<PAGE> 1
As filed with the Securities and Exchange Commission on February 6, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) JANUARY 26, 1998
Commission File Number: 1-11954
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
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 or Former Address, if Changed Since Last Report)
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This Form 8-K/A amends Vornado Realty L.P.'s Form 8-K's previously filed to
include certain required financial statements and pro forma financial
information.
ITEM 1-4. NOT APPLICABLE.
ITEM 5. OTHER EVENTS.
On January 26, 1998, Vornado Realty Trust ("Vornado") entered
into a definitive agreement to acquire a substantial portion of the
real estate portfolio of the Kennedy family for approximately $625
million, consisting of $465 million in cash, $50 million in
indebtedness and $110 million in Operating Partnership Units and
Convertible Preferred Operating Partnership Units. The properties to be
acquired ("The Merchandise Mart Group of Properties") include the
Merchandise Mart in Chicago.
The acquired real estate assets include a mixed-use portfolio
of office, retail and showroom properties which aggregate approximately
5.3 million net rentable square feet. In addition to the Merchandise
Mart, Vornado will acquire the Apparel Center in Chicago, the
Washington Design Center and the Washington Office Center in
Washington, D.C. The transaction also includes the acquisition of
Merchandise Mart Properties Inc., which manages the properties and
trade shows.
The closing, which is expected in the second quarter, is
subject to customary closing conditions.
This transaction was arrived at through arms-length
negotiations and was consummated through subsidiaries of Vornado Realty
L.P. (the "Operating Partnership"). Vornado owns 92.4% of the Operating
Partnership and is the sole general partner.
ITEM 6. NOT APPLICABLE.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a)-(b) There are filed herewith:
(a) the historical Combined Statements of Revenues and Certain
Operating Expenses of The Merchandise Mart Group of Properties and
(b) the Condensed Consolidated Pro Forma Balance Sheet of Vornado
Realty L.P. as of September 30, 1997 and the Condensed Consolidated
Pro Forma Income Statement of Vornado Realty L.P. for the nine
months ended September 30, 1997 and the year ended December 31,
1996, commencing on page 11, prepared to give Pro Forma effect to
the proposed acquisitions of The Merchandise Mart Group of
Properties and the previously reported proposed and completed
acquisitions and investments (Mendik Company, 90 Park Avenue, Arbor
Property Trust, Americold Corporation and URS Logistics, Inc.
(collectively "Cold Storage"), The Montehiedra Town Center, Riese,
Charles E. Smith Commercial Realty L.P., The Hotel Pennsylvania,
640 Fifth Avenue, One Penn Plaza and 150 East 58th Street). The
Pro Forma data also includes information updated through September
30, 1997 for certain previously reported acquisitions which were
disclosed in Form 8-K's previously filed with the Securities and
Exchange Commission in 1997.
PAGE
REFERENCE
The Merchandise Mart Group of Properties
Independent Auditors' Report........................ 4
Combined Statements of Revenues and Certain
Operating Expenses for the Year Ended December
31, 1996 (audited) and for the Nine Months Ended
September 30, 1997 and 1996 (unaudited)............. 5
Notes to Statements of Revenues and Certain
Operating Expenses for the Year Ended December
31, 1996 and for the Nine Months Ended September
30, 1997 and 1996................................... 6
Pro Forma financial information
Condensed Consolidated Pro Forma Balance Sheet
at September 30, 1997............................... 11
Condensed Consolidated Pro Forma Income Statement
for the Nine Months Ended September 30, 1997........ 12
Condensed Consolidated Pro Forma Income Statement
for the Year Ended December 31, 1996................ 14
Notes to Condensed Consolidated Pro Forma
Financial Statements................................ 16
ITEM 8-9. NOT APPLICABLE.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of the Partnerships and Members of the LLC's:
We have audited the accompanying combined statement of revenue and certain
operating expenses (described in Note 2) of THE MERCHANDISE MART GROUP OF
PROPERTIES ("Properties") (See Note 1) for the year ended December 31, 1996.
This financial statement is the responsibility of the Properties' 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 financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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.
The accompanying combined statement of revenue and certain expenses was
prepared for the purpose of complying with Rule 3-14 of Regulation S-X of the
Securities and Exchange Commission for inclusion in the Form 8-K/A of Vornado
Realty L.P. and is not intended to be a complete presentation of the
Properties' revenue and certain expenses.
