<PAGE> 1
EXHIBIT INDEX ON PAGE 19
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ____________________
Commission File Number: 000-22685
VORNADO REALTY L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3925979
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
PARK 80 WEST, PLAZA II, SADDLE BROOK, NEW JERSEY 07663
(Address of principal executive offices) (Zip Code)
(201)587-1000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Page 1 of 20
<PAGE> 2
VORNADO REALTY L.P.
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997............................................................... 3
Consolidated Statements of Income for the Three Months
Ended March 31, 1998 and March 31, 1997......................................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and March 31, 1997......................................... 5
Notes to Consolidated Financial Statements...................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................... 12
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K ............................................... 17
Signatures ................................................................................ 18
Exhibit Index ................................................................................ 19
Exhibit 27 ................................................................................ 20
</TABLE>
Page 2 of 20
<PAGE> 3
PART I. FINANCIAL INFORMATION
VORNADO REALTY L.P.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS:
Real estate, at cost:
Land $ 482,366 $ 436,274
Buildings and improvements 1,634,080 1,118,334
Leasehold improvements and equipment 9,684 9,485
----------- -----------
Total 2,126,130 1,564,093
Less accumulated depreciation and
amortization (183,402) (173,434)
----------- -----------
Real estate, net 1,942,728 1,390,659
Cash and cash equivalents, including U.S.
government obligations under repurchase
agreements of $172,614 and $8,775 236,657 355,954
Restricted cash 27,419 27,079
Marketable securities 35,685 34,469
Investment in and advances to partially-owned
entities, including investments in and
advance to Alexander's of $108,433 and
$108,752 487,555 482,787
Due from officers 12,145 8,625
Accounts receivable, net of allowance for
doubtful accounts of $730 and $658 22,982 16,663
Mortgage loans receivable 91,163 88,663
Receivable arising from the straight-
lining of rents 27,776 24,127
Other assets 81,079 95,063
----------- -----------
TOTAL ASSETS $ 2,965,189 $ 2,524,089
=========== ===========
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL:
Notes and mortgages payable $ 729,132 $ 586,654
Revolving credit facility 656,000 370,000
Accounts payable and accrued expenses 48,460 36,538
Officer's deferred compensation payable 25,000 25,000
Deferred leasing fee income 10,026 9,927
Other liabilities 3,592 3,641
----------- -----------
1,472,210 1,031,760
----------- -----------
Commitments and contingencies
Partners' capital:
Preferred units of beneficial interest:
no par value per unit, authorized,
20,000,000 units; liquidation
preference $50.00 per unit; issued,
5,789,315 units 280,601 279,884
General partnership units; issued and
outstanding, 72,185,535 and
72,164,654 units 1,149,662 1,149,272
Limited partnership units; issued and
outstanding, 5,689,443 and
5,681,124 units 178,965 178,567
Partnership deficit (112,002) (109,561)
----------- -----------
1,497,226 1,498,162
Unrealized gain (loss) on securities
available for sale 711 (840)
Due from officers for purchase of common
units of beneficial interest (4,958) (4,993)
----------- -----------
Total partners' capital 1,492,979 1,492,329
----------- -----------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $ 2,965,189 $ 2,524,089
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 3 of 20
<PAGE> 4
VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997
---- ----
<S> <C> <C>
Revenues:
Property rentals $ 72,365 $ 22,467
Expense reimbursements 15,696 6,210
Other income (including fee income from
related parties of $405 and $314) 2,150 620
-------- --------
Total revenues 90,211 29,297
-------- --------
Expenses:
Operating 34,153 8,507
Depreciation and amortization 10,366 2,967
General and administrative 4,947 1,845
Amortization of officer's deferred
compensation expense -- 6,249
-------- --------
Total expenses 49,466 19,568
-------- --------
Operating income 40,745 9,729
Income applicable to Alexander's 1,656 1,405
Income from partially owned entities 3,920 217
Interest and other investment income 7,566 2,417
Interest and debt expense (19,823) (4,078)
-------- --------
Net Income 34,064 9,690
Preferred unit distributions (5,423) --
Preferential allocations (2,577) --
-------- --------
Net Income applicable to Class A units $ 26,064 $ 9,690
======== ========
Net Income per Class A unit - basic $ .36 $ .19
======== ========
Net income per Class A unit - diluted $ .35 $ .18
======== ========
Dividends per Class A unit $ .40 $ .32
</TABLE>
See notes to consolidated financial statements.
