three months ended March 31,
1997 and for the year ended December 31, 1996 as if the Mendik Transaction
and certain related transactions were consummated and the offering by
Vornado of Series A Preferred Shares of Beneficial Interest, liquidation
preference $50.00 per share (the "Offering") and the use of proceeds
therefrom had occurred on January 1, 1996, and (ii) the condensed
consolidated pro forma balance sheet information of the Operating
Partnership as of March 31, 1997 as if the Mendik Transaction and certain
related transactions were consummated and the Offering and the use of
proceeds therefrom had occurred on March 31, 1997.
The unaudited condensed consolidated pro forma financial information is not
necessarily indicative of what the Operating Partnership's actual results of
operations or financial position would have been had the Mendik Transaction
and related transactions been consummated and had the Offering and the use
of proceeds therefrom occurred on the dates indicated, nor does it purport
to represent the Operating Partnership's results of operations or financial
position for any future period. The results of operations for the period
ended March 31, 1997 are not necessarily indicative of the operating results
for the full year. The Pro forma for the three months ended March 31, 1997
includes non-recurring items: lease cancellation income of $14,357, the
write-off of related costs of $2,101 and general and administrative expenses
of $675. (Aggregates $.44 per share)
The unaudited condensed consolidated pro forma financial information should
be read in conjunction with Vornado's Consolidated Financial Statements and
notes thereto included in Vornado's Annual Report on Form 10-K for the year
ended December 31, 1996 and Quarterly Report on Form 10-Q for the period
ended March 31, 1997 and the financial statements of the significant
entities involved in the Mendik Transaction included in Vornado's Current
Report on Form 8-K, dated March 12, 1997, as amended by the Current Report
on Form 8-K/A, dated March 12, 1997; copies of such financial statements and
notes thereto are filed as exhibits hereto and are incorporated herein by
reference. In management's opinion, all adjustments necessary to reflect the
Mendik Transaction and the related transactions and the Offering and the use
of proceeds therefrom have been made.
(2) Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
is not necessarily indicative of cash available to fund cash needs which is
9
<PAGE> 10
disclosed in the Consolidated Statements of Cash Flows for the applicable
periods. There are no material legal or functional restrictions on the use of
funds from operations. Funds from operations should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flows as a measure of liquidity.
Management considers funds from operations a supplemental measure of
Operating performance and along with cash flow from operating activities,
financing activities, and investing activities, it provides investors with
an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. Funds from
operations may not be comparable to similarly titled measures employed by
other REITs since a number of REITs, including the Company's, method of
calculating funds from operations is different from that used by NAREIT.
Funds from operations, as defined by NAREIT, represents net income
applicable to common shares before depreciation and amortization,
extraordinary items and gains or losses on sales of real estate. Funds from
operations as disclosed above has been modified to adjust for the effect of
straight-lining of property rentals for rent escalations and leasing fee
income.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
The Operating Partnership's revenues, which consist of property rentals,
tenant expense reimbursements and other income were $29,297,000 in the quarter
ended March 31, 1997, compared to $28,610,000 in the prior year's quarter, an
increase of $687,000 or 2.4%.
Property rentals were $22,467,000 in the quarter ended March 31, 1997,
compared to $21,337,000 in the prior year's quarter, an increase of $1,130,000
or 5.3%. Of this increase (i) $569,000 resulted from property rentals received
from new tenants in excess of property rentals lost from vacating tenants, (ii)
$285,000 resulted from the Operating Partnership's purchase of an office
building in June 1996 and (iii) $276,000 resulted from step-ups in leases which
are not subject to the straight-line method of revenue recognition.
Tenant expense reimbursements, which consist of the tenants' pro-rata share
of common area maintenance expenses (such as snow removal costs, landscaping and
parking lot repairs), real estate taxes and insurance, were $6,210,000 in the
quarter ended March 31, 1997, compared to $6,881,000 in the prior year's
quarter, a decrease of $671,000. This decrease primarily reflects a
corresponding decrease in operating expenses passed through to tenants.
Operating expenses were $8,507,000 in the quarter ended March 31, 1997, as
compared to $8,914,000 in the prior year's quarter, a decrease of $407,000. This
decrease resulted primarily from lower snow removal costs partially offset by
higher real estate taxes.
Depreciation and amortization expense for the three months ended March 31,
1997 did not change significantly from such expense for the prior year's period.
General and administrative expenses were $1,845,000 in the quarter ended
March 31, 1997, compared to $1,189,000 in the prior year's quarter, an increase
of $656,000. This increase resulted primarily from cash compensation
attributable to the employment of Vornado's President.
The Operating Partnership recognized an expense of $6,249,000 in the
quarter ended March 31, 1997 representing one-quarter of the amortization of the
$25,000,000 deferred payment due to Vornado's President. The balance of the
deferred payment will be amortized in 1997.
Income applicable to Alexander's (loan interest income, equity in loss and
depreciation) was $1,405,000 in the three months ended March 31, 1997, compared
to $1,509,000 in the prior year's quarter, a decrease of $104,000.
Income from investment in and advances to Vornado Management Corp. ("VMC")
was $217,000 for the three months ended March 31, 1997 as compared to $1,141,000
in the prior year's quarter. Income from investment in and advances to VMC for
the three months ended March 31, 1996 reflected additional fee income of
$794,000 earned by VMC relating to the substantial completion of the
redevelopment of Alexander's Rego Park I property.
Investment income (interest income on mortgage note receivable, interest
and dividend income and net gains on marketable securities) was $2,417,000 for
the quarter ended March 31, 1997, compared to $1,823,000 in the prior year's
quarter, an increase of $594,000 or 33%. This increase resulted from income
earned on the proceeds from the December 1996 public stock offering.
Interest and debt expense for the three months ended March 31, 1997 did not
change significantly from such expense for the prior year's period.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31,
1995
The Operating Partnership's revenues, which consist of property rentals,
tenant expense reimbursements and other income, were $116,887,000 in 1996,
compared to $108,718,000 in 1995, an increase of $8,169,000 or 7.5%. Property
rentals from shopping centers were $80,001,000 in 1996, compared to $74,255,000
in 1995, an increase of $5,746,000 or 7.7%. Of this increase, (i) $3,800,000
resulted from rental step-ups in existing tenant
11
<PAGE> 12
leases which are not subject to the straight-line method of revenue recognition
and (ii) $2,000,000 resulted from expansions and an acquisition. Property
rentals received from new tenants were approximately the same as property
rentals lost from vacating tenants. Percentage rent included in property rentals
was $936,000 in 1996, compared to $959,000 in 1995.
Property rentals from the remainder of the portfolio were $7,423,000 in
1996, compared to $6,174,000 in 1995, an increase of $1,249,000 or 20.2%. Of
this increase, $650,000 resulted from the purchase of an office building in June
1996.
Tenant expense reimbursements were $26,644,000 in 1996, compared to
$24,091,000 in 1995, an increase of $2,553,000. This increase reflects a
corresponding increase in operating expenses passed through to tenants.
Other income was $2,819,000 in 1996, compared to $4,198,000 in 1995, a
decrease of $1,379,000. This decrease resulted primarily from (i) including
management and development fee income from Alexander's in "Income from
investment in and advances to Vornado Management Corp." rather than in "Other
income" for a full year in 1996, compared to six months in 1995 and (ii) the
recognition of leasing fee income in the first quarter of 1995 from Alexander's
of $915,000 applicable to 1993 and 1994 (no leasing fee income was recognized
prior to 1995 because required conditions had not been met), partially offset by
(iii) the increase in management, development and leasing fees from Interstate
Properties.
Operating expenses were $36,412,000 in 1996, compared to $32,282,000 in
1995, an increase of $4,130,000. Of this increase, (i) $3,100,000 were passed
through to tenants and consisted of higher snow removal costs of $1,500,000,
increased real estate taxes of $1,000,000 and other common area maintenance
expense increases of $600,000 and (ii) $500,000 resulted from increases in rent
expense and other property expenses. In addition, in 1995 operating expenses
were partially offset by real estate tax refunds and other miscellaneous income
of approximately $500,000.
Depreciation and amortization expense increased by $799,000 in 1996,
compared to 1995, as a result of expansions and an acquisition.
General and administrative expenses were $5,167,000 in 1996, compared to
$6,687,000 in 1995, a decrease of $1,520,000. This decrease resulted primarily
from a reduction in corporate office expenses caused by the third quarter 1995
assignment of the Company's Management and Development Agreement with
Alexander's to VMC.
In December 1996, the Operating Partnership recognized an expense of
$2,083,000, representing one month's amortization of the $25,000,000 deferred
payment due to Vornado's President. The balance of the deferred payment will be
amortized in 1997.
Income applicable to Alexander's (loan interest income, equity in income
(loss) and depreciation) was $7,956,000 for the year ended December 31, 1996,
compared to $3,954,000 in the prior year, an increase of $4,002,000. This
increase resulted from (i) lower operating losses at Alexander's caused by the
commencement of rent at the Rego Park I property in March 1996, (ii) the
recognition of $2,053,000 of non-recurring income as a result of the reversal of
a liability which is no longer required and (iii) interest income on the loan to
Alexander's for a full year in 1996, compared to a ten month period in 1995. The
Operating Partnership believes that its share of Alexander's losses (which are
non-cash), combined with its fee income and interest income, will not have a
negative effect on its results of operations, liquidity and financial condition.
In July 1995, the Operating Partnership assigned its Management Agreement
with Alexander's to VMC. In exchange, the Operating Partnership received 100% of
the non-voting preferred stock of VMC which entitles it to 95% of the economic
benefits of VMC through distributions. In addition, the Operating Partnership
lent $5,000,000 to VMC for working capital purposes under a three-year term loan
bearing interest at the prime rate plus 2%. VMC is responsible for its pro rata
share of compensation and fringe benefits of employees and 30% of other expenses
which are common to both Vornado and VMC. Income from investment in and advances
to VMC was $1,855,000 for the year ended December 31, 1996, compared to $788,000
for the period from July 6th to December 31, in 1995. Income from investment in
and advances to
12
<PAGE> 13
VMC for the year ended December 31, 1996 reflects additional fee income earned
by VMC in the first quarter of 1996 relating to the substantial completion of
the redevelopment of Alexander's Rego Park I property.
Investment income (interest income on mortgage note receivable, interest
and dividend income and net gains/(losses) on marketable securities) was
$6,643,000 for 1996, compared to $5,733,000 in 1995, an increase of $910,000 or
15.9%. This increase resulted from higher net gains on marketable securities and
the yield earned on the mortgage note receivable exceeding the yield earned on
the investment of such funds in 1995.
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 95% 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 has distributed to its
shareholders an amount greater than its taxable income. Therefore, no provision
for Federal income taxes is required.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31,
1994
The Operating Partnership's revenues, which consist of property rentals,
tenant expense reimbursements and other income were $108,718,000 in 1995,
compared to $93,998,000 in 1994, an increase of $14,720,000 or 15.7%.
Property rentals from shopping centers were $74,255,000 in 1995, compared
to $64,665,000 in 1994, an increase of $9,590,000 or 14.8%. Of this increase,
(i) $6,067,000 resulted from expansions of shopping centers and acquisitions of
retail properties, (ii) $2,823,000 resulted from rental step-ups in existing
tenant leases which are not subject to the straight-line method of revenue
recognition and (iii) $628,000 resulted from property rentals received from new
tenants exceeding property rentals lost from vacating tenants. Percentage rent
included in property rentals was $959,000 in 1995, compared to $887,000 in 1994.
Property rentals from the remainder of the portfolio were $6,174,000 in
1995, compared to $6,090,000 in 1994, an increase of $84,000 or 1.4%.
Tenant expense reimbursements were $24,091,000 in 1995, compared to
$21,784,000 in 1994, an increase of $2,307,000. This increase reflects a
corresponding increase in operating expenses passed through to tenants.
Other income was $4,198,000 in 1995, compared to $1,459,000 in 1994, an
increase of $2,739,000. This increase resulted primarily from the fee income
recognized in connection with the Management Agreement and Leasing Agreement
with Alexander's including $915,000 applicable to 1993 and 1994 recognized in
the first quarter of 1995 (no leasing fee income was recognized prior to 1995
because required conditions had not been met). In addition to the Management
Agreement fee income included in other income in 1995, $2,250,000 of such fees
was earned in 1995 by VMC and is included in the caption "Income from investment
in and advances to Vornado Management Corp." in the Consolidated Statements of
Income.
Operating expenses were $32,282,000 in 1995, compared to $30,223,000 in
1994, an increase of $2,059,000. Of this increase (i) $1,484,000 resulted from
real estate taxes from expansions and acquisitions, which were passed through to
tenants, and (ii) $258,000 resulted from bad debt expenses primarily due to
tenant bankruptcies.
Depreciation and amortization expense increased by $827,000 in 1995,
compared to 1994, primarily as a result of property expansions.
General and administrative expenses were $6,687,000 in 1995, compared to
$6,495,000 in 1994, an increase of $192,000. This increase is the net of
increases from (i) payroll expenses of $1,017,000, (due to additions to staff
and bonuses), and (ii) professional fees and other corporate office expenses of
$305,000, offset by (iii) the reduction in expense of $1,130,000 resulting from
the assignment of the Management Agreement with Alexander's to VMC in the third
quarter of 1995.
13
<PAGE> 14
For the period from March 2, 1995 through December 31, 1995, the Operating
Partnership's equity in Alexander's losses amounted to $1,972,000. In addition,
during the same period the Operating Partnership recognized interest income on
its loan to Alexander's of $6,343,000 and fee income from its Management
Agreement and Leasing Agreement with Alexander's of $2,973,000 (excluding
$2,250,000 earned by VMC).
Income from investment in and advances to VMC consists of dividend income
of $565,000 and interest income of $223,000.
Investment income was $5,733,000 for 1995, compared to $8,132,000 in 1994,
a decrease of $2,399,000 or 29.5%. This decrease was caused by (i) lower
interest income resulting from the use of cash for the Alexander's investment
and (ii) net gains on marketable securities being $349,000 less than in the
prior year.
Interest and debt expense was $16,426,000 in 1995, compared to $14,209,000
in 1994, an increase of $2,217,000 or 15.6%. Of this increase, $1,046,000
resulted from borrowings under the revolving credit facility to temporarily fund
the investment in Alexander's and $1,134,000 resulted from a decrease in
interest capitalized during construction.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 1997
Cash flows provided by operating activities of $19,753,000 was comprised of
(i) net income of $9,690,000 (ii) adjustments for non-cash items of $8,732,000
and (iii) the net change in operating assets and liabilities of $1,331,000. The
adjustments for non-cash items are primarily comprised of (i) amortization of
deferred officer's compensation expense of $6,249,000, (ii) depreciation and
amortization of $3,228,000 and (iii) equity in loss of Alexander's of $211,000
offset by (iv) the effect of straight-lining of rental income of $669,000.
Net cash used in investing activities of $283,000 was primarily comprised
of capital expenditures.
Net cash used in financing activities of $16,739,000 was primarily
comprised of dividends paid.
Three Months Ended March 31, 1996
Cash flows provided by operating activities of $18,202,000 was comprised of
(i) net income of $15,922,000 and (ii) adjustments for non-cash items of
$2,383,000, less (iii) the net change in operating assets and liabilities of
$103,000. The adjustments for non-cash items are primarily comprised of
depreciation and amortization of $3,090,000, plus equity in loss of Alexander's
of $293,000, offset by the effect of straight-lining of rental income of
$642,000. Further, during this period in connection with the rejection of a
lease by an Alexander's tenant "Leasing fees and other receivables" decreased by
$1,717,000 and "Deferred leasing fee income" correspondingly decreased. "Leasing
fees and other receivables" of $490,000 were collected during this period. These
amounts have been included in "Changes in assets and liabilities: other" in the
Consolidated Statements of Cash Flows and are part of the net change in
operating assets and liabilities shown in item (iii) above.
Net cash provided by investing activities of $22,691,000 was comprised of
(i) proceeds from sale or maturity of securities available for sale of
$41,192,000, offset by (ii) the Operating Partnership's investment in a mortgage
note receivable of $17,000,000 and (iii) capital expenditures of $1,501,000.
Net cash used in financing activities of $34,348,000 was primarily
comprised of (i) the net repayment of borrowings on U.S. Treasury obligations of
$30,036,000 and (ii) dividends paid of $14,813,000, offset by (iii) the proceeds
from borrowings of $10,000,000.
Funds from Operations for the Three Months Ended March 31, 1997 and 1996
Management considers funds from operations an appropriate supplemental
measure of the Operating Partnership's operating performance. Funds from
operations were $12,230,000 in the quarter ended March 31, 1997, compared to
$18,416,000 in the prior year's quarter, a decrease of $6,186,000 or 34%. Funds
from operations for the quarter ended March 31, 1997 reflect an expense of
$6,249,000, representing one-quarter of
14
<PAGE> 15
the amortization of the deferred payment due to Vornado's President and $594,000
of related cash compensation. The following table reconciles funds from
operations and net income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
Net income........................................ $ 9,690,000 $15,922,000
Depreciation and amortization of real property.... 2,681,000 2,612,000
Straight-lining of property rentals for rent
escalations..................................... (669,000) (642,000)
Leasing fees received in excess of income
recognized...................................... 454,000 514,000
Proportionate share of adjustments to Alexander's
income/(loss) to arrive at funds from
operations...................................... 74,000 10,000
----------- -----------
Funds from operations............................. $12,230,000 $18,416,000
=========== ===========
</TABLE>
Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and is
not necessarily indicative of cash available to fund cash needs which is
disclosed in the Consolidated Statements of Cash Flows for the applicable
periods. There are no material legal or functional restrictions on the use of
funds from operations. Funds from operations should not be considered as an
alternative to net income as an indicator of the Operating Partnership's
operating performance or as an alternative to cash flows as a measure of
liquidity. Management considers funds from operations a supplemental measure of
Operating performance and along with cash flow from operating activities,
financing activities, and investing activities, it provides investors with an
indication of the ability of the Company to incur and service debt, to make
capital expenditures and to fund other cash needs. Funds from operations may not
be comparable to similarly titled measures employed by other REITs since a
number of REITs, including the Company's, method of calculating funds from
operations is different from that used by NAREIT. Funds from operations, as
defined by NAREIT, represents net income applicable to common shares before
depreciation and amortization, extraordinary items and gains or losses on sales
of real estate. Funds from operations as disclosed above has been modified to
adjust for the effect of straight-lining of property rentals for rent
escalations and leasing fee income. Below are the cash flows provided by (used
in) operating, investing and financing activities:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
MARCH 31, MARCH 31,
1997 1996
------------ ------------
<S> <C> <C>
Operating activities............................ $ 19,753,000 $ 18,202,000
============ ============
Investing activities............................ $ (283,000) $ 22,691,000
============ ============
Financing activities............................ $(16,739,000) $(34,348,000)
============ ============
</TABLE>
Bradlees accounted for 22% of property rentals for the year ended December
31, 1996. In June 1995, Bradlees filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. The Operating Partnership currently leases 17 locations to
Bradlees. Of these locations, 14 are fully guaranteed by Stop & Shop Companies,
Inc. ("Stop & Shop"), a wholly-owned subsidiary of Royal Ahold NV, a leading
international food retailer, and one is guaranteed as to 70% of the rent. During
1996, Bradlees rejected three leases and assigned one lease to Kohl's Department
Stores, Inc. These four leases are fully guaranteed by Stop & Shop. In January
1997, Bradlees received Bankruptcy Court approval to close one of the two stores
whose leases are not guaranteed by Stop & Shop. Montgomery Ward & Co., Inc.
remains liable with respect to the rent it was obligated to pay as a previous
lessor on eight of the leases guaranteed by Stop & Shop approximately 70% of
current rent.
In January 1996, the Operating Partnership provided $17 million of
debtor-in-possession financing to Rickel which is operating under Chapter 11 of
the Bankruptcy Code. The loan is secured by 27 of Rickel's leasehold properties
and has a remaining term through January 1998, plus a one year extension, but is
due not later than the date on which Rickel's plan of reorganization is
confirmed. The loan bears interest at 13% per
15
<PAGE> 16
annum and at a fixed rate of LIBOR plus 7.50% for the extension period. In
addition, the Operating Partnership receives a loan origination fee of 2% for
each year the loan is outstanding.
Alexander's has disclosed in its annual report on Form 10-K for the year
ended December 31, 1996, that its current operating properties (five of its nine
properties) do not generate sufficient cash flow to pay all of its expenses, and
that its four non-operating properties (Lexington Avenue, Paramus, the Kings
Plaza Store and Rego Park II) are in various stages of redevelopment. As rents
commence from a portion of the redevelopment properties, Alexander's expects
that cash flow will become positive. Alexander's estimates that the fair market
values of its assets are substantially in excess of their historical cost and
that there is additional borrowing capacity. Alexander's continues to evaluate
its needs for capital, which may be raised through (a) property specific or
corporate borrowing, (b) the sale of securities and (c) asset sales. Further,
Alexander's may receive proceeds from condemnation proceedings of a portion of
its Paramus property. Although there can be no assurance, Alexander's believes
that these cash sources will be adequate to fund cash requirements until its
operations generate adequate cash flow. Alexander's borrowing capacity is
demonstrated by the additional $16,700,000 it borrowed in March 1997 under its
Rego Park construction loan. Although the Operating Partnership may provide a
portion of the financing required for Alexander's redevelopment projects, no
specific financing requirements have been determined or committed. None of the
redevelopment plans for the non-operating properties have been finalized.
The Operating Partnership has budgeted approximately $22,000,000 for
capital expenditures over the next year of which $13,000,000 is for tenant
improvements at its office properties and $5,000,000 is for tenant improvements
and renovations at its shopping center properties.
In December 1996, Michael D. Fascitelli became the President of Vornado and
was elected to Vornado's Board. Mr. Fascitelli signed a five year employment
contract under which, in addition to his annual salary, he received a deferred
payment consisting of $5,000,000 in cash and a $20,000,000 convertible
obligation payable at Vornado's option in 459,770 of its Common Shares or the
cash equivalent of their appreciated value. Accordingly, cash of $5,000,000 and
459,770 Common Shares are being held in an irrevocable trust. The deferred
payment obligation to Mr. Fascitelli vests as of December 2, 1997. Further, Mr.
Fascitelli was granted options for 1,750,000 Common Shares of Vornado.
On April 15, 1997, Vornado consummated the acquisition, through an
operating partnership, of interests in all or a portion of seven Manhattan
office buildings and certain management and leasing assets held by the Mendik
Group and certain of its affiliates. Simultaneously with the closing of this
transaction, and in connection therewith, Vornado converted to an Umbrella
Partnership REIT (UPREIT) by transferring (by contribution, merger or otherwise)
all or substantially all of the interests in its properties and other assets to
The Mendik Company, L.P., a Delaware limited partnership which has been renamed
Vornado Realty L.P. (the "Operating Partnership"), of which Vornado is the sole
general partner. As a result of such conversion, the Vornado's activities will
be conducted through the Operating Partnership.
As an UPREIT, Vornado will have the ability to acquire properties for
limited partnership units and thereby provide sellers with deferral of income
taxes that would otherwise be payable upon a cash sale. The ability to offer
limited partnership units in the Operating Partnership allows Vornado to compete
with other UPREITs and may afford Vornado certain advantages over other
potential acquirors who are unable to offer tax-efficient consideration.
The consideration for the Mendik transaction was approximately
$656,000,000, including $264,000,000 in cash, $177,000,000 in the limited
partnership units of the Operating Partnership and $215,000,000 in indebtedness.
Vornado financed the cash portion of this transaction with the proceeds of a
public offering completed on April 9, 1997, of 5,750,000 Convertible Preferred
Shares of Beneficial Interest, liquidation preference $50.00 per share. The
preferred shares bear a coupon of 6 1/2% and are convertible into common shares
at $72 3/4 per share. The offering, net of expenses, generated approximately
$276,000,000.
Also, on April 15, 1997, the Operating Partnership entered into a Credit
Agreement with Union Bank of Switzerland pursuant to which the Operating
Partnership borrowed $400,000,000. The loan bears interest at the rate of LIBOR
plus .625% and matures, assuming exercise of extension options, on April 14,
1998.
16
<PAGE> 17
On April 18, 1997, the Operating Partnership announced that it acquired The
Montehiedra Town Center located in San Juan, Puerto Rico, from Kmart Corporation
("Kmart") for approximately $74,000,000, of which $63,000,000 is newly-issued
ten year indebtedness. The Montehiedra shopping center, which opened in 1994,
contains 525,000 square feet, including a 135,000 square foot Kmart store. In
addition, the Operating Partnership agreed to acquire Kmart's 50% interest in
the Caguas Centrum Shopping Center, which is currently under construction,
located in Caguas, Puerto Rico. This acquisition is expected to close in 1998.
Further, on May 7, 1997, the Operating Partnership acquired a mortgage loan
from a consortium of banks secured by a mortgage on the office building located
at 90 Park Avenue, New York, New York. The purchase price of the mortgage loan
was approximately $185,000,000. The mortgage loan, which is in default, has a
face value of $193,000,000. Management believes that the underlying fair market
value of the real estate securing the mortgage, based on signed leases in
effect, exceeds the amount of the loan due and that there are no other
indications of impairment in accordance with SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan".
The Operating Partnership anticipates that cash from continuing operations
will be adequate to fund business operations and the payment of dividends on an
ongoing basis for more than the next twelve months; however, capital outlays for
significant acquisitions may require funding from borrowings or equity
offerings.
ECONOMIC CONDITIONS
At December 31, 1996, approximately 80% of the square footage of the
Operating Partnership's shopping centers was leased to large stores (over 20,000
square feet). The Operating Partnership's large store tenants typically offer
basic consumer necessities such as food, health and beauty aids, moderately
priced clothing, building materials and home improvement supplies, and compete
primarily on the basis of price. The Operating Partnership believes that because
the stores operated by its tenants offer basic consumer necessities, demand
typically continues even during economic declines, which therefore may mitigate
the effects on its properties of adverse changes in general economic conditions.
However, demand for retail space continues to be impacted by the bankruptcy of a
number of retail companies and a general trend toward consolidation in the
retail industry which could adversely affect the ability of the Operating
Partnership to attract or retain tenants.
Substantially all of the Operating Partnership's leases contain step-ups in
rent. Such rental increases are not designed to, and in many instances do not,
approximate the cost of inflation, but do have the effect of mitigating the
adverse impact of inflation. In addition, substantially all of the Operating
Partnership's leases contain provisions that require the tenant to reimburse the
Operating Partnership for the tenant's share of common area charges (including
roof and structure, unless it is the tenant's direct responsibility) and real
estate taxes thus passing through to the tenants the effects of inflation on
such expenses.