In our opinion, the combined financial statement referred to above presents
fairly, in all material respects, the revenue and certain operating expenses of
The Merchandise Mart Group of Properties (See Note 1) for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 5, 1998
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THE MERCHANDISE MART GROUP OF PROPERTIES
(SEE NOTE 1)
COMBINED STATEMENTS OF REVENUES AND
CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
YEAR NINE MONTHS ENDED
ENDED SEPTEMBER 30,
DECEMBER 31,
1996 1996 1997
------------ --------- ---------
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Rentals, net $93,960,205 $71,846,361 $74,315,404
Parking revenues 1,143,589 879,466 835,817
Interest income 585,613 313,527 672,605
Other income 556,179 328,854 447,181
----------- ----------- -----------
Total operating revenues 96,245,586 73,368,208 76,271,007
----------- ----------- -----------
CERTAIN OPERATING EXPENSES:
Operating $13,967,421 $10,366,114 $10,747,111
Real estate taxes 12,572,053 10,104,028 9,951,373
Marketing 8,640,038 6,619,786 6,630,856
Utilities 5,405,971 4,311,182 5,235,391
Administrative 4,134,706 3,318,271 2,828,149
Management fees (Note 5) 2,867,192 2,266,286 1,610,781
----------- ---------- ----------
Total certain expenses 47,587,381 36,985,667 37,003,661
----------- ---------- ----------
REVENUE IN EXCESS OF CERTAIN
OPERATING EXPENSES $48,658,205 $36,382,541 $39,267,346
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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THE MERCHANDISE MART GROUP OF PROPERTIES
NOTES TO STATEMENTS OF REVENUE AND CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
1. ORGANIZATION
The accompanying statement includes the accounts of the properties known as
"The Merchandise Mart" owned by Merchandise Mart Owners, L.L.C. ("MMOL"),
"The Apparel Center" owned by World Trade Center Chicago, L.L.C. ("WTCC"),
"The Washington Office Center" of which the building is owned by WDC
Associates Limited Partnerships ("WDCLP"), and the land is owned by Fourth
and D Street Partners Limited Partnership ("FDS"), and "The Washington Design
Center", of which the building is owned by Washington Design Center Limited
Liability Company ("WDCLLC") and the land is owned by FDS (80.5714% interest)
and Virginia Avenue Limited Partnership ("VALP") (19.4286% interest)
(collectively referred to as the "Properties"). All of these properties are
owned by the various interests of the Joseph P. Kennedy family, and all of
these properties are being sold to Vornado Realty Trust.
A breakdown of the occupied space of the Properties as of December 31, 1996
is as follows:
PERCENT SQUARE FOOTAGE 1996
---------------------------------------------
MMOL WTCC WDCLP WDCLLC
----- ------ ------- ------
Office/Retail 39% 50% 100% 6%
Home furnishing 23 - - 82
Contract furnishings 17 - - 12
Gift 14 - - -
Apparel - 50 - -
Market Suites 5 - - -
Building products 2 - - -
----- ------ ------- ------
100% 100% 100% 100%
2. BASIS OF PRESENTATION
The combined statement of revenue and certain operating expenses for the year
ended December 31, 1996 and the nine months ended September 30, 1996 and 1997
relates to the operations of the Properties. The accompanying financial
statement excludes certain expenses, such as interest, depreciation and
amortization, professional fees, revenue and expenses related to land held
for development which is not being sold to Vornado Realty Trust, and other
costs not directly related to the operations of the Properties, in accordance
with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission.
Management is
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not aware of any material factors relating to the Properties which would
cause the reported financial information not to be necessarily indicative of
future operating results.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. BASIS OF REPORTING-The financial statement is presented on the accrual
basis of accounting.
b. RENTAL REVENUE-Rentals from tenants with scheduled rent increases and
rent abatements are recognized as revenue on a straight-line basis over
the respective lease term.
c. 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 reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
4. HOTEL LEASE
WTCC is a party to a lease with a hotel operator whereby the operator, at its
own expense, constructed a hotel atop The Apparel Center. The lease, which
has a term of 65 years commencing January, 1977, provides for an annual base
rental of $159,600, additional rent payable based on hotel revenue, as
defined, and an allocation of certain real estate taxes, rehabilitation and
maintenance costs.
5. TRANSACTIONS WITH AFFILIATES
Merchandise Mart Properties, Inc. (Delaware) ("MMPI-(Del.)"), which is owned
by certain of the owners of the Properties, owns Merchandise Mart Properties,
Inc. ("MMPI"). As a convenience, certain amounts are disbursed or collected
by one entity on behalf of another.
a. The Properties reimburse MMPI for certain payroll-related expenses
incurred on behalf of The Properties.
b. The Properties paid MMPI management fees of $2,780,526 during 1996. Fees
are calculated using various percentages of gross revenues as adjusted for
uncollectible accounts and as summarized below:
<TABLE>
<S> <C>
APPLICABLE
TYPE OF REVENUE PERCENTAGE
--------------------------------- ----------------
Showroom (Chicago) 3.0%
Showroom (Washington D.C.) 2.0%
Office, retail, exposition, hotel
parking and tenant services 1.5%
</TABLE>
During 1996, MMPI became a tenant of MMOL. MMPI is master leasing the entire
8th floor for the development and operation of the new market suite
showrooms.
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The space consists of 163,133 rentable square feet. The lease period
commenced June 1, 1996 through December 31, 2006, a term of 10 years, 7
months. MMPI shall pay to MMOL a monthly amount equal to the base rent, as
defined. MMPI paid MMOL $1,141,931 during 1996.