Page 4 of 20
<PAGE> 5
VORNADO REALTY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 34,064 $ 9,690
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization (including debt issuance costs) 11,171 3,228
Amortization of officer's deferred compensation expense -- 6,249
Straight-lining of rental income (2,292) (669)
Equity in income (loss) of Alexander's,
including depreciation of $150 in each period (120) 211
Equity in net income of partially-owned entities (3,920) --
Gain on marketable securities (1,391) (287)
Changes in operating assets and liabilities (1,760) 1,331
--------- ---------
Net cash provided by operating activities 35,752 19,753
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of real estate (503,877) --
Investment in mortgage loans receivable (2,500) 82
Cash restricted for tenant improvements (340) --
Additions to real estate (20,435) (365)
Purchases of securities available for sale (13,616) --
Proceeds from sale or maturity of securities available for sale 14,903 --
Real estate deposits and other (18,000) --
--------- ---------
Net cash used in investing activities (543,865) (283)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 547,192 --
Repayments on borrowings (118,714) (190)
Debt issuance costs (3,945) --
Proceeds from borrowings on U.S. Treasury obligations -- 142
Proceeds from issuance of limited partnership units 398 --
Distributions to Class A unitholders (28,505) (16,691)
Distributions to Preferred unitholders (5,423) --
Preferential allocations (2,577) --
Issuance of units 390 --
--------- ---------
Net cash provided by (used in) financing activities 388,816 (16,739)
--------- ---------
Net (decrease) increase in cash and cash equivalents (119,297) 2,731
Cash and cash equivalents at beginning of period 355,954 89,696
--------- ---------
Cash and cash equivalents at end of period $ 236,657 $ 92,427
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest $ 19,418 $ 3,817
========= =========
NON-CASH TRANSACTIONS:
Unrealized gain (loss) on securities available for sale $ 1,551 $ (25)
========= =========
</TABLE>
See notes to consolidated financial statements.
Page 5 of 20
<PAGE> 6
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Vornado Realty L.P. (the "Operating Partnership") is a Delaware limited
partnership. It commenced operations on April 15, 1997 when Vornado Realty Trust
("Vornado"), a fully-integrated real estate investment trust ("REIT") converted
to an Umbrella Partnership REIT ("UPREIT") by transferring substantially all of
its assets to the Operating Partnership in exchange for units. Vornado is the
sole general partner of the Operating Partnership and owns a 91.2% limited
partnership interest at April 30, 1998. As a result of such conversion,
Vornado's activities are conducted through the Operating Partnership. All
references to "Vornado" in these financial statements refer to Vornado Realty
Trust; all references to the "Operating Partnership" refer to Vornado Realty
L.P. and all references to the "Company" refer to Vornado and its consolidated
subsidiaries, including the Operating Partnership.
2. BASIS OF PRESENTATION
The consolidated balance sheet as of March 31, 1998, the consolidated
statements of income for the three months ended March 31, 1998 and March 31,
1997 and the consolidated statements of changes in cash flows for the three
months ended March 31, 1998 and March 31, 1997 are unaudited. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
changes in cash flows have been made. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These condensed consolidated financial statements should be read in conjunction
with the financial statements and notes thereto included in the Operating
Partnership's 1997 Form 10-K. The results of operations for the period ended
March 31, 1998 are not necessarily indicative of the operating results for the
full year.
The accompanying unaudited consolidated condensed financial statements
include the accounts of Vornado Realty L.P. All significant intercompany amounts
have been eliminated. Equity interests in partially-owned entities include
partnerships, joint ventures and preferred stock affiliates (corporations in
which the Company owns all of the preferred stock and none of the common equity)
and are accounted for under the equity method of accounting as the Company
exercises significant influence. These investments are recorded initially at
cost and subsequently adjusted for equity in net income (loss) and cash
contributions and distributions. Ownership of the preferred stock entitles the
Company to substantially all of the economic benefits in the preferred stock
affiliates. The common stock of the preferred stock affiliates is owned by
Officers and Trustees of Vornado.