Inflation did not have a material effect on the Operating Partnership's
results for the periods presented.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share". The statement is effective for fiscal years
ending after December 15, 1997. The Operating Partnership believes that this
pronouncement will not have a material effect on its net income per share.
17
<PAGE> 18
ITEM 3. PROPERTIES
VORNADO PROPERTIES
The Operating Partnership leases 27,000 square feet in Saddle Brook, New
Jersey for use as its executive offices and 16,000 square feet in Manhattan, New
York for its Mendik Division.
The following table sets forth certain information for the properties owned
by the Operating Partnership as of March 31, 1997 or as of the date of
acquisition for properties thereafter acquired.
The Principal Tenants as described below, which are primarily tenants which
occupy 30,000 square feet or more, accounted for approximately 70% of total
square footage.
<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
-------------------------
YEAR OWNED BY NUMBER
ORIGINALLY LAND OWNED/ TENANT ON OF ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED TENANTS RENT PERCENT
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY 3/31/97 PER SQ. FT.(1) LEASED(1)
- --------------------------------- ----------- ------- ---------- ------------ -------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE BUILDINGS
(MENDIK DIVISION)
NEW YORK
Two Penn Plaza, 1978 2.7 1,474,526 76 $26.91 84%
Manhattan
Eleven Penn Plaza, 1980 1.3 956,280 68 25.13 96%
Manhattan
1740 Broadway, 1990 0.7 551,301 21 31.91 100%
Manhattan
866 United Nations Plaza, 1978 2.1 384,815 83 29.39 97%
Manhattan
Two Park Avenue, 1986 1.0 946,697 41 23.10 98%
Manhattan (40% ownership)
330 Madison Avenue, 1979 0.8 770,828 46 33.94 97%
Manhattan (24.8% ownership)
570 Lexington Avenue, 1994 0.3 433,342 17 29.67 37%
Manhattan (5.6% ownership)
825 Seventh Avenue, 1996 0.5 149,000 1 7.65 100%
Manhattan (50% ownership)
NEW JERSEY
Paramus(4) 1987 3.4 118,225 25 17.29 65%
---- --------- --- ------
TOTAL OFFICE BUILDINGS 12.8 5,785,014 378 26.95 89%
---- --------- --- ------
VORNADO'S OWNERSHIP INTEREST 11.1 4,153,373 92%
---- ---------
SHOPPING CENTERS
NEW JERSEY
Atlantic City 1965 17.7 135,774 -- -- -- --
Bordentown 1958 31.2 178,678 -- 4 6.54 100%
Bricktown 1968 23.9 259,888 2,764 19 10.14 99%
Cherry Hill 1964 37.6 231,142 63,511 13 8.38 94%
Delran 1972 17.5 167,340 1,200 5 5.32 95%
Dover 1964 19.6 172,673 -- 13 5.98 98%
East Brunswick 1957 19.2 219,056 10,400 6 10.95 97%
<CAPTION>
LEASE
EXPIRATION/
OPTION
LOCATION PRINCIPAL TENANTS EXPIRATION ENCUMBRANCES(8)
- --------------------------------- ------------------------------- ----------- ---------------
(IN THOUSANDS)
<S> <<C> <C> <C>
OFFICE BUILDINGS
(MENDIK DIVISION)
NEW YORK
Two Penn Plaza, Digital Equipment 1998 $ 80,000
Manhattan Information Builders, Inc. 2013/2023
Eleven Penn Plaza, Times Mirror 2001 53,454
Manhattan General Mills 2002
1740 Broadway, Mutual of New York 2016/2026 --
Manhattan William Douglas McAdams 2007
866 United Nations Plaza, Bear Stearns 1997 33,000
Manhattan
Two Park Avenue, Times Mirror 2010/2025 65,000
Manhattan (40% ownership) Smith Barney 1998
330 Madison Avenue, BDO Seidman 2010/2015 94,058
Manhattan (24.8% ownership)
570 Lexington Avenue, --
Manhattan (5.6% ownership)
825 Seventh Avenue, American Broadcasting 1999 --
Manhattan (50% ownership) Companies
NEW JERSEY
Paramus(4) 848
--------
TOTAL OFFICE BUILDINGS 326,360
--------
VORNADO'S OWNERSHIP INTEREST 216,581
--------
SHOPPING CENTERS
NEW JERSEY
Atlantic City 2,135
Bordentown Bradlees(2)(3) 2001/2021 3,276
Shop-Rite 2011/2016
Bricktown Caldor 2008/2028 9,919
Shop-Rite 2002/2017
Cherry Hill Bradlees(2)(3) 2006/2026 9,706
Drug Emporium 2002
Shop & Bag 2007/2017
Toys "R" Us 2012/2042
Delran Sam's Wholesale 2011/2021 2,848
Dover Ames 2017/2037 3,635
Shop-Rite 2012/2022
East Brunswick Bradlees(3) 2003/2023 8,205
Shoppers World 2007/2012
T.J. Maxx 1999
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
-------------------------
YEAR OWNED BY NUMBER
ORIGINALLY LAND OWNED/ TENANT ON OF ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED TENANTS RENT PERCENT
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY 3/31/97 PER SQ. FT.(1) LEASED(1)
- --------------------------------- ----------- ------- ---------- ------------ -------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
East Hanover 1962 24.6 271,066 -- 16 10.21 97%
Hackensack 1963 21.3 207,548 59,249 20 14.92 97%
Jersey City 1965 16.7 222,478 3,222 11 12.09 97%
Kearny 1959 35.3 41,518 62,471 4 6.64 89%
Lawnside 1969 16.4 145,282 -- 3 9.07 100%
Lodi 1975 8.7 130,000 -- 1 8.50 100%
Manalapan 1971 26.3 194,265 2,000 7 8.84 100%
Marlton 1973 27.8 173,238 6,836 10 8.44 100%
Middletown 1963 22.7 179,584 52,000 22 12.19 97%
Morris Plains 1985 27.0 171,493 1,000 18 11.04 97%
North Bergen 1959 4.6 6,515 55,597 3 25.78 100%
North Plainfield(4) 1989 28.7 217,360 -- 16 8.73 96%
Totowa 1957 40.5 201,471 93,613 8 15.96 97%
Turnersville 1974 23.3 89,453 6,513 3 5.98 100%
Union 1962 24.1 257,045 -- 12 17.48 100%
Vineland 1966 28.0 143,257 -- 4 6.95 51%
Watchung 1959 53.8 49,979 115,660 6 17.80 96%
Woodbridge 1959 19.7 232,755 3,614 11 13.12 99%
NEW YORK
14th Street and Union Square, 1993 0.8 231,770 -- 1 9.92 100%
Manhattan
Albany (Menands) 1965 18.6 140,529 -- 2 6.35 100%
Buffalo (Amherst)(4) 1968 22.7 184,832 111,717 10 6.77 96%
Coram(4) 1976 2.4 103,000 -- 1 2.22 100%
<CAPTION>
LEASE
EXPIRATION/
OPTION
LOCATION PRINCIPAL TENANTS EXPIRATION ENCUMBRANCES(8)
- --------------------------------- ------------------------------- ----------- ---------------
(IN THOUSANDS)
<S> <<C> <C> <C>
East Hanover Home Depot 2009/2019 11,066
Marshalls 2004/2009
Pathmark 2001/2024
Today's Man 2009/2014
Hackensack Bradlees(3) 2012/2017 --
Pathmark 2014/2024
Rickel Home Center 2003/2013
Jersey City Bradlees(3) 2002/2022 10,381
Shop-Rite 2008/2028
Kearny Pathmark 2013/2033 --
Rickel Home Center 2008
Lawnside Home Depot 2012/2027 5,708
Drug Emporium 2007
Lodi National Wholesale 2013/2023 2,420
Liquidators
Manalapan Bradlees(3) 2002/2022 6,397
Grand Union 2012/2022
Marlton Kohl's(2)(3) 2011/2031 5,398
Shop-Rite 1999/2009
Middletown Bradlees(3) 2002/2022 7,761
Grand Union 2009/2029
Morris Plains Caldor 2002/2023 6,600
Shop-Rite 2002
North Bergen A & P 2012/2032 --
North Plainfield(4) Kmart 2006/2016 3,634
Pathmark 2001/2011
Totowa Bradlees(3) 2013/2028 15,646
Home Depot 2015/2025
Marshalls 2007/2012
Turnersville Bradlees(2)(3) 2011/2031 2,116
Union Bradlees(3) 2002/2022 15,975
Toys "R" Us 2015
Cost Cutter Drug 2000
Vineland Rickel Home Center 2005/2010 2,358
Watchung B.J.'s Wholesale 2024 --
Woodbridge Bradlees(3) 2002/2022 8,792
Foodtown 2007/2014
Syms 2000
NEW YORK
14th Street and Union Square, Bradlees 2019/2029 --
Manhattan
Albany (Menands) Fleet Bank 2004/2014 --
Albany Public Mkts.(5) 2000
Buffalo (Amherst)(4) Circuit City 2017 4,863
Media Play 2002/2017
MJ Design 2006/2017
Toys "R" Us 2013
T.J. Maxx 1999
Coram(4) May Department Stores(5) 2011 --
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
-------------------------
YEAR OWNED BY NUMBER
ORIGINALLY LAND OWNED/ TENANT ON OF ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED TENANTS RENT PERCENT
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY 3/31/97 PER SQ. FT.(1) LEASED(1)
- --------------------------------- ----------- ------- ---------- ------------ -------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Freeport 1981 12.5 166,587 -- 3 11.50 100%
New Hyde Park(4) 1976 12.5 101,454 -- 1 13.55 100%
North Syracuse(4) 1976 29.4 98,434 -- 1 2.74 100%
Rochester 1971 15.0 147,812 -- 1 5.86 47%
(Henrietta)(4)
Rochester 1966 18.4 176,261 -- 1 6.05 41%
PENNSYLVANIA
Allentown 1957 86.8 262,607 353,938 18 9.68 98%
Bensalem 1972 23.2 208,174 6,714 13 7.49 89%
Bethlehem 1966 23.0 157,212 2,654 12 5.05 78%
Broomall 1966 21.0 145,776 22,355 5 8.31 100%
Glenolden 1975 10.0 101,235 -- 3 10.74 100%
Lancaster 1966 28.0 179,982 -- 7 4.32 51%
Levittown 1964 12.8 104,448 -- 1 5.98 100%
10th and Market Streets, 1994 1.8 271,300 -- 2 7.94 62%
Philadelphia
Upper Moreland 1974 18.6 122,432 -- 1 7.50 100%
York 1970 12.0 113,294 -- 3 4.64 100%
MARYLAND
Baltimore(Belair Rd.) 1962 16.0 205,723 -- 3 4.83 100%
Baltimore(Towson) 1968 14.6 146,393 6,800 7 9.63 100%
Baltimore (Dundalk) 1966 16.1 183,361 -- 17 6.49 97%
Glen Burnie 1958 21.2 117,369 3,100 4 5.90 78%
Hagerstown 1966 13.9 133,343 14,965 6 3.12 100%
CONNECTICUT
Newington 1965 19.2 134,229 45,000 4 6.28 100%
Waterbury 1969 19.2 139,717 2,645 10 7.64 100%
MASSACHUSETTS
Chicopee 1969 15.4 112,062 2,851 3 4.85 93%
Milford(4) 1976 14.7 83,000 -- 1 5.26 100%
<CAPTION>
LEASE
EXPIRATION/
OPTION
LOCATION PRINCIPAL TENANTS EXPIRATION ENCUMBRANCES(8)
- --------------------------------- ------------------------------- ----------- ---------------
(IN THOUSANDS)
<S> <<C> <C> <C>
Freeport Home Depot 2011/2021 8,021
Cablevision 2004
New Hyde Park(4) Bradlees(6) 2019/2029 2,043
North Syracuse(4) Reisman Properties 2014 --
Rochester Hechinger(5) 2005/2025 2,203
(Henrietta)(4)
Rochester Hechinger(5) 2005/2025 2,832
PENNSYLVANIA
Allentown Hechinger 2011/2031 7,697
Shop-Rite 2011/2021
Burlington Coat Factory 2017
Wal*Mart 2024/2094
Sam's Wholesale 2024/2094
T.J. Maxx(2)(3) 1998/2008
Bensalem Shop-Rite 2011/2031 3,967
2011/2031
Bethlehem Pathmark 2000/2023 --
Super Petz 2005/2015
Broomall Bradlees(2)(3) 2006/2026 3,260
Glenolden Bradlees(2)(3) 2012/2022 4,245
Lancaster Weis Markets(2)(3) 1998/2018 2,312
Levittown 2006/2026 2,283
10th and Market Streets, Kimco Realty Corporation 2010/2035 --
Philadelphia
Upper Moreland Sam's Wholesale(2) 2010/2015 3,517
York Builders Square 2009/2018 1,463
MARYLAND
Baltimore(Belair Rd.) Food Depot 1999/2004 --
Y? Innovatyve 2002/2007
Baltimore(Towson) Staples 2004 5,779
Cost Saver Supermarket 2000/2020
Drug Emporium 1999/2004
Baltimore (Dundalk) A & P 2002/2017 4,084
Ollie's 1998/2008
Manor Shops 1998
Glen Burnie Pathmark Stores, Inc.(5) 2005 2,299
Hagerstown Big Lots 2002/2012 --
Pharmhouse 2008/2012
Weis Markets(3) 1999/2009
CONNECTICUT
Newington The Wiz 2002/2022 3,042
2007/2027
Waterbury Toys "R" Us 2010 3,889
Shaws Supermarkets 2003/2018
MASSACHUSETTS
Chicopee Bradlees(3) 2002/2022 1,999
Milford(4) Bradlees(3) 2004/2009 --
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
-------------------------
YEAR OWNED BY NUMBER
ORIGINALLY LAND OWNED/ TENANT ON OF ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED TENANTS RENT PERCENT
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY 3/31/97 PER SQ. FT.(1) LEASED(1)
- --------------------------------- ----------- ------- ---------- ------------ -------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Springfield 1966 17.4 8,016 117,044 2 11.25 100%
TEXAS
Lewisville 1990 13.3 34,893 7,204 14 13.62 87%
Mesquite 1990 5.5 71,246 -- 14 13.90 95%
Dallas 1990 9.9 99,733 -- 8 9.25 80%
PUERTO RICO
(SAN JUAN)
Montehiedra 1997 57.1 525,378 -- 95 15.39 99%
------- ---------- --------- --- ------ ----
TOTAL SHOPPING CENTERS 1,239.2 9,310,460 1,236,637 509 9.51 91%
------- ---------- --------- --- ------ ----
WAREHOUSE/INDUSTRIAL
E. Brunswick 1972 16.1 325,800 2 2.28 97%
E. Hanover 1963-1967 45.5 941,429 12 3.80 94%
Edison 1982 18.7 272,071 1 2.75 100%
Garfield 1959 31.6 486,620 3 3.46 38%
------- ---------- --------- --- ------ ----
TOTAL 111.9 2,025,920 18 3.30 81%
WAREHOUSE/INDUSTRIAL
------- ---------- --------- --- ------ ----
OTHER
PROPERTIES
Montclair 1972 1.6 16,928 1 17.00 100%
Rahway(4) 1972 -- 32,000 1 4.88 100%
------- ---------- --------- --- ------ ----
TOTAL OTHER PROPERTIES 1.6 48,928 2 $ 9.07 100%
------- ---------- --------- --- ------ ----
GRAND TOTAL 1,365.5 17,170,322 1,236,637 907 89%
======= ========== ========= === ====
GRAND TOTAL VORNADO'S 1,363.8 15,538,681 1,236,637 90%
OWNERSHIP INTEREST
======= ========== ========= ====
<CAPTION>
LEASE
EXPIRATION/
OPTION
LOCATION PRINCIPAL TENANTS EXPIRATION ENCUMBRANCES(8)
- --------------------------------- ------------------------------- ----------- ---------------
(IN THOUSANDS)
<S> <<C> <C> <C>
Springfield Wal*Mart 2018/2092 --
TEXAS
Lewisville Albertson's(7) 2055 764
Mesquite 3,445
Dallas Albertson's(7) 2055 1,987
PUERTO RICO
(SAN JUAN)
Montehiedra Kmart 2072 63,000
Builders Square 2072
Marshalls 2010/2025
Caribbean Theatres 2021/2026
--------
TOTAL SHOPPING CENTERS 282,969
--------
WAREHOUSE/INDUSTRIAL
E. Brunswick Popsicle Playwear 2000/2005 --
IFB Apparel 2001/2006
E. Hanover Various Tenants 8,210
Edison White Cons. Ind. 1998/2001 2,455
Garfield Popular Services 2007 715
& Various Tenants
--------
TOTAL 11,380
WAREHOUSE/INDUSTRIAL
--------
OTHER
PROPERTIES
Montclair --
Rahway(4) --
--------
TOTAL OTHER PROPERTIES --
--------
GRAND TOTAL $ 620,709
========
GRAND TOTAL VORNADO'S $ 510,930
OWNERSHIP INTEREST
========
</TABLE>
- ---------------
(1) Represents annualized monthly base rent. Excludes ground leases and rent for
leases which had not commenced as of March 31, 1997, which are included in
percent leased.
(2) Montgomery Ward & Co., Inc. (a previous lessor) remains liable on such lease
including the rent it was obligated to pay -- approximately 70%.
(3) These leases are either fully guaranteed by Stop & Shop, a wholly-owned
subsidiary of Royal Ahold NV, or in the case of Totowa, guaranteed as to 70%
of rent.
(4) Ground and/or building leasehold interest
(5) The tenant has ceased operations at these locations but continues to pay
rent.
(6) Bradlees received Bankruptcy Court approval in January 1997 to close this
store.
(7) Square footage excludes Albertson's which owns its land and building.
(8) See "Indebtedness" at page 24 for further details on debt encumbering
properties.
21
<PAGE> 22
Two Penn Plaza, Eleven Penn Plaza and 1740 Broadway each represented 10% or
more of the Operating Partnership's total pro forma revenues for the year ended
December 31, 1996. Below is certain additional information with respect to these
properties.
TWO PENN PLAZA
Two Penn Plaza is a 32-story office building that sits directly atop Penn
Station and occupies the entire block front on the west side of Seventh Avenue
between 31st and 33rd Streets (adjacent to Madison Square Garden). Built in
1968, Two Penn Plaza features approximately 1,475,000 rentable square feet
(including approximately 29,600 square feet of retail space and approximately
27,800 square feet of storage space).
As of March 31, 1997, approximately 84% of the rentable square footage in
Two Penn Plaza was leased. The following table sets forth certain information
with respect to Two Penn Plaza at the end of each of the past five years.
<TABLE>
<CAPTION>
ANNUAL RENT
PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT
--------------------------------------------- -------------- -----------
<S> <C> <C>
1996......................................... 69.0% $ 29.39
1995......................................... 94.0% $ 28.62
1994......................................... 94.5% $ 27.75
1993......................................... 96.3% $ 26.23
1992......................................... 94.9% $ 28.77
</TABLE>
The Equitable Life Assurance Society of the United States, a large life and
health insurance company ("Equitable"), leased approximately 430,000 square feet
at Two Penn Plaza under a lease which expired on October 31, 1996. Equitable
relocated the operations that it conducted at Two Penn Plaza to a building
closer to its Manhattan headquarters. Since December 31, 1996, the Operating
Partnership has entered into leases with respect to approximately 243,000 square
feet of this space, including a lease with respect to approximately 46,000
square feet with Madison Square Garden, operator of the Madison Square Garden
sports and entertainment facility, which expires on January 31, 2008 and a lease
with respect to 180,000 square feet with Information Builders, Inc. a large
privately held software company, which will commence on October 1, 1997, and
expires on May 31, 2013. The remaining 160,000 square feet of the former
Equitable space is currently also being marketed. As of December 31, 1996, one
tenant (Digital Equipment Corporation ("Digital")-- a large computer systems
company) leased 10% or more of Two Penn Plaza's rentable square feet. This
tenant leases approximately 178,000 square feet under leases that expire on
January 31, 1998. Digital has subleased approximately 53,000 square feet to UHC
Management Company Inc. ("UHC"), a health services company. The Operating
Partnership has entered into a direct lease with UHC for the space UHC currently
is subleasing from Digital, which direct lease will take effect upon the
expiration of UHC's sublease with Digital and will expire on January 31, 2001.
(As of December 31, 1996, UHC leases an additional 16,000 square feet in the
building on a direct basis from the Operating Partnership under a lease which
also expires on January 31, 2001.) In addition, Digital has subleased
approximately 21,000 square feet to Apertus, a technology company. The Operating
Partnership has entered into a direct lease with Apertus for the space Apertus
currently is subleasing from Digital, which direct lease will take effect upon
the expiration of Apertus' sublease with Digital and will expire on January 31,
2003.
22
<PAGE> 23
The following table is a schedule of the annual lease expirations at Two
Penn Plaza as of March 31, 1997 (assuming that no tenants exercise renewal or
cancellation options):
<TABLE>
<CAPTION>
ANNUAL
RENT PER
PERCENTAGE ANNUAL LEASED SQUARE
NUMBER OF SQUARE FOOTAGE OF TOTAL RENT OF FOOT OF
EXPIRING OF EXPIRING SQUARE EXPIRING EXPIRING
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES
- -------------------------- --------- -------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1997...................... 17 55,520 3.8% $ 1,509,679 $ 27.19
1998...................... 10 206,708 14.0 6,507,948 31.48
1999...................... 15 107,946 7.3 3,026,099 28.03
2000...................... 9 54,531 3.7 1,428,465 26.20
2001...................... 5 82,541 5.6 2,583,815 31.30
2002...................... 2 15,437 1.0 380,825 24.67
2003...................... 5 67,651 4.6 1,638,211 24.22
2004...................... 3 39,991 2.7 1,057,708 26.45
2005...................... 3 80,671 5.5 2,933,269 36.36
2006...................... 1 57,217 3.9 1,411,789 24.67
2007 and thereafter....... 11 473,831 32.1 12,067,086 25.47
--
-------------- ---------- ----------- -------------
SUBTOTAL/WEIGHTED
AVERAGE................. 81 1,242,044 84.2% $34,544,894 $ 27.81
Unleased at 3/31/97 232,482 15.8
-------------- ----------
TOTAL..................... 1,474,526 100.0%
-------------- ----------
</TABLE>
Since 1988, approximately $16 million has been spent on various capital
improvements to Two Penn Plaza, which improvements the Mendik Group believes
have enhanced the building's competitiveness. The Penn Plaza area has been
enhanced in recent years through the efforts of the 34th Street Business
Improvement District Partnership (the "34th Street BID"), a public-private
partnership which provides street cleaning services, security personnel and
other community services to businesses in the area.
The Operating Partnership currently is exploring the possibility of
developing additional retail space at Two Penn Plaza (on the building's plaza).
The Operating Partnership believes that the development of additional retail
space may, depending upon the amount of space developed, provide a source of
significant cash flow and therefore significantly enhance the value of Two Penn
Plaza. There can be no assurance, however, that any such additional retail space
will be developed.
The aggregate undepreciated tax basis of depreciable real property at Two
Penn Plaza for Federal income tax purposes was $114,113,306 as of December 31,
1996, and depreciation for such property is computed for Federal income tax
purposes on the declining balance or straight-line methods over lives which
range from 15 to 39 years. As of December 31, 1996, the aggregate undepreciated
tax basis of depreciable personal property associated with Two Penn Plaza for
Federal income tax purposes was $1,268,846, and depreciation for such property
is computed on the double declining balance method or straight-line method over
lives which range from 5 to 7 years.
The current real estate tax rate for all Manhattan office properties is
$10.252 per $100 of assessed value. The total annual tax for Two Penn Plaza at
this rate for the 1996-97 tax year, including the 34th Street BID tax of
$330,309, is $8,121,829 (at a taxable assessed value of $76,000,000).
ELEVEN PENN PLAZA
Eleven Penn Plaza is a 26-story office building which occupies the entire
block front on the east side of Seventh Avenue between 31st and 32nd Streets
(across Seventh Avenue from Two Penn Plaza and Penn Station). Built in 1923,
Eleven Penn Plaza features approximately 956,000 rentable square feet (including
approximately 25,700 square feet of rental space and approximately 63,200 square
feet of basement and storage space).
23
<PAGE> 24
As of March 31, 1997, approximately 96% of the rentable square footage in
Eleven Penn Plaza was leased. The following table sets forth certain information
with respect to Eleven Penn Plaza at the end of each of the past five years.
<TABLE>
<CAPTION>
ANNUAL
RENT PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT
---------------------------------------------- -------------- ---------------
<S> <C> <C>
1996.......................................... 95.5% $ 23.56
1995.......................................... 96.4% $ 24.59
1994.......................................... 94.6% $ 24.42
1993.......................................... 88.7% $ 24.39
1992.......................................... 89.1% $ 29.76
</TABLE>
At December 31, 1996, two tenants leased over 10% of the rentable square
footage at Eleven Penn Plaza. One of these two tenants, the Times Mirror
Company, a publishing company ("Times Mirror"), leases approximately 452,000
square feet (which lease expires in June 2001), of which 226,000 square feet was
assigned to its wholly-owned subsidiary, Matthew Bender & Company, Incorporated
("Matthew Bender"), a publisher of law-related textbooks. As a part of its
downsizing and restructuring, Times Mirror consolidated its New York operations
by relocating the operations conducted by Matthew Bender at Eleven Penn Plaza to
Two Park Avenue, where an affiliate of Matthew Bender conducts operations.
The other of these two tenants, R.H. Macy & Co., Inc., a large retailing
company and a subsidiary of Federated Department Stores ("R.H. Macy"), occupy
approximately 153,000 square feet under a lease originally between the Eleven
Penn Plaza Property Partnership and General Mills, Inc. ("General Mills") that
expires in December 2002, which lease General Mills assigned to R.H. Macy in
1985. (General Mills remains liable under the lease, but Federated Department
Stores is not liable under the lease). As part of the non-binding letter of
intent, upon the expiration of the R.H. Macy lease, Federated Department Stores
would enter into a direct lease with the Operating Partnership with respect to
the 153,500 square feet currently occupied by R.H. Macy, which lease would
commence in December 2002 and expire in 15 years. The Operating Partnership
recently entered into a non-binding letter of intent with respect to a lease for
approximately 75,000 square feet with Federated Department Stores, Inc., for
approximately 15 years, although there can be no assurance that this letter of
intent will result in an executed lease.