Mart Franchise Center, Inc., a subsidiary of MMPI, doing business as
Franchising and Licensing World Center ("FLWC"), Inc., is currently master
leasing 35,498 rentable square feet located on the 2nd floor of MMOL. The
FLWC is a permanent exhibition/sales facility for the franchising and
licensing industries as well as provides related support services. The lease
period commenced January 1, 1996, and continues through March 31, 2016, a
term of 20 years, 3 months. FLWC's monthly base rent is equal to $64,333 as
required by the lease. FLWC's base rent under the terms and conditions within
the lease was abated for a term of eleven (11) months effective January 1,
1996 through November 30, 1996.
6. FUTURE MINIMUM RENTALS UNDER TENANT LEASES
The Properties lease showroom, office and retail space under noncancellable
operating leases with terms ranging from 1 to 15 years. Future minimum
rentals to be received as of December 31, 1996, are summarized as follows:
<TABLE>
<S> <C>
Year ending December 31-
1997 $ 81,415,000
1998 76,822,000
1999 72,647,000
2000 61,575,000
2001 48,326,000
Future years 200,861,000
------------
Total future minimum rentals $541,646,000
------------
</TABLE>
7. PROPERTY DAMAGE INSURANCE
Property damage insurance for the Apparel Center and the Merchandise Mart is
written on a combined, agreed amount basis. The combined, agreed amount
exceeds the replacement value of the Apparel Center. However, based on
management's evaluation, the combined replacement value of the Apparel Center
and the Merchandise Mart structures and other personal property exceeds the
insured coverage.
8. SALE OF EQUIPMENT
On December 31, 1996, pursuant to the Asset Purchase Agreement, MMOL sold and
transferred to Unicom Thermal Technologies, Inc. ("UTT") certain fixtures and
equipment to be used by UTT in the production of chilled water.
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The purchase price for the fixtures and equipment was, in the aggregate,
$7,680,000. Payment of the purchase price is divided into three equal
installments of $2,560,000. The first installment was received by MMOL on
December 31, 1996. The second installment was received on December 30, 1997
and the third installments is due on December 31, 1998.
Contemporaneously with the sale of fixtures and equipment, MMOL and UTT
entered into a lease, pursuant to which MMOL will lease certain space to UTT
in The Merchandise Mart and a chilled water service agreement by which UTT
will provide The Merchandise Mart with chilled water.
Pursuant to the chilled water service agreement UTT agreed to meet MMOL's
cooling needs in the building up to the contract capacity on the terms and
subject to the conditions set forth within the chilled water service
agreement. MMOL is obligated to pay UTT the contract capacity charge equal
to $90,735 usage charge or any other charges every month with respect to
service during the term of this agreement.
The commencement date was January 1, 1997. The term of this agreement is for
twenty (20) years subject to early termination or extension as provided for
within the agreement, as defined. Simultaneously MMOL and UTT entered into a
lease agreement. The lease term is the same as specifically provided in the
chilled water service agreement. Commencing on January 1, 2002 (the rent
commencement date) UTT shall pay to MMOL an annual base rent equal to
$155,000, payable in equal monthly installments. The base rent shall be
adjusted on an annual basis in accordance with the escalation provision, as
defined.
UTT is obligated to pay all costs of the operation of UTT's business in the
building, including utility charges. Following the expiration or termination
of the chilled water service agreement, certain fixtures and equipment
purchased by UTT pursuant to the asset purchase agreement are required to be
returned to MMOL.
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PRO FORMA FINANCIAL INFORMATION:
The unaudited condensed consolidated pro forma financial information
attached presents: (A) the condensed consolidated pro forma income statements of
Vornado Realty L.P. (the "Operating Partnership") for the year ended December
31, 1996 and the nine months ended September 30, 1997, as if (i) the proposed
acquisition of The Merchandise Mart Group of Properties ("New Acquisition"),
(ii) the previously reported proposed and completed acquisitions and investments
(Mendik Company, 90 Park Avenue, Arbor Property Trust, Americold and URS
(collectively "Cold Storage"), Montehiedra, Riese, Charles E. Smith Commercial
Realty L.P., The Hotel Pennsylvania, 640 Fifth Avenue, One Penn Plaza and 150
East 58th Street) and (iii) the sale of common shares by Vornado Realty Trust
("Vornado") and the use of proceeds therefrom, had occurred on January 1, 1996
and (B) the condensed consolidated pro forma balance sheet of the Operating
Partnership as of September 30, 1997, as if the above acquisitions had occurred
on September 30, 1997 or the date of acquisition, if earlier. The Pro Forma data
also includes information updated through September 30, 1997 for certain
previously reported acquisitions which were disclosed in Form 8-K's previously
filed with the Securities and Exchange Commission in 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 these transactions been
consummated 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 September 30, 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 Annual Report on Form 10-K for the year
ended December 31, 1996, as amended, and the Operating Partnership's Quarterly
Report on Form 10-Q for the period ended September 30, 1997 and the Combined
Statements of Revenues and Certain Operating Expenses of The Merchandise Mart
Group of Properties included herein. In management's opinion, all adjustments
necessary to reflect these transactions have been made. All unit and per unit
amounts have been restated to reflect the 2 for 1 split of the Operating
Partnership units, announced on October 7, 1997.