3. ACQUISITIONS
Westport
On January 29, 1998, the Company acquired the Westport Corporate Office
Park from a limited partnership that included members of the Mendik Group, a
related party. The purchase price was approximately $14,000,000 consisting of $6
million of cash and an $8 million mortgage loan.
One Penn Plaza
On February 9, 1998, the Company acquired a long-term leasehold interest
in One Penn Plaza, a Manhattan office building from Mid-City Associates. The
purchase price was approximately $410 million consisting of $317 million of cash
and a $93 million bridge mortgage loan.
150 East 58th Street
On March 9, 1998, the Company acquired 150 East 58th Street (the
"Architects and Design Center"), a Manhattan office building, for a cash
purchase price of approximately $118 million, from a limited partnership.
Page 6 of 20
<PAGE> 7
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA INFORMATION
The unaudited pro forma condensed consolidated information set forth below
presents (i) the condensed consolidated statements of income for the Company for
the three months ended March 31, 1998 and 1997 as if the following had occurred
on January 1, 1997: (a) the acquisitions described above, (b) acquisitions and
investments completed in 1997 and (c) the subsequent events as described in Note
8 and (ii) the condensed consolidated pro forma balance sheet of the Company as
of March 31, 1997, as if such acquisitions and financings had occurred on that
date.
Condensed Consolidated Pro Forma Income Statements
<TABLE>
<CAPTION>
Pro Forma
Three Months Ended
March 31, 1998 March 31, 1997
(amounts in thousands, except per share amounts)
<S> <C> <C>
Revenues $125,600 $121,800
======== ========
Net income $ 41,200 $ 38,000
Preferred unit distributions (5,400) (5,100)
Preferential allocations (3,600) (4,100)
-------- ---------
Net income applicable to Class A units $ 32,200 $ 28,800
======== =========
Net income per Class A unit - basic $ .39 $ .35
===== =====
Net income per Class A unit - diluted $ .38 $ .34
===== =====
</TABLE>
Condensed Consolidated Pro Forma Balance Sheet at March 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Total assets $3,452,200
==========
Total liabilities $1,393,700
Total partners' capital 2,058,500
----------
Total liabilities and partners' capital $3,452,200
==========
</TABLE>
4. INVESTMENTS IN AND ADVANCES TO PARTIALLY-OWNED ENTITIES:
The Company's investments in and advances to partially-owned entities and
income recognized from such investments is as follows:
INVESTMENTS AND ADVANCES:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
(amounts in thousands)
<S> <C> <C>
Cold Storage Companies $246,523 $243,846
Alexander's 108,433 108,752
Charles E. Smith Commercial Realty L.P. 61,183 60,437
Hotel Pennsylvania 20,551 20,152
Mendik Partially-Owned Office Buildings 38,029 37,209
Vornado Management Corp. and Mendik
Management Company 12,836 12,391
-------- --------
$487,555 $482,787
======== ========
</TABLE>
Page 7 of 20
<PAGE> 8
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998 March 31, 1997
(amounts in thousands)
<S> <C> <C>
Income Applicable to Alexander's $1,656 $1,405
====== ======
Other Partially-Owned Entities:
Cold Storage Companies $1,714 -
Hotel Pennsylvania (56) -
Charles E. Smith Commercial Realty L.P. 999 -
Mendik Partially-Owned Office Buildings 913 -
Vornado Management Corp. and Mendik
Management Company 350 $ 217
------ ------
$3,920 $ 217
====== ======
</TABLE>
Alexander's
Alexander's is managed by and its properties are leased by the Company pursuant
to agreements with a one-year term which are automatically renewable. Subject to
the payments of rents by Alexander's tenants, the Company is due $6,078,000
under its leasing agreement with Alexander's which amount is included in
Investments in and Advances to Alexander's. Included in Income from Vornado
Management Corp. is management fee income from Alexander's of $938,000 in each
of the three months ended March 31, 1998 and 1997.