24
<PAGE> 25
The following table is a schedule of the annual lease expirations at Eleven
Penn Plaza as of March 31, 1997 (assuming that no tenants exercise renewal or
cancellation options):
<TABLE>
<CAPTION>
SQUARE PERCENTAGE ANNUAL RENT
NUMBER OF FOOTAGE OF OF TOTAL ANNUAL RENT PER LEASED
YEAR OF EXPIRING EXPIRING SQUARE OF EXPIRING SQUARE FOOT OF
LEASE EXPIRATION LEASES LEASES FEET LEASES EXPIRING LEASES
- ---------------------------- --------- ---------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
1997........................ 18 20,502 2.1% $ 281,445 $ 13.73
1998........................ 8 11,383 1.2 215,251 18.91
1999........................ 15 96,419 10.1 2,294,205 23.79
2000........................ 1 1,958 0.2 48,705 24.87
2001........................ 6 252,720 26.4 9,300,960 36.80
2002........................ 2 157,256 16.4 5,257,358 33.43
2003........................ 3 52,973 5.5 1,073,341 20.26
2004........................ 0 0 0.0 0 0.00
2005........................ 5 46,808 4.9 1,382,819 29.54
2006........................ 4 57,865 6.1 1,278,990 22.10
2007 and thereafter......... 8 215,684 22.6 4,115,583 19.08
--
---------- ---------- ----------- -------
SUBTOTAL/WEIGHTED AVERAGE... 70 913,568 95.5% $25,248,657 $ 27.64
Unleased at 3/31/97 42,712 4.5
---------- ----------
TOTAL....................... 956,280 100.0%
---------- ----------
</TABLE>
Since 1988, approximately $18 million has been spent on various capital
improvements to Eleven Penn Plaza. In addition, the building's air conditioning
equipment is in the process of being replaced with new high pressure steam
absorbers at a cost of approximately $2 million. These new steam absorbers are
expected to improve operating efficiency and reduce operating costs, and will
allow the building to operate without the use of certain chlorofluorocarbons,
the production of which, as of 1996, is prohibited by Federal law. As of
December 31, 1996, sprinklers were installed with respect to approximately 73%
of the building.
The aggregate undepreciated tax basis of depreciable real property at
Eleven Penn Plaza for Federal income tax purposes was $71,629,778 as of December
31, 1996, and depreciation for such property is computed for Federal income tax
purposes on the declining balance or straight-line methods over lives which
range from 15 to 39 years. As of December 31, 1996, the aggregate undepreciated
tax basis of depreciable personal property associated with Eleven Penn Plaza for
Federal income tax purposes was $800,760, and depreciation for such property is
computed on the double declining balance method or straight-line method over
lives which range from 5 to 7 years.
The current real estate tax rate for all Manhattan office properties is
$10.252 per $100 of assessed value. The total annual tax for Eleven Penn Plaza
at this rate for the 1996-97 tax year, including the 34th Street BID tax of
$233,470, is $4,117,953 (at a taxable assessed value of $37,890,000).
1740 BROADWAY (THE MONY BUILDING)
1740 Broadway (The MONY Building) is a 27-story office building which
occupies the entire block front on the east side of Broadway between 55th and
56th Streets. Built in 1950, 1740 Broadway features approximately 551,000
rentable square feet (including approximately 15,000 square feet of retail space
and approximately 10,800 square feet of basement and storage space).
25
<PAGE> 26
As of March 31, 1997, 100% of the rentable square footage in 1740 Broadway
was leased. The following table sets forth certain information with respect to
1740 Broadway at the end of each of the past five years:
<TABLE>
<CAPTION>
ANNUAL
RENT PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT
---------------------------------------------- -------------- ---------------
<S> <C> <C>
1996.......................................... 100.0% $ 30.66
1995.......................................... 100.0% $ 34.50
1994.......................................... 100.0% $ 33.57
1993.......................................... 100.0% $ 33.32
1992.......................................... 98.0% $ 30.79
</TABLE>
As of December 31, 1996, two tenants leased 10% or more of the 1740
Broadway's rentable square feet. One of these tenants, Mutual of New York
("MONY"), a large life insurance company, leases approximately 264,000 square
feet (approximately 48% of the building) under three leases, one for
approximately 16,000 square feet (which expires in February 1998), one for
approximately 29,500 square feet (which expires in December 2000), and one for
approximately 218,500 square feet (which expires in May 2016). MONY has the
option to extend its lease for approximately 16,000 square feet and its lease
for approximately 29,500 square feet until May 2016.
The other of these two tenants, William Douglas McAdams, Inc., a
pharmaceutical advertising company, leases approximately 63,000 square feet
under a lease that expires in December 2007.
The following table is a schedule of the annual lease expirations at 1740
Broadway as of March 31, 1997 (assuming that no tenants exercise renewal or
cancellation options):
<TABLE>
<CAPTION>
ANNUAL
RENT PER
PERCENTAGE ANNUAL LEASED SQUARE
NUMBER OF SQUARE FOOTAGE OF TOTAL RENT OF FOOT OF
EXPIRING OF EXPIRING SQUARE EXPIRING EXPIRING
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES
- ------------------------------- --------- -------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1997........................... 5 8,175 1.5% $ 322,170 $ 39.41
1998........................... 2 23,171 4.2 964,123 41.61
1999........................... 3 47,180 8.5 1,913,184 40.55
2000........................... 1 29,567 5.4 1,114,131 37.68
2001........................... 0 0 0.0 0 0.00
2002........................... 0 0 0.0 0 0.00
2003........................... 2 44,431 8.1 1,850,613 41.65
2004........................... 2 55,904 10.1 1,714,228 30.66
2005........................... 0 0 0.0 0 0.00
2006........................... 0 0 0.0 0 0.00
2007 and thereafter............ 6 342,873 62.2 10,229,210 29.83
--
-------------- ---------- ----------- -------------
SUBTOTAL/WEIGHTED AVERAGE...... 21 551,301 100.0% $18,107,659 $ 32.85
Unleased at 3/31/97............ 0 0
-------------- ----------
TOTAL.......................... 551,301 100.0%
</TABLE>
In the 1980s, when MONY owned the building, MONY completed an estimated $40
million renovation. In addition, since 1990, approximately $3 million has been
spent on various capital improvements to 1740 Broadway.
The aggregate undepreciated tax basis of depreciable real property at 1740
Broadway for Federal income tax purposes was $69,709,134 as of December 31,
1996, and depreciation for such property is computed on the declining balance or
straight-line methods over 39 years. The aggregate undepreciated tax basis of
depreciable personal property associated with 1740 Broadway for Federal income
tax purposes was $9,694 as of December 31, 1996, and depreciation for such
property is computed on the double declining balance method or straight-line
method over lives which range from 5 to 7 years.
The current real estate tax rate for all Manhattan office properties is
$10.252 per $100 of assessed value. The total annual tax for 1740 Broadway at
this rate for the 1996-97 tax year is $3,871,104 (at an assessed value of
$37,759,500).
26
<PAGE> 27
ALEXANDER'S PROPERTIES
The following table shows the location, approximate size and leasing status
as of March 31, 1997 of each of Alexander's properties.
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE BUILDING SQUARE AVERAGE LEASE
LAND SQUARE FOOTAGE/ ANNUALIZED EXPIRATION/
FOOTAGE ("SF") NUMBER OF BASE RENT PERCENT OPTION
LOCATION OWNERSHIP OR ACREAGE OF FLOORS PER SQ. FOOT(1) LEASED TENANTS EXPIRATION
- -------------------------- --------- --------------- --------------- ---------------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING PROPERTIES
NEW YORK:
Rego Park -- Queens Owned 4.8 acres 351,000/3(2) $27.79 100% Bed Bath &
Beyond (3)
Circuit (3)
City 2008/2021
Marshalls (3)
Old Navy 2021
Sears
Kings Plaza Shopping
Center & Marina
(Kings Plaza Mall)
Brooklyn 50% 427,000/2(2)(4) 30.37 81% 120 Tenants Various
Owned 24.3 acres
Fordham Road -- Bronx Owned 92,211 SF 303,000/5 11.54 -- (5)
Flushing -- Queens Leased 44,975 SF 177,000/4(2) 16.35 100% Caldor 2027
Third Avenue -- Bronx Owned 60,451 SF 173,000/4 4.33 100% An 2023
affiliate
of Conway
---------
1,431,000
REDEVELOPMENT PROPERTIES
Lexington Avenue --
Manhattan 92% 591,000/6(6)
Owned 84,420 SF
Kings Plaza Store --
Brooklyn Owned Included in 339,000/4 Sears (3)
Shopping Center
above
Rego Park II -- Queens Owned 6.6 acres --
NEW JERSEY:
Paramus, New Jersey Owned 39.3 acres(7) 340,000/3(6)
</TABLE>
- ---------------
(1) Average annualized base rent per square foot does not include rent for
leases which had not commenced as of March 31, 1997.
(2) Excludes parking garages operated for the benefit of Alexander's.
(3) The Bed Bath & Beyond, Circuit City and Old Navy leases are expected to
commence in the second quarter of 1997. The Sears lease is expected to
commence in the last quarter of 1997.
(4) Excludes approximately 150,000 square feet of enclosed, common area space.
(5) Caldor rejected its lease effective June 6, 1997.
(6) Alexander's is evaluating redevelopment plans for these sites which may
involve razing the existing buildings.
(7) Approximately 9 acres are subject to condemnation.
INSURANCE
The Operating Partnership carries comprehensive liability, fire, flood,
extended coverage and rental loss insurance with respect to its properties with
policy specifications and insured limits customarily carried for similar
properties. Management of the Operating Partnership believes that the Operating
Partnership's insurance coverage conforms to industry norms.
27
<PAGE> 28
INDEBTEDNESS
All of the encumbrances referred to in the table of Vornado properties on
page 17, except those related to the Office Properties, North Plainfield,
Montehiedra and Garfield, are cross-collateralized under a blanket mortgage in
the amount of $227,000,000, which matures December 2000, bears interest at a
fixed rate of 6.36% and is prepayable. The details of the mortgages
collateralized by Two Penn Plaza, Eleven Penn Plaza and Montehiedra are as
follows:
<TABLE>
<CAPTION>
Interest
Property Principal Maturity Rate Amortization
- --------------------------- ----------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Two Penn Plaza............. $80,000,000 May 2005 6.50%(Libor+.625%) None
Eleven Penn Plaza.......... 53,454,000 May 2007 8.39% 25 Year
Montehiedra................ 63,000,000 April 2007/2009 8.23% 30 Year
</TABLE>
The other remaining mortgages and notes payable aggregate $87,476,000,
mature on average over the next 4.5 years and bear an average interest rate of
7.81%.
Vornado has historically maintained a relatively low level of debt to
market capitalization. At July 17, 1997, the ratio of debt to market
capitalization was 30% based on debt of $714,000,000 and market equity of
$2,400,000,000. In the future, in connection with its strategy for growth, this
percentage may increase. This policy may be reviewed and modified from time to
time by Vornado without the vote of shareholders.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears under the caption "Principal
Security Holders" on pages 10 through 12 of Vornado's Proxy Statement and Notice
of Annual Meeting of Shareholders to be held on May 28, 1997 (the "Proxy
Statement"), copies of which are attached as an exhibit to this Form 10 and
incorporated by reference herein.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Operating Partnership is managed by Vornado, its general partner. The
following is a list of the names, ages, principal occupations and positions with
Vornado of the executive officers and the positions held by such officers during
the past five years. All executive officers of Vornado have terms of office
which run until the next succeeding meeting of the Board of Trustees of Vornado
following the Annual Meeting of Shareholders unless they are removed sooner by
the Board.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, POSITION AND OFFICE
(CURRENT AND DURING PAST FIVE YEARS WITH VORNADO UNLESS
NAME AGE OTHERWISE STATED)
- ------------------------------ --- --------------------------------------------------------
<S> <C> <C>
Steven Roth................... 55 Chairman of the Board, Chief Executive Officer and
Chairman of the Executive Committee of the Board; the
Managing General Partner of Interstate Properties, a
developer and operator of shopping centers and an
investor in securities and partnerships; Chief Executive
Officer of Alexander's, Inc. since March 2, 1995 and a
Director since 1989; Director of Insituform
Technologies, Inc.
Michael D. Fascitelli......... 40 President and a Trustee since December 2, 1996; Director
of Alexander's, Inc. since December 2, 1996; Partner at
Goldman, Sachs & Co. in charge of its real estate
practice from December 1992 to December 1996; and Vice
President at Goldman, Sachs & Co., prior to December
1992.
Bernard Mendik................ 67 Co-Chairman of the Board since April 28, 1997 and Chief
Executive Officer of the Mendik Division since April 15,
1997; Chairman of the Board of Directors of Mendik
Realty from 1990 until April 15, 1997.
David R. Greenbaum............ 45 President of the Mendik Division since April 15, 1997;
President of Mendik Realty from 1990 until April 15,
1997.
Richard T. Rowan.............. 50 Vice President -- Real Estate
Joseph Macnow................. 51 Vice President -- Chief Financial Officer; Vice
President -- Chief Financial Officer of Alexander's,
Inc. since August 1995
</TABLE>
28
<PAGE> 29
Information relating to the Directors of the Registrant appears on pages 3
through 4 of the Proxy Statement, copies of which are attached as an exhibit to
this Form 10 and incorporated by reference herein.
ITEM 6. EXECUTIVE COMPENSATION
The Operating Partnership is managed by Vornado, its general partner. The
information required by this item appears under the caption "Executive
Compensation" on pages 14 through 19 of the Proxy Statement, copies of which are
attached as an exhibit to this Form 10 and incorporated by reference herein.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears under the caption "Executive
Compensation -- Certain Transactions" on pages 19 through 22 of the Proxy
Statement, copies of which are attached as an exhibit to this Form 10 and
incorporated by reference herein.
ITEM 8. LEGAL PROCEEDINGS
The Operating Partnership is from time to time involved in legal actions
arising in the ordinary course of its business. In the opinion of management,
after consultation with legal counsel, the outcome of such matters will not have
a material effect on the Operating Partnership's financial condition or results
of operations.
ITEM 9. MARKET PRICE AND DISTRIBUTION
There is no established public trading market for the units of the
Operating Partnership. As of June 11, 1997, there were 211 holders of record of
units.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Mendik Transaction in April 1997, the Operating
Partnership issued 2,841,524 units to the Mendik Group and certain of its
affiliates pursuant to an offer that satisfied the requirements of the exemption
from registration provided by Regulation D promulgated under the Securities Act
of 1933, as amended (the "Securities Act").
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The Operating Partnership has issued five classes of units of limited
partnership interests: Class A Units, Class C Units, Class D Units, Class E
Units, and Series A Preferred Units (collectively, the "Units"). The material
terms of the Units, including a description of the different classes of Units to
be issued by the Operating Partnership and a summary of certain provisions of
the First Amended and Restated Agreement of Limited Partnership, dated as of
April 15, 1997 (the "Partnership Agreement"), of the Operating Partnership, are
set forth below. The following description of the terms and provisions of the
Units and certain other matters does not purport to be complete and is subject
to, and qualified in its entirety by, reference to applicable provisions of
Delaware law and the Partnership Agreement. A copy of the Partnership Agreement
is filed as an exhibit hereto and incorporated by reference herein.
GENERAL
Holders of Units hold a limited partnership interest in the Operating
Partnership, and all holders of Units are entitled to share in cash
distributions from, and in the profits and losses of, the Operating Partnership.
Holders of Units will have the rights to which limited partners are entitled
under the Partnership Agreement and the Delaware Revised Uniform Limited
Partnership Act, as amended (the "Partnership Act"). The Units are not listed on
any exchange or quoted on any national market system. The Partnership Agreement
imposes certain restrictions on the transfer of Units, as described below.
Distributions will vary among the classes of holders of Units. See
" -- Distributions; Allocations of Income and Loss" and " -- Series A Preferred
Units" below.
29
<PAGE> 30
PURPOSES, BUSINESS AND MANAGEMENT
The purpose of the Operating Partnership includes the conduct of any
business that may be lawfully conducted by a limited partnership formed under
the Partnership Act, except that the Partnership Agreement requires the business
of the Operating Partnership to be conducted in such a manner that will permit
Vornado to be classified as a REIT under Section 856 of the Code, unless Vornado
ceases to qualify as a REIT for any reason. In furtherance of the foregoing, the
Operating Partnership may enter into partnerships, joint ventures or similar
arrangements and may own interests directly or indirectly in any other entity.
Vornado, as the general partner of the Operating Partnership, has the
exclusive power and authority to conduct the business of the Operating
Partnership, subject to the consent of the limited partners in certain limited
circumstances discussed below. No limited partner may take part in the
operation, management or control of the business of the Operating Partnership by
virtue of being a holder of Units.
In particular, the limited partners expressly acknowledge in the
Partnership Agreement that the general partner is acting on behalf of the
Operating Partnership's limited partners and Vornado's shareholders
collectively, and is under no obligation to consider the tax consequences to
limited partners when making decisions for the benefit of the Operating
Partnership. Vornado and its trustees and officers will have no liability to the
Operating Partnership or to any partner or assignee for any losses sustained,
liabilities incurred or benefits not derived as a result of errors in judgment
or mistakes of fact or law or any act or omission if Vornado acted in good
faith.
ABILITY OF VORNADO TO ENGAGE IN OTHER BUSINESSES; CONFLICTS OF INTEREST
Vornado generally may not conduct any business other than through the
Operating partnership without the consent of the holders of a majority of the
limited partnership interests (not including the limited partnership interests
held by Vornado in its capacity as a limited partner in the Operating
Partnership). Other persons (including officers, trustees, employees, agents and
other affiliates of Vornado) are not prohibited under the Partnership Agreement
from engaging in other business activities and are not required to present any
business opportunities to the Operating Partnership. In addition, the
Partnership Agreement does not prevent another person or entity that acquires
control of Vornado in the future from conducting other businesses or owning
other assets, even though such businesses or assets may be ones that it would be
in the best interests of the limited partners for the Operating Partnership to
own.
DISTRIBUTIONS; ALLOCATIONS OF INCOME AND LOSS
The Partnership Agreement provides for distributions, as determined in the
manner provided in the Partnership Agreement, to Vornado and the limited
partners in proportion to their percentage interest in the Operating
Partnership, subject to the distribution preferences described below. As general
partner of the Operating Partnership, Vornado will have the exclusive right to
declare and cause the Operating Partnership to make distributions as, when and
if Vornado deems appropriate or desirable in its sole discretion. For so long as
Vornado elects to qualify as a REIT, Vornado will make reasonable efforts (as
determined by it in its sole discretion) to make distributions to partners in
amounts such that Vornado will be able to pay shareholder dividends that will
satisfy the requirements for qualification as a REIT and avoid any Federal
income or excise tax liability to Vornado. The Partnership Agreement provides
for the allocation to the general partner and the limited partners of items of
Operating Partnership's income and loss.
Generally , the value of each Unit, regardless of its class, will equate to
one common share of beneficial interest, par value $0.04 per share ("Common
Share"), of Vornado (with the exception of the Series A Preferred Units which
will equate to one $3.25 Series A Preferred Share of Beneficial Interest,
liquidation preference $50.00 per share ("Series A Preferred Share") of
Vornado); however, Class C, Class D, Class E and Series A Preferred Units have
special priorities in the distributions paid by the Operating Partnership. The
Partnership Agreement provides that the Operating Partnership will make
distributions (as, when and if declared by Vornado) in the order of preference
provided for in the Partnership Agreement. The order of preference in the
Partnership Agreement provides that distributions will be paid first to Vornado
as necessary to enable Vornado to pay REIT Expenses and then to holders of
preferred units as required by the terms of
30
<PAGE> 31
such preferred units. See "-- Series A Preferred Units" below. The Partnership
Agreement defines "REIT Expenses" to mean (i) costs and expenses relating to the
continuity of existence of Vornado and any Person in which Vornado owns an
equity interest, (ii) costs and expenses relating to any offer or registration
of securities by Vornado, (iii) costs and expenses associated with preparing and
filing periodic reports of Vornado under federal, state and local laws
(including SEC filings), (iv) costs and expenses associated with Vornado's
compliance with laws, rules and regulations applicable to it, and (v) all other
operating or administrative expenses incurred by Vornado in the ordinary course
of its business.
Thereafter, distributions will be paid first to holders of limited
partnership interests of any class ranking senior (as to distributions or
redemption or voting rights) to Class C Units, Class D Units and Class E Units,
if any class of such Units is then outstanding. Distributions will be paid
second to holders of Class D Units and Class E Units (pro rata based on the
ratio of the total number of Class D Units or Class E Units, as applicable, to
the aggregate number of Class D Units and Class E Units taken together on the
relevant Partnership Record Date) for any unpaid past cumulated distributions
and then to holders of Class D and Class E Units a quarterly amount equal to
$1.0075 per Unit. Distributions will be paid third to Class C Unit holders for
any unpaid past cumulated distributions and then to holders of Class C Units a
quarterly amount equal to $0.845 per Unit. Class C Unit holders will also share
in any distribution per quarter to Class A Unit holders above $0.845 per Unit,
and Class D and Class E Unit holders will share in any distribution per quarter
above $1.0075 per Unit.
Class C Units will automatically convert to Class A Units when the
distributions per quarter paid to holders of Class A Units equals the per
quarter distribution specified above for Class C Unit holders for four
consecutive quarters following the Consolidation. Class D and Class E Units will
automatically convert to Class A Units when the distributions per quarter paid
to holders of Class A Units equals the per quarter distribution specified above
for Class D and Class E Unit holders for four consecutive quarters following the
Consolidation. Until such time as all Class C, Class D and Class E Units have
been converted into Class A Units, the Partnership Agreement prohibits the
Operating Partnership from issuing any class of limited partnership interests
ranking senior (as to distributions or redemption or voting rights) to Class C
Units or Class D Units or Class E Units, unless either (1) such limited
partnership interests are substantially similar to the terms of securities
issued by Vornado and the proceeds of the issuance of such securities have been
contributed to the Operating Partnership or (2) the issuance of such limited
partnership interests has been approved by the holders of a majority of the
Class C, Class D and Class E Units issued in the Consolidation and then
outstanding (taken together as a group).
Prior to the automatic conversion of Class C Units to Class A Units and
prior to the automatic conversion of Class D and Class E Units to Class A Units
as described above, Vornado is permitted to cause the Operating Partnership to
make a distribution to holders of Class A Units of cash (subject to an aggregate
maximum amount for both such distributions of $1,500,000) representing any funds
from operations that could have been and were not distributed to holders of
Class A Units (without requiring pro rata distributions to holders of Class C
Units or Class D and Class E Units, as applicable) during the twelve calendar
quarters preceding the quarter in which such distribution is made.
LIABILITY OF VORNADO AND LIMITED PARTNERS
Vornado, as general partner of the Operating Partnership, will be liable
for all general recourse obligations of the Operating Partnership to the extent
not paid by the Operating Partnership. Vornado will not be liable for the
nonrecourse obligations of the Operating Partnership.
The limited partners in the Operating Partnership will not be required to
make additional contributions to the Operating Partnership. Assuming that a
limited partner does not take part in the control of the business of the
Operating Partnership and otherwise acts in conformity with the provisions of
the Partnership Agreement, the liability of a limited partner for obligations of
the Operating Partnership under the Partnership Agreement and the Partnership
Act will be limited, subject to certain exceptions, generally to the loss of
such limited partner's investment in the Operating Partnership represented by
his or her Units. Under the Partnership Act, a limited partner may not receive a
distribution from the Operating Partnership if, at the time of the
31
<PAGE> 32
distribution and after giving effect thereto, the liabilities of the Operating
Partnership, other than liabilities to parties on account of their interests in
the Operating Partnership and liabilities for which recourse is limited to
specified property of the Operating Partnership, exceed the fair value of the
Operating Partnership's assets, other than the fair value of any property
subject to nonrecourse liabilities of the Operating Partnership, but only to the
extent of such liabilities. The Partnership Act provides that a limited partner
who receives a distribution knowing at the time that it violates the foregoing
prohibition is liable to the Operating Partnership for the amount of the
distribution. Unless otherwise agreed, such a limited partner will not be liable
for the return of such distribution after the expiration of three years from the
date of such distribution.
The Operating Partnership has qualified to conduct business in the State of
New York and may qualify in certain other jurisdictions. Maintenance of limited
liability may require compliance with certain legal requirements of those
jurisdictions and certain other jurisdictions. Limitations on the liability of a
limited partner for the obligations of a limited partnership have not been
clearly established in many jurisdictions. Accordingly, if it were determined
that the right, or exercise of the right by the limited partners, to make
certain amendments to the Partnership Agreement or to take other action pursuant
to the Partnership Agreement constituted "control" of the Operating
Partnership's business for the purposes of the statutes of any relevant
jurisdiction, the limited partners might be held personally liable for the
Operating Partnership's obligations.
EXCULPATION AND INDEMNIFICATION OF VORNADO
The Partnership Agreement generally provides that Vornado, as general
partner of the Operating Partnership, will incur no liability to the Operating
Partnership or any limited partner for losses sustained, liabilities incurred or
benefits not derived as a result of errors in judgment or mistakes of fact or
law or of any act or omission, if Vornado carried out its duties in good faith.
In addition, Vornado is not responsible for any misconduct or negligence on the
part of its agents, provided Vornado appointed such agents in good faith.
Vornado may consult with legal counsel, accountants, appraisers, management
consultants, investment bankers and other consultants and advisors, and any
action it takes or omits to take in reliance upon the opinion of such persons,
as to matters that Vornado reasonably believes to be within their professional
or expert competence, shall be conclusively presumed to have been done or
omitted in good faith and in accordance with such opinion.
The Partnership Agreement also provides for indemnification of Vornado, the
trustees and officers of Vornado and such other persons as Vornado, may from
time to time designate against any judgments, penalties, fines, settlements and
reasonable expenses actually incurred by such person in connection with the
proceeding unless it is established that: (i) the act or omission of the
indemnified person was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the indemnified person actually received an improper personal
benefit in money, property or services; or (iii) in the case of any criminal
proceeding, the indemnified person had reasonable cause to believe that the act
or omission was unlawful.
REMOVAL OF THE GENERAL PARTNER; TRANSFER OF VORNADO'S INTERESTS
The Partnership Agreement provides that the limited partners may not remove
Vornado as general partner of the Operating Partnership with or without cause.