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CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------- PREVIOUSLY PRO FORMA
PREVIOUSLY REPORTED PREVIOUSLY ADJUSTMENTS
OPERATING REPORTED PRO FORMA REPORTED NEW TOTAL
PARTNERSHIP ACQUISITIONS ADJUSTMENTS PRO FORMA ACQUISITION PRO FORMA
------------- ------------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Real estate, net $ 1,054,714 $ 140,823 $ 127,334 (A) $1,900,570 $ 597,000 (CCC) $ 2,497,570
(14,301) (A)
410,000 (SS)
118,000 (TT)
64,000 (TT)
Cash and cash equivalents 117,215 24,740 (B) 49,955 49,955
(92,000) (TT)
Investment in and advances to
Cold Storage 204,000 (B) 204,000 204,000
Investment in and advances to
Alexander's, Inc. 107,446 107,446 107,446
Investment in partnerships and
joint ventures 58,177 60,000 (B) 118,177 118,177
Investment in and advances to
management companies 13,250 13,250 28,000 (CCC) 41,250
Officer's deferred compensation
expense 4,170 4,170 4,170
Mortgage loans receivable 84,663 84,663 84,663
Receivable arising from straight-
lining of rents 21,999 21,999 21,999
Other assets 86,272 10,626 (2,554) (C) 94,344 94,344
------------- ------------- ---------- ---------- ----------- -----------
$ 1,547,906 $ 151,449 $ 899,219 $2,598,574 $ 625,000 $ 3,223,574
============= ============= ========== ========== =========== ===========
LIABILITIES:
Notes and mortgages payable $ 768,556 $ 124,879 $ (310,000) (B) $ 993,435 $ 50,000 (CCC) $ 1,508,435
410,000 (SS) 465,000 (CCC)
Deferred leasing fee income 10,461 10,461 10,461
Officer's deferred compensation
payable 25,000 25,000 25,000
Other liabilities 30,576 12,269 42,845 42,845
------------- ------------- ----------- ---------- ------------ ------------
834,593 137,148 100,000 1,071,741 515,000 1,586,741
------------- ------------- ----------- ---------- ------------ ------------
PARTNERS' EQUITY: 713,313 14,301 127,334 (A) 1,526,833 98,000 (CCC) 1,636,833
(14,301) (A) 12,000 (CCC)
(2,554) (C)
90,000 (TT)
598,740 (B)
------------- ------------- ---------- ---------- ----------- -----------
$ 1,547,906 $ 151,449 $ 899,219 $2,598,574 $ 625,000 $ 3,223,574
============= ============= ========== ========== =========== ===========
</TABLE>
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CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
PREVIOUSLY PREVIOUSLY HISTORICAL
OPERATING REPORTED PRO FORMA REPORTED NEW PRO FORMA TOTAL
PARTNERSHIP ACQUISITIONS(1) ADJUSTMENTS PRO FORMA ACQUISITION ADJUSTMENTS PRO FORMA
----------- ------------ ----------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Property rentals $ 113,353 $ 119,121 $ 1,775 (D) $ 237,399 $ 74,315 $ 1,922 (DDD) $313,636
1,093 (GG)
2,057 (V V)
Expense reimbursements 25,924 26,010 51,934 51,934
Other income 2,550 10,024 (2,622)(E) 9,952 1,956 11,908
----------- --------- -------- ---------- --------- -------- --------
141,827 155,155 2,303 299,285 76,271 1,922 377,478
----------- --------- -------- ---------- --------- -------- --------
EXPENSES:
Operating 48,557 72,281 - (XX) 120,838 37,004 (1,611)(EEE) 156,231
Depreciation and amortization 15,040 7,908 368 (F) 37,101 8,900 (FFF) 46,001
1,956 (G)
588 (HH)
11,241 (UU)
General and administrative 8,208 3,838 (1,607)(E) 9,285 9,285
(1,154)(H)
Amortization of officer's
deferred compensation expense 18,747 18,747 18,747
----------- --------- -------- ---------- --------- -------- --------
90,552 84,027 11,392 185,971 37,004 7,289 230,264
----------- --------- -------- ---------- --------- -------- --------
Operating income (loss) 51,275 71,128 (9,089) 113,314 39,267 (5,367) 147,214
(Loss) income applicable to
Preferred Stock Affiliates (6,270)(CC) 4,162 4,162
10,432 (DD)
Income applicable to Alexander's 4,186 4,186 4,186
Equity in net income of
management companies 918 964 (E) 1,882 1,882
Equity in net income of investees 553 362 276 (I) 3,575 3,575
2,384 (II)
Interest income on mortgage
notes receivable 7,708 (4,586)(J) 5,121 5,121
1,999 (JJ)
Interest and dividend income 9,125 899 10,024 10,024
Interest and debt expense (30,972) (15,671) 4,537 (K) (55,272) (26,766)(GGG) (82,038)
(4,410)(L)
884 (M)
(3,997)(KK)
15,113 (LL)
(20,756)(WW)
Net gain on marketable securities 911 911 911
----------- --------- -------- ---------- --------- -------- --------
Net income (loss) 43,704 56,718 (12,519) 87,903 39,267 (32,133) 95,037
Preferred unit distributions (10,096) (5,137)(O) (15,233) (4,410)(LLL) (19,643)
Preferred allocations (4,600) (3,084)(N) (7,684) (7,684)