Cold Storage Companies
On March 25, 1998, the Cold Storage Companies entered into an agreement
to acquire the assets of Freezer Services, Inc., consisting of nine cold storage
warehouses for approximately $134 million, including $22 million of
indebtedness. There can be no assurance that this proposed transaction will
ultimately be completed.
On April 23, 1998, the Cold Storage Companies completed a $550,000,000
non-recourse ten-year loan secured by 58 of its warehouses. The loan bears
interest at 6.89%. The net proceeds from the loan together with working capital
were used to repay $607,000,000 of bridge financing, which replaced high yield
debt assumed at the date of acquisition.
Hotel Pennsylvania
On May 1, 1998, the Company acquired an additional 40% interest in the
Hotel Pennsylvania increasing its ownership to 80%. The Company purchased the
additional 40% interest from Hotel Properties Limited (one of its joint venture
partners) for approximately $70 million, including $48 million of existing debt.
Page 8 of 20
<PAGE> 9
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. OTHER RELATED PARTY TRANSACTIONS
The Company lent Mr. Fascitelli, the President of the Company, $3,500,000
on March 2, 1998 and $2,600,000 on April 30, 1998, in accordance with the terms
of his employment agreement. The loans have a five-year term and bear interest,
payable quarterly, at a rate of 5.47% and 5.58%, respectively (based on the
mid-term applicable federal rate provided under the Internal Revenue Code).
The Company currently manages and leases the real estate assets of
Interstate Properties pursuant to a management agreement. Management fees earned
by the Company pursuant to the management agreement were $198,000 and $193,000
for the three months ended March 31, 1998 and 1997.
The Mendik Group owns an entity which provides cleaning and related
services and security services to office properties including the Company's
Manhattan office properties acquired subsequent to March 31, 1997. The Company
was charged fees for these services of $5,267,000 for the three months ended
March 31, 1998, a portion of which is expected to be reimbursed to the Company
by its tenants.
6. CONTINGENCIES
In January 1997, two individual investors in Mendik Real Estate Limited
Partnership ("RELP"), the publicly held limited partnership that indirectly owns
a 60% interest in the Two Park Avenue Property, filed a purported class action
against NY Real Estate Services 1, Inc. ("NY Real Estate"), Mendik RELP Corp.,
B&B Park Avenue, L.P. (an indirect subsidiary of the Company which acquired the
remaining 40% interest in Two Park Avenue) and Bernard H. Mendik in the Supreme
Court of the State of New York, County of New York, on behalf of all persons
holding limited partnership interests in RELP. The complaint alleges that, for
reasons which include purported conflicts of interest, the defendants breached
their fiduciary duty to the limited partners, that the then proposed transfer of
the 40% interest in Two Park Avenue would result in a burden on the operation
and management of Two Park Avenue and that the transfer of the 40% interest
violates RELP's right of first refusal to purchase the interest being
transferred and fails to provide limited partners in RELP with a comparable
transfer opportunity. Shortly after the filing of the complaint, another limited
partner represented by the same attorneys filed an essentially identical
complaint in the same court. Both complaints seek unspecified damages, an
accounting and a judgment requiring either the liquidation of RELP and the
appointment of a receiver or an auction of Two Park Avenue. Discussions to
settle the actions have been ongoing, but no settlement has been reached. In
August 1997, a fourth limited partner, represented by separate counsel,
commenced another purported class action in the same court by serving a
complaint essentially identical to the complaints in the two previously
commenced actions. Management believes that the ultimate outcome of these
matters will not have a material adverse effect on the Company.
In April 1997, the Company's Lodi shopping center was destroyed by a fire.
The Company intends to rebuild the shopping center commencing in 1998, which
rebuilding is subject to the approval of local authorities. The Company carries
replacement value insurance. To date, the insurance carrier has paid the Company
$5,500,000 as a deposit for the above mentioned rebuilding. In the event the
Company cannot rebuild the shopping center, a large portion of the deposit would
be returned to the carrier. If the shopping center is rebuilt, the Company will
recognize a gain measured by the total proceeds from the insurance carrier,
which could amount to approximately $10,000,000, net of the book value of the
property of $1,564,000.