In addition, the Partnership Agreement prohibits Vornado from selling all or
substantially all of its assets or entering into a merger or engaging in a
reclassification, recapitalization or change of the terms of any of its
outstanding Common Shares unless, in connection therewith, all limited partners
(other than Vornado and entities controlled by it) will have the right to elect
to receive, or will receive, for each Unit an amount of cash, securities or
other property equal to the Conversion Factor (as defined in the Partnership
Agreement) multiplied by the greatest amount of cash, securities or other
property paid to a holder of shares of beneficial interest of Vornado, if any,
corresponding to such Unit in consideration of one such share.
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The Partnership Agreement does not prevent a transaction in which another
entity acquires control (or all of the shares) of Vornado and that other entity
owns assets and conducts businesses outside of the Operating Partnership.
RESTRICTIONS ON TRANSFERS OF UNITS BY LIMITED PARTNERS
Generally, the limited partners may not transfer any of their rights as a
limited partner for a period of one year after the closing of the Consolidation
without the consent of Vornado, which consent Vornado may withhold in its sole
discretion. Any attempted transfer in violation of this restriction will be void
ab initio and without any force or effect. Beginning one year after the closing
of the Consolidation, such limited partners (other than Vornado and certain
members of the Mendik Group and its affiliates) may transfer all or any portion
of their Units without restriction as long as they satisfy certain requirements
set forth in the Partnership Agreement. In addition, such limited partners
(other than Vornado) may dispose of their Units following the expiration of an
initial holding period of one or two years after the closing of the
Consolidation (the "Initial Holding Period") by exercising their Unit Redemption
Right(as defined below). See "-- Redemption of Units" below.
The right of any permitted transferee of Units to become a substituted
limited partner is subject to the consent of Vornado, which consent Vornado may
withhold in its sole and absolute discretion. If Vornado does not consent to the
admission of a transferee of Units as a substituted limited partner, then the
transferee will succeed to the economic rights and benefits attributable to such
Units (including the Unit Redemption Right described below), but will not become
a limited partner or possess any other rights of limited partners (including the
right to vote).
REDEMPTION OF UNITS
At any time after the Initial Holding Period (subject to certain
limitations), holders of Units (other than Series A Preferred Units) have the
right to have their Units redeemed in whole or in part by the Operating
Partnership for cash equal to the fair market value, at the time of redemption,
of one Common Share for each Unit redeemed or, at the option of Vornado, one
Common Share for each Unit tendered (the "Unit Redemption Right"). Subject to
certain limitations, holders of Units (other than Vornado) may exercise their
Unit Redemption Right by providing notice to the Operating Partnership after the
expiration of the Initial Holding Period. Unless Vornado elects to assume and
perform the Operating Partnership's obligation with respect to the Unit
Redemption Right, as described below, a redeeming limited partner will receive
cash from the Operating Partnership in an amount equal to the market value of
the Units to be redeemed. The market value of a Unit for this purpose will be
equal to the average of the closing trading price of a Common Share on the New
York Stock Exchange for the ten trading days before the day on which the
redemption notice was given (the "Cash Redemption Price"). In lieu of the
Operating Partnership's acquiring the Units for cash, Vornado will have the
right (except as described below, if the Common Shares are not publicly traded)
to elect to acquire the Units directly from a limited partner exercising the
Unit Redemption Right, in exchange for either cash or Common Shares, and, upon
such acquisition, Vornado will become the owner of such Units. In addition, any
Class C, Class D or Class E Units acquired by Vornado in connection with
satisfaction of the Unit Redemption Right will automatically convert to Class A
Units upon acquisition by Vornado. Upon exercise of the Unit Redemption Right,
the limited partner's right to receive distributions for the Units so redeemed
or exchanged will cease. At least 1,000 Units (or all remaining Units owned by
the limited partner if less than 1,000 Units) must be redeemed each time the
Unit Redemption Right is exercised. The redemption generally will occur on the
tenth business day (or, if Vornado's Common Shares are not then publicly traded,
the 30th business day) after the notice to the Operating Partnership, except
that no redemption or exchange can occur if delivery of Common Shares would be
prohibited either under the provisions of Vornado's Declaration of Trust or
under applicable Federal or state securities laws as long as the Common Shares
are publicly traded.
In addition to the foregoing, during the period from the 91st day after the
closing of the Consolidation until the first anniversary of the Consolidation
holders of Class E Units will have the right to redeem those Units for cash at a
6% discount from the then applicable Cash Redemption Price.
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In the event that a limited partner exercises his or her Unit Redemption
Right within two years of the closing of the Consolidation then:
(i) if such partner's Units are redeemed or purchased for cash, the
receipt of such cash will be conditioned upon Vornado's satisfaction that
any Transfer Taxes payable by reason of such partner's failure to satisfy
the retention requirement are paid or adequately provided for; and
(ii) if Vornado purchases such partner's Units for Common Shares then,
as a condition to receiving such Common Shares, the redeeming partner will
be required to place in escrow with the Operating Partnership an amount
equal to the transfer taxes which would have been incurred by reason of
such partner's failure to satisfy the retention requirement if such partner
had disposed of such Common Shares on the date of such partner's exercise
of the Unit Redemption Right. To the extent not used to pay transfer taxes,
the escrowed funds will be released to the partner two years after the
Consolidation.
In the event that the Common Shares are not publicly traded but another
entity whose shares are publicly traded owns more than 50% of the shares of
Vornado (referred to as the "Parent Entity"), the Unit Redemption Right will be
determined by reference to the publicly-traded stock of the Parent Entity and
the general partner will have the right to elect to acquire the Units to be
redeemed for publicly traded stock of the Parent Entity. In the event that the
Common Shares are not publicly traded and there is no Parent Entity with
publicly-traded stock, the Unit Redemption Right would be based upon the fair
market value of the Operating Partnership's assets at the time the Unit
Redemption Right is exercised (as determined in good faith by Vornado), and
Vornado and the Operating Partnership would be obligated to satisfy the Unit
Redemption Right in cash, payable on the thirtieth business day after notice to
the Operating Partnership of exercise of the Unit Redemption Right.
NO WITHDRAWAL BY LIMITED PARTNERS
No limited partner has the right to withdraw from or reduce his or her
capital contribution to the Operating Partnership, except as a result of the
redemption, exchange or transfer of Units pursuant to the terms of the
Partnership Agreement.
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS
Vornado is authorized, without the consent of the limited partners, to
cause the Operating Partnership to issue limited partnership interests to
Vornado, to the limited partners and to other persons for such consideration and
upon on such terms and conditions as Vornado deems appropriate. The Operating
Partnership also may issue partnership interests in different series or classes.
Until such time as all Class C, Class D and Class E Units issued in the
Consolidation are no longer outstanding (whether by conversion, redemption or
otherwise), the Partnership Agreement prohibits the Operating Partnership from
issuing any class of limited partnership interests ranking senior (as to
distributions or redemption or voting rights) to Class C Units or Class D Units
or Class E Units, unless either (1) such limited partnership interests are
substantially similar to the terms of securities issued by Vornado and the
proceeds of the issuance of such securities have been contributed to the
Operating Partnership or (2) the issuance of such limited partnership interests
has been approved by the holders of a majority of the Class C, Class D and Class
E Units issued in the Consolidation and then outstanding (taken together as a
group). If Units are issued to Vornado, then Vornado must issue shares of
beneficial interest in connection therewith and must contribute to the Operating
Partnership the proceeds received by Vornado from such issuance. Consideration
for partnership interests may be cash or any property or other assets permitted
by the Partnership Act. No limited partner has preemptive, preferential or
similar rights with respect to capital contributions to the Operating
Partnership or the issuance or sale of any partnership interests therein.
MEETINGS; VOTING
Meetings of the limited partners may be proposed and called only by
Vornado. Limited partners may vote either in person or by proxy at meetings. Any
action that is required or permitted to be taken by the limited partners may be
taken either at a meeting of the limited partners or without a meeting if
consents in writing
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setting forth the action so taken are signed by limited partners owning not less
than the minimum number of Units that would be necessary to authorize or take
such action at a meeting of the limited partners at which all limited partners
entitled to vote on such action were present. On matters in which limited
partners are entitled to vote, each limited partner (including Vornado to the
extent it holds Units) will have a vote equal to the number of Units he or she
holds. At this time, there is no voting preference among the classes of Units. A
transferee of Units who has not been admitted as a substituted limited partner
with respect to such Units will have no voting rights with respect to such Units
(even if such transferee holds other Units as to which it has been admitted as a
limited partner) and Units owned by such transferee will be deemed to be voted
on any matter in the same proportion as all other interests held by limited
partners are voted. The Partnership Agreement does not provide for annual
meetings of the limited partners, and the Operating Partnership has been
informed by Vornado that it does not anticipate calling such meetings.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed only by Vornado.
Subject to the limitations described below, Vornado will generally have the
power, without the consent of any limited partners, to amend the Partnership
Agreement as may be required to reflect any changes to the agreement that
Vornado deems necessary or appropriate in its sole discretion, provided that
such amendment does not adversely affect or eliminate any right granted to a
limited partner that is protected by the special voting provisions described
below.
The Partnership Agreement provides that it generally may not be amended
with respect to any partner adversely affected by such amendment without the
consent of such partner if the amendment would (i) convert a limited partner's
interest into a general partner's interest, (ii) modify the limited liability of
a limited partner, (iii) amend Section 7.11.A of the Partnership Agreement
(prohibiting Vornado from taking any action in contravention of an express
prohibition or limitation in the Partnership Agreement without the written
consent of all partners adversely affected thereby or such lower percentage as
may be specifically provided for in the Partnership Agreement or under Delaware
law), (iv) amend Article V (describing distributions), Article VI (describing
allocations of income and loss for capital account purposes), or Section
13.2.A(3) (providing for distributions, after payment of partnership debts,
among partners according to their capital accounts in connection with a winding
up of the Operating Partnership), (v) amend Section 8.6 (providing redemption
rights) or (vi) amend the provision being described in this paragraph.
In addition, except with the consent of a majority of the limited partners
(excluding Vornado and entities controlled by it) Vornado may not amend Section
4.2.A (authorizing issuance of additional limited partnership interests),
Section 5.1.C (requiring that if Vornado is not a REIT or a publicly traded
entity it must for each taxable year make cash distributions equal to at least
95% of the Operating Partnership's taxable income), Section 7.5 (prohibiting
Vornado from conducting any business other than in connection with the ownership
of interests in the Operating Partnership except with the consent of a majority
of the limited partners, excluding Vornado and any entity it controls), Section
7.6 (limiting the Operating Partnership's ability to enter transactions with
affiliates), Section 7.8 (describing limits on partners' liabilities to the
Operating Partnership), Section 11.2 (limiting Vornado's ability to transfer its
interests in the Operating Partnership), Section 13.1 (describing the manner and
circumstances in which the Operating Partnership will be dissolved), Section
14.1.C (setting forth the limitations on amendments being described in this
paragraph) and Section 14.2 (describing the rules governing meetings of
partners).
BOOKS AND REPORTS
Vornado is required to keep the Operating Partnership's books and records
at the principal office of the Operating Partnership. The books of the Operating
Partnership are required to be maintained for financial and tax reporting
purposes on an accrual basis. The limited partners will have the right, subject
to certain limitations, to receive copies of the most recent Commission filings
by Vornado, the Operating Partnership's Federal, state and local income tax
returns, a list of limited partners, the Partnership Agreement and the
partnership certificate and all amendments thereto.
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Vornado may keep confidential from the limited partners any information
that Vornado believes to be in the nature of trade secrets or other information
the disclosure of which Vornado in good faith believes is not in the best
interests of the Operating Partnership or which the Operating Partnership is
required by law or by agreements with unaffiliated third parties to keep
confidential.
Vornado will furnish to each limited partner, no later than the date on
which Vornado mails its annual report to its shareholders, an annual report
containing financial statements of the Operating Partnership (or Vornado, if it
prepares consolidated financial statements including the Operating Partnership)
for each fiscal year, including a balance sheet and statements of operations,
cash flow, partners' equity and changes in financial position. The financial
statements will be audited by a nationally recognized firm of independent public
accountants selected by Vornado. In addition, if and to the extent that Vornado
mails quarterly reports to its shareholders, Vornado will furnish to each
limited partner, no later than the date on which Vornado mails such reports to
its shareholders, a report containing unaudited financial statements of the
Operating Partnership (or Vornado) as of the last day of the calendar quarter
and such other information as may be required by applicable law or regulation or
as Vornado deems appropriate.
Vornado will use reasonable efforts to furnish to each limited partner,
within 90 days after the close of each taxable year, the tax information
reasonably required by the limited partners for Federal and state income tax
reporting purposes.
POWER OF ATTORNEY
Pursuant to the terms of the Partnership Agreement, each limited partner
and each assignee appoints Vornado, any liquidator, and the authorized officers
and attorneys-in-fact of each, as such limited partner's or assignee's
attorney-in-fact to do the following: execute, swear to, acknowledge, deliver,
file and record in the appropriate public offices various certificates,
documents and other instruments (including, among other things, the Partnership
Agreement and the certificate of limited partnership and all amendments or
restatements thereof) that Vornado deems appropriate or necessary to effectuate
the terms or intent of the Partnership Agreement. The Partnership Agreement
provides that such power of attorney is irrevocable, will survive the subsequent
incapacity of any limited partner and the transfer of all or any portion of such
limited partner's or assignee's Units and will extend to such limited partner's
or assignee's heirs, successors, assigns and personal representatives.
DISSOLUTION, WINDING UP AND TERMINATION
The Operating Partnership will continue until December 31, 2095 (as such
date may be extended by the general partner in its sole discretion), unless
sooner dissolved and terminated. The Operating Partnership will be dissolved
prior to the expiration of its term, and its affairs wound up upon the
occurrence of the earliest of (i) the withdrawal of Vornado as general partner
without the permitted transfer of Vornado's interest to a successor general
partner (except in certain limited circumstances); (ii) the sale of all or
substantially all of the Operating Partnership's assets and properties (subject
to certain exceptions set forth in the Partnership Agreement); (iii) the entry
of a decree of judicial dissolution of the Operating Partnership pursuant to the
provisions of the Partnership Act; (iv) the entry of a final non-appealable
order for relief in a bankruptcy proceeding of the general partner, or the entry
of a final non-appealable judgment ruling that the general partner is bankrupt
or insolvent (except that, in either such case, in certain circumstances the
limited partners (other than Vornado) may vote to continue the Operating
Partnership and substitute a new general partner in place of Vornado); or (v) on
or after January 1, 2046, on election by Vornado, in its sole and absolute
discretion. Upon dissolution, Vornado, as general partner, or any liquidator
will proceed to liquidate the assets of the Operating Partnership and apply the
proceeds therefrom in the order of priority set forth in the Partnership
Agreement.
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TERMS OF SERIES A PREFERRED UNITS
The Operating Partnership currently has 5,750,000 Series A Preferred Units
outstanding with terms that substantially mirror the economic terms of the
Series A Preferred Shares of Vornado. All of the Series A Preferred Units are
owned and held by Vornado.
Ranking
The Series A Preferred Units will rank senior to the Junior Units (as
defined below) with respect to payment of distributions and amounts upon
liquidation, dissolution or winding up of the general partner or the Operating
Partnership. While any Series A Preferred Units are outstanding, the general
partner may not authorize the creation of units of any class or series or any
interest in the Operating Partnership convertible into units of any class or
series ranking prior to the Series A Preferred Units in the distribution of
assets on any liquidation, dissolution or winding up of the general partner or
the Operating Partnership or in the payment of distributions unless (i) such
units are issued to the general partner, (ii) the distribution and redemption
(but not voting) rights of such units are substantially similar to the terms of
securities issued by the general partner and (iii) the proceeds or other
consideration from the issuance of such securities have been or are concurrently
with such issuance contributed to the Operating Partnership. However, the
General Partner may create additional classes of units or issue series of
preferred units ranking on a parity with the Series A Preferred Units with
respect, in each case, to the payment of distributions and amounts upon
liquidation, dissolution and winding up (a "Parity Unit") without the consent of
any holder of Series A Preferred Units. As used herein, the term "Junior Unit"
means the Class A, Class C, Class D and Class E Units, and any other class of
units of the Operating Partnership now or hereafter issued and outstanding that
ranks junior to the Series A Preferred Units as to the payment of distributions
or amounts upon liquidation, dissolution and winding up of the general partner
or the Operating Partnership.
Distributions
Vornado, in its capacity as the holder of the Series A Preferred Units,
shall be entitled to receive, when, as and if declared by the general partner,
distributions payable in cash at the rate per annum of $3.25 per Series A
Preferred Unit (the "Annual Distribution Rate"). Such distributions are
cumulative and payable quarterly, when, as and if authorized and declared by the
general partner, in arrears on the first calendar day of January, April, July
and October of each year, commencing July 1, 1997. Distributions are cumulative
from the most recent distribution payment date to which distributions have been
paid. Accrued and unpaid distributions for any past distribution periods may be
declared and paid at any time, without reference to any regular Distribution
Payment Date.
No distribution will be declared or paid on any Parity Unit unless full
cumulative distributions have been declared and paid or are contemporaneously
declared and funds sufficient for payment set aside on the Series A Preferred
Units for all prior dividend periods; provided, however, that if accrued
distributions on the Series A Preferred Units for all prior distribution periods
have not been paid in full then any distribution declared on the Series A
Preferred Units for any distribution period and on any Parity Unit will be
declared ratably in proportion to accrued and unpaid distributions on the Series
A Preferred Units and such Parity Units.
The Operating Partnership will not (i) declare, pay or set apart funds for
the payment of any distribution with respect to any Junior Units (other than in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) or (ii) redeem, purchase or otherwise acquire for consideration any
Junior Units (other than a redemption, purchase or other acquisition of Junior
Units made in respect of a redemption, purchase or other acquisition of Common
Shares made for purposes of and in compliance with requirements of an employee
incentive or benefit plan of the general partner or any subsidiary, or
redemptions for the purpose of preserving Vornado's qualification as a REIT),
unless (A) all cumulative distributions with respect to the Series A Preferred
Units and any Parity Units at the time such distributions are payable have been
paid or funds have been set apart for payment of such distributions and (B)
sufficient funds have been paid or set apart for the payment of the distribution
for the current distribution period with respect to the Series A Preferred Units
and any Parity Units.
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Redemption
Except in connection with the redemption of the Series A Preferred Shares
by the General Partner as permitted by the Amended and Restated Declaration of
Trust (the "Declaration of Trust") of Vornado in order to preserve Vornado's
status as a REIT, the Series A Preferred Units are not redeemable prior to April
1, 2001. On and after April 1, 2001, the general partner may, at its option,
cause the Operating Partnership to redeem the Series A Preferred Units for Class
A Units, in whole or in part, at any time, provided that the general partner
shall redeem an equivalent number of Series A Preferred Shares. Such redemption
of Series A Preferred Units will occur substantially concurrently with the
redemption by the general partner of such Series A Preferred Shares (the
"Redemption Date"). Upon redemption of Series A Preferred Units by the general
partner on the Redemption Date, each Series A Preferred Unit so redeemed will be
converted into a number of Class A Units equal to the aggregate Liquidation
Preference (as defined below) of the Series A Preferred Units being redeemed
divided by the Conversion Price (as defined below) as of the opening of business
on the Redemption Date.
Upon any redemption of Series A Preferred Units, the Operating Partnership
will pay any accrued and unpaid distributions in arrears for any distribution
period ending on or prior to the Redemption Date. If the Redemption Date falls
after a dividend payment record date and prior to the corresponding dividend
payment date, then the general partner, in its capacity as the holder of Series
A Preferred Units, will be entitled to distributions payable on the equivalent
number of Series A Preferred Units as the number of the Series A Preferred
Shares with respect to which the general partner is required, pursuant to the
terms of the Declaration of Trust, to pay to the holders of Series A Preferred
Shares at the close of business on such dividend payment record date for the
Series A Preferred Shares who, pursuant to such Declaration of Trust, are
entitled to the dividend payable on such Series A Preferred Shares on the
corresponding dividend payment date notwithstanding the redemption of such
Series A Preferred Shares before such dividend payment date. Except as provided
above, the Operating Partnership shall make no payment or allowance for unpaid
distributions, whether or not in arrears, on Series A Preferred Units called for
redemption or on the Class A Units issued upon such redemption.
If full cumulative distributions on the Series A Preferred Units and any
other series or class or classes of Parity Units of the Operating Partnership
have not been paid or declared and set apart for payment, except in connection
with a purchase, redemption or other acquisition of Series A Preferred Shares or
shares of beneficial interest ranking on a parity with such Series A Preferred
Shares as permitted under the Declaration of Trust in order to maintain
Vornado's status as a REIT, the Series A Preferred Units may not be redeemed in
part and the Operating Partnership may not purchase, redeem or otherwise acquire
Series A Preferred Units or any Parity Units other than in exchange for Junior
Units.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Operating
Partnership or the general partner, whether voluntary or involuntary, before any
payment or distribution of the assets of the Operating Partnership are made to
or set apart for the holders of Junior Units, the general partner, in its
capacity as the holder of the Series A Preferred Units is entitled to receive
$50.00 per Series A Preferred Unit (the "Liquidation Preference") plus an amount
equal to all distributions (whether or not earned or declared) accrued and
unpaid thereon to the date of final distribution to the general partner, in its
capacity as such holder, and no more.
If, upon any such liquidation, dissolution or winding up of the Operating
Partnership or the general partner, the assets of the Operating Partnership, or
proceeds thereof, distributable to the general partner, in its capacity as the
holder of Series A Preferred Units, is insufficient to pay in full the
Liquidation Preference and liquidating payments on any other Parity Units, then
such assets, or the proceeds thereof, will be distributed among the general
partner, in its capacity as the holder of such Series A Preferred Units, and the
holders of any such other Parity Units ratably in accordance with the respective
amounts that would be payable on such Series A Preferred Units and any such
other Parity Units if all amounts payable thereon were paid in full. None of:
(i) a consolidation or merger of the Operating Partnership or the general
partner with one or more
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entities, (ii) a statutory share exchange by the Operating Partnership or the
general partner and (iii) a sale or transfer of all or substantially all of the
Operating Partnership's or the general partner's assets, will be considered a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Operating Partnership or General Partner.
Conversion Rights
The general partner, in its capacity as the holder of Series A Preferred
Units, has the right to convert all or a portion of such Series A Preferred
Units into a number of Class A Units (provided that an equivalent number of
Series A Preferred Shares are substantially concurrently therewith being
converted into Common Shares) obtained by dividing the aggregate Liquidation
Preference of such Series A Preferred Units by the Conversion Price (as defined
below); provided, however, that the right to convert Series A Preferred Units
called for redemption will terminate at the close of business on the Redemption
Date fixed for such redemption, unless the Operating Partnership defaults in
making payment of the Class A Units and any cash payable upon such redemption.
"Conversion Price" means the conversion price per Common Share for which
the Series A Preferred Shares are convertible, as such Conversion Price may be
adjusted pursuant to the terms of the Series A Preferred Shares and the
Declaration of Trust. The initial conversion price is $72.75 (equivalent to a
conversion rate of 0.68728 Common Shares for each Series A Preferred Share). The
Conversion Price will be adjusted from time to time at the same time and in a
like manner as set forth in the Declaration of Trust.
Voting Rights
Except as may be required by law, the general partner, in its capacity as
the holder of the Series A Preferred Units, is not be entitled to vote at any
meeting of the partners or for any other purpose or otherwise to participate in
any action taken by the Operating Partnership or the partners, or to receive
notice of any meeting of the partners.
ITEM 12. INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Operating Partnership is managed by Vornado, which owns an approximate
90.4% interest in, and serves as general partner of the Operating Partnership.
The Partnership Agreement provides, generally, for the indemnification of
an "Indemnitee" against losses, claims, damages, liabilities, expenses
(including, without limitation, attorneys fees and other legal fees and
expenses), judgments, fines, settlements and other amounts that relate to the
operations of the Operating Partnership unless it is established that (i) the
act of omission of the Indemnitee was material and either was committed in bad
faith or pursuant to active and deliberate dishonesty, (ii) the Indemnitee
actually received an improper personal benefit in money, property or services or
(iii) in the case of any criminal proceeding, the Indemnitee had reasonable
cause to believe that the act or omission was unlawful. For this purpose, the
term "Indemnitee" includes (i) any person made a party to a proceeding by reason
of its status as (A) the general partner of the Operating Partnership, (B) a
limited partner of the Operating Partnership or (C) an officer of the Operating
Partnership or a trustee, officer or shareholder of Vornado and (ii) such other
persons (including affiliates of Vornado or the Operating Partnership) as
Vornado may designate from time to time in its discretion. Any such
indemnification will be made only out of assets of the Operating Partnership,
and in no event may an Indemnitee subject the limited partners of the Operating
Partnership to personal liability by reason of the indemnification provisions in
the Partnership Agreement. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted pursuant to the foregoing provisions
or otherwise, the Operating Partnership has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy and, therefore, unenforceable. The Operating Partnership has purchased
liability insurance for the purpose of providing a source of funds to pay the
indemnification described above.
Vornado's Bylaws require it to indemnify (a) any present or former trustee
or officer who has been successful, on the merits or otherwise, in the defense
of a proceeding to which he was made a party by reason
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of such status, against reasonable expenses incurred by him in connection with
the proceeding, (b) any trustee or officer who, at the request of Vornado,
serves or has served another trust, corporation or other entity as a director,
officer, partner, or trustee and (c) any present or former trustee or officer
against any claim or liability to which he may become subject by reason of such
status unless it is established that (i) his act or omission was material to the
matter giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty, (ii) he actually received an
improper personal benefit in money, property or services or (iii) in the case of
a criminal proceeding, he had reasonable cause to believe that his act or
omission was unlawful. In addition, Vornado's Bylaws require it to pay or
reimburse, in advance of final disposition of a proceeding, reasonable expenses
incurred by a present or former trustee or officer made a party to a proceeding
by reason of such status provided that Vornado shall have received (i) a written
affirmation by the trustee or officer of his good faith belief that he has met
the applicable standard of conduct necessary for indemnification by Vornado as
authorized by the Bylaws and (ii) a written undertaking by or on his behalf to
repay the amount paid or reimbursed by Vornado if it shall ultimately be
determined that the applicable standard of conduct was not met. Vornado's Bylaws
also (i) permit Vornado to provide indemnification and payment or reimbursement
of expenses to a present or former trustee or officer who served a predecessor
of Vornado in such capacity and to any employee or agent of Vornado or a
predecessor of Vornado, (ii) provide that any indemnification or payment or
reimbursement of the expenses permitted by the Bylaws shall be furnished in
accordance with the procedures provided for indemnification or payment or
reimbursement of expenses, as the case may be, under Section 2-418 of the
Maryland General Corporation Law (the "MGCL") for directors of Maryland
corporations and (iii) permit Vornado to provide such other and further
indemnification or payment or reimbursement of expenses as may be permitted by
the MGCL, as in effect from time to time, for directors of Maryland
Corporations. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to trustees and officers of Vornado pursuant to
the foregoing provisions or otherwise, Vornado has been advised that, although
the validity and scope of the governing statute has not been tested in court, in
the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In addition,
the indemnification may be limited by state securities laws.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements on Page F-1 of the Registration
Statement.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements and Financial Statement Schedules
See "Index to Financial Statements" on page F-1 of this Form 10.