----------- --------- -------- ---------- --------- -------- --------
Net income (loss) applicable to
Class A units $ 29,008 $ 56,718 $(20,740) $ 64,986 $ 39,267 $(36,543) $ 67,710
=========== ========= ======== ========== ========= ======== ========
Net income per Class A unit,
based on 53,627,027 and
73,024,410 Class A units and
Class A unit equivalents,
respectively $ 0.54 $ 0.93
=========== ========
</TABLE>
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CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
PREVIOUSLY PREVIOUSLY HISTORICAL
OPERATING REPORTED PRO FORMA REPORTED NEW PRO FORMA TOTAL
PARTNERSHIP ACQUISITIONS (1) ADJUSTMENTS PRO FORMA ACQUISITION ADJUSTMENTS PRO FORMA
----------- ---------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations (2):
Net income (loss) applicable
to Class A units $ 29,008 $ 56,718 $ (20,740) $ 64,986 $ 39,267 $ (36,543) $ 67,710
Depreciation and amortization
of real property 14,623 5,807 14,153 34,583 8,900 43,483
Straight-lining of property
rent escalations (2,317) (2,050) (3,832) (8,199) (2,319) (1,922) (12,440)
Leasing fees received in
excess of income recognized 1,333 1,333 1,333
Proportionate share of
adjustments to income from
equity investments to arrive
at FFO 1,142 832 28,089 30,063 30,063
Non-recurring lease
cancellation income and
write-off of related costs (11,581) (11,581) (11,581)
--------- -------- --------- ----------- -------- --------- -----------
$ 43,789 $ 49,726 $ 17,670 $ 111,185 $ 36,948 $ (29,565) $ 118,568
========= ======== ========= =========== ======== ========= ===========
CASH FLOW PROVIDED BY (USED) IN:
Operating activities $ 64,017 $ 41,294 $ 13,607 $ 118,918 $ 33,948 $ (29,565) $ 123,301
Investing activities $(670,755) $ (5,732) $(871,630) $(1,548,117) $ -- $(625,000) $(2,173,117)
Financing activities $ 575,409 $ (9,235) $ 794,113 $ 1,360,287 $ -- $ 625,000 $ 1,985,287
</TABLE>
- -------------------------------------
(1) Certain revenue and expense items have been reclassified to conform to
the Operating Partnership's presentation.
(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 Operating Partnership 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
Operating Partnership'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.
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CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------
PREVIOUSLY PREVIOUSLY HISTORICAL
OPERATING REPORTED PRO FORMA REPORTED NEW PRO FORMA
PARTNERSHIP ACQUISITIONS (1) ADJUSTMENTS PRO FORMA ACQUISITION ADJUSTMENTS
----------- ----------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Property rentals $ 87,424 $ 208,105 $ 7,071 (P) $307,608 $ 93,960 $ 1,600 (HHH)
(44)(Q)
2,186 (MM)
2,866 (ZZ)
Expense reimbursements 26,644 44,911 71,555
Other income 2,819 14,463 (5,378)(Q) 11,904 2,285
--------- ----------------- -------- -------- ----------- --------
116,887 267,479 6,701 391,067 96,245 1,600
--------- ----------------- -------- -------- ----------- --------
EXPENSES:
Operating 36,412 128,618 (39)(Q) 165,107 47,587 (2,867)(III)
116 (R)
-- (BBB)
Depreciation and amortization 11,589 18,515 (144)(Q) 60,076 11,867 (JJJ)
9,981 (S)
3,276 (T)
1,872 (NN)
14,987 (YY)
General and administrative 5,167 8,956 (3,788)(Q) 8,162
(2,173)(U)
Amortization of officer's
deferred compensation expense 2,083 2,083
--------- ----------------- -------- -------- ----------- --------
55,251 156,089 24,088 235,428 47,587 9,000
--------- ----------------- -------- -------- ----------- --------
Operating income (loss) 61,636 111,390 (17,387) 155,639 48,658 (7,400)
(Loss) income applicable to
Preferred Stock Affiliates (8,357)(EE) 5,552
13,909 (FF)
Income applicable to Alexander's 7,956 7,956
Equity in net income of
management companies 1,855 1,471 (Q) 3,326
Equity in net income of investees 1,663 1,755 (V) 5,609
2,191 (OO)
Interest income on mortgage
notes receivable 2,579 3,998 (PP) 6,577
Interest and dividend income 3,151 2,536 (20)(Q) 5,667
Interest and debt expense (16,726) (34,692) 9,016 (W) (71,537) (35,688)(KKK)
(12,775)(X)
1,237 (Y)
(10,072)(QQ)
20,150 (RR)
(27,675)(AAA)
Net gain on marketable
securities 913 913
--------- ----------------- -------- -------- ----------- --------
Net income (loss) 61,364 80,897 (22,559) 119,702 48,658 (43,088)(MMM)
Preferred unit distributions (19,800)(AA) (19,800) (5,880)
Preferential allocations (10,372)(Z) (10,372)
--------- ----------------- -------- -------- ----------- --------
Net income (loss) applicable