Page 9 of 20
<PAGE> 10
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. EARNINGS PER CLASS A UNIT
The following table sets forth the computation of basic and diluted
earnings per Class A unit:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
(amounts in thousands except per share amounts)
<S> <C> <C>
Numerator:
Net income $ 34,064 $ 9,690
Preferred unit distributions (5,423) --
Preferential allocations (2,577) --
-------- --------
Numerator for basic and diluted earnings per unit - net
income applicable to Class A units $ 26,064 $ 9,690
======== ========
Denominator:
Denominator for basic earnings per unit - weighted
average units 72,165 52,176
Effect of dilutive securities:
Employee stock options 2,188 924
-------- --------
Denominator for diluted earnings per unit - adjusted
weighted average units and assumed conversions 74,353 53,100
====== ======
Net income per Class A unit - basic $ .36 $ .19
======== ========
Net income per Class A unit - diluted $ .35 $ .18
======== ========
</TABLE>
8. SUBSEQUENT EVENTS
The Merchandise Mart Properties
On April 1, 1998, the Company closed its previously announced acquisition
of a real estate portfolio from the Kennedy Family for approximately $630
million, consisting of $187 million in cash, $116 million in Operating
Partnership Units, $77 million in existing debt and $250 million of newly issued
debt.
The acquired real estate assets consist of a portfolio of properties used
for office, retail and trade showroom space which aggregate approximately 5.4
million square feet and include the Merchandise Mart in Chicago. The transaction
also includes the acquisition of Merchandise Mart Properties, Inc. which manages
the properties and trade shows.
Page 10 of 20
<PAGE> 11
VORNADO REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sale of Common Shares
On April 15, 1998, Vornado completed the sale of 10,000,000 common shares
pursuant to an effective registration statement with net proceeds to Vornado of
approximately $401 million. On April 29, 1998, Vornado sold 1,132,420 common
shares to a unit investment trust, which were valued for the purpose of the
trust at $41.06 per share, resulting in net proceeds of approximately $44
million.
570 Lexington Avenue
On April 20, 1998, the Company increased its interest from 5.6% to
approximately 50% in 570 Lexington Avenue, a 49 story office building located in
midtown Manhattan containing approximately 435,000 square feet. The Company
purchased the additional interest for approximately $37.2 million, including
$4.9 million of existing debt.
Hotel Pennsylvania
On May 1, 1998, the Company acquired an additional 40% interest in the
Hotel Pennsylvania increasing its ownership to 80%. The Company purchased the
additional 40% interest from Hotel Properties Limited (one of its joint venture
partners) for approximately $70 million, including $48 million of existing debt.
9. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes standards
for reporting and display of comprehensive income and its components. The
statement, which requires disclosure of net income including unrealized gains
and losses recognized in the equity section of the balance sheet, was adopted by
the Company in the first quarter of 1998.
The Company's comprehensive income was $27,615,000 and $9,665,000 for the
three months ended March 31, 1998 and 1997 after giving effect to unrealized
gains and (losses) on securities available for sale.
Page 11 of 20
<PAGE> 12
VORNADO REALTY L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, which will, among other
things, affect demand for retail space or retail goods, availability and
creditworthiness of prospective tenants, lease rents and the terms and
availability of financing; adverse changes in the real estate markets including,
among other things, competition with other companies and technology; risks of
real estate development and acquisition; governmental actions and initiatives;
and environmental/safety requirements.
RESULTS OF OPERATIONS
The Company's revenues, which consist of property rentals, tenant expense
reimbursements and other income were $90,211,000 in the three months ended March
31, 1998, compared to $29,297,000 in the prior year's quarter, an increase of
$60,914,000. This increase was primarily comprised of $59,642,000 of revenues
from properties acquired subsequent to March 31, 1997.
Property rentals were $72,365,000 in the three months ended March 31, 1998,
compared to $22,467,000 in the prior year's quarter, an increase of $49,898,000.