In addition, the following financial statements are filed as exhibits
hereto and are incorporated by reference herein:
(i) Consolidated Financial Statements for the years ended December 31,
1996, 1995 and 1994 for Vornado Realty Trust (including independent
auditors' report);
(ii) Consolidated Financial Statements and Financial Statement
Schedules for the quarterly period ended March 31, 1997 for Vornado Realty
Trust;
(iii) Financial statements for the years ended December 31, 1996, 1995
and 1994 for Two Penn Plaza Associates L.P. (a Limited Partnership)
(including independent auditors' report);
40
<PAGE> 41
(iv) Combined financial statements for the years ended December 31,
1996, 1995 and 1994 for
M Eleven Associates, M 393 Associates and Eleven Penn Plaza Company
(General Partnerships) (including independent auditors' report);
(v) Financial statements for the years ended December 31, 1996, 1995
and 1994 for 1740 Broadway Associates, L.P. (a Limited Liability Company)
(including independent auditors' report);
(vi) Financial statements for the years ended December 31, 1996, 1995
and 1994 for 866 U.N. Plaza Associates LLC (a Limited Liability Company)
(including independent auditors' report);
(vii) Financial statements for the years ended December 31, 1996, 1995
and 1994 for Two Park Company (a New York general partnership) (including
independent auditors' report);
(viii) Financial statements for the years ended December 31, 1996,
1995 and 1994 for B&B Park Avenue L.P. (a Limited Partnership) (including
independent auditors' report);
(ix) Consolidated Financial Statements for the years ended December
31, 1996, 1995 and 1994 for Alexander's, Inc. (including independent
auditors' report)
(b) Exhibits
<TABLE>
<C> <C> <S>
3.1 -- First Amended and Restated Agreement of Limited Partnership of the Operating
Partnership, dated as of April 15, 1997
4.1 -- Form of Specimen Certificate Evidencing Partnership Interests in Vornado
Realty L.P.
10.1 -- Master Consolidation Agreement, dated March 12, 1997, among Vornado Realty
Trust, Vornado/Saddle Brook L.L.C., The Mendik Company, L.P. and various
parties defined therein (incorporated by reference to Exhibit 2.1 of Vornado
Realty Trust's Current Report on Form 8-K, dated March 12, 1997 (File No.
001-11954), filed on March 26, 1997)
10.2 -- Credit Agreement, dated as of April 15, 1997, between Vornado Realty L.P., as
Borrower, Vornado Realty Trust, as General Partner, and Union Bank of
Switzerland (New York Branch), as Bank and Union Bank of Switzerland (New York
Branch), as Administrative Agent (incorporated by reference to Exhibit 10.1 of
Vornado Realty Trust's Current Report on Form 8-K, dated April 15, 1997 (File
No. 001-11954), filed on April 30, 1997)
10.3 -- Indenture, dated as of November 24, 1993, between Vornado Finance Corp. and
Bankers Trust Company, as Trustee (incorporated by reference to Vornado Realty
Trust's Current Report on Form 8-K, dated November 24, 1993, filed on December
1, 1993)
10.4 -- Master Agreement and Guaranty, dated as of May 1, 1992, between Vornado, Inc.
and Bradlees New Jersey, Inc. (incorporated by reference to Vornado Realty
Trust's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992,
filed on May 8, 1992)
10.5 -- Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture
Filing, dated as of November 24, 1993, made by each of the entities listed
therein, as mortgagors to Vornado Finance Corp., as mortgagee (incorporated by
reference to Vornado Realty Trust's Current Report on Form 8-K, dated November
24, 1993, filed on December 1, 1993)
10.6 -- Management Agreement, dated July 13, 1992, between Interstate Properties and
Vornado, Inc. (incorporated by reference to Vornado Realty Trust's Annual
Report on Form 10-K for the year ended December 31, 1992, filed on February
16, 1993)
10.7 -- Management and Development Agreement, dated as of February 6, 1995
(incorporated by reference to Vornado Realty Trust's Current Report on Form
8-K, dated February 6, 1995, filed on February 21, 1995)
10.8 -- Standstill and Corporate Governance Agreement, dated as of February 6, 1995
(incorporated by reference to Vornado Realty Trust's Current Report on Form
8-K, dated February 6, 1995, filed on February 21, 1995)
</TABLE>
41
<PAGE> 42
<TABLE>
<C> <C> <S>
10.9 -- Credit Agreement, dated as of March 15, 1995, between Alexander's, Inc., as
borrower, and Vornado Lending Corp., as lender (incorporated by reference to
Vornado Realty Trust's Annual Report on Form 10-K for the year ended December
31, 1994, filed on March 23, 1995)
10.10 -- Subordination and Intercreditor Agreement, dated as of March 15, 1995, among
Vornado Lending Corp., Vornado Realty Trust and First Fidelity Bank, National
Association (incorporated by reference to Vornado Realty Trust's Annual Report
on Form 10-K for the year ended December 31, 1994, filed on March 23, 1995)
11 -- Statement Re Computation of Per Share Earnings
12 -- Consolidated Ratio of Earnings to Fixed Charges and Combined Fixed Charges and
Preferred Share Dividend Requirements
21 -- Subsidiaries of the Registrant
27 -- Financial Data Schedule
99.1 -- Item 8. Financial Statements and Supplementary Data, pages 24 through 42 of
Vornado Realty Trust's Annual Report on Form 10-K for the year ended December
31, 1996
99.2 -- Item 1. Financial Statements, pages 3 through 9 of Vornado Realty Trust's
Quarterly Report on Form 10-Q for the period ended March 31, 1997
99.3 -- Annexes A through E, Financial Statements, pages 17 through 90 of Vornado
Realty Trust's Current Report on Form 8-K, dated March 12, 1997, as filed with
the Securities and Exchange Commission on March 26, 1997
99.4 -- Annex F, Financial Statements, pages 5 through 15 of Vornado Realty Trust's
Amendment No. 1 to Current Report on Form 8-K/A, dated March 12, 1997, as
filed with the Securities and Exchange Commission on April 1, 1997
99.5 -- Pages 3 through 4 and 10 through 22 of Vornado Realty Trust's Proxy Statement
and Notice of Annual Meeting of Shareholders held on May 28, 1997
99.6 -- Item 8. Financial Statements and Supplementary Data, pages 21 through 38 of
Alexander's, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1996
</TABLE>
42
<PAGE> 43
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
VORNADO REALTY L.P.
Condensed Consolidated Pro forma Financial Information (unaudited).................. F-3
Condensed Consolidated Pro forma Balance Sheet as at March 31, 1997.............. F-4
Condensed Consolidated Pro forma Statement of Income for the Three Months Ended
March 31, 1997.................................................................. F-5
Notes to Condensed Consolidated Pro forma Financial Statements as at and for the
Three Months Ended March 31, 1997............................................... F-6
Condensed Consolidated Pro forma Statement of Income for the Year Ended December
31, 1996........................................................................ F-8
Notes to Condensed Consolidated Pro forma Financial Statements as at and for the
Year Ended December 31, 1996.................................................... F-10
Independent Auditors' Report..................................................... F-11
Balance Sheet as at April 14, 1997............................................... F-12
Note to Balance Sheet............................................................ F-13
Schedules:
I -- Financial Statements of the Mendik Predecessors:
Independent Auditors' Report..................................................... F-14
Combined Balance Sheet as at December 31, 1996................................... F-15
Combined Statement of Income for the Year Ended December 31, 1996................ F-16
Combined Statement of Owners' Equity for the Year Ended December 31, 1996........ F-17
Combined Statement of Cash Flows for the Year Ended December 31, 1996............ F-18
Notes to Combined Financial Statements........................................... F-20
Combined Balance Sheets as at March 31, 1997 and December 31, 1996............... F-31
Combined Statements of Income for the Three Months Ended March 31, 1997 and
1996............................................................................ F-32
Combined Statement of Owners' Equity for the Three Months Ended March 31, 1997... F-33
Combined Statement of Cash Flows for the Three Months Ended March 31, 1997....... F-34
Notes to Combined Financial Statements........................................... F-36
III -- Real Estate and Accumulated Depreciation..................................... F-47
Schedules other than those listed above are omitted because they are not
applicable......................................................................
Consolidated Financial Statements for the years ended December 31, 1996, 1995 and
1994 for Vornado Realty Trust (including independent auditors' report).......... *
Unaudited Consolidated Financial Statements and Financial Statement Schedules for
the quarterly period ended March 31, 1997 for Vornado Realty Trust.............. *
Financial statements for the years ended December 31, 1996, 1995 and 1994 for Two
Penn Plaza Associates L.P. (a Limited Partnership) (including independent
auditors' report)............................................................... *
Combined financial statements for the years ended December 31, 1996, 1995 and
1994 for M Eleven Associates, M 393 Associates and Eleven Penn Plaza Company
(General Partnerships) (including independent auditors' report)................. *
Financial statements for the years ended December 31, 1996, 1995 and 1994 for
1740 Broadway Associates, L.P. (a Limited Liability Company) (including
independent auditors' report)................................................... *
</TABLE>
F-1
<PAGE> 44
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial statements for the years ended December 31, 1996, 1995 and 1994 for 866
U.N. Plaza Associates LLC (a Limited Liability Company) including independent
auditors' report)............................................................... *
Financial statements for the years ended December 31, 1996, 1995 and 1994 for Two
Park Company (a New York general partnership) (including independent auditors'
report)......................................................................... *
Financial statements for the years ended December 31, 1996, 1995 and 1994 for B&B
Park Avenue L.P. (a Limited Partnership) (including independent auditors'
report)......................................................................... *
</TABLE>
- ---------------
* Incorporated by reference.
F-2
<PAGE> 45
CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
The unaudited condensed consolidated pro forma financial information set
forth below presents (i) the condensed consolidated pro forma statement of
income for the Operating Partnership for the year ended December 31, 1996 and
the three months ended March 31, 1997 as if the Mendik Transaction and certain
related transactions were consummated and the offering by Vornado of Series A
Preferred Shares of Beneficial Interest, liquidation preference $50.00 per share
(the "Offering") and the use of proceeds therefrom had occurred on January 1,
1996 and (ii) the condensed consolidated pro forma balance sheet of the
Operating Partnership as of March 31, 1997 as if the Mendik Transaction and
certain related transactions were consummated and the Offering and the use of
proceeds therefrom had occurred on March 31, 1997.
The unaudited condensed consolidated pro forma financial information is not
necessarily indicative of what the Operating Partnership's actual results of
operations or financial position would have been had the Mendik Transaction and
related transactions been consummated and had the Offering and the use of
proceeds therefrom occurred on the dates indicated, nor does it purport to
represent the Operating Partnership's results of operations or financial
position for any future period. The results of operations for the period ended
March 31, 1997 are not necessarily indicative of the operating results for the
full year.
The unaudited condensed consolidated pro forma financial information should
be read in conjunction with the Consolidated Financial Statements and notes
thereto included in Vornado's consolidated financial statements and notes
thereto included in Vornado's Annual Report on Form 10-K for the year ended
December 31, 1996 and the Quarterly Report on Form 10-Q for the period ended
March 31, 1997 and the financial statements of the significant entities involved
in the Mendik Transaction previously included in the Company's Current Report on
Form 8-K, dated March 12, 1997, as amended by the Current Report on Form 8-K/A,
dated March 12, 1997; copies of such financial statements and notes thereto are
filed as exhibits hereto and incorporated by reference herein. In management's
opinion, all adjustments necessary to reflect the Mendik Transaction and the
related transactions and the Offering and the use of proceeds therefrom have
been made.
The Credit Agreement with Union Bank of Switzerland entered into on April
15, 1997; the acquisition of the Montehiedra Town Center on April 18, 1997 and
the acquisition of a mortgage loan on May 7, 1997 are not reflected in the
following pro forma information because they are unrelated to the Mendik
Transaction and are not material to the Operating Partnership's results of
operations after giving effect to the Mendik Transaction and related
transactions.
F-3
<PAGE> 46
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
MARCH 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
OPERATING
HISTORICAL HISTORICAL PRO FORMA PARTNERSHIP
VORNADO MENDIK ADJUSTMENTS PRO FORMA
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Real estate, net........................... $ 243,647 $ 186,687 $ 176,929(A) $ 816,056
144,284(C)
64,509(D)
Cash and cash equivalents.................. 120,816 45,680 276,000(B) 133,095
(263,721)(C)
(45,680)(E)
Investment in and advances to Alexander's,
Inc. ................................... 109,884 109,884
Investment in partnerships................. 20,103 20,103
Investment in Management Company........... 7,425(C) 7,425
Officer's deferred compensation expenses... 16,668 16,668
Mortgage note receivable................... 16,918 16,918
Receivable arising from straightlining of
rents................................... 17,721 38,787 (38,787)(D) 17,721
Other assets............................... 35,831 48,123 (27,244)(D) 56,710
-------- -------- -------- ----------
$ 561,485 $ 339,380 $ 293,715 $ 1,194,580
======== ======== ======== ==========
LIABILITIES:
Notes and mortgages payable................ $ 232,197 $ 283,466 $(112,012)(C) $ 398,651
(5,000)(F)
Due for US Treasury Obligations............ 9,778 9,778
Deferred leasing fee income................ 11,575 11,575
Officer's deferred compensation payable.... 25,000 25,000
Negative investment in partnership......... 5,216 (5,216)(D) --
Other liabilities.......................... 13,673 14,026 (314)(D) 27,385
-------- -------- -------- ----------
292,223 302,708 (122,542) 472,389
-------- -------- -------- ----------
PARTNERSHIP EQUITY........................... 269,262 36,672 176,929(A) 722,191
276,000(B)
4,008(D)
(45,680)(E)
5,000(F)
-------- -------- -------- ----------
$ 561,485 $ 339,380 $ 293,715 $ 1,194,580
======== ======== ======== ==========
</TABLE>
F-4
<PAGE> 47
CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
OPERATING
HISTORICAL HISTORICAL PRO FORMA PARTNERSHIP
VORNADO MENDIK ADJUSTMENTS PRO FORMA
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Property rentals............................. $ 22,467 $ 32,587(1) $ 1,768(I) $ 56,748
(74)(G)
Expense reimbursements....................... 6,210 2,751 (13)(G) 8,948
Other income................................. 620 1,285 (1,285)(G) 620
------- ------- -------- ---------
29,297 36,623 396 66,316
------- ------- -------- ---------
Expenses:
Operating.................................... 8,507 11,432 29(L) 19,789
(179)(G)
Depreciation and amortization................ 2,967 5,678(1) 2,462(J) 11,078
(29)(G)
General and administrative................... 1,845 2,611(1) (1,668)(G) 2,788
Amortization of officers deferred
compensation expense....................... 6,249 6,249
------- ------- -------- ---------
19,568 19,721 615 39,904
Operating income............................... 9,729 16,902 (219) 26,412
Income applicable to Alexander's............... 1,405 1,405
Equity in net income of management companies... 217 512(G) 729
Equity in net income of investees.............. 228 439(M) 667
Interest income on mortgage note receivable.... 612 612
Interest & dividend income..................... 1,518 1,051 (8)(G) 2,561
Interest & debt expense........................ (4,078) (5,589) 2,254(H) (7,413)
Net gain on marketable securities.............. 287 287
------- ------- -------- ---------
Net income....................................... 9,690 12,592 2,978 25,260
Preferred unit distributions..................... -- -- (4,950)(K) (4,950)
Preferential allocations......................... -- -- (2,593)(N) (2,593)
------- ------- -------- ---------
Net income applicable to Class A units........... $ 9,690 $ 12,592 $ (4,565) $ 17,717
======= ======= ======== =========
Net income per Class A unit, based on 26,549,698
units.......................................... $ 0.36 $ 0.67
======= =========
Other Data:
Funds from Operations(2):
Net income applicable to Class A units......... $ 9,690 $ 12,592 $ (4,565) $ 17,717
Depreciation & amortization of real property... 2,831 5,678 2,462 10,971
Straight-lining of property rent escalations... (669) (259) (1,768) (2,696)
Leasing fees received in excess of income
recognized................................... 454 454
Proportionate share of adjustments to income
from equity investments to arrive at FFO..... (76) 687 (243) 368
Non-recurring lease cancellation income and the
write-off of related costs................... -- (13,682) -- (13,682)
------- ------- -------- ---------
$ 12,230 $ 18,698 $ (4,114) $ 13,132
======= ======= ======== =========
Cash Flow Provided by (Used In):
Operating activities........................... 19,753 (671) 3,396 22,478
Investing activities........................... (283) (5,652) (328,638) (334,573)
Financing activities........................... (16,739) (3,858) 290,287 269,690
</TABLE>
- ---------------
(1) "Historical Mendik" column includes non-recurring items: lease cancellation
income of $14,357, the write-off of related costs of $2,101 and general and
administrative expenses of $675. (Aggregates $.44 per share).
(2) Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
is not necessarily indicative of cash available to fund cash needs which is
disclosed in the Consolidated Statements of Cash Flows for the applicable
periods. There are no material legal or functional restrictions on the use
of funds from operations. Funds from operations should not be considered as
an alternative to net income as an indicator of the Operating Partnership's
operating performance or as an alternative to cash flows as a measure of
liquidity. Management considers funds from operations a supplemental measure
of Operating performance and along with cash flow from operating activities,
financing activities, and investing activities, it provides investors with
an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. Funds from
operations may not be comparable to similarly titled measures employed by
other REITs since a number of REITs, including the Company's, method of
calculating funds from operations is different from that used by NAREIT.
Funds from operations, as defined by NAREIT, represents net income
applicable to common shares before depreciation and amortization,
extraordinary items, and gains or losses on sales of real estate. Funds from
operations as disclosed above has been modified to adjust for the effect of
straight-lining of property rentals for rent escalations and leasing fee
income.
F-5
<PAGE> 48
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
AS AT AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
The Mendik acquisition will be recorded under "purchase accounting"
applying the provisions of Accounting Principles Board Opinion No. 16 ("APB No.
16").
The total purchase price is comprised of:
<TABLE>
<S> <C> <C>
Issuance of Units of the Operating Partnership..... $176,929
Cash............................................... 263,721
Debt:
Included in Notes and mortgages payable.......... $166,454
Netted in Investments in partnerships............ 49,087 215,541
-------- --------
$656,191
========
</TABLE>
The purchase costs were allocated in the Pro forma financial statements as
follows:
<TABLE>
<S> <C>
Real Estate................................................... $572,409
Investment in management company (100% of non-voting preferred
stock which entitles the Operating Partnership to 95% of the
economic benefits).......................................... 7,425
Investment in Partnerships.................................... 20,103
Other assets.................................................. 56,254
--------
$656,191
========
</TABLE>
The respective purchase costs were allocated to acquired assets and assumed
liabilities using their relative fair values as of the closing dates, based on
valuations and other studies which are not yet complete. Accordingly, the excess
of the purchase cost over the net assets acquired has not yet been allocated to
individual assets and liabilities. However, the Operating Partnership believes
that the excess purchase price will be allocated principally to real estate.
FOOTNOTES:
(A) Issuance of OP units to fund the Mendik acquisition with a fair value of
$176,929 based on a price of $61.75 per unit which represents the average
market price of Vornado Realty Trust's common stock for the five days before
and the five days after the acquisition was closed.
(B) Reflects proceeds from issuance of $3.25 Series A Convertible Preferred
Offering of $287,500, net of underwriting discount of $11,500.
(C) Reflects cash portion of purchase price of $263,721 and the use of such
proceeds as follows:
<TABLE>
<S> <C>
Acquisition of Real Estate:
Acquisition of Partnership Interests........................ $109,508
Fees and expenses........................................... 34,776
--------
144,284
Acquisition of management company............................. 7,425
Retirement of existing debt................................... 112,012*
--------
$263,721
========
</TABLE>
* Exclusive of $168,000 of existing debt which was refinanced.
(D) Write-off of deferred assets and liabilities of Mendik as reflected in the
values allocated to the real estate and the debt in accordance with APB No.
16.
(E) Cash distributed to partners.
F-6
<PAGE> 49
(F) Debt forgiven upon refinancing.
(G) To reflect adjustments required to record the Operating Partnership's
investment in the Mendik management company under the equity method of
accounting.
(H) Reflects decrease in interest expense and loan cost amortization resulting
from the reduction and refinancing of debt.
(I) To adjust rentals arising from the straight-lining of property rentals for
rent escalations based on the remaining terms of the applicable leases.
(J) Increase in depreciation due to preliminary allocation of purchase price.
(K) To reflect unit distributions at a rate of 6.40% plus amortization of the
underwriting discount on the proportionate number of Series A Preferred
Shares used to fund the acquisition.
(L) Increase in operating expenses due to contract changes.
(M) Increase in equity in investees, due to net decrease in interest expense on
refinanced debt.
(N) To reflect preferential allocations.
F-7
<PAGE> 50
CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OPERATING
HISTORICAL HISTORICAL PRO FORMA PARTNERSHIP
VORNADO MENDIK ADJUSTMENTS PRO FORMA
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Property rentals......................... $ 87,424 $ 87,261 $ 7,071(C) $ 181,712
(44)(A)
Expense reimbursements................... 26,644 13,551 40,195
Other income............................. 2,819 5,378 (5,378)(A) 2,819
--------- --------- --------- --------
116,887 106,190 1,649 224,726
--------- --------- --------- --------
EXPENSES:
Operating................................ 36,412 46,691 (39)(A) 83,180
116(F)
Depreciation and amortization............ 11,589 14,133 (144)(A) 35,559
9,981(D)
General and administrative............... 5,167 6,783 (3,788)(A) 8,162
Amortization of officer's deferred
compensation expense.................. 2,083 2,083
--------- --------- --------- --------
55,251 67,607 6,126 128,984
--------- --------- --------- --------
Operating income........................... 61,636 38,583 (4,477) 95,742
Income applicable to Alexander's......... 7,956 7,956
Equity in net income of management
companies............................. 1,855 1,471(A) 3,326
Equity in net income of investees........ 1,663 1,755(G) 3,418
Interest income on mortgage note
receivable............................ 2,579 2,579
Interest and dividend income............. 3,151 2,536 (20)(A) 5,667
Interest and debt expense................ (16,726) (23,998) 9,016(B) (31,708)
Net gain on marketable securities........ 913 913
--------- --------- --------- --------
Net income................................. 61,364 18,784 7,745 87,893
Preferred unit distributions............... -- -- (19,800)(E) (19,800)
Preferential allocations................... -- -- (10,372)(H) (10,372)
========= ========= ========= ========
Net income applicable to Class A units..... $ 61,364 $ 18,784 $ (22,427) $ 57,721
========= ========= ========= ========
Net income per Class A unit, based on
24,603,442 units......................... $ 2.49 $ 2.35
========= ========
OTHER DATA:
Funds from Operations (1):
Net income applicable to Class A units... $ 61,364 $ 18,784 $ (22,427) $ 57,721
Depreciation and amortization of real
property.............................. 10,583 14,133 9,837 34,553
Straight-lining of property rent
escalations........................... (2,676) (1,783) (7,071) (11,530)
Leasing fees received in excess of income
recognized............................ 1,805 1,805
Proportionate share of adjustments to
income from equity investments to
arrive at FFO......................... (1,760) 2,747 (970) 17
========= ========= ========= ========
$ 69,316 $ 33,881 $ (20,631) $ 82,566
========= ========= ========= ========
</TABLE>
F-8
<PAGE> 51
<TABLE>
<CAPTION>
OPERATING
HISTORICAL HISTORICAL PRO FORMA PARTNERSHIP
VORNADO MENDIK ADJUSTMENTS PRO FORMA
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOW PROVIDED BY (USED) IN:
Operating activities.................. 70,703 29,267 9,407 109,377
Investing activities.................. 14,912 (8,262) (328,638) (321,988)
Financing activities.................. (15,046) (11,706) 270,209 243,457
</TABLE>
- ---------------
(1) Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
is not necessarily indicative of cash available to fund cash needs which is
disclosed in the Consolidated Statements of Cash Flows for the applicable
periods. There are no material legal or functional restrictions on the use
of funds from operations. Funds from operations should not be considered as
an alternative to net income as an indicator of the Operating Partnership's
operating performance or as an alternative to cash flows as a measure of
liquidity. Management considers funds from operations a supplemental measure
of Operating performance and, along with cash flow from operating
activities, financing activities, and investing activities, it provides
investors with an indication of the ability of the Company to incur and
service debt, to make capital expenditures and to fund other cash needs.
Funds from operations may not be comparable to similarly titled measures
employed by other REITs since a number of REITs, including the Company's,
method of calculating funds from operations is different from that used by
NAREIT. Funds from operations, defined by NAREIT represents net income
applicable to common shares before depreciation and amortization,
extraordinary items and gains or losses on sales of real estate. Funds from
operations as disclosed above has been modified to adjust for the effect of
straight-lining of property rentals for rent escalations and leasing fee
income.
F-9
<PAGE> 52
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
AS AT AND FOR THE YEAR ENDED DECEMBER 31, 1996
(A) To reflect adjustments required to record the Operating Partnership's
investment in the Mendik management company under the equity method of
accounting.
(B) Reflects decrease in interest expense and loan cost amortization resulting
from the reduction and refinancing of debt.
(C) To adjust rentals arising from the straight-lining of property rentals for
rent escalations based on the remaining terms of the applicable leases.
(D) Increase in depreciation due to preliminary allocation of purchase price.
(E) To reflect unit distributions at a rate of 6.50% plus amortization of the
underwriting discount on the proportionate number of Series A Preferred
Shares used to fund the acquisition.
(F) Increase in operating expenses due to contract changes.
(G) Increase in equity in investees, due to net decrease in interest expense on
refinanced debt.
(H) To reflect preferential allocations.
F-10
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
Partners
Vornado Realty L.P.
Saddle Brook, New Jersey
We have audited the accompanying balance sheet of Vornado Realty L.P. as of
April 14, 1997. This financial statement is the responsibility of the
Partnership's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Partnership at April 14, 1997 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
August 7, 1997
F-11
<PAGE> 54
VORNADO REALTY L.P.