to Class A units $ 61,364 $ 80,897 $(52,731) $ 89,530 $ 48,658 $(48,968)
========= ================= ======== ======== =========== ========
Net income per Class A units,
based on 49,206,884 and
68,604,267 Class A units
and Class A unit
equivalents, respectively $ 1.25
=========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PRO FORMA
---------
<S> <C>
REVENUES:
Property rentals $ 403,168
Expense reimbursements 71,555
Other income 14,189
---------
488,912
---------
EXPENSES:
Operating 209,827
Depreciation and amortization 71,943
General and administrative 8,162
Amortization of officer's
deferred compensation expense 2,083
---------
292,015
---------
Operating income (loss) 196,897
(Loss) income applicable to
Preferred Stock Affiliates 5,552
Income applicable to Alexander's 7,956
Equity in net income of
management companies 3,326
Equity in net income of investees 5,609
Interest income on mortgage
notes receivable 6,577
Interest and dividend income 5,667
Interest and debt expense (107,225)
Net gain on marketable
securities 913
---------
Net income (loss) 125,272
Preferred unit distributions (25,680)
Preferential allocations (10,372)
---------
Net income (loss) applicable
to Class A units $ 89,220
=========
Net income per Class A units,
based on 49,206,884 and
68,604,267 Class A units
and Class A unit
equivalents, respectively $ 1.30
=========
</TABLE>
Page 14
<PAGE> 15
CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
PREVIOUSLY PREVIOUSLY HISTORICAL
OPERATING REPORTED PRO FORMA REPORTED NEW PRO FORMA TOTAL
PARTNERSHIP ACQUISITIONS(1) ADJUSTMENTS PRO FORMA ACQUISITION ADJUSTMENTS PRO FORMA
----------- ------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DEBTS:
Funds from Operations (2):
Net income (loss) applicable
to Class A units $ 61,364 $ 80,897 $ (52,731) $ 89,530 $48,658 $ (48,968) $ 89,220
Depreciation and amortization
of real property 10,583 18,515 29,972 59,070 11,867 70,937
Straight-lining of property
rent escalations (2,676) (4,348) (9,937) (16,961) (5,376) (1,600) (23,937)
Leasing fees received in excess
of income recognized 1,805 1,805 1,805
Proportionate share of
adjustments to income from
equity investments to arrive
at FFO (1,760) 2,747 35,445 36,432 36,432
========= ========== ============ =========== ======= ========= ===========
$ 69,316 $ 97,811 $ 2,749 $ 169,876 $43,282 $ (38,701) $ 174,457
========= ========== ============ =========== ======= ========= ===========
CASH FLOW PROVIDED BY (USED) IN:
Operating activities $ 70,703 $ 87,735 $ 33,510 $ 191,948 $43,282 $ (38,701) $ 196,529
Investing activities $ 14,912 $ (8,930) $(1,543,148) $(1,537,166) $ -- $(625,000) $(2,162,166)
Financing activities $ (15,046) $(20,031) $ 1,369,165 $ 1,334,088 $ -- $ 625,000 $ 1,959,088
</TABLE>
- ----------------------------------
(1) Certain revenue and expense items have been reclassified to conform to
the Operating Partnership's presentation.
(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 Operating Partnership 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
Operating Partnership'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.
Page 15
<PAGE> 16
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NEW ACQUISITION (THE MERCHANDISE MART GROUP OF PROPERTIES):
The acquisition of The Merchandise Mart Group of Properties will be
recorded under "purchase accounting". The total purchase price is comprised of :
<TABLE>
<S> <C>
Issuance of 299 Vornado Realty L.P.
Class A units $ 12,000
Issuance of 1,960 Vornado Realty L.P.
Convertible Series B Preferred units 98,000
Debt:
Assumed 50,000
Borrowings 465,000
==========
$ 625,000
==========
</TABLE>
The purchase cost of $625,000 has been allocated in the pro forma financial
statements as follows:
<TABLE>
<S> <C>
Real estate $ 597,000
Investment Management Companies 28,000
==========
$ 625,000
==========
</TABLE>
Pro Forma September 30, 1997 Balance Sheet:
(CCC) To reflect the acquisition of The Merchandise Mart Group of Properties
through the issuance of 299 Class A units ($12,000), issuance of 1,960
Series B Preferred units ($98,000), assumption of existing property debt
($50,000), borrowings ($465,000) and investment in Management Company.
Pro Forma September 30, 1997 Income Statement:
(DDD) To adjust rentals for the nine month period ended September 30, 1997
arising from the straight-lining of tenant leases that contain
escalations over the lease term.
(EEE) To record equity in Management Company equal to management fees charged
to properties.