This increase resulted from:
Acquisitions:
<TABLE>
<CAPTION>
DATE OF
PROPERTY ACQUISITION AMOUNT
-------- ----------- ------
<S> <C> <C> <C>
150 E.58th Street March 1998 $ 1,132,000
One Penn Plaza February 1998 8,173,000
Westport January 1998 455,000
Green Acres Mall December 1997 5,598,000
640 Fifth Avenue December 1997 1,340,000
Riese June 1997 1,277,000
90 Park Avenue May 1997 6,932,000
Mendik April 1997 21,729,000
Montehiedra Shopping Center April 1997 2,203,000
-----------
48,839,000
Shopping center leasing activity 683,000
Step-ups in shopping center leases 376,000
-----------
$49,898,000
===========
</TABLE>
Tenant expense reimbursements were $15,696,000 in the three months ended
March 31, 1998, compared to $6,210,000 in the prior year's quarter, an increase
of $9,486,000. This increase was primarily comprised of $8,992,000 of
reimbursements from tenants at properties acquired subsequent to March 31, 1997.
Operating expenses were $34,153,000 in the three months ended March 31,
1998, as compared to $8,507,000 in the prior year's quarter, an increase of
$25,646,000. This increase was primarily comprised of $24,557,000 of expenses
from properties acquired subsequent to March 31, 1997.
Depreciation and amortization expense increased in 1998 as compared to
1997, primarily as a result of acquisitions.
Page 12 of 20
<PAGE> 13
VORNADO REALTY L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General and administrative expenses were $4,947,000 in the three months
ended March 31, 1998 compared to $1,845,000 in the prior year's quarter, an
increase of $3,102,000. This increase resulted primarily from Mendik Division
payroll and expenses of $1,266,000, payroll and other corporate office expenses
of $851,000 and professional fees of $665,000.
The Company recognized an expense of $6,249,000 in the prior year's quarter
representing the amortization of the deferred payment due to the Company's
President, which was fully amortized at December 31, 1997.
Income applicable to Alexander's (loan interest income, equity in income
(loss) and depreciation) was $1,656,000 in the three months ended March 31,
1998, compared to $1,405,000 in the prior year's quarter, an increase of
$251,000. This increase resulted primarily from an increase in Alexander's
operating income due to the commencement of leases at its Rego Park I and Kings
Plaza Store properties.
Income from partially-owned entities was $3,920,000 in the three months
ended March 31, 1998, compared to $217,000 in the prior year's quarter, an
increase of $3,703,000. This increase consists of: (i) $1,714,000 from the Cold
Storage Companies, (ii) $913,000 from partially owned properties acquired as
part of the Mendik Transaction and (iii) $999,000 from the Company's 15%
interest in Charles E. Smith Commercial Realty L.P.
Interest and other investment income (interest income on mortgage loans
receivable, other interest income, dividend income and net gains on marketable
securities) was $7,566,000 for the three months ended March 31, 1998, compared
to $2,417,000 in the prior year's quarter, an increase of $5,149,000. Of this
increase (i) $2,005,000 resulted from investments in mortgage loans receivable,
(ii) $1,950,000 resulted primarily from income earned on higher average
investments and (iii) $1,105,000 resulted from gains on the sale of marketable
securities.
Interest and debt expense was $19,823,000 for the three months ended March
31, 1998, compared to $4,078,000 in the prior year's quarter, an increase of
$15,745,000. Of this increase, (i) $7,423,000 resulted from borrowings under the
Company's revolving credit facility and (ii) $7,908,000 resulted from debt in
connection with acquisitions.
The preferential allocations to Class C, D and E unitholders in the
Operating Partnership aggregated $2,577,000 for the three months ended March 31,
1998.
The preferred unit distributions of $5,423,000 apply to the 6.5% preferred
units issued in April and December 1997 and include accretion of expenses of
issuing them of $717,000.