BALANCE SHEET
APRIL 14, 1997
<TABLE>
<S> <C>
ASSETS
Cash................................................................ $1
--
Total Assets.............................................. $1
==
PARTNERSHIP EQUITY
Equity.............................................................. $1
--
Total Partnership Equity.................................. $1
==
</TABLE>
F-12
<PAGE> 55
VORNADO REALTY L.P.
NOTE TO BALANCE SHEET
1. Organization
Vornado Realty L.P. (the "Operating Partnership") is a Delaware limited
partnership. The Operating Partnership's only asset is its initial
capitalization of $1. It commenced operations on April 15, 1997, when Vornado
Realty Trust ("Vornado"), a real estate investment trust ("REIT"), converted to
an Umbrella Partnership REIT (UPREIT) by transferring all or substantially all
of the interests in its properties and other assets to the Operating
Partnership, of which Vornado is the sole general partner. As a result of such
conversion, Vornado's activities are conducted through the Operating
Partnership.
2. Subsequent Events
For acquisitions subsequent to the Balance Sheet date, see Item .1,
Business -- Recent Acquisitions.
F-13
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
To the Partners, Members and Stockholders of
The Mendik Predecessors
We have audited the accompanying combined balance sheet of The Mendik
Predecessors as of December 31, 1996, and the related combined statements of
income, owners' equity and cash flows for the year then ended. We have also
audited the financial statement schedule listed in the Table of Contents. These
financial statements and financial statement schedule are the responsibility of
The Mendik Predecessors' management. Our responsibility is to express an opinion
on these financial statements and financial statement schedule based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The Mendik
Predecessors as of December 31, 1996, and the combined results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be set forth therein.
Friedman Alpren & Green LLP
January 18, 1997, except for
Note 2, as to which the date
is March 12, 1997
F-14
<PAGE> 57
THE MENDIK PREDECESSORS
COMBINED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
(NOTE 1)
<TABLE>
<S> <C>
ASSETS
Commercial real estate properties, at cost (Note 5)
Land............................................................................ $ 37,028
Buildings and improvements...................................................... 311,775
Equipment, autos, furniture and fixtures........................................ 7,018
--------
355,821
Less accumulated depreciation................................................ 168,388
--------
187,433
Cash and cash equivalents......................................................... 22,150
Restricted cash................................................................... 1,063
Available-for-sale securities (Note 1)............................................ 27,441
Receivables....................................................................... 9,806
Related party receivables......................................................... 3,080
Deferred rents receivable (Note 7)................................................ 42,219
Prepaid expenses.................................................................. 2,920
Investment in partnerships (Note 3)............................................... 19,863
Tenant acquisition costs (Note 4)................................................. 6,908
Deferred lease fees and loan costs, less accumulated amortization of $23,938...... 17,718
Security deposits................................................................. 2,423
--------
Total assets...................................................................... $343,024
========
LIABILITIES AND OWNERS' EQUITY
Mortgage notes payable (Note 5)................................................... $283,847
Tenant acquisition costs payable (Note 4)......................................... 4,525
Accounts payable and accrued expenses............................................. 6,151
Accounts payable to related parties............................................... 364
Excess of distributions and share of losses over investment in partnership (Note
3).............................................................................. 5,399
Deferred rents.................................................................... 266
Security deposits................................................................. 2,500
--------
Total liabilities................................................................. 303,052
Owners' equity.................................................................... 39,972
--------
Commitments and other comments (Notes 6, 7 and 9)................................. --
Total liabilities and owners' equity.............................................. $343,024
========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-15
<PAGE> 58
THE MENDIK PREDECESSORS
COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
(NOTE 1)
<TABLE>
<S> <C>
REVENUES
Rental revenue (Note 7)......................................................... $ 87,261
Escalation and reimbursement revenues (Note 7).................................. 13,551
Construction revenues from affiliates........................................... 46
Management revenues, including $3,558 from affiliates........................... 4,007
Leasing commissions, including $844 from affiliates............................. 1,325
Investment income............................................................... 2,536
Equity in net income of investees (Note 3)...................................... 1,663
--------
Total revenues.................................................................... 110,389
--------
EXPENSES
Operating expenses, including $13,833 to affiliates............................. 28,091
Real estate taxes............................................................... 18,600
Rent expense to affiliates...................................................... 686
Interest (Note 5)............................................................... 22,815
Depreciation and amortization................................................... 15,316
Marketing, general and administrative........................................... 6,097
--------
Total expenses.................................................................... 91,605
--------
Net income........................................................................ $ 18,784
========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-16
<PAGE> 59
THE MENDIK PREDECESSORS
COMBINED STATEMENT OF OWNERS' EQUITY
YEAR ENDED DECEMBER 31, 1996
(NOTE 1)
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
BALANCE AT JANUARY 1, 1996..................................................... $ 30,468
Owners' (distributions)...................................................... (9,673)
Owners' contributions........................................................ 483
Adjustment to unrealized gain on available-for-sale securities............... (90)
Net income for the year ended December 31, 1996.............................. 18,784
-------
BALANCE AT DECEMBER 31, 1996................................................... $ 39,972
=======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-17
<PAGE> 60
THE MENDIK PREDECESSORS
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(NOTE 1)
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
OPERATING ACTIVITIES
Net Income................................................................... $ 18,784
Adjustments:
Depreciation and amortization................................................ 15,316
Equity in net income of investees............................................ (1,663)
Deferred rents receivable.................................................... (1,734)
Changes in operating assets and liabilities:
Restricted cash.............................................................. 2,494
Receivables.................................................................. 2,277
Related party receivables.................................................... 828
Tenant acquisition costs..................................................... 277
Prepaid expenses............................................................. (80)
Deferred lease fees.......................................................... (3,666)
Accrued interest receivable.................................................. 8
Tenant acquisition costs payable............................................. (1,765)
Accounts payable and accrued expenses........................................ (1,237)
Accounts payable to related parties.......................................... (467)
Deferred rents............................................................... (89)
Security deposits............................................................ (94)
Security deposits payable.................................................... 78
--------
Net cash provided by operating activities...................................... 29,267
--------
INVESTING ACTIVITIES
Additions to land, buildings and improvements.................................. (10,415)
Purchases of equipment, autos, furniture and fixtures.......................... (24)
Contributions to partnership investments....................................... (1,219)
Distributions from partnership investments..................................... 2,929
Proceeds from sales of securities.............................................. 38,882
Purchases of securities........................................................ (38,415)
--------
Net cash used in investing activities.......................................... (8,262)
========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-18
<PAGE> 61
THE MENDIK PREDECESSORS
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
(NOTE 1)
<TABLE>
<S> <C>
FINANCING ACTIVITIES
Proceeds from mortgage notes payable........................................... $ 50
Payments of mortgage notes payable............................................. (1,995)
Cash distributions to owners................................................... (9,673)
Cash contributions from owners................................................. 483
Deferred loan costs............................................................ (571)
------
Net cash used in financing activities............................................ (11,706)
------
Net increase in cash and cash equivalents........................................ 9,299
Cash and cash equivalents at beginning of year................................... 12,851
------
Cash and cash equivalents at end of year......................................... $22,150
======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid.................................................................. $24,535
Income taxes paid.............................................................. 28
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Receipt of available-for-sale securities from equity investee.................. 8,160
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-19
<PAGE> 62
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Mendik Predecessors are engaged in the ownership, management,
operation, leasing and development of real estate office properties
(collectively, the "Properties") located in the borough of Manhattan in New York
City.
PRINCIPLES OF COMBINATION
The Mendik Predecessors is not a legal entity, but rather a combination of
real estate properties and interests in entities (see Note 2) that are organized
as partnerships and a limited liability company and affiliated real estate
management and leasing entities. All significant intercompany transactions and
balances have been eliminated in combination.
The accompanying combined financial statements include partnerships, a
limited liability company and S corporations which are under the common control
(through management of day to day activities) of the Mendik Group (Bernard H.
Mendik, David R. Greenbaum and certain entities controlled by them):
<TABLE>
<CAPTION>
ENTITY PROPERTY/SERVICE
----------------------------------------- -----------------------------------------
<S> <C>
Office Property Entities
Two Penn Plaza Associates L.P. Two Penn Plaza
1740 Broadway Associates, L.P. 1740 Broadway
Eleven Penn Plaza Company 11 Penn Plaza
866 U.N. Plaza Associates LLC 866 United Nations Plaza
Management Entities
Mendik Realty Company, Inc. Management and leasing
Mendik Management Company, Inc. Management and leasing
</TABLE>
Additionally, three property-owning partnerships in which The Mendik
Predecessors own less than a majority interest, but exercise significant
influence, are accounted for under the equity method. Under the equity method,
The Mendik Predecessors record such investments at cost and adjust the
investment account for their share of the entities' income or loss and for cash
distributions and contributions.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REAL ESTATE PROPERTIES
Depreciation is computed by the straight-line method over the estimated
useful lives which range from ten to thirty-nine years for buildings and
improvements and four to seven years for equipment, autos, furniture and
fixtures. Tenant improvements, which are included in buildings and improvements
on the accompanying combined balance sheet, are amortized over the life of the
respective leases, using the straight-line method.
Included in building improvements are approximately $5,200,000 of additions
in 1996. In addition, building improvements of the equity investees includes
$1,652,000 of additions in 1996.
CASH AND CASH EQUIVALENTS
The Mendik Predecessors consider highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents. Cash equivalents
consist primarily of U.S. Treasury Bills and certificates of deposit.
F-20
<PAGE> 63
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Most of the cash balances are in excess of federally insured limits.
RESTRICTED CASH
Restricted cash consists of escrows for real estate taxes and capital
expenditures, and collateral deposits for payment of mortgage interest. An
agreement for the collection of rents was entered into during 1994 between one
of the office property entities and its two mortgagees, pursuant to which all
rents are deposited into an account directly controlled by one of the
mortgagees. Any cash required by the office property entity to fund operations
must be requisitioned from the mortgagee.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the term of the
lease. The excess of rents so recognized over amounts contractually due pursuant
to the underlying leases are included in deferred rents receivable on the
accompanying combined balance sheet. Contractually due but unpaid rents are
included in receivables on the accompanying combined balance sheet. Certain
lease agreements provide for reimbursement of real estate taxes, insurance and
certain common area maintenance costs and rental increases tied to increases.
DEFERRED COSTS
Lease costs and loan costs are capitalized and amortized over the life of
the related lease or loan. Affiliates of The Mendik Predecessors have incurred
costs related to the proposed initial public offering and subsequent agreement
described above. Such deferred costs will be reimbursed to such affiliates upon
successful completion of the transaction and will be charged to the equity of
the REIT at such time.
AVAILABLE-FOR-SALE SECURITIES
Debt securities that The Mendik Predecessors have both the positive intent
and ability to hold to maturity are carried at amortized cost. Debt securities
that The Mendik Predecessors do not have the positive intent and ability to hold
to maturity and all marketable equity securities are classified as
available-for-sale and are carried at fair value. Unrealized holding gains and
losses on securities classified as available-for-sale are carried as a separate
component of owners' equity. The cost of marketable securities sold is
determined using the specific identification method.
At December 31, 1996, available-for-sale securities, consisting principally
of U.S. Treasury obligations, had an aggregate cost of $27,311,403 and an
aggregate market value of $27,441,212. Net unrealized gains at December 31, 1996
were $129,809, consisting of unrealized gains of $132,077 and unrealized losses
of $2,268. At December 31, 1996, the investment in marketable debt securities
includes accrued interest of $344,322.
Contractual maturities (including accrued interest) of the securities at
December 31, 1996 are as follows:
<TABLE>
<S> <C>
Within 1 year............................................. $12,105,390
1-4 years................................................. 14,974,349
-------------
$27,079,739
=============
</TABLE>
Available-for-sale securities at December 31, 1996 include a mutual fund
carried at its cost of $361,473, which approximates fair value.
The receipt of available-for-sale debt securities from an equity investee
has been recorded at fair market value at the date of distribution.
F-21
<PAGE> 64
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
INCOME TAXES
The entities in The Mendik Predecessors are not taxpaying entities for
Federal income tax purposes and, accordingly, no provision or credit has been
made in the accompanying financial statements for Federal income taxes. Owners'
allocable shares of taxable income or loss are reportable on their income tax
returns. Where applicable, state and local income taxes were provided.
CAPITAL CONTRIBUTIONS, DISTRIBUTIONS AND PROFITS AND LOSSES
Capital contributions, distributions and profits and losses are allocated
in accordance with the terms of the applicable agreements.
INTEREST RATE EXCHANGE AGREEMENTS
Two of the office property entities have entered into interest rate
exchange agreements to reduce the impact of certain changes in interest rates on
their variable rate debt. Payments under these agreements are recognized as
adjustments to interest expense when incurred. Unamortized amounts paid under
interest rate exchange agreements are written off when the related debt is paid
prior to maturity. When the underlying debt is not repaid, any gain or loss
realized upon early termination of interest rate exchange agreements is
recognized as an adjustment of interest expense over the remaining term of the
hedged debt. There is exposure to credit loss in the event of nonperformance by
the other party to the agreement. However, nonperformance by the counterparty is
not anticipated.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed of. The Mendik Predecessors adopted SFAS No. 121 in the first
quarter of 1996. The adoption had no effect on the financial statements.
2. PROPOSED TRANSACTIONS
Pursuant to solicitations contained in a private placement memorandum dated
November 11, 1996, The Mendik Predecessors obtained the consent of its owners to
participate in an offering of shares of common stock in accordance with a
preliminary registration statement filed with the Securities and Exchange
Commission on December 18, 1996. On March 12, 1997, The Mendik Predecessors
entered into an agreement with Vornado Realty Trust, a publicly traded real
estate investment trust ("REIT"). The owners will be resolicited to obtain their
consents to participate in this transaction, under terms and conditions similar
to those stated in the private placement memorandum dated November 11, 1996. The
REIT is a fully integrated, self-administered and self-managed real estate
company which has qualified as a real estate investment trust for Federal income
tax purposes.
The operations of the REIT will be carried on primarily through an
Operating Partnership. The REIT will be the sole general partner in the
Operating Partnership and the Participants will transfer their property and
operating interests in The Mendik Predecessors in exchange for units of limited
partnership interests in the Operating Partnership and/or cash. In addition to
interests in the Properties, the REIT, through the Operating Partnership, will
own substantially all of the economic interest in the office management and
leasing businesses, which are currently conducted by the management entities.
F-22
<PAGE> 65
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT IN PARTNERSHIPS
The Mendik Predecessors' investments in the three partnerships which have
been accounted for under the equity method are as follows:
<TABLE>
<CAPTION>
PERCENTAGE
PARTNERSHIP PROPERTY OWNERSHIP
------------------------------------ ------------------------------------ ----------
<S> <C> <C>
330 Madison Company................. 330 Madison Avenue 24.75%
Two Park Company.................... 2 Park Avenue 40%
570 Lexington Company, L.P. ........ 570 Lexington Avenue 5.576205%
</TABLE>
These investments are recorded initially at cost and subsequently adjusted
for equity in the net income or loss of investees and cash contributions and
distributions.
Condensed financial statements of the partnerships, which have been derived
from the December 31, 1996 audited financial statements, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
CONDENSED BALANCE SHEET
Commercial real estate property, net......................................... $186,469
Receivables.................................................................. 36,045
Cash and short-term investments.............................................. 10,638
Prepaid expenses and other assets............................................ 13,791
--------
Total assets................................................................. $246,943
========
Mortgages, including $65,000 due to an affiliate............................. $159,058
Loans payable................................................................ 40,000
Accounts payable and other liabilities....................................... 20,802
Partners' capital............................................................ 27,083
--------
Total liabilities and partners' capital...................................... $246,943
========
CONDENSED STATEMENT OF OPERATIONS
Rental revenue and escalations, including $653 from affiliates............... $ 56,273
Other revenue................................................................ 3,058
--------
Total revenues............................................................... 59,331
--------
Interest..................................................................... 17,618
Depreciation and amortization................................................ 13,737
Operating and other expenses, including $7,777 to affiliates................. 30,078
Provision for write-down of property and improvements........................ 50,149
--------
Total expenses............................................................... 111,582
--------
Net loss..................................................................... $(52,251)
========
</TABLE>
Operating and other expenses paid to affiliates consist of management fees,
maintenance and security expenses. In addition, payments of $455,000 for lease
commissions were made to affiliates.
Included in mortgages at December 31, 1996 was approximately $94,100,000
relating to 330 Madison Company. Such amount is collateralized by the respective
property and also a pledge of the partnership interest of all the partners of
330 Madison Company. The mortgage is payable to an entity which since 1991 has
been under the control of liquidators. Since 1991, there has been uncertainty as
to the applicable interest rate. Included in the mortgage balance at December
31, 1996 is approximately $36,100,000 of accrued interest. Such amount exceeds
the interest which the partnership believes should be accrued by approximately
F-23
<PAGE> 66
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT IN PARTNERSHIPS -- (CONTINUED)
$14,300,000 at December 31, 1996. The equity in earnings of the investee for the
year ended December 31, 1996, had 330 Madison Company's position been applied,
would have been greater by approximately $704,000.
The partners of 330 Madison Company are currently negotiating a resolution
of the dispute with the mortgagee relating to the mortgage loans. If successful,
330 Madison Company expects to recognize a gain on the amount of debt, if any,
to be extinguished and, in addition, have the loan extended on a short-term
basis.
Additionally, pursuant to the partnership agreements of 330 Madison Company
and Two Park Company, each partner has the right to implement "buy-sell"
provisions. The partners could be compelled either to sell their partnership
interests to other partners, for the purchase price set forth in such other
partners' notices exercising their "buy-sell" rights, or to purchase the
interests of the other partners in the respective partnerships.
As of December 31, 1996, the partners of Two Park Company concluded that
the total estimated undiscounted future cash flow to be generated by its
property, from operations and its eventual disposition, over an estimated
holding period is less than its carrying value. As a result, Two Park Company
recorded a write-down of $50,148,556 at December 31, 1996 to reduce the
property's carrying value to its estimated fair value. The Mendik Predecessors
had previously determined that, prior to 1996, their investment in Two Park
Company had declined in value and that such decline was deemed to be other than
temporary. Accordingly, the investment was written down by $25,000,000 prior to
1996, and the 1996 financial statements do not reflect its distributive share of
the 1996 write-down by Two Park Company. The difference between The Mendik
Predecessors' carrying amount of the investment and the underlying equity in
such investee is being amortized over the life of the property.
4. TENANT ACQUISITION COSTS
Under the provisions of a leasing arrangement which commenced in December
1992, one of the property partnerships has assumed a tenant's obligation under a
pre-existing lease expiring in November 2000 in a building previously occupied
by the tenant. The space was subleased on April 28, 1993 for the full lease
term. The estimated obligation (including costs incurred in connection with the
sublease), net of sublease income, was $9,456,000 and is being amortized on a
straight-line basis over the term of the tenant's lease with the partnership,
which expires December 2007.
F-24
<PAGE> 67
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. MORTGAGE NOTES PAYABLE
The mortgage notes payable at December 31, 1996, collateralized by the
respective properties and assignment of leases, are as follows:
<TABLE>
<CAPTION>
PROPERTY MORTGAGE NOTES WITH FIXED INTEREST (IN THOUSANDS)
- ------------------------------------- ----------------------------------------- --------------
<S> <C> <C>
(A) Two Penn Plaza................... Mortgage notes, interest rates ranging
from 6.6725% to 9.2525%, due May 10, 2000 $155,000
(B) Eleven Penn Plaza................ First mortgage note, interest at 9.25%,
due January 31, 1999 53,835
(B) Eleven Penn Plaza................ Second mortgage note, interest at 9.25%,
due January 31, 1999 21,133
(C) 866 United Nations Plaza......... Mortgage notes, interest rates ranging
from 6.10% to 9.87%, due December 14,
1998 49,779
--------
279,747
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE NOTE WITH VARIABLE INTEREST
-----------------------------------------
<S> <C> <C>
(A) Two Penn Plaza................... Mortgage notes, interest rates based on
LIBOR plus 0.5625%, due May 10, 2000 4,100
--------------
Total Mortgage Notes Payable............. $283,847
===========
</TABLE>
(A) TWO PENN PLAZA
The loan agreement is for $225,000,000 and requires payment of interest at
a floating rate. No additional borrowing in excess of the outstanding principal
balance may be made under the agreement. Two interest rate exchange agreements,
which mature within seven months of the loan maturity, have fixed the rate on
$155,000,000 of the loan at an average of approximately 7.3%. The effective rate
paid on the remaining outstanding balance of $4,100,000 was approximately 6.42%
for the year ended December 31, 1996.
(B) ELEVEN PENN PLAZA
The first mortgage required fixed monthly payments of $614,723, including
interest at 9.25% a year through January 1, 1996. Effective January 30, 1996,
monthly payments of $604,829 including interest at 9.25% a year are required
through January 31, 1999, the extended maturity date, at which time the
principal balance of approximately $48,850,000 will be payable. The entire
outstanding principal balance may be prepaid by giving 30 days' written notice
as follows: at any time during the last three months before maturity without
penalty, and at any other time with a 2% prepayment penalty.
The second mortgage loan required interest only at a variable base rate, as
defined, through January 29, 1996. The effective rate for the period January 1,
1996 through January 29, 1996 was 8.75%. Effective January 30, 1996, the
maturity date was extended to January 31, 1999, and payments of interest only at
9.25% a year are required. The principal balance may be prepaid, in full or in
part, at any time without penalty.
(C) 866 UNITED NATIONS PLAZA
The first mortgage, with a balance of $9,729,004, matured on January 1,
1996. The mortgage was acquired by the second mortgage lender on January 2,
1996, at which time an additional $50,000 was advanced by the lender.
The mortgage, which matures on December 14, 1998, may be extended by the
borrower to December 14, 2000. Interest is payable monthly at either the LIBOR
rate or a fixed rate option. The fixed rate option has
F-25
<PAGE> 68
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. MORTGAGE NOTES PAYABLE -- (CONTINUED)
been chosen for the entire debt, through maturity, in six separate agreements
with rates ranging from 6.10% to 9.87%. The effective rate was approximately
7.60% for the year ended December 31, 1996.
(D) PRINCIPAL MATURITIES
COMBINED AGGREGATE PRINCIPAL MATURITIES OF MORTGAGE NOTES PAYABLE AS OF DECEMBER
31, 1996 ARE AS FOLLOWS:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1997........................................ $ 2,170
1998........................................ 52,366
1999........................................ 70,211
2000........................................ 159,100
--------
$283,847
========
</TABLE>
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management, using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts The Mendik Predecessors could realize
on disposition of financial instruments. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
Cash equivalents and variable rate mortgages are carried at amounts which
reasonably approximate their fair values.
At December 31, 1996, total mortgage notes payable with an aggregate
carrying value of $283,847,000 have an estimated aggregate fair value of
approximately $282,800,000. Estimated fair value is based on interest rates
currently available to The Mendik Predecessors for issuance of debt with similar
terms and remaining maturities. The estimated fair value of the interest rate
exchange agreements is $5,500,000 based on the estimated amount that The Mendik
Predecessors would have to pay to terminate the agreements at December 31, 1996.
Disclosures about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1996. Although management
is not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and current estimates of fair
value may differ significantly from the amounts presented herein.
7. RENTAL INCOME
The Mendik Predecessors' Properties are leased to tenants under operating
leases. The minimum rental amounts due under the leases are generally subject to
either scheduled fixed increases or adjustments. The leases generally also
require that the tenants reimburse The Mendik Predecessors for increases in
certain
F-26
<PAGE> 69
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. RENTAL INCOME -- (CONTINUED)
operating costs and real estate taxes above their base year costs. Approximate
future minimum rents to be received over the next five years and thereafter for
leases in effect at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1997........................................... $ 71,171
1998........................................... 58,380
1999........................................... 57,482
2000........................................... 51,711
2001........................................... 48,633
Thereafter..................................... 288,659
--------
............................................... $576,036
========
</TABLE>
Approximately 11.2% of rental revenue for 1996 is derived from one tenant
whose leases expired October 31, 1996 and were not renewed. The leases provided
for annual base rents of approximately $11,840,000 and additional rents based on
increases in certain expenses over base period amounts.
On October 1, 1995, a tenant in 11 Penn Plaza subleased its space to a
partner in Eleven Penn Plaza Company. Under the sublease agreement (the
"sublease"), which covers the remainder of the lease term through June 2001, the
tenant vacated part of the space in November 1995, with the remainder to be
vacated in January 1997. Additionally, the sublease requires the tenant to
expend approximately $3,700,000 for alterations to the space.
For financial reporting purposes, the transaction is treated as a lease
termination. Net payments to be received from the tenant for the entire term of
the sublease were present-valued using an 8% interest rate. The present value of
amounts to be received, allocable to the space to be vacated in 1997, is
approximately $17,938,000. Income to be recognized in 1997, net of an adjustment
of approximately $3,691,000 for rent income previously recognized on the
straight-line basis, will be approximately $14,247,000. In addition, related
prepaid leasing costs and unamortized tenant improvements of approximately
$578,000 and $2,100,000, respectively, will be written off in 1997.
8. RELATED PARTY TRANSACTIONS
Operating expenses paid to affiliates consist of maintenance and security
expense. In addition, payments were made to an affiliate for capital
expenditures of approximately $662,000.
9. COMMITMENTS AND CONTINGENCIES
DEFINED CONTRIBUTION PLAN
The Mendik Predecessors have a defined contribution plan (the "Plan") which
qualifies under Section 401(k) of the Internal Revenue Code and provides
coverage for all nonunion employees of The Mendik Predecessors. The maximum
percentage of annual compensation that participants may contribute to the Plan
is not to exceed the maximum allowed under the Internal Revenue Code. Matching
contributions are made by management for each participant with at least 1,000
hours of service, up to a maximum of the greater of $1,000 or 5% of
compensation. Additional amounts may be contributed as determined by management.
Pension plan expense for the year ended December 31, 1996 was $97,278.
F-27
<PAGE> 70
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES-- (CONTINUED)
OTHER COMMITMENTS AND CONTINGENCIES
The Mendik Predecessors are subject to various legal proceedings and claims
that arise in the ordinary course of business. These matters are generally
covered by insurance. Management believes that the final outcome of such matters
will not have a material adverse effect on the financial position, results of
operations or liquidity of The Mendik Predecessors.