(FFF) Adjustment to depreciation expense for the nine month period ended
September 30, 1997 for the acquisition of The Merchandise Mart Group of
Properties.
(GGG) To accrue interest on (i) borrowings of $465,000 to finance the cash
portion of the acquisition of The Merchandise Mart Group of Properties at
6.75% (the current rate in effect) and (ii) debt assumed of $50,000 at
8.6%.
(LLL) To reflect preferred dividend of 6%.
Pro Forma December 31, 1996 Income Statement:
(HHH) To adjust rentals for the year ended December 31, 1996 arising from the
straight-lining of tenant leases that contain escalations over the lease
term.
(III) To record equity in Management Company equal to management fees charged
to properties.
(JJJ) Adjustment to depreciation expense for the year ended December 31, 1996
for the acquisition of The Merchandise Mart Group of Properties.
(KKK) To accrue interest on (i) borrowings of $465,000 to finance the cash
portion of the acquisition of The Merchandise Mart Group of Properties at
6.75% (the current rate in effect) and (ii) debt assumed of $50,000 at
8.6%.
(MMM) To reflect preferred dividend of 6%.
PREVIOUSLY REPORTED ACQUISITIONS (MENDIK COMPANIES, 90 PARK AVENUE, ARBOR
PROPERTY TRUST, AMERICOLD, URS, MONTEHIEDRA, RIESE, CHARLES E. SMITH
COMMERCIAL REALTY, L.P., THE HOTEL PENNSYLVANIA, ONE PENN PLAZA, 150 EAST
58TH STREET AND 640 FIFTH AVENUE)
Pro forma effect has been given to the above listed acquisitions in
previously filed Form 8-K's during 1997 and is included in this document in a
combined manner as "Previously Reported Acquisitions" for the historical
information.
Pro Forma September 30, 1997 Balance Sheet:
(A) Assumed issuance of 2,998,304 common shares by Vornado, with a fair value
of $127,334 (based on an average price of $42.469 per share), in exchange
for all of the common shares of Arbor.
(B) To reflect the use of $598,740 of proceeds, net of $35,754 of offering
costs, from the issuance of 14,100 common shares by Vornado for (i)
$204,000 loan in connection with Cold Storage acquisition, (ii) $60,000
Charles E. Smith Realty Limited Partnership, and (iii) $310,000 reduction
in debt. The remaining balance of $24,740 is reflected in cash and
Page 16
<PAGE> 17
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
cash equivalents.
(C) Write-off of deferred assets of Arbor as reflected in the values
allocated to the real estate and the debt in accordance with APB No. 16.
(SS) To reflect the acquisition of One Penn Plaza with borrowings from the
Operating Partnership's revolving credit facility.
(TT) To reflect the use of $90 million of proceeds from the issuance of 2.1
million common shares by Vornado (exercise of over-allotment option by
underwriters in November, 1997), net of expenses, and $92 million of
existing cash for (i) the acquisition of 640 Fifth Avenue ($64 million)
and (ii) 150 East 58th Street ($118 million).
Pro Forma September 30, 1997 Income Statement:
(D) To adjust rentals for the period from January 1, 1997 to April 14, 1997
arising from the straight-lining of property rentals for rent escalations
based on the remaining terms of the applicable Mendik leases.
(E) To reflect adjustments required to record the Operating Partnership's
investment in the Mendik management company for the period from January
1, 1997 to April 14, 1997 under the equity method of accounting.
(F) Increase in depreciation for the period from January 1, 1997 to April 14,
1997 due to allocation of the Mendik purchase price.
(G) Adjustment to depreciation based on allocation of the Arbor purchase
price and the reclassification of the 90 Park Avenue investment to real
estate.
(H) Reflects the elimination of Arbor management expenses in connection with
the acquisition.
(I) Increase in equity in investees for the period from January 1, 1997 to
April 14, 1997 due to net decrease in interest expense on refinanced
Mendik debt.
(J) Elimination of interest income earned on mortgage loan receivable from 90
Park Avenue for the period prior to the Operating Partnership's
acquisition of title to the land.
(K) Reflects decrease in interest expense and loan cost amortization for the
period from January 1, 1997 to April 14, 1997 resulting from the
reduction and refinancing of Mendik debt.
(L) Reflects interest expense of $4,410 for the period from January 1, 1997
to May 6, 1997 on the 90 Park Avenue investment of $185,000, based on an
average interest rate of approximately 7.0%.
(M) Reflects elimination of amortization of deferred financing costs of $884
for the nine months ended September 30, 1997 on existing Arbor debt.
(N) To reflect preferential distributions for the period from January 1, 1997
to April 14, 1997 relating to the Mendik Transaction.
(O) To reflect preferred stock dividends at a rate of 6.50% plus offering
costs for the period from January 1, 1997 to April 14, 1997 on the
proportionate number of Series A Preferred Shares used to fund the
Mendik acquisition.
(CC) To reflect the Operating Partnership's share of net loss per the Cold
Storage Condensed Consolidated Pro Forma Income Statement for the Nine
Months Ended September 30, 1997.