Page 13 of 20
<PAGE> 14
VORNADO REALTY L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 1998
Cash flows provided by operating activities of $35,752,000 was primarily
comprised of (i) net income of $34,064,000 and (ii) adjustments for non-cash
items of $4,839,000, offset by (iii) the net change in operating assets and
liabilities of $1,760,000. The adjustments for non-cash items are primarily
comprised of (i) depreciation and amortization of $11,171,000 offset by (ii) the
effect of straight-lining of rental income of $2,292,000 and (iii) equity in net
income of partially-owned entities of $3,920,000.
Net cash used in investing activities of $543,865,000 was primarily
comprised of (i) acquisitions of real estate of $503,877,000, (One Penn Plaza
($369,000,000), 150 East 58th Street ($112,100,000) and Westport ($14,000,000))
(ii) capital expenditures of $20,435,000 and (iii) real estate deposits and
other of $18,000,000.
Net cash provided by financing activities of $388,816,000 was primarily
comprised of (i) proceeds from borrowings of $547,192,000, partially offset by
(ii) repayment of borrowings of $118,714,000, (iii) distributions to Class A
unitholders of $28,505,000 (iv) distributions to Preferred unitholders of
$5,423,000 (includes accretion of expenses of issuing the preferred units of
$717,000) and (v) preferential allocations of $2,577,000.
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 on common shares.
Page 14 of 20
<PAGE> 15
VORNADO REALTY L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Funds from Operations for the Three Months Ended March 31, 1998 and 1997
Funds from operations were $47,858,000 in the quarter ended March 31, 1998,
compared to $12,230,000 in the prior year's quarter, an increase of $35,628,000.
Funds from operations for the prior year's quarter reflect amortization of the
deferred payment due to the Company's President of $6,249,000. The following
table reconciles funds from operations and net income:
<TABLE>
<CAPTION>
For The Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Net income applicable to Class A
units $26,064,000 $ 9,690,000
Depreciation and amortization of
real property 10,194,000 2,681,000
Straight-lining of property rentals
for rent escalations (2,292,000) (669,000)
Leasing fees received in excess
of income recognized 368,000 454,000
Proportionate share of adjustments
to equity in net income of partially
owned entities to arrive
at funds from operations 10,947,000 74,000
Preferential allocations 2,577,000 -
----------- -----------
Funds from operations $47,858,000 $12,230,000
=========== ===========
</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 Company's
operating performance or as an alternative to cash flows as a measure of
liquidity. Management considers funds from operations a relevant
supplemental measure of operating performance because it provides a basis
for comparison among REITs; however, funds from operations may not be
comparable to similarly titled measures reported by other REITs since the
Company's method of calculating funds from operations is different from
that used by NAREIT. Funds from operations, as defined by NAREIT,
represents net income applicable to common shares before depreciation and
amortization, extraordinary items and gains or losses on sales of real
estate. Funds from operations as disclosed 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>
For The Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Operating activities $ 35,752,000 $ 19,753,000
=============== =============
Investing activities $(543,865,000) $ (283,000)
============= =============
Financing activities $ 388,816,000 $(16,739,000)
============== ============
</TABLE>
Page 15 of 20
<PAGE> 16
VORNADO REALTY L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Acquisitions:
On April 1, 1998, the Company closed its previously announced acquisition
of a real estate portfolio from the Kennedy Family for approximately $630
million, consisting of $187 million in cash, $116 million in Operating
Partnership Units, $77 million in existing debt and $250 million of newly issued
debt. The acquired real estate assets consist of a portfolio of properties used
for office, retail and trade showroom space which aggregate approximately 5.4
million square feet and include the Merchandise Mart in Chicago. The transaction
also includes the acquisition of Merchandise Mart Properties, Inc. which manages
the properties and trade shows.
On April 20, 1998, the Company increased its interest from 5.6% to
approximately 50% in 570 Lexington Avenue, a 49 story office building located in
midtown Manhattan containing approximately 435,000 square feet. The Company
purchased the additional interest for approximately $37.2 million, including
$4.9 million of existing debt.
On May 1, 1998, the Company acquired an additional 40% interest in the
Hotel Pennsylvania increasing its ownership to 80%. The Company purchased the
additional 40% interest from Hotel Properties Limited (one of its joint venture
partners) for approximately $70 million, including $48 million of existing debt.