On January 14, 1997, two individual investors in Mendik Real Estate Limited
Partnership ("RELP"), the publicly held limited partnership that indirectly owns
an effective 60% interest in the Two Park Avenue property ("Two Park"), filed a
purported class action suit against NY Real Estate Services I, Inc. ("NY Real
Estate"), Mendik RELP Corp., B&B Park Avenue, L.P. (the entity that owns a 40%
interest in Two Park and in which the Operating Partnership proposes to acquire
all of the interests as part of proposed transactions (see Note 2) and Mr.
Mendik in the Supreme Court of the State of New York, County of New York, on
behalf of all persons holding limited partnership interests in RELP. The
complaint alleges that for reasons which include purported conflicts of
interest, the defendants breached their fiduciary duty to the limited partners
and that NY Real Estate and Mendik RELP Corp. also breached their contractual
duty to the limited partners. The plaintiffs further allege that such a proposed
transfer of the 40% interest in Two Park will result in a burden on the
operation and management of Two Park since the purchaser of the 40% interest
will have no fiduciary duty to RELP, yet all decisions regarding
The Mendik Predecessors are in the process of installing new
state-of-the-art air conditioning equipment for several properties. The total
cost of the project will be approximately $13,800,000, of which approximately
$2,400,000 will be funded by a Con Edison rebate program and approximately
$435,000 will be funded by a vendor rebate. In addition, adjacent property
owners will fund approximately $4,000,000. At December 31, 1996, approximately
$13,000,000 of the total cost of the project has been incurred, of which
$3,600,000 has been billed to adjacent property owners.
The Mendik Predecessors are contractually committed to make an additional
investment in 570 Lexington Company, L.P., representing their pro rata portion
of the redevelopment costs of the building owned by that entity. At December 31,
1996, the additional investment is expected to be approximately $1,400,000.
F-28
<PAGE> 71
THE MENDIK PREDECESSORS
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN D
------------------------ COLUMN E
-------------------------
COLUMN C COST CAPITALIZED
------------------------- GROSS AMOUNT AT WHICH
SUBSEQUENT CARRIED
INITIAL COST TO ACQUISITION AT CLOSE OF PERIOD
COLUMN A COLUMN B ------------------------- ------------------------ -------------------------
- -------------------- -------------- BUILDINGS AND BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
- -------------------- -------------- ------- ------------- ------ ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Two Penn Plaza,..... $159,100 $ -- $ 53,707 $6,015 $ 63,303 $ 6,015 $ 117,010
New York, NY (3 mortgages)
1740 Broadway,...... -- 20,520 86,723 -- 7,544 20,520 94,267
New York, NY
11 Penn Plaza,...... 74,968 5,433 27,904 780 47,868 6,213 75,772
New York, NY (2 mortgages)
866 United Nations.. 49,779 4,280 12,210 -- 12,516 4,280 24,726
Plaza,
New York, NY (6 mortgages)
-------- ------- -------- ------ -------- ------- --------
$283,847 $30,233 $ 180,544 $6,795 $ 131,231 $37,028 $ 311,775
======== ======= ======== ====== ======== ======= ========
<CAPTION>
COLUMN I
COLUMN F COLUMN G ---------------
COLUMN A ------------ ------------ COLUMN H LIFE ON WHICH
- -------------------- ACCUMULATED DATE OF ------------- DEPRECIATION
DESCRIPTION TOTAL DEPRECIATION CONSTRUCTION DATE ACQUIRED IS COMPUTED
- -------------------- -------- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
31 1/2 -- 39
Two Penn Plaza,..... $123,025 $ 82,898 1968 1978 years
New York, NY
1740 Broadway,...... 114,787 18,047 1950 1990 15 -- 39 years
New York, NY
11 Penn Plaza,...... 81,985 45,815 1923 1980 15 -- 39 years
New York, NY
866 United Nations.. 29,006 15,652 1996 1978 10 -- 39 years
Plaza,
New York, NY
-------- --------
$348,803 $162,412
======== ========
</TABLE>
F-29
<PAGE> 72
THE MENDIK PREDECESSORS
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
The changes in real estate for the year ended December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Balance at beginning of year................................... $338,229
Improvements................................................... 10,574
--------
Balance at end of year......................................... $348,803
========
</TABLE>
The aggregate cost of land, buildings and improvements for Federal income
tax purposes at December 31, 1996 was $313,000,000.
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos and furniture and fixtures, for the year ended December 31,
1996 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Balance at beginning of year................................... $151,027
Depreciation for year.......................................... 11,385
--------
Balance at end of year......................................... $162,412
========
</TABLE>
F-30
<PAGE> 73
THE MENDIK PREDECESSORS
COMBINED BALANCE SHEET
MARCH 31, 1997 AND 1996
(UNAUDITED)
(NOTE 1)
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Commercial real estate properties, at cost (Note 5)
Land.................................................................... $ 37,028 $ 37,028
Buildings and improvements.............................................. 313,177 305,018
Equipment, autos, furniture and fixtures................................ 7,093 7,066
-------- --------
357,298 349,112
Less accumulated depreciation........................................ 172,712 159,516
-------- --------
184,586 189,596
Cash and cash equivalents................................................. 11,969 14,089
Restricted cash........................................................... 2,382 7,025
Available-for-sale securities (Note 1).................................... 31,329 18,399
Receivables............................................................... 26,086 10,233
Related party receivables................................................. 1,747 2,855
Deferred rents receivable (Note 7)........................................ 38,787 40,191
Prepaid expenses.......................................................... 8,649 8,434
Investment in partnerships (Note 3)....................................... 20,103 22,682
Tenant acquisition costs (Note 4)......................................... 6,750 7,510
Deferred lease fees and loan costs, less accumulated amortization of
$26,048 (1997) and $22,471 (1996)....................................... 16,870 15,480
Security deposits......................................................... 2,378 2,245
-------- --------
Total assets.............................................................. $351,636 $338,739
======== ========
LIABILITIES AND OWNERS' EQUITY
Mortgage notes payable (Note 5)........................................... $283,466 $285,668
Tenant acquisition costs payable (Note 4)................................. 4,308 6,176
Accounts payable and accrued expenses..................................... 5,272 10,363
Accounts payable to related parties....................................... 468 46
Excess of distributions and share of losses over investment in partnership
(Note 3)................................................................ 5,216 --
Deferred rents............................................................ 1,600 3,203
Security deposits......................................................... 2,378 2,322
-------- --------
Total liabilities......................................................... 302,708 307,778
Owners' equity............................................................ 48,928 30,961
Commitments and other comments (Notes 6, 7 and 9)......................... -- --
-------- --------
Total liabilities and owners' equity...................................... $351,636 $338,739
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-31
<PAGE> 74
THE MENDIK PREDECESSORS
COMBINED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
(NOTE 1)
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
REVENUES
Rental revenue (Note 7)................................................ $32,587 $21,013
Escalation and reimbursement revenues (Note 7)......................... 2,737 3,598
Construction revenues.................................................. 14 --
Management revenues, including $850 (1997) and $743 (1996) from
affiliates.......................................................... 983 845
Leasing commissions, including $87 (1997) and $142 (1996) from
affiliates.......................................................... 302 183
Investment income...................................................... 1,051 554
Equity in net income of investees (Note 3)............................. 228 40
------- -------
Total revenues........................................................... 37,902 26,233
------- -------
EXPENSES
Operating expenses, including $3,385 (1997) and $3,365 (1996) to
affiliates.......................................................... 6,506 6,488
Real estate taxes...................................................... 4,758 4,773
Rent expense to affiliates............................................. 168 166
Interest (Note 5)...................................................... 5,589 5,697
Depreciation and amortization.......................................... 5,678 3,612
Marketing, general and administrative.................................. 2,611 1,932
------- -------
Total expenses........................................................... 25,310 22,668
------- -------
Net income............................................................... $12,592 $ 3,565
======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-32
<PAGE> 75
THE MENDIK PREDECESSORS
COMBINED STATEMENT OF OWNERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
(NOTE 1)
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1997
BALANCE AT JANUARY 1, 1997..................................................... $ 39,972
Owners' (distributions)...................................................... (3,481)
Owners' contributions........................................................ 4
Adjustment to unrealized gain on available-for-sale securities............... (159)
Net income for the three months ended March 31, 1997......................... 12,592
-------
BALANCE AT MARCH 31, 1997...................................................... $ 48,928
=======
1996
BALANCE AT JANUARY 1, 1996..................................................... $ 30,468
Owners' (distributions)...................................................... (2,937)
Owners' contributions........................................................ 21
Adjustment to unrealized gain on available-for-sale securities............... (156)
Net income for the three months ended March 31, 1996......................... 3,565
-------
BALANCE AT MARCH 31, 1996...................................................... $ 30,961
=======
</TABLE>
See accompanying notes to combined financial statements.
F-33
<PAGE> 76
THE MENDIK PREDECESSORS
COMBINED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
(NOTE 1)
<TABLE>
<CAPTION>
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income............................................................ $ 12,592 $ 3,565
Adjustments:
Depreciation and amortization......................................... 5,678 3,612
Equity in net income of investees..................................... (228) (40)
Deferred rents receivable............................................. 3,432 294
Changes in operating assets and liabilities:
Restricted cash....................................................... (1,319) (3,468)
Receivables........................................................... (16,280) 1,850
Related party receivables............................................. 1,333 1,053
Prepaid expenses...................................................... (5,729) (5,594)
Deferred lease fees................................................... (1,477) (396)
Accrued interest receivable........................................... (123) (161)
Tenant acquisition costs payable...................................... (217) (114)
Accounts payable and accrued expenses................................. 306 3,538
Accounts payable to related parties................................... 104 (520)
Deferred rents........................................................ 1,334 2,848
Security deposits..................................................... 45 84
Security deposits payable............................................. (122) (100)
-------- -------
Net cash provided by (used in) operating activities..................... (671) 6,451
-------- -------
INVESTING ACTIVITIES
Additions to land, buildings and improvements......................... (1,455) (2,807)
Purchases of equipment, autos, furniture and fixtures................. (75) (72)
Contributions to partnership investments.............................. (196) (242)
Proceeds from sales of securities..................................... 4,503 4,929
Purchases of securities............................................... (8,429) (3,468)
-------- -------
Net cash used in investing activities................................... (5,652) (1,660)
-------- -------
</TABLE>
See accompanying notes to combined financial statements.
F-34
<PAGE> 77
THE MENDIK PREDECESSORS
COMBINED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
(NOTE 1)
<TABLE>
<CAPTION>
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from mortgage note payable................................... $ -- $ 50
Payments of mortgage notes payable.................................... (381) (174)
Cash distributions to owners.......................................... (3,481) (2,937)
Cash contributions from owners........................................ 4 21
Deferred loan costs................................................... -- (513)
-------- -------
Net cash used in financing activities................................... (3,858) (3,553)
-------- -------
Net increase (decrease) in cash and cash equivalents.................... (10,181) 1,238
Cash and cash equivalents at beginning of period........................ 22,150 12,851
-------- -------
Cash and cash equivalents at end of period.............................. $ 11,969 $14,089
======== =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid......................................................... $ 5,177 $ 2,256
Income taxes paid..................................................... 138 43
</TABLE>
See accompanying notes to combined financial statements.
F-35
<PAGE> 78
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Mendik Predecessors are engaged in the ownership, management,
operation, leasing and development of real estate office properties
(collectively, the "Properties") located in the borough of Manhattan in New York
City.
PRINCIPLES OF COMBINATION
The Mendik Predecessors is not a legal entity, but rather a combination of
real estate properties and interests in entities (see Note 2) that are organized
as partnerships and a limited liability company and affiliated real estate
management and leasing entities. All significant intercompany transactions and
balances have been eliminated in combination.
The accompanying combined financial statements include partnerships, a limited
liability company and S corporations which are under the common control (through
management of day to day activities) of the Mendik Group (Bernard H. Mendik,
David R. Greenbaum and certain entities controlled by them).
<TABLE>
<CAPTION>
ENTITY PROPERTY/SERVICE
----------------------------------------- -----------------------------------------
<S> <C>
Office Property Entities
Two Penn Plaza Associates L.P. Two Penn Plaza
1740 Broadway Associates, L.P. 1740 Broadway
Eleven Penn Plaza Company 11 Penn Plaza
866 U.N. Plaza Associates LLC 866 United Nations Plaza
Management Entities
Mendik Realty Company, Inc. Management and leasing
Mendik Management Company, Inc. Management and leasing
</TABLE>
Additionally, three property-owning partnerships in which The Mendik
Predecessors own less than a majority interest, but exercise significant
influence, are accounted for under the equity method. Under the equity method,
The Mendik Predecessors record such investments at cost and adjust the
investment account for their share of the entities' income or loss and for cash
distributions and contributions.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REAL ESTATE PROPERTIES
Depreciation is computed by the straight-line method over the estimated
useful lives which range from ten to thirty-nine years for buildings and
improvements and four to seven years for equipment, autos, furniture and
fixtures. Tenant improvements, which are included in buildings and improvements
on the accompanying combined balance sheet, are amortized over the life of the
respective leases, using the straight-line method.
Included in building improvements are approximately $526,000 and $559,000
of additions for the three months ended March 31, 1997 and 1996, respectively.
In addition, building improvements of the equity investees includes
approximately $166,000 and $880,000 of additions for the three months ended
March 31, 1997 and 1996, respectively.
F-36
<PAGE> 79
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
The Mendik Predecessors consider highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents. Cash equivalents
consist primarily of U.S. Treasury Bills and certificates of deposit.
Most of the cash balances are in excess of federally insured limits.
RESTRICTED CASH
Restricted cash consists of escrows for real estate taxes and capital
expenditures, and collateral deposits for payment of mortgage interest. An
agreement for the collection of rents was entered into during 1994 between one
of the office property entities and its two mortgagees, pursuant to which all
rents are deposited into an account directly controlled by one of the
mortgagees. Any cash required by the office property entity to fund operations
must be requisitioned from the mortgagee.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the term of the
lease. The excess of rents so recognized over amounts contractually due pursuant
to the underlying leases are included in deferred rents receivable on the
accompanying combined balance sheet. Contractually due but unpaid rents are
included in receivables on the accompanying combined balance sheet. Certain
lease agreements provide for reimbursement of real estate taxes, insurance and
certain common area maintenance costs and rental increases tied to increases.
DEFERRED COSTS
Lease costs and loan costs are capitalized and amortized over the life of
the related lease or loan. Affiliates of The Mendik Predecessors have incurred
costs related to the subsequent event described in Note 2. Such deferred costs
were reimbursed to such affiliates upon successful completion of the
transaction.
AVAILABLE-FOR-SALE SECURITIES
Debt securities that The Mendik Predecessors have both the positive intent
and ability to hold to maturity are carried at amortized cost. Debt securities
that The Mendik Predecessors do not have the positive intent and ability to hold
to maturity and all marketable equity securities are classified as
available-for-sale and are carried at fair value. Unrealized holding gains and
losses on securities classified as available-for-sale are carried as a separate
component of owners' equity. The cost of marketable securities sold is
determined using the specific identification method.
At March 31, 1997 and 1996, available-for-sale securities, consisting
principally of U.S. Treasury obligations, had an aggregate cost of $31,357,321
and $18,341,186, respectively, and an aggregate market value of $31,329,482 and
$18,399,286, respectively. Net unrealized gains (losses) at March 31, 1997 and
1996 were $(27,839) and $58,100, respectively, consisting of unrealized gains of
$68,269 and $58,100, respectively, and unrealized losses of $96,108 and $-0-,
respectively. At March 31, 1997 and 1996, the investment in marketable debt
securities includes accrued interest of $473,184 and $408,303, respectively.
Contractual maturities (including accrued interest) of the securities at
March 31, 1997 are as follows:
<TABLE>
<S> <C>
Within 1 year................................... $18,412,306
1-4 years....................................... 12,553,201
-----------
$30,965,507
===========
</TABLE>
F-37
<PAGE> 80
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Available-for-sale securities at March 31, 1997 include a mutual fund
carried at its fair value of $363,975. At March 31, 1996, the mutual fund was
carried at its cost of $324,302 and had a fair value of $328,664.
INCOME TAXES
The entities in The Mendik Predecessors are not taxpaying entities for
Federal income tax purposes and, accordingly, no provision or credit has been
made in the accompanying financial statements for Federal income taxes. Owners'
allocable shares of taxable income or loss are reportable on their income tax
returns. Where applicable, state and local income taxes were provided.
CAPITAL CONTRIBUTIONS, DISTRIBUTIONS AND PROFITS AND LOSSES
Capital contributions, distributions and profits and losses are allocated
in accordance with the terms of the applicable agreements.
INTEREST RATE EXCHANGE AGREEMENTS
Two of the office property entities have entered into interest rate
exchange agreements to reduce the impact of certain changes in interest rates on
their variable rate debt. Payments under these agreements are recognized as
adjustments to interest expense when incurred. Unamortized amounts paid under
interest rate exchange agreements are written off when the related debt is paid
prior to maturity. When the underlying debt is not repaid, any gain or loss
realized upon early termination of interest rate exchange agreements is
recognized as an adjustment of interest expense over the remaining term of the
hedged debt. There is exposure to credit loss in the event of nonperformance by
the other party to the agreement. However, nonperformance by the counterparty is
not anticipated.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed of. The Mendik Predecessors adopted SFAS No. 121 in the first
quarter of 1996. The adoption had no effect on the financial statements.
2. SUBSEQUENT EVENT
On April 15, 1997, Vornado Realty Trust ("Vornado") consummated the
acquisition, through an operating partnership, of interests in all or a portion
of seven Manhattan office buildings and certain management and leasing assets
held by The Mendik Predecessors. Simultaneously with the closing of this
transaction, and in connection therewith, Vornado converted to an Umbrella
Partnership REIT (UPREIT) by transferring (by contribution, merger or otherwise)
all or substantially all of the interests in its properties and other assets to
The Mendik Company, L.P., a Delaware limited partnership which has been renamed
Vornado Realty L.P. (the "Operating Partnership"), of which Vornado is the sole
general partner. As a result of such conversion, future activities will be
conducted through the Operating Partnership.
The consideration for the transaction was approximately $656,000,000,
including $264,000,000 in cash, $177,000,000 in the limited partnership units of
the Operating Partnership and $215,000,000 in indebtedness.
F-38
<PAGE> 81
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT IN PARTNERSHIPS
The Mendik Predecessors' investments in the three partnerships which have
been accounted for under the equity method are as follows:
<TABLE>
<CAPTION>
PERCENTAGE
PARTNERSHIP PROPERTY OWNERSHIP
------------------------------------ ------------------------------------ ----------
<S> <C> <C>
330 Madison Company................. 330 Madison Avenue 24.75%
Two Park Company.................... 2 Park Avenue 40%
570 Lexington Company, L.P. ........ 570 Lexington Avenue 5.576205%
</TABLE>
These investments are recorded initially at cost and subsequently adjusted
for equity in the net income or loss of investees and cash contributions and
distributions.
Condensed financial statements of the partnerships are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CONDENSED BALANCE SHEET
Commercial real estate property, net................................... $186,255 $234,710
Receivables............................................................ 32,349 40,252
Cash and short-term investments........................................ 11,197 38,817
Prepaid expenses and other assets...................................... 18,425 17,904
-------- --------
Total assets........................................................... $248,226 $331,683
======== ========
Mortgages, including $65,000 (1997 and 1996) due to an affiliate....... $159,058 $151,409
Loans payable.......................................................... 40,000 40,000
Accounts payable and other liabilities................................. 22,756 19,605
Partners' capital...................................................... 26,412 120,669
-------- --------
Total liabilities and partners' capital................................ $248,226 $331,683
======== ========
CONDENSED STATEMENT OF OPERATIONS
Rental revenue and escalations, including $161 (1997) and $157 (1996)
from affiliates..................................................... $ 13,956 $ 13,293
Other revenue.......................................................... 84 521
-------- --------
Total revenues......................................................... 14,040 13,814
-------- --------
Interest............................................................... 4,385 4,351
Depreciation and amortization.......................................... 2,846 3,913
Operating and other expenses, including $2,090 (1997) and $1,970 (1996)
to affiliates....................................................... 7,469 7,326
-------- --------
Total expenses......................................................... 14,700 15,590
-------- --------
Net loss............................................................... $ (660) $ (1,776)
======== ========
</TABLE>
Operating and other expenses paid to affiliates consist of management fees
and maintenance and security expenses. In addition, payments of $69,168 and
$107,937 for lease commissions were made to affiliates for the three months
ended March 31, 1997 and 1996, respectively.
Included in mortgages at March 31, 1997 and 1996 was approximately
$94,100,000 and $86,400,000, respectively, relating to 330 Madison Company. Such
amount is collateralized by the respective property and also a pledge of the
partnership interest of all the partners of 330 Madison Company. The mortgage is
payable to an entity which since 1991 has been under the control of provisional
liquidators. Since 1991, there has been
F-39
<PAGE> 82
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
uncertainty as to the applicable interest rate. Included in the mortgage balance
at March 31, 1997 and 1996 is approximately $36,100,000 and $28,400,000,
respectively, of accrued interest. Other liabilities at March 31, 1997 and 1996
include accrued interest of approximately $3,500,000 and $3,300,000,
respectively. Such amounts exceed the interest which the partnership believes
should be accrued by approximately $15,200,000 and $12,700,000 at March 31, 1997
and 1996, respectively. The equity in earnings of the investee for the three
months ended March 31, 1997 and 1996, had 330 Madison Company's position been
applied, would have been greater by approximately $125,000 and $114,000,
respectively.
The partners of 330 Madison Company are currently negotiating a resolution
of the dispute with the mortgagee relating to the mortgage loans. If successful,
330 Madison Company expects to recognize a gain on the amount of debt, if any,
to be extinguished and, in addition, have the loan extended on a short-term
basis.
Additionally, pursuant to the partnership agreements of 330 Madison Company
and Two Park Company, each partner has the right to implement "buy-sell"
provisions. The partners could be compelled either to sell their partnership
interests to other partners, for the purchase price set forth in such other
partners' notices exercising their "buy-sell" rights, or to purchase the
interests of the other partners in the respective partnerships.
As of December 31, 1996, the partners of Two Park Company concluded that
the total estimated undiscounted future cash flow to be generated by its
property, from operations and its eventual disposition, over an estimated
holding period is less than its carrying value. As a result, Two Park Company
recorded a write-down of $50,148,556 at December 31, 1996 to reduce the
property's carrying value to its estimated fair value. The difference between
The Mendik Predecessors' carrying amount of the investment and the underlying
equity in such investee is being amortized over the life of the property.
4. TENANT ACQUISITION COSTS
Under the provisions of a leasing arrangement which commenced in December
1992, one of the property partnerships has assumed a tenant's obligation under a
pre-existing lease expiring in November 2000 in a building previously occupied
by the tenant. The space was subleased on April 28, 1993 for the full lease
term. The estimated obligation (including costs incurred in connection with the
sublease), net of sublease income, was $9,456,000 and is being amortized on a
straight-line basis over the term of the tenant's lease with the partnership,
which expires December 2007.
F-40
<PAGE> 83
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. MORTGAGE NOTES PAYABLE
The mortgage notes payable at March 31, 1997 and 1996, collateralized by
the respective properties and assignment of leases, are as follows:
<TABLE>
<CAPTION>
PROPERTY MORTGAGE NOTES WITH FIXED INTEREST 1997 1996
- ------------------------------------- ----------------------------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
A) Two Penn Plaza.................... Mortgage notes, interest rates
ranging from 6.6725% to 9.2525%,
due May 10, 2000 $155,000 $155,000
B) Eleven Penn Plaza................. First mortgage note, interest at
9.25%, due January 31, 1999 53,454 55,656
B) Eleven Penn Plaza................. Second mortgage note, interest at
9.25%, due January 31, 1999 21,133 21,133
C) 866 United Nations Plaza.......... Mortgage notes, interest rates
ranging from 6.10% to 9.87%, due
December 14, 1998 49,779 49,779
-------- --------
279,366 281,568
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE NOTE WITH VARIABLE
INTEREST
-----------------------------------
<S> <C> <C> <C>
(A) Two Penn Plaza................... Mortgage notes, interest rates
based on LIBOR plus 0.5625%, due
May 10, 2000 4,100 4,100
-------- --------
Total Mortgage Notes Payable....... $283,466 $285,668
======== ========
</TABLE>
(A) TWO PENN PLAZA
The loan agreement is for $225,000,000 and requires payment of interest at
a floating rate. No additional borrowing in excess of the outstanding principal
balance may be made under the agreement. Two interest rate exchange agreements,
which mature within seven months of the loan maturity, have fixed the rate on
$155,000,000 of the loan at an average of approximately 7.4%. The effective rate
paid on the remaining outstanding balance of $4,100,000 was approximately 6.1%
and 6.75% for the three months ended March 31, 1997 and 1996, respectively.
(B) ELEVEN PENN PLAZA
The first mortgage required fixed monthly payments of $614,723, including
interest at 9.25% a year through January 1, 1996. Effective January 30, 1996,
monthly payments of $604,829 including interest at 9.25% a year are required
through January 31, 1999, the extended maturity date, at which time the
principal balance of approximately $48,850,000 will be payable. The entire
outstanding principal balance may be prepaid by giving 30 days' written notice
as follows: at any time during the last three months before maturity without
penalty, and at any other time with a 2% prepayment penalty.
The second mortgage loan required interest only at a variable base rate, as
defined, through January 29, 1996. The effective rate for the period January 1,
1996 through January 29, 1996 was 8.75%. Effective January 30, 1996, the
maturity date was extended to January 31, 1999, and payments of interest only at
9.25% a year are required. The principal balance may be prepaid, in full or in
part, at any time without penalty.
F-41
<PAGE> 84
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(C) 866 UNITED NATIONS PLAZA
The first mortgage, with a balance of $9,729,004, matured on January 1,
1996. The mortgage was acquired by the second mortgage lender on January 2,
1996, at which time an additional $50,000 was advanced by the lender.
The mortgage, which matures on December 14, 1998, may be extended by the
borrower to December 14, 2000. Interest is payable monthly at either the LIBOR
rate or a fixed rate option. The fixed rate option has been chosen for the
entire debt, through maturity, in six separate agreements with rates ranging
from 6.10% to 9.87%. The effective rate was approximately 7.60% and 7.50% for
the three months ended March 31, 1997 and 1996, respectively.
(D) PRINCIPAL MATURITIES
Combined aggregate principal maturities of mortgage notes payable as of
March 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31, (IN THOUSANDS)
----------------------------------------------- --------------
<S> <C>
1998........................................ $ 2,414
1999........................................ 121,952
2000........................................ --
2001........................................ 159,100
--------
$283,466
========
</TABLE>
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management, using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts The Mendik Predecessors could realize
on disposition of financial instruments. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
Cash equivalents and variable rate mortgages are carried at amounts which
reasonably approximate their fair values.