(DD) To reflect the Operating Partnership's share of the management fee income
received from Cold Storage.
(GG) To reflect rent from new leases entered into with the Riese organization
in connection with the acquisition.
(HH) Adjustment to depreciation expense for the period from January 1, 1997 to
date of Riese and Montehiedra acquisitions based on the allocation of the
purchase price.
(II) To reflect equity in income from investment in Charles E. Smith
Commercial Realty Limited Partnership and the Hotel Pennsylvania.
(JJ) Adjustment to interest income for the period from January 1, 1997 to the
date of the Riese acquisition on mortgage note receivable $41,000 at a
rate of 9.75%.
(KK) Adjustment to interest expense for the period from January 1, 1997 to
date of Riese and Montehiedra acquisitions based on the amount of the
investments.
(LL) To reflect reduction of interest expense based on reduction of debt from
the use of proceeds from Vornado's common stock offering.
(UU) Adjustment to depreciation expense for the nine month period ended
September 30, 1997 for One Penn Plaza, 150 East 58th Street and
640 Fifth Avenue based upon their respective purchase price.
(VV) To adjust rentals for the nine month period ended September 30, 1997
arising from the straight-lining of tenant leases that contain
escalations over the lease term for One Penn Plaza, 150 East 58th Street
and 640 Fifth Avenue.
(WW) To accrue interest at 6.75%, the current rate in effect, on borrowings
under the Operating Partnership's revolving credit facility to finance
the One Penn Plaza acquisition.
(XX) The above pro formas reflect fees for property management services paid
to third parties. One Penn Plaza, 150 East 58th Street and 640 Fifth
Avenue will be managed internally subsequent to their acquisitions, by
the Mendik division. Management assumes significant cost savings can be
anticipated, however, amounts can not presently be determined.
Pro Forma December 31, 1996 Income Statement:
(P) To adjust rentals arising from the straight-lining of property rentals
for rent escalations based on the remaining terms of the applicable
Mendik leases.
(Q) To reflect adjustments required to record the Operating Partnership's
investment in the Mendik management company under the equity method of
accounting.
(R) Increase in Mendik operating expenses due to contract changes.
Page 17
<PAGE> 18
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(S) Increase in depreciation due to preliminary allocation of the Mendik
purchase price.
(T) Adjustment to depreciation based on allocation of the Arbor purchase
price and the reclassification of the 90 Park Avenue investment to real
estate.
(U) Reflects the elimination of Arbor management expenses in connection with
the acquisition.
(V) Increase in equity in investees, due to net decrease in interest expense
on refinanced Mendik debt.
(W) Reflects decrease in interest expense and loan cost amortization
resulting from the reduction and refinancing of the Mendik debt.
(X) Reflects interest expense on the 90 Park Avenue investment of $185,000,
based on an average interest rate of approximately 7.0%.
(Y) Reflects elimination of amortization of deferred financing costs on
existing Arbor debt.
(Z) To reflect preferential distributions relating to the Mendik Transaction.
(AA) To reflect preferred stock dividends 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 Mendik acquisition.
(EE) To reflect the Operating Partnership's share of net loss per the Cold
Storage Condensed Consolidated Pro Forma Income Statement for the Year
Ended December 31, 1996.
(FF) To reflect the Operating Partnership's share of the management fee income
received from Cold Storage.
(MM) To reflect rent from new leases entered into with the Riese organization
in connection with the acquisition.
(NN) Adjustment to depreciation expense for the Riese and Montehiedra
acquisitions based on the allocation of purchase price.
(OO) To reflect equity in income from investment in Charles E. Smith
Commercial Realty Limited Partnership and the Hotel Pennsylvania.
(PP) Adjustment to interest income on the mortgage note receivable with the
Riese organization of $41,000 at a rate of 9.75%.
(QQ) Adjustment to interest expense for the Riese and Montehiedra acquisitions
based on the amount of the investments.
(RR) To reflect reduction of interest expense based on reduction of debt from
the use of proceeds from Vornado's common stock offering.
(YY) Adjustment to depreciation expense for the year ended December 31, 1996
for One Penn Plaza, 150 East 58th Street and 640 Fifth Avenue based upon
their respective purchase price.
(ZZ) To adjust rentals for the year ended December 31, 1996 arising from the
straight-lining of tenant leases that contain escalations over the lease
term for One Penn Plaza, 150 East 58th Street and 640 Fifth Avenue.
(AAA) To accrue interest at 6.75%, the current rate in effect, on borrowings
under the Operating Partnership's revolving credit facility to finance
the One Penn Plaza acquisition.
(BBB) The above pro formas reflect fees for property management services paid
to third parties. One Penn Plaza, 150 East 58th Street and 640 Fifth
Avenue will be managed internally subsequent to their acquisitions, by
the Mendik division. Management assumes significant cost savings can be
anticipated, however, amounts can not presently be determined.
Page 18
<PAGE> 19
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)
Date: February 6, 1998 /s/ Irwin Goldberg
----------------------------
IRWIN GOLDBERG
Vice President,
Chief Financial Officer
Page 19