Financings:
On April 15, 1998, Vornado completed the sale of 10,000,000 common shares
pursuant to an effective registration statement with net proceeds to Vornado of
approximately $401 million. On April 29, 1998, Vornado sold 1,132,420 common
shares to a unit investment trust, which were valued for purposes of the trust
at $41.06 per share, resulting in net proceeds of approximately $44 million.
On March 31, 1998, the Company had $656,000,000 outstanding under its
$1,000,000,000 revolving credit facility at 6.53% (LIBOR plus .85%).
Also, in February 1998, the Company completed a $160,000,000 refinancing of
the Green Acres mall and prepaid the then existing $118,000,000 debt on the
property. The new 10-year debt matures in March 2008 and bears interest at
6.75%.
On April 23, 1998, the Cold Storage Companies completed a $550,000,000
non-recourse ten-year loan secured by 58 of its warehouses. The loan bears
interest at 6.89%. The net proceeds from the loan together with working capital
were used to repay $607,000,000 of bridge financing, which replaced high yield
debt assumed at the date of acquisition.
The Company anticipates that cash from continuing operations will be
adequate to fund business operations and the payment of dividends and
distributions on an ongoing basis for more than the next twelve months; however,
capital outlays for significant acquisitions may require funding from borrowings
or equity offerings.
Page 16 of 20
<PAGE> 17
VORNADO REALTY L.P.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: The following exhibits are filed
with this Quarterly Report on Form 10-Q.
27 Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter ended March 31, 1998, Vornado
Realty Trust filed the reports on Form 8-K
described below:
<TABLE>
<CAPTION>
Date of Report
(Date of Earliest
Event Reported) Item Reported Date Filed
--------------- ------------- ----------
<S> <C> <C>
January 26, 1998 Agreement to acquire the Merchandise January 29, 1998
Mart properties
January 29, 1998 Proposed spin-off of Vornado Operating, Inc. January 30, 1998
November 18, 1997 Financial statements and pro forma February 3, 1998
financial information in connection with
acquisition of One Penn Plaza, 150 East
59th Street and 640 Fifth Avenue
January 26, 1998 Financial statements and pro forma February 9, 1998
financial information in connection with
the acquisition of the Merchandise Mart
properties
November 18, 1997 Completion of One Penn Plaza acquisition February 20, 1998
April 1, 1998 Completion of Merchandise Mart April 8, 1998
properties acquisition and financial
statements and pro forma in connection
therewith
April 1, 1998 Amendment to Merchandise Mart properties April 9, 1998
Form 8-K
</TABLE>
Page 17 of 20
<PAGE> 18
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 thereunto duly authorized.
VORNADO REALTY L.P.
----------------------------------
(Registrant)
Date: May 7, 1998 /s/ Irwin Goldberg
----------------------------------
IRWIN GOLDBERG
Vice President - Chief Financial
Officer and Chief Accounting Officer
Page 18 of 20
<PAGE> 19
VORNADO REALTY LP.
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NUMBER IN
SEQUENTIAL
EXHIBIT NO. NUMBERING
----------- ---------
<S> <C> <C>
27 Financial Data Schedule. 20
</TABLE>
Page 19 of 20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Operating Partnership's unaudited financial statements for the three months
ended March 31, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 236,657
<SECURITIES> 35,685
<RECEIVABLES> 23,712
<ALLOWANCES> 730
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,126,130
<DEPRECIATION> 183,402
<TOTAL-ASSETS> 2,965,189
<CURRENT-LIABILITIES> 0
<BONDS> 1,385,132
280,601
0
<COMMON> 0
<OTHER-SE> 1,149,662
<TOTAL-LIABILITY-AND-EQUITY> 2,965,189
<SALES> 0
<TOTAL-REVENUES> 90,211
<CGS> 0
<TOTAL-COSTS> 34,153
<OTHER-EXPENSES> 15,313
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,823
<INCOME-PRETAX> 34,064
<INCOME-TAX> 0
<INCOME-CONTINUING> 34,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,064
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.35
</TABLE>