At March 31, 1997, total mortgage notes payable with an aggregate carrying
value of $283,466,000 have an estimated aggregate fair value of approximately
$284,400,000. Estimated fair value is based on interest rates currently
available to The Mendik Predecessors for issuance of debt with similar terms and
remaining maturities. The estimated fair value of the interest rate exchange
agreements is $1,073,000 based on the estimated amount that The Mendik
Predecessors would have to pay to terminate the agreements at March 31, 1997.
Disclosures about fair value of financial instruments is based on pertinent
information available to management as of March 31, 1997. Although management is
not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and current estimates of fair
value may differ significantly from the amounts presented herein.
7. RENTAL INCOME
The Mendik Predecessors' Properties are leased to tenants under operating
leases. The minimum rental amounts due under the leases are generally subject to
either scheduled fixed increases or adjustments. The
F-42
<PAGE> 85
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
leases generally also require that the tenants reimburse The Mendik Predecessors
for increases in certain operating costs and real estate taxes above their base
year costs. Approximate future minimum rents to be received over the next five
years and thereafter for leases in effect at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31, (IN THOUSANDS)
----------------------------------------------- --------------
<S> <C>
1998........................................... $ 69,003
1999........................................... 59,325
2000........................................... 57,208
2001........................................... 52,116
2002........................................... 48,644
Thereafter..................................... 288,164
--------
$574,460
========
</TABLE>
Approximately 13.9% of rental revenue for the three months ended March 31,
1996 is derived from one tenant whose leases expired October 31, 1996 and were
not renewed. The leases provided for annual base rents of approximately
$11,840,000 and additional rents based on increases in certain expenses over
base period amounts.
On October 1, 1995, a tenant in 11 Penn Plaza subleased its space to a
partner in Eleven Penn Plaza Company. Under the sublease agreement (the
"sublease"), which covers the remainder of the lease term through June 2001, the
tenant vacated part of the space in November 1995, and the remainder of the
space in January 1997. Additionally, the sublease requires the tenant to expend
approximately $3,700,000 for alterations to the space.
For financial reporting purposes, the transaction is treated as a lease
termination. Net payments to be received from the tenant for the entire term of
the sublease were present-valued using an 8% interest rate. The present value of
amounts to be received, allocable to the space vacated in 1997, is approximately
$17,938,000. Income recognized in 1997, net of an adjustment of approximately
$3,691,000 for rent income previously recognized on the straight-line basis, is
approximately $14,247,000. In addition, related prepaid leasing costs and
unamortized tenant improvements of approximately $447,000 and $1,654,000,
respectively, have been written off in 1997 and charged to amortization expense.
8. RELATED PARTY TRANSACTIONS
Operating expenses paid to affiliates consist of maintenance and security
expense. In addition, payments were made to an affiliate for capital
expenditures for the three months ended March 31, 1997 of approximately
$604,000.
9. COMMITMENTS AND CONTINGENCIES
DEFINED CONTRIBUTION PLAN
The Mendik Predecessors have a defined contribution plan (the "Plan") which
qualifies under Section 401(k) of the Internal Revenue Code and provides
coverage for all nonunion employees of The Mendik Predecessors. The maximum
percentage of annual compensation that participants may contribute to the Plan
is not to exceed the maximum allowed under the Internal Revenue Code. Matching
contributions are made by management for each participant with at least 1,000
hours of service, up to a maximum of the greater of $1,000 or 5% of
compensation. Additional amounts may be contributed as determined by management.
Pension plan expense for the three months ended March 31, 1997 and 1996 was
$105,901 and $92,374, respectively.
F-43
<PAGE> 86
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER COMMITMENTS AND CONTINGENCIES
The Mendik Predecessors are subject to various legal proceedings and claims
that arise in the ordinary course of business. These matters are generally
covered by insurance. Management believes that the final outcome of such matters
will not have a material adverse effect on the financial position, results of
operations or liquidity of The Mendik Predecessors.
On January 14, 1997, two individual investors in Mendik Real Estate Limited
Partnership ("RELP"), the publicly held limited partnership that indirectly owns
an effective 60% interest in the Two Park Avenue property ("Two Park"), filed a
purported class action suit in the Supreme Court of the State of New York,
County of New York, against NY Real Estate Services I, Inc. ("NY Real Estate"),
Mendik RELP Corp., B&B Park Avenue, L.P. (the entity that owns a 40% interest in
Two Park and which was acquired by the Operating Partnership (see Note 2)) and
Mr. Mendik, on behalf of all persons holding limited partnership interests in
RELP. The complaint alleges that for reasons which include purported conflicts
of interest, the defendants breached their fiduciary duty to the limited
partners and that NY Real Estate and Mendik RELP Corp. also breached their
contractual duty to the limited partners. The plaintiffs further allege that a
transfer of the 40% interest in Two Park will result in a burden on the
operation and management of Two Park since the purchaser of the 40% interest
will have no fiduciary duty to RELP, yet all decisions regarding any proposed
sale or refinancing of the property will require its consent, with the result
that, among other things, the transfer will prevent RELP from negotiating for
the sale of Two Park at better terms than a sale of only RELP's 60% interest.
The complaint also alleges, among other things, that the transfer of the 40%
interest violates RELP's right of first refusal to purchase the interest being
transferred and fails to provide limited partners in RELP with a comparable
transfer opportunity.
Shortly after the filing of the complaint, another limited partner
represented by the same attorneys filed an essentially identical complaint in
the same court. Among other things, both complaints claim that the purported
class has and will continue to suffer unspecified damages, and seek a
declaration that the suits are properly class actions, an accounting and certain
injunctive relief, including an injunction enjoining the transfer of the 40%
interest and a judgment requiring either the liquidation of the partnership and
the appointment of a receiver or an auction of Two Park. The time for defendants
to respond to the complaints and to certain discovery requests has not yet
expired. In the interim, plaintiff's counsel have requested an agreement to
consolidate the two actions and have stated that they may seek to amend the
complaints in unspecified ways, as well as to file a motion seeking a
preliminary injunction.
The Mendik Predecessors intend to vigorously defend against these actions.
As of March 31, 1997, in accordance with tenant leases, the office property
entities have agreed to reimburse tenants up to a maximum of approximately
$10,302,000 for initial tenant charges, as defined. Such charges incurred at
March 31, 1997 totaled approximately $2,034,000.
The Mendik Predecessors are in the process of installing new
state-of-the-art air conditioning equipment for several properties. The total
remaining cost of the project will be approximately $6,100,000, of which
approximately $975,000 will be funded by a Con Edison rebate program. In
addition, adjacent property owners will fund approximately $1,900,000, which has
been billed to them. At March 31, 1997, approximately $5,700,000 of the
remaining cost of $6,100,000 has been incurred. At December 31, 1996, one of the
Properties had completed the installation of state-of-the-art air conditioning
equipment for a total cost of $7,700,000 before rebates and funding by adjacent
property owners.
The Mendik Predecessors are contractually committed to make an additional
investment in 570 Lexington Company, L.P., representing their pro rata portion
of the redevelopment costs of the building owned by that entity. At March 31,
1997, the additional investment is expected to be approximately $1,300,000.
F-44
<PAGE> 87
THE MENDIK PREDECESSORS
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN D
------------------------ COLUMN E
-------------------------
COLUMN C COST CAPITALIZED
------------------------- GROSS AMOUNT AT WHICH
SUBSEQUENT CARRIED
INITIAL COST TO ACQUISITION AT CLOSE OF PERIOD
COLUMN A COLUMN B ------------------------- ------------------------ -------------------------
- -------------------- -------------- BUILDINGS AND BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
- -------------------- -------------- ------- ------------- ------ ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Two Penn Plaza, $159,100 $ -- $ 53,707 $6,015 $ 63,898 $ 6,015 $ 117,605
New York, NY (3 mortgages)
1740 Broadway, -- 20,520 86,723 -- 7,675 20,520 94,398
New York, NY
11 Penn Plaza, 74,587 5,433 27,904 780 48,500 6,213 76,404
New York, NY (2 mortgages)
866 United Nations 49,779 4,280 12,210 -- 12,560 4,280 24,770
Plaza, (6 mortgages)
New York, NY
-------- ------- -------- ------ -------- ------- --------
$283,466 $30,233 $ 180,544 $6,795 $ 132,633 $37,028 $ 313,177
======== ======= ======== ====== ======== ======= ========
<CAPTION>
COLUMN I
COLUMN F COLUMN G ---------------
COLUMN A ------------ ------------ COLUMN H LIFE ON WHICH
- -------------------- ACCUMULATED DATE OF ------------- DEPRECIATION
DESCRIPTION TOTAL DEPRECIATION CONSTRUCTION DATE ACQUIRED IS COMPUTED
- -------------------- -------- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
31 1/2 -- 39
Two Penn Plaza, $123,620 $ 83,913 1968 1978 years
New York, NY
1740 Broadway, 114,918 18,835 1950 1990 15 -- 39 years
New York, NY
11 Penn Plaza, 82,617 48,011 1923 1980 15 -- 39 years
New York, NY
866 United Nations 29,050 15,921 1996 1978 10 -- 39 years
Plaza,
New York, NY
-------- --------
$350,205 $166,680
======== ========
</TABLE>
F-45
<PAGE> 88
THE MENDIK PREDECESSORS
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
The changes in real estate for the three months ended March 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period......................... $348,803 $338,229
Improvements........................................... 1,402 3,817
-------- --------
Balance at end of period............................... $350,205 $342,046
======== ========
</TABLE>
The aggregate cost of land, buildings and improvements for Federal income
tax purposes at December 31, 1996 was $313,000,000.
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos and furniture and fixtures, for the three months ended March
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period......................... $162,412 $151,027
Depreciation for period................................ 4,268 2,629
-------- --------
Balance at end of period............................... $166,680 $153,656
======== ========
</TABLE>
F-46
<PAGE> 89
VORNADO REALTY L.P.
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
MARCH 31, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------------------------------------- ------------ ----------------------- -------------- -----------------------
INITIAL COST TO GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
COMPANY(1) COSTS PERIOD
----------------------- CAPITALIZED -----------------------
BUILDINGS AND SUBSEQUENT BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS
-------------------------------------- ------------ ------- ------------- -------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS
NEW JERSEY
Atlantic City..................... $ 2,135* $ 358 $ 2,143 $ 594 $ 358 $ 2,737
Bordentown........................ 3,276* 498 3,176 1,116 713 4,077
Bricktown......................... 9,919* 929 2,175 9,179 929 11,354
Cherry Hill....................... 9,706* 915 3,926 3,319 915 7,245
Delran............................ 2,848* 756 3,184 2,037 756 5,221
Dover............................. 3,635* 224 2,330 2,398 205 4,747
East Brunswick.................... 8,205* 319 3,236 3,897 319 7,133
East Hanover...................... 11,066* 376 3,063 3,443 477 6,405
Hackensack........................ 0 536 3,293 7,232 536 10,525
Jersey City....................... 10,381* 652 2,962 1,806 652 4,768
Kearny(4)......................... 0 279 4,429 (1,293) 290 3,125
Lawnside.......................... 5,708* 851 2,222 1,313 851 3,535
Lodi.............................. 2,420* 245 2,315 957 245 3,272
Manalapan......................... 6,397* 725 2,447 4,958 725 7,405
Marlton........................... 5,398* 1,514 4,671 674 1,611 5,248
Middletown........................ 7,761* 283 1,508 3,947 283 5,455
Morris Plains..................... 6,600* 1,254 3,140 3,277 1,104 6,567
North Bergen(4)................... 0 510 3,390 (955) 2,309 636
North Plainfield.................. 3,634 500 13,340 327 500 13,667
Totowa............................ 15,646* 1,097 5,359 11,806 1,097 17,165
Turnersville...................... 2,116* 900 2,132 75 900 2,207
Union............................. 15,975* 1,014 4,527 1,886 1,014 6,413
Vineland.......................... 2,358* 290 1,594 1,258 290 2,852
Watchung(4)....................... 0 451 2,347 6,749 4,200 5,347
Woodbridge........................ 8,792* 190 3,047 715 220 3,732
-------- ------- ------- ------- ------- --------
Total New Jersey............. 143,976 15,666 85,956 70,715 21,499 150,838
-------- ------- ------- ------- ------- --------
NEW YORK
14th Street and Union Square,
Manhattan....................... 0 12,566 4,044 3,457 12,581 7,486
Albany (Menands).................. 0 460 1,677 2,906 460 4,583
Buffalo (Amherst)................. 4,863* 402 2,019 2,193 636 3,978
Freeport.......................... 8,021* 1,231 3,273 2,852 1,231 6,125
New Hyde Park..................... 2,043* 0 0 122 0 122
North Syracuse.................... 0 0 0 23 0 23
Rochester (Henrietta)............. 2,203* 0 2,124 1,173 0 3,297
Rochester......................... 2,832* 443 2,870 630 443 3,500
-------- ------- ------- ------- ------- --------
Total New York............... 19,962 15,102 16,007 13,356 15,351 29,114
-------- ------- ------- ------- ------- --------
<CAPTION>
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
-------------------------------------- ---------------- --------------- --------- ----------------------
LIFE ON WHICH
ACCUMULATED DEPRECIATION IN LATEST
DEPRECIATION AND DATE OF DATE INCOME STATEMENT
DESCRIPTION TOTAL(2) AMORTIZATION CONSTRUCTION(3) ACQUIRED IS COMPUTED
-------------------------------------- -------- ---------------- --------------- --------- ----------------------
<S> <C> <C> <C> <C> <C>
SHOPPING CENTERS
NEW JERSEY
Atlantic City..................... $ 3,095 $ 1,840 1965 1965 14-40 Years
Bordentown........................ 4,790 3,549 1958 1958 10-40 Years
Bricktown......................... 12,283 4,035 1968 1968 27-40 Years
Cherry Hill....................... 8,160 4,619 1964 1964 15-40 Years
Delran............................ 5,977 2,615 1972 1972 20-40 Years
Dover............................. 4,952 2,573 1964 1964 16-40 Years
East Brunswick.................... 7,452 4,666 1957 1957 13-33 Years
East Hanover...................... 6,882 3,939 1962 1962 16-40 Years
Hackensack........................ 11,061 3,922 1963 1963 17-40 Years
Jersey City....................... 5,420 3,324 1965 1965 19-40 Years
Kearny(4)......................... 3,415 931 1938 1959 28-40 Years
Lawnside.......................... 4,386 1,921 1969 1969 19-40 Years
Lodi.............................. 3,517 2,191 1955 1975 11-27 Years
Manalapan......................... 8,130 3,254 1971 1971 18-40 Years
Marlton........................... 6,859 3,557 1973 1973 21-40 Years
Middletown........................ 5,738 2,419 1963 1963 27-40 Years
Morris Plains..................... 7,671 3,830 1961 1985 14-19 Years
North Bergen(4)................... 2,945 63 1993 1959 30 Years
North Plainfield.................. 14,167 3,579 1955 1989 26-30 Years
Totowa............................ 18,262 5,189 1957 1957 22-40 Years
Turnersville...................... 3,107 1,608 1974 1974 23-40 Years
Union............................. 7,427 4,622 1962 1962 10-40 Years
Vineland.......................... 3,142 1,625 1966 1966 22-40 Years
Watchung(4)....................... 9,547 422 1994 1959 30 Years
Woodbridge........................ 3,952 2,715 1959 1959 11-40 Years
-------- -------
Total New Jersey............. 172,337 73,008
-------- -------
NEW YORK
14th Street and Union Square,
Manhattan....................... 20,067 461 1965 1993 40 Years
Albany (Menands).................. 5,043 1,769 1965 1965 27-40 Years
Buffalo (Amherst)................. 4,614 2,301 1968 1968 14-40 Years
Freeport.......................... 7,356 2,457 1981 1981 19-40 Years
New Hyde Park..................... 122 122 1970 1976 6-7 Years
North Syracuse.................... 23 23 1967 1976 11-12 Years
Rochester (Henrietta)............. 3,297 1,910 1971 1971 22-40 Years
Rochester......................... 3,943 2,259 1966 1966 15-40 Years
-------- -------
Total New York............... 44,465 11,302
-------- -------
</TABLE>
Continued
F-47
<PAGE> 90
VORNADO REALTY L.P.
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
MARCH 31, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------------------------------------- ------------ ----------------------- -------------- -----------------------
INITIAL COST TO GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
COMPANY(1) COSTS PERIOD
----------------------- CAPITALIZED -----------------------
BUILDINGS AND SUBSEQUENT BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS
-------------------------------------- ------------ ------- ------------- -------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
PENNSYLVANIA
Allentown......................... 7,696* 70 3,446 9,555 334 12,737
Bensalem.......................... 3,967* 1,198 3,717 1,582 1,198 5,299
Bethlehem......................... 0 278 1,806 3,684 278 5,490
Broomall.......................... 3,260* 734 1,675 1,606 850 3,165
Glenolden......................... 4,245* 850 1,295 730 850 2,025
Lancaster......................... 2,312* 606 2,312 2,484 606 4,796
Levittown......................... 2,283* 193 1,231 94 193 1,325
10th and Market Streets,
Philadelphia.................... 0 933 3,230 4,147 933 7,377
Upper Moreland.................... 3,517* 683 2,497 112 683 2,609
York.............................. 1,463* 421 1,700 1,223 421 2,923
-------- ------- ------- ------- ------- --------
Total Pennsylvania........... 28,743 5,966 22,909 25,217 6,346 47,746
-------- ------- ------- ------- ------- --------
MARYLAND
Baltimore (Belair Rd.)............ 0 785 1,333 2,978 785 4,311
Baltimore (Towson)................ 5,779* 581 2,756 485 581 3,241
Baltimore (Dundalk)............... 4,084* 667 1,710 2,952 667 4,662
Glen Burnie....................... 2,299* 462 1,741 522 462 2,263
Hagerstown........................ 0 168 1,453 887 168 2,340
-------- ------- ------- ------- ------- --------
Total Maryland............... 12,162 2,663 8,993 7,824 2,663 16,817
-------- ------- ------- ------- ------- --------
CONNECTICUT
Newington......................... 3,042* 502 1,581 522 502 2,103
Waterbury......................... 3,889* 0 2,103 1,341 667 2,777
-------- ------- ------- ------- ------- --------
Total Connecticut............ 6,931 502 3,684 1,863 1,169 4,880
-------- ------- ------- ------- ------- --------
MASSACHUSETTS
Chicopee.......................... 1,999* 510 2,031 358 510 2,389
Springfield (4)................... 0 505 1,657 857 2,586 433
-------- ------- ------- ------- ------- --------
Total Massachusetts.......... 1,999 1,015 3,688 1,215 3,096 2,822
-------- ------- ------- ------- ------- --------
TEXAS
Dallas
Lewisville........................ 764* 2,433 2,271 676 2,469 2,911
Mesquite.......................... 3,445* 3,414 4,704 1,134 3,414 5,838
Skillman.......................... 1,987* 3,714 6,891 1,030 3,714 7,921
-------- ------- ------- ------- ------- --------
Total Texas.................. 6,196 9,561 13,866 2,840 9,597 16,670
-------- ------- ------- ------- ------- --------
TOTAL SHOPPING CENTERS.............. 219,969 50,475 155,103 123,030 59,721 268,887
-------- ------- ------- ------- ------- --------
<CAPTION>
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
-------------------------------------- ---------------- --------------- --------- ----------------------
LIFE ON WHICH
ACCUMULATED DEPRECIATION IN LATEST
DEPRECIATION AND DATE OF DATE INCOME STATEMENT
DESCRIPTION TOTAL(2) AMORTIZATION CONSTRUCTION(3) ACQUIRED IS COMPUTED
-------------------------------------- -------- ---------------- --------------- --------- ----------------------
<S> <C> <C> <C> <C> <C>
PENNSYLVANIA
Allentown......................... 13,071 4,169 1957 1957 24-42 Years
Bensalem.......................... 6,497 3,293 1972 1972 20-40 Years
Bethlehem......................... 5,768 2,784 1966 1966 13-40 Years
Broomall.......................... 4,015 1,813 1966 1966 13-40 Years
Glenolden......................... 2,875 958 1975 1975 23-40 Years
Lancaster......................... 5,402 2,677 1966 1966 14-40 Years
Levittown......................... 1,518 1,065 1964 1964 14-40 Years
10th and Market Streets,
Philadelphia.................... 8,310 358 1977 1994
Upper Moreland.................... 3,292 1,845 1974 1974 22-40 Years
York.............................. 3,344 1,574 1970 1970 19-40 Years
-------- -------
Total Pennsylvania........... 54,092 20,536
-------- -------
MARYLAND
Baltimore (Belair Rd.)............ 5,096 2,774 1962 1962 26-33 Years
Baltimore (Towson)................ 3,822 1,952 1968 1968 19-40 Years
Baltimore (Dundalk)............... 5,329 2,350 1966 1966 16-40 Years
Glen Burnie....................... 2,725 1,723 1958 1958 22-33 Years
Hagerstown........................ 2,508 1,256 1966 1966 13-40 Years
-------- -------
Total Maryland............... 19,480 10,055
-------- -------
CONNECTICUT
Newington......................... 2,605 1,441 1965 1965 15-40 Years
Waterbury......................... 3,444 1,686 1969 1969 23-40 Years
-------- -------
Total Connecticut............ 6,049 3,127
-------- -------
MASSACHUSETTS
Chicopee.......................... 2,899 1,706 1969 1969 20-40 Years
Springfield (4)................... 3,019 51 1993 1966 30 Years
-------- -------
Total Massachusetts.......... 5,918 1,757
-------- -------
TEXAS
Dallas
Lewisville........................ 5,380 650 1989 1990 28-30 Years
Mesquite.......................... 9,252 1,299 1988 1990 28-30 Years
Skillman.......................... 11,635 1,701 1988 1990 27-30 Years
-------- -------
Total Texas.................. 26,267 3,650
-------- -------
TOTAL SHOPPING CENTERS.............. 328,608 123,435
-------- -------
</TABLE>
Continued
F-48
<PAGE> 91
VORNADO REALTY L.P.
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
MARCH 31, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------------------------------------- ------------ ----------------------- -------------- -----------------------
INITIAL COST TO GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
COMPANY(1) COSTS PERIOD
----------------------- CAPITALIZED -----------------------
BUILDINGS AND SUBSEQUENT BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS
-------------------------------------- ------------ ------- ------------- -------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
WAREHOUSE/INDUSTRIAL
NEW JERSEY
East Brunswick.................... 0 0 4,772 2,853 -- 7,625
East Hanover...................... 8,210* 576 7,752 6,952 691 14,589
Edison............................ 2,455* 705 2,839 1,235 704 4,075
Garfield.......................... 715 96 8,068 3,808 96 11,876
-------- ------- ------- ------- ------- --------
TOTAL WAREHOUSE/INDUSTRIAL.......... 11,380 1,377 23,431 14,848 1,491 38,165
-------- ------- ------- ------- ------- --------
OTHER PROPERTIES
NEW JERSEY
Paramus........................... 848 0 8,345 2,227 0 10,572
Montclair......................... 0 66 470 330 66 800
Rahway............................ 0 0 0 25 0 25
New York 825 7th Ave, Manhattan... 0 0 8,870 0 0 8,665
-------- ------- ------- ------- ------- --------
TOTAL OTHER PROPERTIES.............. 848 66 17,685 2,582 66 20,062
-------- ------- ------- ------- ------- --------
LEASEHOLD IMPROVEMENTS AND
EQUIPMENT........................... 9,271
-------- ------- ------- ------- ------- --------
TOTAL -- DECEMBER 31, 1996... $232,197 $51,918 $ 196,219 $140,460 $61,278 $ 336,385
======== ======= ======= ======= ======= ========
<CAPTION>
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
-------------------------------------- ---------------- --------------- --------- ----------------------
LIFE ON WHICH
ACCUMULATED DEPRECIATION IN LATEST
DEPRECIATION AND DATE OF DATE INCOME STATEMENT
DESCRIPTION TOTAL(2) AMORTIZATION CONSTRUCTION(3) ACQUIRED IS COMPUTED
-------------------------------------- -------- ---------------- --------------- --------- ----------------------
<S> <C> <C> <C> <C> <C>
WAREHOUSE/INDUSTRIAL
NEW JERSEY
East Brunswick.................... 7,625 3,705 1972 1972 19-40 Years
East Hanover...................... 15,280 8,336 1963-1967 1963 5-40 Years
Edison............................ 4,779 1,862 1954 1982 17-25 Years
Garfield.......................... 11,972 8,207 1942 1959 17-33 Years
-------- -------
TOTAL WAREHOUSE/INDUSTRIAL.......... 39,656 22,110
-------- -------
OTHER PROPERTIES
NEW JERSEY
Paramus........................... 10,572 2,428 1967 1987 33-40 Years
Montclair......................... 866 493 1972 1972 15 Years
Rahway............................ 25 23 1972 1972 14 Years
New York 825 7th Ave, Manhattan... 8,665 164 1963 1996 39 Years
-------- -------
TOTAL OTHER PROPERTIES.............. 20,128 3,108
-------- -------
LEASEHOLD IMPROVEMENTS AND
EQUIPMENT........................... 9,271 5,363 3-20 Years
-------- -------
TOTAL -- DECEMBER 31, 1996... $397,663 $154,016
======== =======
</TABLE>
------------------
* These encumbrances are cross collateralized under a blanket mortgage in the
amount of $227,000,000 at March 31, 1997.
Notes:
(1) Initial cost is cost as of January 30, 1982 (the date on which Vornado
commenced real estate operations) unless acquired subsequent to that
date -- see Column H.
(2) Aggregate cost is approximately the same for federal income tax purposes.
(3) Date of original construction -- many properties have had substantial
renovation or additional construction -- see Column D.
(4) Buildings on these properties were demolished in 1993. As a result, the
cost of the buildings and improvements, net of accumulated depreciation,
were transferred to land. In addition, the cost of the land in Kearny is
net of a $1,615,000 insurance recovery.
F-49
<PAGE> 92
VORNADO REALTY L.P.
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 hereunto duly authorized.
VORNADO REALTY L.P.
--------------------------------------
(Registrant)
By: VORNADO REALTY TRUST,
--------------------------------------
General Partner
<TABLE>
<S> <C>
Date: September 10, 1997 By: /s/ JOSEPH MACNOW
------------------------------------------
JOSEPH MACNOW
Vice President,
Chief Financial Officer
</TABLE>
